Equifax, Inc.

Good day and welcome to the Equifax second quarter 2020 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jeff Dodge. Please go ahead.

Thanks and good morning, everyone. Welcome to today's conference call. I'm Jeff Dodge, and with me today are Mark Begor, Chief Executive Officer, John Gamble, Chief Financial Officer, and Trevor Burns with Investor Relations. Today's call is being recorded. An archived recording will be available later today in the Investor Relations section in the About Equifax tab of our website at www.equifax.com. During the call today, we will be making reference to certain materials that can also be found in the Investor Relations section of our website under Earnings Calls, Presentations, and Webcast. These materials are labeled Q2 2020 Earnings Release Presentation. During this call, we will be making certain forward-looking statements to help you understand Equifax and its business environment. These statements involve a number of 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 the filings with the SEC, including our 2019 Form 10-K and subsequent filings. Also, we will be referring to certain non-GAAP financial measures, including adjusted EPS, attributable to Equifax, and adjusted EBITDA, which will be adjusted for certain items that affect the comparability of our underlying operational performance. 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, Jeff, and good morning, everyone. Thanks for joining our second quarter earnings update. Businesses constricting consumers around the world continue to face challenges brought on by the COVID-19 pandemic. I hope you and your families are continuing to be safe and managing in this unusual environment. We'd like to once again thank the dedicated and selfless healthcare professionals, first responders, volunteers, and others around the world who are on the front line fighting this pandemic, and we sympathize with the millions of people in the U.S. and around the world that have been affected. The health impact of the COVID pandemic is devastating, but what is equally challenging to our customers is the unprecedented impact from the COVID pandemic that is unlike anything in our lifetimes with record unemployment, furloughs, and salary reductions. Data and analytics in this environment is more valuable than ever. During the second quarter, we operated very effectively in a work-from-home mode after COVID restrictions were put in place in late March. After shelter-in-place orders started to lift in early June, we opened up offices in markets like Atlanta and began to return to office on a 50% density and red-blue team rotational basis. Currently, we have 34 of 51 offices open and are operating in that mode. We expect to stay in the 50% density and in our red-blue rotational mode until a vaccine is available. We are operating at a very high level and have realized meaningful productivity and engagement with customers and across our Equifax team through video collaboration, including meeting all of our cloud technology, and data transformation milestones. Turning now to slide four, our financial results for the second quarter were very strong in our second consecutive quarter of double-digit revenue growth and margin expansion driven by workforce solutions, the U.S. mortgage market, and our positive performance in the marketplace. The results follow our momentum in the second half of 2019 and the strong first quarter and were well above our expectations. Our performance in the challenging COVID economic environment reflects the strength and resiliency of our business model, our differentiated data assets, including the twin income and employment data, telco utility and commercial data, and the value of data analytics in these unprecedented times. Revenue at $983 million was up 12% on a reported basis and 13% on a local and organic local currency basis, which is well above our expectations today. and above the framework of 3.5% to 5.5% that we shared with you in early June. If you adjust for the $48 million of incremental workforce solutions unemployment claims revenue in the quarter, our revenue increased a strong 8% in local currency. As the quarter unfolded in June, our revenue on all funds continued to improve from the trends we shared on the June 8th call as shelter-in-place orders lifted and economic activity improved. These strong results position us well as we move into third quarter in the second half. Our growth in the quarter was powered by our U.S. B2B businesses, USIS and Workforce Solutions. They both performed extremely well with combined U.S. revenue of 28% and a combined adjusted EBITDA margins of over 50%. Workforce Solutions revenue was exceptionally strong at about 53% and EBITDA margins were 56%. which was their strongest quarterly result since the acquisition almost 13 years ago and followed a strong first quarter in the second half of 2019. USIS revenue was up a strong 10%, which reinforced their return to a competitive market position. International revenue was down 15% in local currency, but continued to show broad-based sequential improvement throughout the quarter, and global consumer revenue was down just under 5%, principally in our U.S. partner business. Revenue growth throughout adjusted EBITDA at $353 million, up 19%, with an over 200 basis point expansion on our adjusted EBITDA margins to 35.9%, as we balance cost controls while executing our cloud data and technology transformation and making targeted investments in new products and data and analytics. Adjusted EPS of $1.60 a share was up over 14% despite incurring increased data analytics and incremental cloud costs of $0.12 per share and increased interest expense of $0.06 per share for our April bond offer. EBITDA and EPS were both above our expectations in the EPS framework of $1.22 to $1.32 we shared with you in early June. The very strong U.S. B2B revenue growth was driven principally by three factors. First, U.S. mortgage revenue was up over 70% versus 2019. It was extremely strong in the current record low interest rate environment as Equifax outperformed the overall mortgage market growth on the order of 30 percentage points, principally in workforce solutions. As you know, we over-indexed in mortgage versus our competitors due to workforce solutions in our U.S. tri-year mortgage business. U.S. mortgage market inquiries, our proxy for the overall mortgage market growth, were up 41% in second quarter versus our 70% combined growth in workforce solutions and USIS mortgage. Although USIS mortgage revenue growth of 44% grew 300 basis points above the mortgage market, the driver of the substantial outperformance versus the overall market was workforce solutions, where mortgage revenue more than doubled in the quarter, driven by the value of our unique twin income and employment data and new products, new customers, improved customer penetration, and the expansion of our twin database. We expect continued strong mortgage growth in the third quarter. Second, our unemployment insurance claims business, also part of Workforce Solutions, delivered more than 150% growth in the quarter to $76 million. Incremental revenue growth of $43 million in the quarter was driven by a significant increase in unemployment claims that we all know about during second quarter, which added five percentage points to overall Equifax revenue growth. As you know, Workforce Solutions processes close to one in five unemployment claims in the U.S. We expect unemployment claims to continue above 2019 levels in third quarter, but at a rate below the second quarter. Third, our U.S. B2B non-mortgage revenue, excluding unemployment insurance claims-based revenue, showed substantial improvement as we moved through the second quarter and was down only about 7%. Our U.S. B2B non-mortgage revenue, excluding U.S. UC claims impact, showed sequential improvements during the quarter from down 10% in April to down just 2% in June. As shelter-in-place restrictions were lifted, and economic activity improved, which reflects our competitive market position and provides good momentum going into third quarter. I'll provide more detail on these factors as we discuss each of our business units on slide five. Starting with USIS, their revenue was $366 million, was up 10% in the second quarter on a reported and organic basis, and their 12% first half revenue growth was their strongest since 2013. Mortgage revenue grew 44%, 300 basis points faster than the overall market inquiries that were up 41%, driven by new products, new customers, and pricing. Total mortgage revenue growth from both purchase and refi transactions strengthened significantly through the quarter, exiting June at over 60% above 2019. Total non-mortgage revenue, online and offline combined, decreased 7%, much better than expected when we entered the quarter at down 13% in April. And total non-mortgage revenue was down only 1% in June as economic activity improved sequentially during the quarter, which was above our expectation and a reflection of the USIS competitive position in the marketplace. For the quarter, online revenue was up 7%. Online non-mortgage revenue was down 10 in the quarter, but strengthened significantly during the second quarter, with June just down over 2% versus down 17% in April. In June, we had positive growth in auto, insurance, ID and fraud, and direct-to-consumer, with commercial declining high single digits as U.S. economic activity improved. Telco and banking were both down mid-single digits in June and showed improvement during the quarter, Banking remains down as customer marketing continues to be at a reduced level until the direction of the economy and the consumer becomes clearer. Mortgage Solutions, our mortgage and tri-year business, was up 44% in the quarter, outgrowing the market by 300 basis points from new products, new customers, and pricing. Financial Marketing Services revenue was up 1% compared to last year and better than our expectations. Risk decisioning, which includes portfolio review revenue and makes up over 30% of total financial marketing services, was up over 15% in second quarter as companies expanded their portfolio review activities. Marketing revenue, which also makes up about half of FMS in the quarter, was down just under 20%. The remainder of FMS, which includes our IBM collections products, was up over 25% in the quarter. These general trends are consistent with our expectations. However, portfolio review revenue was stronger than expected. We expect portfolio review activity to remain strong as customers manage challenging customer collections and take proactive portfolio management actions. We are also starting to see increased activity from customers for our marketing services as the quarter ended, although at much lower levels than in 2019. USIS is winning competitively and continues to accelerate commercial activity, and their new deal pipeline remains strong. USIS's new deal pipeline opportunities as of the end of June was at their largest level since 2017, up almost 10% over last year. Equally positive, USIS's win rates in the quarter were up over 300 basis points from last year. USIS's new deal pipeline growth and win rates were both both above our expectations and reflects Fidsing's commercial focus and leadership as USIS returns to market competitiveness. USIS's adjusted EBITDA margins of 44.1% were down 150 basis points from last year and down 60 basis points sequentially. The decline is principally driven by the higher mix of lower margin mortgage revenue and resulting higher royalty costs and data purchases than with our non-mortgage online revenue. USIS also continued to invest in commercial resources and MPI resources during the quarter for future growth. Following USIS's commercial momentum in the second half of 2019 and strong above-expectation results in first and second quarter, we are confident that Sid Singh's leadership has moved USIS back into a competitive position in the U.S. market. Shifting to workforce solutions, they had another exceptional quarter with revenue of $353 million, up 53%. This was the strongest revenue growth since we acquired Toxin 2007. EWS results were up a strong 33%, excluding the $48 million of incremental UC claims revenue in the quarter. Trailing 12-month revenue was $1.15 billion, up 32%, with 49.6% EBITDA margins, up 350 basis points. Rudy Floder and his EWS team gave you a deep dive on our EWS business and growth outlook in early June. They continue to leverage core growth, new products, penetration, pricing, new verticals, and record additions to fuel their growth. EWS is on track to be well over a billion dollars of revenue in 2020 for the first time with 50% plus margins. Workforce Solutions is clearly our strongest business, particularly in this unprecedented consumer environment where twin income and employment data is immensely valuable. Verification services revenue of $252 million was up 46% versus 2019. Verification services mortgage revenue more than doubled in the quarter going more than 60 percentage points faster than the 41% growth we saw in the mortgage market credit inquiries in the quarter. This dramatic outperformance relative to the overall mortgage market is driven by the strategic and operational focus on new products, penetration, usage, and record additions that we discussed in our June investor call. As a reminder, the presentation from our June call is available on the Equifax website. Several growth levers are driving this outperformance of verification services mortgage revenue relative to the overall mortgage market, including growth in twin contributor and records. During the quarter, the number of companies contributing to the twin database increased substantially to over 900,000 from over 700,000 in March and 37,000 a year ago. As we expand into more mid and smaller market companies, Due to this growth in new contributors, Workforce Solutions was able to offset the negative impact on active twin records of increasing unemployment. Total active records were 105 million at the end of the quarter, with over 80 million unique individuals, which is just over 50% of the U.S. nonfarm payroll. Total active records were up over 15% from a year ago, but Flatwood marched through the impacts on the database from unemployment. The twin database now includes about 435 million active and inactive records, and as you know, we are able to monetize both active and inactive twin records. In addition to growth in employer contributors and overall twin records and a focus on adding new customers, several new critical strategies have been important components of driving the verification service mortgage revenue growth in excess of the overall mortgage market. First, Direct-to-consumer integrations with mortgage underwriters continues to grow with the work number integrated directly into our customers' underwriting processes. These integrations increase the usage of twin records and the frequency of twin polls in the mortgage origination, underwriting, and closing process, which drives twin verification revenue. Second, new products focus on increasing the number of times that twin income or employment verification is used during the mortgage application approval process. We share some of the new solutions we are bringing to the marketplace that drive twin usage and provide value to our customers with you and the June call. And many of these products have pricing that is two to four times our base twin pull cost. Number three, expanding real-time access to additional income sources to include the increasing number of people that work as individual contractors or 1099 self-employed consumers. to deepen and broaden the twin database beyond non-farm payroll. Shifting the verification services non-bortgage revenue growth, it was down less than 5% in second quarter and delivered 2% growth in June. The decline in the quarter was driven by substantial weakness in talent solutions, our hiring-related services business, where companies across the U.S. cut back on hiring during the quarter, and in debt management services where temporary reductions in collections activity were implemented by many companies. Partially offsetting this were new product rollouts in talent solutions, strength in government verticals related to government health care and support services, as well as the growth in records in the twin database. We also saw growth in the second quarter in auto through increased twin penetration with auto loan originators and increased use of twin with higher credit score applicants. We also saw growth in our twin ID product and in portfolio review product solutions, principally for card and personal loans, which we expect to continue to grow in the second half, given the unique value of income and employment data in the current environment. Employer services revenue of $101 million increased a strong 75% in the quarter, driven by our unemployment claims business, which grew over 150% versus last year to $76 million. Adjusting for the $48 million of incremental UC claims revenue in the quarter, employer service was down about 8% as companies cut back on hiring. As a reminder, our UC businesses manage the process of providing the required unemployment data to state and local agencies for employers. Our typical contract is an annual subscription with volume limits and incremental fees as UC claims are above those limits. We operate in all 50 states, Washington, D.C., Puerto Rico, and U.S. Virgin Islands. In the second quarter, Workforce Solutions processed about 7.5 million claims, which is roughly one in five initial U.S. claims during the second quarter. Claims spiked in April and May to about 5.8 million for a monthly run rate of 300,000 per month in the first quarter. In June, we saw a steady decline in new clients from the elevated April and May rates to 1.7 million claims processed for the month, which was still up dramatically over pre-COVID in 2019 levels. The remainder of employee services saw revenue decline 17% in second quarter because of lower new employee hiring activity in the quarter. I-9 and onboarding in our workforce analytics business make up the bulk of the remainder of employer services. We saw 9% growth in our I-9 and onboarding business, which partially offset the declines in workforce analytics and our tax services business. The strong EWS verifier revenue growth resulted in adjusted EBITDA margins of 56.3% in the quarter, which was a record for Workforce Solutions, and an expansion of 710 basis points versus last year. The strong margin growth was partially offset by incremental costs incurred in the quarter for new twin records. Workforce Solutions is clearly our most differentiated business with their unique twin income and employment records. The twin data assets are increasingly valuable in this COVID consumer environment where verification of income and employment is critical. As we discussed in June, we think about EWS being in the second or third inning with multiple growth levers for future growth in 2021 and beyond. International revenue of $181 million was down 15% in local currency and down 21% on a reported basis and in line with our expectations. COVID shelter-in-place orders have been deeper and longer in our international markets, with some markets, including Australia, the U.K., and Canada, still not open. This has impacted their revenue, but we've seen sequential revenue improvements from down 20% in April, improving to down 7% in June. Asia Pacific, which is our Australia, New Zealand, and India business, delivered second-quarter revenue of $65 million, down 9% in local and 10% in organic local currency, versus last year. The revenue growth was much stronger than the revenue trends at down 20% we experienced in April, as revenue trends continued to improve with June down 4%, adjusted for a large collections deal that closed late in the second quarter. In Australia, revenue growth in fraud and ID and collections partially offset declines in our consumer and marketing services businesses into a lesser degree in our commercial business. European revenues of $48 million were down 25% in local currency in the quarter. Our European credit business was down about 20%, with Spain performing slightly better than the U.K. In the U.K. credit business, revenue improved meaningfully during the quarter from down 27% in April, but they were still down 15% in June as the U.K. is still in a lockdown. Spain credit revenue also improved during the quarter from down 21% in April to but was still down 9% in June as shelter-in-place orders have just begun to be lifted a few weeks ago. Our European debt management business declined 34% in local currency as expected, principally driven by government-enacted policies that temporarily halted consumer debt collections. We expect debt collection activity to resume in the second half. Latin American revenues of $34 million decreased 14% in local currency in the quarter, Our two largest markets in Latin America, Chile and Argentina, make up over 50% of the revenue. Importantly, these two markets performed relatively well in the quarter, with Chile down 6% and Argentina down 10% in local currency compared to last year. April revenue declines for Chile and Argentina were elevated levels given COVID lockdowns. However, June revenue declines were in the low to mid-single digits. These markets continue to benefit from the expansion of Ignite and interconnect SaaS customer rollouts and strong new product introductions in those past three years. Most of our other Latin American markets were down over 20% consistently through the quarter from the economic impact of the strong COVID lockdowns in those markets. Canada revenue of $33 million declined 13% in local currency in the second quarter. Revenue improved from a decline of about 25% in April to down only about 1% in June as economic activity improved but shelter-in-place orders still have not been fully lifted in many parts of Canada. Fraud and ID revenue grew in the second quarter from higher government volumes associated with increased applications for government social services, and we saw growth in June revenue in our mortgage, auto, and small business verticals in Canada. International adjusted stock margins of 21.7% were down 690 basis points from last year, principally reflecting the lower revenue across all regions, partially offset by cost savings achieved during the quarter. Global consumer solutions revenue was down 5% on a reported and local currency basis in the quarter. Our global consumer direct business, which is just under half of our GCS business, was down about 3%. Our U.S. consumer direct business had revenue decline of about 5% versus 2019, but increased sequentially from the first quarter by about 200 basis points. Canada and the U.K. combined consumer direct revenue was about flat in the quarter. Importantly, we are seeing substantial subscriber growth in the U.S. and Canada, our two largest markets. Based on a continuation of these trends, we expect our consumer direct business to show positive revenue growth in the second half, which would be our first growth since 2017 in this market segment. GCS also continues to grow with my Equifax member base with over 6 million consumer members, up from about 2 million a year ago, which provides a foundation for new product offerings. Our remaining GCS business, principally our partner business, as well as our benefits channel and events-based business, decreased by 5% in the quarter. We delivered high single-digit growth in our benefits channel, and events-based business, but this growth was more than offset by declines in our U.S. lead-gen partner business as banks pulled back on card and P-loan marketing and originations. As we look to the second half of 2020, declines in our U.S. lead-gen partner revenue are likely to accelerate as consumer marketing remains at reduced levels, more than offsetting the expected growth in global consumer direct, our benefits channel, and events-based business. This will likely result in second-half revenue declines in GCS at greater than the 5% decline we delivered in the second quarter. GCS adjusted EBITDA margins at 20.8%, decreased 210 basis points compared with the prior year due to the effect of revenue decline partially offset by operating cost efficiencies. In what has been the most challenging economic and health environment we've faced in our lifetime, Equifax delivered a very strong performance with revenue up 12%, and adjusted EBITDA to EPS of 14% in the first half. Our resilient business model, differentiated data assets, cloud data and technology transformation, new products, and focus on commercial execution has driven our broad outperformance. Our U.S. B2B businesses, USIS and EWS, delivered mortgage revenue growth that outperformed the overall mortgage market, substantial growth in our UC revenue, and improving revenue trends across our non-mortgage businesses, the U.S. and international, drove our results. Shifting now to slide six, this page highlights the uniqueness and challenges of the current COVID recession. It is clear that this is the most challenging consumer environment in our lifetime. Compared to the 08-09 global financial crisis, unemployment rates are up almost 500 basis points with over 20 million Americans out of work. And for the 10% of Americans with negative wage impacts, their wages are down 5% to 6%, with many households struggling to manage 25% or more salary reductions, or even larger if they're in a furlough. These unprecedented consumer impacts significantly cloud the ability for our customers to manage their business, including marketing, underwriting, and portfolio management. We've seen a significant performance deterioration of prime and near-prime credit portfolios driven by these job losses and wage reductions. Many predict a continuation in job losses or wage reductions as government support programs expire in the coming weeks. In April of this year, approximately 50% of those who suffered a decrease in pay in excess of 25% were individuals with a credit score of 680 or higher, which further complicates the environment for our customers. Forbearances are also driving material loss of predictiveness of traditional credit scores in the subprime market. And further, the CARES Act, with the CARES Act, loan accommodations keep delinquency rates artificially low and make them not representative of the actual portfolio health. accommodations have grown from 2.8% pre-COVID in March to 9% at balance of today. In these challenging times, differentiated data is more valuable than ever. We're seeing a meaningful increase in customer discussions in this unique environment about data solutions broadly, but with a particular focus on our unique twin income and employment data, which is sourced every pay-per-use. Turning now to slide seven, we updated the comparison of our performance in the current COVID pandemic-driven recession to our performance in the 08-09 global financial crisis. Based on the growth of Workforce Solutions and our U.S. mortgage business, we are seeing significantly stronger performance in the current COVID recession with our 13% revenue growth in the second quarter than in the early stages of the 08-09 global financial crisis where Equifax revenue was down 7-10% quarterly during that recession. The key drivers of our strong outperformance relative to 08-09 include our resilient business model and stronger mix of businesses, with 55% of Equifax delivering growth or counter cyclical performance in 2020, versus only 40% in 08-09. Second, U.S. mortgage revenue is at very high levels, with rebuy and purchase transactions continuing historic levels driven by record low interest rates. We saw mortgage application purchase volume rebound as we exited second quarter, as consumers take advantage of record low interest rates. The MBA application purchase index was up 15% versus 2019 in the last week of June. This strength continued into July. Based on current rates, over 15 million existing mortgages would benefit from refinancing, which is up about 70% higher than the available refi population in 08-09. John will give you some further perspectives on the second half U.S. mortgage market outlook shortly. Mortgage is clearly much stronger today with revenue in the second quarter rising for Equifax up over 70%, which is significantly higher than the 20% peak revenue growth we delivered during 08-09. Third, Workforce Solutions' growth has been accelerated from record growth, penetration, new products, and new verticals. Their 53% growth in second quarter significantly outperformed their peak quarterly growth performance of about 20% in the 08-09 global financial crisis. In addition to growth and verifications of 46%, the unemployment claims process in business It's seen record volumes, resulting in the $48 million of incremental UC revenue in the second quarter I talked about earlier. And then last, our commercial momentum from the second half of 2019 and strong first quarter performance as we entered the COVID environment in late March is clearly also driving our results. The Equifax business model and recession resiliency is clearly much stronger than the last recession in 08-09. I'll turn the discussion over to John to discuss recent trends in revenue on our underlying markets as well as review some of our other financial items. But looking at trends at a high level, USIS and Workforce Solutions mortgage revenue continues to be very strong and relatively stable at the elevated levels we saw in June. While we expect mortgage revenue growth rates on a year-over-year basis to remain strong in the second quarter, we do expect growth rates in the third quarter and second quarter to decline versus second quarter as we saw strong growth in mortgage markets in the second half of 2019. In USIS, the improvement in non-mortgage revenue has flattened over the past few weeks after consistent sequential improvement throughout the second quarter. And in some markets and verticals, we started to see some slight declines in the last few weeks as COVID case counts increased and some shelter-in-place orders returned. In workforce solutions, verification services trends in non-mortgage revenue remain slightly positive for our trends, driven by the strategic dynamics of the business and new products rollouts, as we discussed earlier. Workforce solutions unemployment insurance claims revenue remains at elevated levels at a run rate of over $40 million for the quarter, which is, while positive for 2019, will be substantially lower than the unemployment claims. We expect it to be substantially lower than the unemployment claims volume we saw in the second quarter. And given the continued uncertainty regarding the direction and pace of the U.S. and global economy, we do not expect to provide guidance throughout the remainder of 2020. As we did last quarter and in June, we'll provide details on the trends we are seeing and an indicative view of their implications. After John's discussion, I'll come back and review our progress on the technology transformation, new products, and our focus on the second half in 2021. John? Thanks, Mark. I'll generally be referring to the results. from continuing operations represented on a GAAP basis and on a non-GAAP basis. In the second quarter, general corporate expenses was $122 million, excluding non-recurring costs. Adjusted general corporate expense for the quarter was $75 million, up $8 million from 2019. Corporate function expenses, such as finance, HR, legal, are down year-to-year, reflecting the cost containment activities Mark discussed in April. The increase in total general corporate expenses primarily due to higher incentive compensation costs in 2020 due to the very strong financial performance, as well as increased appreciation and amortization. We continue to exercise disciplined cost management across the business. We are and will continue to invest in our technology transformation, data and analytics, new products and security, and will accelerate investment in these areas if we believe we can deliver accelerated benefits. Outside of these areas, headcount additions are being held at levels below attrition. and discretionary spending has been reduced. Across the company, business travel remained at virtually zero. We're in the process of reviewing our real estate footprint, as well as other areas that may allow further structural cost improvements. We expect to begin implementing cost improvement items over the next several quarters, but do not expect meaningful cost improvements in 2020. For QQ20, the effective tax rate used in calculating adjusted EPS was 24.4%, and about 1% higher than we expected for the quarter. We expect the 3Q20 tax rate to be about 21%. Full-year effective tax rate used in calculating adjusted EPS is expected to be about 24%. In 2Q20 and year-to-date, operating cash flow of $251 million and $282 million, respectively, are both up $34 million from 2019. Increases in operating cash flow in 2Q20 and first half 20 were partially offset, by $48 million and $95 million of legal settlement payments in 2020 and year-to-date, respectively. The timing of payments of the remaining $347 million to the U.S. Consumer Restitution Fund is principally dependent on the resolution of the appeals filed related to this case. At this time, we do not expect to fund the remainder of the settlement until late 2020 or early 2021. Our liquidity and balance sheet remains strong. As indicated on slide 8, we had almost $2.7 billion in available liquidity at June 30th, including $1.4 billion in cash and available borrowing capacity on our bank credit NAR facilities of $1.3 billion. As Mark mentioned, our 2Q results were substantially stronger than the implication of the trends through May that we discussed in our June investor call. The improved results were about 70% in our U.S. B2B business, with the bulk of the remainder in international, broad-based across our geographies. In U.S. B2B, online was about two-thirds of the improvement, split evenly between mortgage and non-mortgage. The remainder was strength in USIS financial marketing services and workforce solutions unemployment insurance claims business. The strength in adjusted EPS reflects the margin impact and the stronger revenue. Slides 9 through 12 show details of revenue trends on a local currency basis that we saw in one Q&T queue as well as in April, May, and June. There were two more business days in June this year versus 2019, which benefited growth rate on the order of 3%. We are also providing a view of the trends so far during the month of July and their implications on 3Q20 if they were to continue throughout the quarter. The line items for which daily trends are not available or not relevant, we did not provide monthly actuals, but did provide 1Q and 2Q data as well as an estimate for 3Q20. The monthly actuals provided should be viewed as directional. Starting with slide 9, U.S. B2B revenue trended very positively through June as online strengthened across USIS and EWS, driven by strength in mortgage online and improving trends in non-mortgage online revenue. This, coupled with a very strong QQ performance in Workforce Solutions' unemployment insurance claims business and the growth in USIS financial marketing services, a much better performance than yet expected, resulted in a very strong U.S. B2B revenue growth in QQ. Trends in U.S. online over the past month have approximately flattened. Online mortgage daily revenue levels continue to be strong but are somewhat variable by week and have been about on average consistent over the past month. The July trends for mortgage reflect a continuation of the current daily revenue trend adjusted for seasonality with a lower growth rate due to significant increase in mortgage revenue we saw last year in 3Q and 4Q. Online mortgage revenue online non-mortgage revenue growth was flattened over the past month. USIS non-mortgage online revenue growth levels have shown slight declines, while EWS non-mortgage revenue has remained relatively flat. July trends provided for online non-mortgage revenue reflect these trends. Workforce solutions and employer services, driven by unemployment insurance claims activity, is expected to show growth in 3Q again, but at levels much lower than in 2Q. USIS financial marketing services in 2Q benefited from new business both in portfolio review and marketing services. Given the uncertainty in the economy, the mid-July estimate provided for USIS marketing services does not assume that this recurs again. In total for USD to B, if the trends and assumptions hold for 3Q, we should see another very strong quarter. Turning to slide 10, as Mark discussed earlier, international saw improvements in all regions as we moved through 2Q, with June revenue down only 7% versus 2019. This consistent improvement across all regions resulted in a much smaller revenue decline in the quarter than anticipated. The July revenue growth trend shared reflects, in general, a continuation of the daily revenue trend seen over the past month through the rest of the third quarter. July trends share with you reflect the trends Mark discussed earlier. In consumer direct, growing total subscribers are expected to lead to slight revenue growth in 3Q. Partner revenue, which includes our benefits channel and event-based business, is expected to decline about 10% in 3Q, with a significantly larger decline likely in 4Q. As Mark mentioned, GCS total revenue in second half 20 is expected to decline by more than 5%. with a decline in 4Q much larger than 3Q due to expected significant declines in lead gen-related partner business. Slide 11 provides a comparison of economic factors impacting the mortgage market in the current environment during the 08-09 financial crisis and the 13-14 mortgage downturn. We are sharing this information to provide you with additional information for your use if you estimate Equifax second half 20 results. Based on data provided by Black Knight, at current 30-year mortgage rates of about 3%, there are over 18 million mortgages likely eligible for refinance. This is the highest level we have seen over the past year and much higher than 2008 through 10 or 2013 and 14. The refi potential is highly dependent on a number of factors, including interest rates. For example, again based on Black Knight data, an increase in the 30-year fixed mortgage rate to 3.5% would reduce refi potential to 10 million. and an increase to 4% in the interest rate would reduce the refi potential to under $5 million. As you saw last week, mortgage rates at an all-time low of just under 3%. Current U.S. unemployment at 11% is higher than we saw in either 2008 through 10 or 2013 through 14. The forecast for unemployment in second half 20 that is provided in this chart is by Moody Analytics. In addition, we'll continue to watch key metrics including mortgage delinquency rates, credit scores, Leverage levels, both in terms of debt-to-income and loan-to-value closely, as it is still early in the current crisis, and the impact on consumer employment income and the direction of ongoing government support are still evolving. Due to the continuing uncertainties in forecasting the direction, depth, and duration of the recession and related to the actions to combat COVID-19, we're not going to provide third-quarter guidance and do not expect to provide guidance for the remainder of 2020. However, for perspective on total Equifax 3Q20 performance, we will again provide an illustrative third-quarter framework to help you think about our performance. Please turn to slide 12. To the extent total Equifax revenue continued at the pace I described earlier, 3Q20 revenue would be up 4% to 6% year-to-year, resulting in 3Q20 revenue of $930 to $950 million. Adjusting EPS in 3Q20 at these revenue levels could be in the range of $1.30 to $1.40 per share, down 6% to 12% from 3Q19. Slide 19 also provides a walkthrough explaining the translation versus 3Q19 of the revenue growth to the decline in pre-tax income and therefore adjusted EPS. Importantly, at these adjusted EPS levels, Equifax will deliver over $325 million in adjusted EBITDA. This is not guidance, as there is still much uncertainty as to what impact the pandemic will have on the economy, our customers, business activity, the path to opening the economy, and therefore our revenue and earnings. This range provided reflects current variability and trends, not a view of potential quarter outcomes. As a reminder, in our April earnings call, we provided detail on the cost and capital spending savings we expect to generate, and the tech transformation is completed. As shown on slide 13, total cost savings, excluding V&A, are expected to be on the order of $125 million from the reduction of cost of goods sold and lower development expense.

There will also be substantial capital spending savings as capital spending as a percentage of revenue declines to on the order of 7%, a level that is at or slightly below that of our peers.

We expect to begin seeing net COG savings, excluding V&A, in late 2021. and are targeting approaching the run rate of COGS development expense and capital savings during 2022. We will certainly reinvest in some of the savings, so it will not all fall to margin. As Mark referenced earlier, we continue to look to accelerate the completion of our tech transformation, including increasing investment levels in 2020. At present, we expect 2020 one-time costs related to the Equifax 2020 technology and data security transformation exclusive of legal accruals to be about $340 million. We expect capital spending to be about $390 million for the full year. As a reminder, in 2021, we will no longer be adjusting our financial results for one-time costs related to the technology transformation. These one-time technology transformation costs are expected to decline substantially from the level seen in 2020 and will likely be largest in 1 through 21, decreasing throughout the remainder of 2021. These one-time technology transformation costs will impact development expense, GMA, and COGS. We will continue to disclose these one-time tech transformation costs to allow you to have comparability with our adjusted financial results from 2017 through 20. And with that, I'll turn it back over to Mark. Thanks, John. I'll wrap up by giving you an update on our cloud technology and data transformation and our accelerated focus on new products. First, moving to our EFX 2020 technology transformation. During 2020, we focused the bulk of our efforts in the cloud technology data transformation at our North American operations, which represent over 80% of our revenue and an even higher percentage of our income. Investments in Europe, Latin America, and Asia Pacific in deploying cloud-native data fabric in our Ignite Interconnect API analytical and decisioning framework are also progressing well. In addition to migration to GCP of our major North American data exchange, the U.S.-Canadian Consumer Acro List Exchanges, the work number and NPTU is principally complete, and we expect to have complete full migration, including all data ingestion processes for the exchanges, in place by year-end. It is at this point that these migrated exchanges become our system of record with our customers. These are critical deliverables for 2020, and completing them as planned remains a strategic focus and priority. These exchanges generate about 70% of North American online revenue. We're also making very good progress in the full migration to GCP of our secondary U.S. exchanges, the commercial risk exchanges, IXI, property, and DataX exchanges. We expect a number of these exchanges to have completed full migration by year-end, with the remainder completed in the first half of 2021. And the Canadian commercial risk exchange full migration will also occur in early 2021. In April, we discussed with you the initial migration of our EID identity validation systems, which we expect to complete in the third quarter. Customer migrations are expected to start in the second half, and we expect to have fully migrated all EID customers by year-end. Our new Luminate Cloud Identity and Fraud Suite, being deployed as a cloud-native solution, will be available to customers in the U.S. and Canada in the third quarter. And a new EID cloud-native service is also available for the U.S. as part of the new transformed Luminate offering. We are continuing our progress to migrate our customers onto our new cloud-based systems, including our interconnect Ignite API framework. As a reminder, this is a common set of services on which we are working to migrate all USIS, EWS, and international customers. At the end of the second quarter, USIS had migrated 1,200 U.S. customers and international completed migrations of about 2,000 customers. We expect this pace of migration to accelerate in the second half of 2020 with over 10,000 USIS customer migrations completed by year-end and the majority of the remaining U.S. customer migrations completed by mid-2021. We continue to adjust our development priorities to add platform capabilities to ease our customers' ability to easily migrate to our new platforms. As we discussed in April, our new Ignite analytics and machine learning platform is available and in production at AWS and will be available at GCP this quarter. We continue to make strong progress globally, rolling out our Ignite analytics platform with over 200 customers using Ignite Direct and Marketplace, including two new FinTech customers added in the second quarter. An additional substantial benefit from transforming our own and on-premise infrastructure to Google will be a significant reduction in our carbon footprint, which is a focus area of our ESG strategy. Google remains the only cloud provider that uses 100% renewable energy in their centers, which we will benefit from. We are making strong progress in our cloud technology and data transformation and remain energized about the future top and bottom line benefits John discussed earlier. Our cloud-native data and infrastructure is and will differentiate Equifax in the marketplace. Shifting to slide 14, this highlights our new product initiative focus, which is a key component of our EFX 2020 strategy and is our next chapter as we leverage our cloud data and technology transformation for growth. To strengthen our capabilities in product management and MPI, we recently added a new chief product officer, Cecilia Mao, who has deep product expertise from prior roles at FICO, Verisk, and Oracle. Cecilia joined Mark Luber, our new USIS product officer, with a goal of accelerating our product management capability to drive new product growth. We expect to continue to add product resources in the second half to position us for growth in 21 and beyond. We continue to launch new and refined existing products to support our customer-specific needs during the COVID pandemic. This includes our Equifax Response Now product initiative in USIS and tailored I9 and UC solutions in Workforce Solutions. USIS recently announced the addition of an industry-specific FICO score segmentation data to our weekly consumer trends reports. With this integration, Equifax is the first company to offer weekly industry-specific FICO scores segmentation reports, enabling businesses across industries to better track anonymized consumer trends, behaviors, and credit performance across the U.S., which allows our customers to better anticipate consumer behavior changes as a result of the COVID recession. As we progress through the year, we'll continue to make strong progress on our goal to expand our NPI rollouts and deliver over 100 new products in 2020, which is up from about 90 last year and 60 in 2018. Through June, we've launched 70 new products, and we have an active pipeline of new products at various stages in the pipeline funnel. Some of the new product launches include a USIS-launched FICO 10T. The FICO 10T score incorporates trended data for strategies and use cases that benefit from additional trended data insights into consumer behaviors. We work with FICO to incorporate trendy credit bureau data to offer a view on the trajectory of certain credit data fields over time, such as account balance amounts reported over the past 24 months. Consumer payment behavior and credit limit information can also be captured via the trended data. Workforce Solutions also has a strong NPI focus. As we discussed on our June 8 call, Workforce Solutions recently launched a number of new mortgage solutions, including mortgage twin ID, and I-9 anywhere products. Both are seeing strong market growth. Another area of focus is the expansion of the data sets in our talent reports. New multi-data solutions incorporating employment ID verification and degree verification can add value to hiring decisions in high turnover industries such as retail, restaurants, manufacturing, and hospitality, especially as we look at the post-COVID recovery period. We also continue to make good progress with our positive data in Australia and now have over 80% of positive data from contributors with about 90% of the credit card and mortgage data and more than 50% of the auto and P loan data in our database. We've begun to use this positive data in Australia to provide analytical insights to our customers and expect to launch additional new products later this year. NPIs continue to be an important lever for Equifax growth and a priority for me and for the team. We've prioritized our focus and resources on driving NPI rollouts in 2020, and more recently, a global focus on products that support our customers during the COVID recession. We will continue to prioritize new products and innovation in the second half to leverage our cloud data and technology transformation for future growth. During the COVID-19 pandemic, we remain actively engaged with stakeholders in the public and private sectors regarding Equifax solutions that accurately portray the risk profile of consumers while recognizing the unique and likely temporary nature of the financial impact of the pandemic. In every country where we do business, Equifax is in discussions with lawmakers and regulators to enable continued credit reporting that captures the status of consumer payments and lender accommodations. Depending on the geography, we work independently in conjunction with our peers and our trade associations to provide proactive assistance to financial institutions seeking guidance on how to report during this timeframe. In the U.S., we're in regular communications with federal regulators, including the CFPB, where we're sharing data trends with the Bureau regarding both consumers and furnishers. We're proud that our input has contributed to regulatory guidance that the Bureau has published to broadly inform the marketplace. Furthermore, and at least three of our most significant markets around the world, Equifax is providing data and insights directly to federal governments to help policymakers understand the pandemic's consequences on consumers and the credit economy. We recognize that many consumers have been impacted by the COVID-19 pandemic and are experiencing economic distress. Equifax has established a COVID resource section on our website to assist consumers looking to manage their pandemic's potential impact on their credit standing. In April, we joined the other U.S. credit bureaus in announcing that we're providing free credit reports to all U.S. consumers through April 2021. We're also offering free credit reports to Canadian consumers. More recently, Bev Anderson, a business unit leader for GCS, hosted a series of informational webinars for consumers on managing credit during the COVID pandemic. Our GCS team is also participating in industry webinars and events to educate stakeholders regarding the options as well as the reporting standards. We will continue to support consumers and remain engaged as a constructive partner to help consumers, businesses, and the overall economy during this challenging time. Wrapping up and turning to slide 15, as John outlined earlier, we're still unable to provide guidance for the third quarter or the second half. We still see meaningful uncertainty from the impacts of the COVID pandemic as cases rise tragically in many markets, impacting shelter-in-place orders, consumer confidence, and economic activity. There's also a real risk of a second COVID wave in the fall and potential for increased lockdowns. We also expect further impacts from unemployment, furloughs, and salary reductions as government support programs expire in the coming weeks. Like other companies, we have very limited visibility in the depth, breadth, and length of the COVID recession or the timing or strength of recovery until we have a broadly available vaccine. This uncertainty makes it challenging to provide our traditional guidance for the third quarter and second half. We hope the framework John provided is helpful as you think about the range of outcomes for Equifax in the third quarter and second half. Even in this challenging environment, Equifax is operating extremely well. Our strong business model is resilient in delivering in the COVID environment while allowing us to invest in the future. Our performance in the second quarter follows a strong first quarter and a momentum in the second half of 2019. Our strong results allow Equifax to continue to invest in our cloud data and technology transformation, data and analytics, and new products to position Equifax for future growth in 21 and beyond. As we look forward to the rest of 2020 and towards 21 and 22, we are confident in our business model, strategy for growth, cloud data and technology investments, and the ability to perform in a challenging COVID environment. We have a very strong team with deep domain expertise, and we continue to strengthen that team We delivered strong financial results again in the second quarter with double-digit constant currency revenue growth for the second quarter in a row with over 200 basis points of margin expansion while continuing to invest in our cloud data and technology transformation data and analytics new products. Workforce Solutions is a franchise business that is strongly outperforming. We gave you a deep dive in Workforce a few weeks ago and expect continued strong performance from Workforce Solutions in the COVID recession with strong growth potential in the long term. Exceptionally strong revenue growth in the second quarter, up over 50%, with adjusted EBITDA margins of 55%. These results are the strongest since we acquired the business in 2007, driven by macro events in mortgage and unemployment claims businesses and new twin record growth, increased penetration, and launching new products. And Workforce Solutions is strongly outgrowing the mortgage market. Our unique twin income and employment data is even more valuable in this unprecedented economic event due to the scale, accuracy, and latency of that unique data. We believe Workforce Solutions is well-positioned for attractive long-term growth. USIS had another strong quarter with revenue growth of 10% and the strongest first-step revenue growth since 2013, led by strong growth in U.S. mortgage. USIS' pipelines are the strongest since 2017 from their renewed commercial focus and rollout of new products. The business is operating well and winning in the marketplace. International executed well against a challenging global economic environment, and our GCS direct business is poised for growth in the second half of the year. And as I outlined, we're making very good progress in our cloud technology and data transformation and beginning to take advantage of the new cloud-based capabilities. Execution of the cloud investments is a clear priority for our team in 2020. We've accelerated some of our spending and our focus on the cloud transformation remains strong. We expect a number of our data exchange migrations to complete by year-end and are well down the path on customer migrations. We know we still have a lot of work to do. We're energized about the strong benefits that will come from this transformation, including always-on stability, speed to market, ability to rapidly move products around the globe, and the strong top-in-line benefits John talked about. We are continuing to invest in new products and innovation by investing in new product leadership and resources to drive innovative new product rollouts. Our NPI capabilities are being accelerated by our cloud transformation, and we expect to launch over 100 NPIs in 2020. NPI remains a top priority for 2020 and the future, and we continue to expand our investments in new products, leveraging our cloud transformation. We're also making proactive investments in technology and DNA new products and security, while balancing cost controls across the rest of Equifax. And our balance sheet, as John pointed out, remains strong, ensuring we are prepared to make the necessary investments in our EFX 2020 cloud data and technology transformation, new product and data security, while looking for attractive, bolt-on acquisitions. And we continue to support consumers through these challenging times with free credit reports and consumer education on our website. As we look to the second half of 2020 and towards 2021 and 2022, I'm more excited than ever about our future as a market-leading data, analytics, and technology company. And with that, operator, let me open it up for questions.

Thank you, sir. Ladies and gentlemen, if you have a question today, please press star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute button is turned off to allow your signal to restart quickly next. Once again, everyone, star one to ask a question. And we'll go first to Tony Kaplan, Morgan Stanley. Very much. Congratulations on the quarter. I was hoping you could talk about the trend of non-mortgage USIS and how it improved significantly in June, but then looks like it got a little bit weaker in July. So just wanted to understand what you're hearing from customers in terms of what's led to this lower July and and how we should be thinking about, you know, going forward.

Yeah, this is something I'll start, and then John can jump in. You know, we were pleased with the, you know, kind of sequential improvement in USIS broadly. I mean, of course, in non-mortgages, we went through the quarter, particularly as shelter-in-place orders were lifted and economic activity improved. So, you know, that was a positive. We just wanted to point out there's still, you know, real uncertainties in the marketplace. We've seen markets like Florida... in Texas and California that have had some of the recent COVID spikes, you know, from our online volume, seen some impact on that. You know, it's not meaningful, but it's not continuing those sequential trends. So we really just wanted to point out that we expect, you know, some uncertainty going forward. You know, one of the other positives that I pointed out a couple of times is the fact that the USIS New Deal pipeline and their win rate continue to grow through the second quarter off of the first quarter and off of last year. And for us, that's probably the most important element. It's quite challenging to forecast the economic outlook, but seeing workforce solutions accelerate their new product rollouts and really winning in the marketplace competitively is quite positive for us as we think about the third quarter.

And, Tony, if you're looking at slide nine, right, just as a reminder, as you look at June, June, because of the number of business days in the month, right, there's about a 3% benefit

are a little over 3% that you see in June that doesn't really continue into July. So that can help you understand the trend better between June and July. So, for example, if you look at banking and lending, Mark mentioned banking and lending there. If you adjust for that three points, you're probably looking at banking and lending goes down 10% to 15% in the June period. And what we have seen is slight weakening as you go into the very end of June into July in the trends across several USI verticals. It wasn't substantial. But the substantial improving trend we've seen from April through June flattened and then weakened slightly. Just maybe one last point, Tony, is that, you know, the biggest challenge right now is when will our customers restart marketing? And we've seen some increased activity from below 19, but, you know, there's just so much uncertainty for our customers around the consumer and the economy. Many of them have pulled back on marketing. And counter to that, you know, we've seen a significant increase in activity and dialogues around portfolio management, which is typical in an economic downturn. A lot of resources shift to managing the back book, managing existing customers, managing credit lines. So, you know, you've got that positive going in. Marketing, you know, when will our customers get comfortable to market again I think is the big question, and I think there's a lot of uncertainty on that.

That's very helpful. For my follow-up, just wanted to ask about the really strong margins in workforce solutions. You know, obviously, you had a very strong verifications quarter. So, was that the real driver, or are you also getting some additional leverage from the employer services vertical as well? You know, just wanted to understand the strength of margins and the sustainability of that.

Yeah, you hit the two items there, you know, very strong, obviously. UC claims is high incremental margin, as is the growth in verification. So both of those are driving our margins. You know, we've got, as you know, revenue growth broadly in our business and in workforce solutions. Incremental revenue growth delivers very, very high incremental margins, which is driving that. And the other thing in workforce that, you know, we pointed out that we were pleased with is how we outgrew the mortgage market. You know, that really is a reflection of the power and uniqueness of the data assets they have and the multiple levers we talked about on the June call with workforce solutions. The other thing I would like to mention is that this is happening in a period when we have strong cost controls in place. So you're seeing costs are being managed very, very tightly while they're seeing very high revenue growth.

Makes sense. Thanks a lot. Next up from Credit Suisse is Kevin McVeigh.

Great, thanks. Hey, how are you?

You brought a really nice detail in terms of how EWS positively impacts mortgage.

Can you kind of help us frame how it impacts the rest of the credit products that you kind of offer right now as we think about that into, you know, 2021 as we kind of start to sync up the core USIS more broadly across mortgage and EWS? Yes.

Yeah, we've talked, Kevin, before. I think you're talking about the fact that we go to market as one Equifax, you know, with our customers. And as you know, USIS sells to all of our financial institutions. The USIS credit products as well as the workforce solutions verification products. So that kind of bundled approach to our customers we think is a smart way to go to market. It gives us the ability to incent our commercial team to sell a full Equifax solution. It gives us the ability to leverage product positions on both the credit and verification side when we're in discussions with customers. And so we're clearly seeing the ability to – you know, approach customers with a broad Equifax solution that would include credit data, our wealth and employment data, our NTT lead data, and then, of course, our verification data from workforce solutions and, you know, bundled solutions in many cases, which we think is attractive for Equifax. Got it.

And then just real quick, you talked about kind of 100 new NCIs, you know, and part of that being just

positively impacted by your cloud transformation. Is the cloud transformation, is it the expense benefit that allows you to do that, or do they become more seamless through the cloud? Or just, can you just help us turn that out a little bit more from an MPI perspective?

Yeah, we've been consistently talking about this, Kevin, for the last couple of years. It was our expectation that the cloud transformation would allow us to accelerate the ability to get more new products to market and also getting the product to market more quickly. And we're starting to see that. The good news is we're already really in the last six months as we've gotten deep into the cloud transformation. You know, we've been able to roll out new products and we talked about this on the April call. You know, we're putting new products in the marketplace that we couldn't do two years ago because of the single data fabric, our ability to combine data assets, our ability to ingest new solutions. Having a simpler application infrastructure, you know, is speeding up our ability to bring products to market. And we're excited about starting to see the early benefits of that. And we do believe those benefits will accelerate, meaning our ability to do more new products in the future. And you're seeing that as we go from 60 products to 90 last year to over 100 this year. And, you know, our goal is And we're putting resources around it to really leverage our massive investment in the cloud transformation for both data and our technology to accelerate our new products rollouts in 21 and 22. And I think, as you know, that's a real fuel for growth in our industry and for Equifax. So we've got a really big focus on it. We've brought some great new talent in. We're going to add resources in that. and people against it in the second half because we really look at new products as being the next chapter for Equifax around driving our growth and really... Question comes from Manav Patnia, Jefferies.

Hey, it's actually... Hey, guys. Yeah, the first question I have for you is, you know, the commercial momentum that you talked about, particularly in the USIS business, I was just wondering if you could give us some color. Is that, you know, pipelines and wins that you talked about, you know, coming from your competitors, or is it stuff that maybe was just kind of put on hold in the penalty box until you got back, you know, to where you are today? I'm just hoping for a little bit more color on some of the mix there.

Yeah, it's a It's all of the above. You know, I think you've got a new – not a new leader anymore, but Sid Singh's been on the ground now for 18 months. He really remade the commercial organization that's been in place for six months. There's a real, you know, increased focus commercially in the marketplace. So I think that's, you know, positive number one. The pipelines, you know, are a combination of new products. You know, when you go from 60 to 90 and then towards 100 – There's just more opportunities for Sid and his team to bring new solutions to our customers. The pipeline growth, we also believe that now is from the COVID response products that we rolled out. You know, this is a – we tried to highlight on the call earlier, this is a really unprecedented time for our customers. And, you know, the value of data broadly for all of us in the industry is even more valuable. And actually, if you go back to 809, there's just more options for our customers to use data to manage in a recession. So I think that's driving – all of our capabilities in our conversations with our customers. And then, you know, there's no question, you know, we talked about our win rates being up on a year-over-year basis. You know, we're clearly more competitive in the marketplace. There's, you know, the overhang that was perhaps here a year ago, you know, from the cyber event, we believe is way behind us. And we're really, you know, just focusing in normal mode. but I would call it a fairly aggressive mode in the marketplace to really support our customers in this challenging time.

Got it. And just on the new products, you know, selling new to 100 new products a year, I know, you know, all the credit bureaus have actually had their cadence for a while and just been, you know, impressive. But I was just wondering, you know, how do you define what a new product is and, You know, I think in the past, manufacturers talk about how you would expect the NPI to contribute kind of 10% of revenues in a two-year timeframe or something. Do you have any such goals with that to provide some perspective?

Yeah, you know, we have a very kind of standard, rigorous process around what is a new product that's got to be new. And we've had a consistent process, John, I think for five plus years, on how we define new products. And we try to be transparent with you and others, you know, about our new product rollouts because of the importance to our future growth. We think they're, you know, quite accretive, you know, to the future. And that's why we're doubling down on people and resources to really leverage the cloud transformation process. I know there was a framework in the past in our financial framework around the contribution of new products to our revenue growth. As you know, we don't have a financial framework in place today, so we probably don't want to talk about how we think about that, but I hope you appreciate the focus that I have and we have, you know, around new products because we believe it's a really important lever for growth that is going to be accelerated by our cloud transformation. When you think about why did we do the cloud transformation, there's a lot of reasons. One for sure is to accelerate our top line. And the way to accelerate your top line from the cloud transformation is to bring new solutions to market more quickly and more creatively and, we believe, more uniquely. than our competitors, and that's the focus that we have with the cloud. And, of course, you get all the cost and cash benefits that John talked about that will start rolling in in 21 and 22, you know, as we, you know, complete the execution of the cloud transformation.

Great. Thank you, guys.

Thanks.

Next up is Hamza Mazzari, Jefferies.

Good morning. Thank you. Just a question on the international business, specifically just margins in the international business. How much of the gap between the USIS business and international do you think is just structural, and how much can be closed over time, especially as you complete the tech transformation?

Yeah, there's no question our international margins are lower than our US margins. We have just so much scale. in workforce solutions in USIS, as you know, you know, versus many of our smaller markets. And, you know, some of that is going to be structural, just given the scale of those businesses. We do believe the cloud transformation is going to be accretive to that, you know, and improve those margins. And, of course, we're focused on other actions, and we have been, this isn't new, to improve those margins, whether it's from new products or incremental growth and You know, the biggest way to improve margins internationally is top-line growth because of the incremental margin impact that comes from that top-line growth. And, of course, they were impacted most significantly in the second quarter because of the depth and breadth and, you know, how severe the lockdowns were. And, of course, many of our international markets are still in lockdown.

And another meaningful difference is at this point we don't have workforce solutions outside the U.S. yet. And it's a very high-margin business, so it negatively impacts the margins relative to the U.S., outside the U.S.

Got it. Very helpful. And just a follow-up question, I'll turn it over. Could you maybe comment on, you know, your exposure to FinTech and how that compares to, you know, maybe some of your peers, whether that's an opportunity for you going forward? Thank you.

Yeah, I think as you know, we've talked about this many times. Our competitors are much stronger in FinTech. That's been a priority focus of our team since I joined, you know, two years and change ago. You know, we had two years ago a handful of people, you know, covering FinTech, and today we've got, I think, 15 or 16. So it's a clear focus. You know, we've more than trickled our commercial resources in the last couple of years. We see it as an opportunity. We're having wins there. I talked about in my notes that we had two U.S. FinTech customers at Ignite in the second quarter. So we're actively engaged with FinTech, and FinTech is a couple hundred million dollars space in the U.S., growing faster than the core market. It's actually a bit more impacted in COVID recession right now than the broader market, but it's a space that we want to be bigger in and we're focused on.

Great. Thank you.

Our next question today is David Hogan, Evercore ISI.

Thank you. Good morning. We appreciate your thoughts on Joe Biden's plan to mandate that federal agencies use a new public credit bureau. Could you just walk through your exposures to kind of government revenue and over what timeframe this new bureau might be developed?

Yeah, you got two different questions there, David. You know, first on the government revenues are, from our perspective, are unrelated to Vice President Biden's and Senator Sanders' proposal. And our government revenues are really for social services. So our government revenues won't be impacted. And, you know, as you might imagine, you know, we think the current credit bureau system in the U.S. well serves consumers and furnishers. There's plenty of competition between the large three credit bureaus. We don't see a need for what was outlined in that proposal. We would suspect it's perhaps more positioning in an election cycle versus something that would have broad bipartisan support. And if you look around the globe, the few global markets where there's a government credit bureau, over time either they've been privatized or private credit bureaus have operated next to them. So, you know, we think the system in the United States today serves the market extremely well in a very competitive way.

Got it. And to the extent the government credit bureau were to be developed, how long do you think it would take to build it, just trying to assess the overall risk to Equifax?

Yeah, I think that's a tough question too, David. You know, Equifax, you know, we're spending a billion dollars a year in technology in 2020, and we have for a long time to look at the industry. This is extremely complex. There's trillions of records. There's, you know, thousands and thousands of contributors. It would be a very long road. And again, from our perspective, you know, that's maybe a reason why, you know, there wouldn't be bipartisan support for it. I think the broader... and why they would need firefighters and support if the system works today. It services the industry well. It services consumers well. There's great transparency. And if you look at the increase in alternative data, there's just more opportunities to support consumers, which is really, you know, what I believe Vice President Biden is focused on is how do you ensure that credit access to those that need it is available in the marketplace. And we believe the bureaus today provide that. We have great support and great focus on that.

Understood. Great. We appreciate your insights.

And next we'll go to Bill Warmington, Wells Fargo.

Hey, Bill. Good morning, everyone. So my first question for you, what was total mortgage exposure as a percent of total Equifax revenue in Q2?

Excellent. Off the top of my head, I don't know, Bill. It's up substantially. I think it's on the order of 30%. But if you take a look at slide 9 and slide 10, I think we did plenty of data there for you to come up with that number yet. Got it.

Okay.

And then it sounds like the new product pipeline is pretty full.

I know you guys were the first bureau to do the beta test on the FICO Resilience Index. I wanted to ask if there was a way to tie the work number more closely into the FICO score.

That's a good question. I think we talked, Bill, broadly about our focus on one of the benefits we expect from our cloud-native transformation. As you know, it's a technology transformation and a data transformation, but the single data fabric that we're going to, we believe, is going to allow us to do many more data combinations than we're able to do easily today. And that's one of the main reasons we're doing the cloud transformation. And that would be an example, you know, of using income and employment data with some of our other data assets to bring unique solutions that are only Equifax because of our workforce solutions business to the marketplace. And, you know, we have those not in our current pipeline, but those kind of things on our to-do list. in our pipeline in the future. And it's another reason, Bill, why I'm expanding our product resources across Equifax in the second quarter, and we're going to expand them further in the second half, is really to fuel up that new product engine, not only for the second half, but for 21 and 22. That's a big focus of mine, is to take advantage of the single data fabric in the cloud and the cloud technology we're going to have to really accelerate our new product roll-ups. All right. Thank you very much.

And Andrew Nicholas from William Blair is up next.

Hi. Good morning. Thanks for taking my questions. I just wanted to first talk about operating expenses. I think, you know, now we're a few months into this. And with the understanding you already committed to, I believe it was $90 million of cost cuts, I was just wondering if you could speak a bit more about how you're thinking about that line in the medium to long term. And I guess I'm wondering to what extent you've identified additional areas for cost rationalization over the past couple of months as the workforce gets more and more comfortable working from home, whether it be on the real estate side, T&E, so on and so forth.

Yeah, I hope you got the tone of our conversation. We're keeping a tight belt here because we still see meaningful uncertainty in the second half about the pandemic. At the same time, I hope you got our tone that we're making targeted investments. You know, with our financial strength, we want to make sure we're making those investments for the future. But we are accruing kind of net benefits on a year-over-year basis on our cost structure, and certainly during our plan we had in place early in the year, you know, from some of the belt tightening we've done. You know, you point out T&L, you know, travel. You know, when you think about the near term, no one's traveling at Equifax. You know, and so that's a clear savings on a year-over-year basis. On a long-term run rate, I suspect the way we use video will meaningfully change our travel spend going forward. We spend about half of our P&L is spent in internal travel, meaning between Equifax sites. You know, my view is post-COVID, that'll go to zero. You know, we just won't need to do it because we're so much more adept at working together and collaborating through the use of Google Hangouts and other video tools. So I think that's kind of a change that will be permanent. I think our business travel to customers will likely be lower just because of the efficiency of video. Instead of making three trips to a customer to work on a new product, you might make one post-COVID and then have four or five video calls and do the whole project quicker just because of how we're working. So I think there's The efficiency and collaboration on video I do think will have a significant change. On the real estate side, we're going to go through. We've got a handful of small offices that really got highlighted for us in the COVID recession. We're going to close those. It just doesn't make sense to have 20, 30, 40-person offices. Those teams can either work from home or be consolidated in other sites, so there will be some real estate benefit there. We haven't gone off the next step of deciding whether we change our broader real estate footprint. I suspect we'll look at that as the year progresses. But as you point out, you know, we operated very effectively in a work-from-home mode and we're still operating with our red-blue teams in a 50%. You know, we're actually higher work-from-home mode, meaning we only have less than half of the team in our offices every week and the other half is working from home. And you know, Equifax is operating extremely well. So that will be something that we'll look at, you know, in the second half. Did you have anything, John? No, I think you covered all of it. Okay. Did I cover where you were heading? Yeah, no, that's really helpful. Thank you. And then just one more for my follow-up. It looks like in the case of Canada and Asia Pacific, you had a little bit of a spike in growth in June, or at least –

a less abrupt decline in June before slowing down again in July. I mean, any comment on what might be driving that spike, and then how you're thinking about the international recovery timeline more broadly in the second half?

Thank you. Yeah, it's as tough as you know to predict. I think what we've seen pretty consistently in all markets, you know, if you looked at April and May, you know, fairly severe lockdown, not a lot of economic activity. As you got into May and June in most markets, our customers figured out how to operate in a lockdown environment and were, you know, having commercial activity, you know, selling cars without showrooms being open. And that's happening around the globe, you know, so that kind of adaptability to a lockdown. I think the challenging internationals, their lockdowns, you know, we've seen U.S. lockdowns kind of relax in the last, you know, four or five weeks in many, many markets. Of course, you've seen some you know, tightening or consumer confidence issues around the spikes in the last couple of weeks in many markets. But international lockdowns have just been extended. They're just much longer. You know, we have, you know, markets like Australia. I think Melbourne, you know, and our Melbourne market is not going to open until late August. So those delays, we believe, and the depth of the lockdowns in many international markets, you know, really dampened you know, their economic activity, which impacted our revenue. As those markets open up, we would expect to see improvements, but we just can't predict when and how much. So, you know, we would expect to see those improve as, you know, companies adapt and as actually restrictions are lifted in some level of kind of COVID normalcy. If you're looking at slide 10 also, just looking at APAC, it was a positive number, but as Mark said in his comments, there was a one-time sale to a government entity there that resulted in that positive step. So excluding that, it was down single digits. And then, again, just as a reminder, looking at June, right, there's probably a three- to four-point benefit from the fact that the number of business days in June was higher. So when you compare June to July, that's something you have to take into account.

Got it. I must have missed the comment on the one-time sale. Thanks a lot.

Next question is George Mahalo, Cowan.

Hey, George. Hey, good morning, guys. Congrats, and thanks for taking my questions. Mark, just wanted to talk a little bit about workforce solutions and obviously tremendous momentum there, particularly this year within mortgage and on the unemployment side, and you talked about it being still in sort of the second or third inning if we're looking at longer term from a growth perspective. I'm just curious. if we would have thought of workforce as at least being a high single-digit top-line grower, probably low double-digit top-line grower, should we be thinking that as we look out over the next year or two that, you know, some of that growth or a substantial part of that growth has been kind of pulled forward now in 2020 so that it may be sort of, you know, sub-trend for a year or two before sort of normalizing longer term from a growth perspective? We don't want to get into giving 2021 or 2022 guidance, but, you know, we talked at length on the June 8th call and more this morning about the multiple levers Workforce Solutions has. And as you know, one of the very unique levers they have versus most of our businesses and I think most of the industry is the ability to grow their revenue by driving hit rates through increased records. And I think that's a very unique element for that business. And, you know, if you think quite simply, which sometimes I do. You know, the business, it will be over a billion dollars this year, and it has, call it roughly 50% of the non-farm payroll in its database. Now, our long-term goal is to get all the non-farm payroll in our database, and we've shown a pretty consistent ability to add those records. You know, if we get from half to all of the non-farm payroll, you know, you double the size of that business over a timeframe extended for sure, but that's a a lever that's unique. You know, there's no question that there'll be, you know, we're in the middle of a middle. I don't know what portion we're in of, you know, the U.S. mortgage refi and purchase market that is exceptionally strong. There's going to be a grow-over challenge on that for Equifax in 2021, as you point out. But, you know, if you saw in our comments, you know, Workforce Solutions in particular significantly outgrew the mortgage market because of new products, because of new records, because of new customers. You know, they have all of those levers and new verticals that they can get into outside of mortgage. You know, those give us a lot of confidence in Workforce Solutions' long-term growth, which is why I characterize it as being an early innings, meaning this is a mature business, this is a well-operating business, but it just has a lot of runway for growth opportunities. Okay, that's very helpful. Appreciate that, caller.

And then just a quick question for you, John, as it relates to corporate expense and the outlook there.

I mean, those numbers came in a little bit better than what we were looking for. Is this sort of 2Q corporate expense run rate a good way to think about, you know, 3Q, absent, I think, a $5 million increase in redundant system costs relative to 2Q?

Yeah, so I think we're going to continue to perform well, relatively speaking, against corporate expenses. Within corporate expenses, there are obviously some things that are a little more variable, like incentive compensation and things that drive movement period to period.

So I'm not going to really give a forecast for 3Q and 4Q, but in terms of the cost reduction actions we have in place, I think those are going to stay very firm in place around corporate, so you should see improving performance on our corporate expenses pretty consistently.

Okay, great. Thanks, guys.

Thanks.

Next up is Andrew Steinerman, J.P. Morgan. Hi.

I just wanted to clarify a quick thing on international. I definitely caught that you're saying stricter and longer lockdowns in some key international geographies like Australia. My thought, you know, was that Europe went into lockdown earlier and started reopening earlier. And so when I look on slide 10 on the European CRA line for Equifax, You know, is that what you're seeing, or are you saying something about lockdowns that I'm not catching about Europe?

Yeah, no, from our perspective, Andrew, like the U.K. is still in lockdown, meaning, you know, our office is not open. Our customers' offices aren't open. They're still working from home. Economic activity, we believe, is depressed because of that, you know, versus if you look at, like, Georgia, you know, which is open in other markets in the United States – Spain opened just a couple weeks ago. Canada, particularly the Toronto market, is still in lockdown, meaning that they're not open, you know, for, you know, most commercial activity. And Australia is still in lockdown. So our experience is that, in our perspective, is that the international markets locked down sooner and stayed locked down longer. And, of course, we don't do business in Italy, which, as you know, locked down sooner and opened up quicker. Right. The markets that we're in are the ones I'm referencing.

I got it. Andrew, you know this, right? But we're heavily UK-based, right? So for us, the bulk of the CRA revenue is UK. Right. I know. Okay. Thank you.

Next up is Jeff Mueller-Baird.

Good morning. Just a follow-up, Mark, on that answer you just recently gave on the ability to consistently add records, twin records, just consistently. How's the pipeline there? Is it being positively or negatively impacted by the current environment? And then there was a comment in the prepared remarks about kind of active records, I think, being more flattish since March, tied to kind of initial jobless claims and unemployment. Is that a headwind that is at all meaningful, or are the individuals that are rolling off active records just not particularly active, I guess, from a credit application standpoint? perspective so it doesn't really impact your defense? Yeah, first on the pipeline, you know, we have a, as you know, we have a dedicated team. We talked about that on June 8th. This is all they do is focus on records and either, as I would call it, going door-to-door to companies that are not a part of our database or working on partnerships with payroll processors and others that, you know, we do revenue share with. And they have a very active pipeline. You know, we've what I would characterize as put them on offense in the second quarter. They were before, but, you know, we're deliberately leaning in. And on both sides, if you think about your company and you're under some financial pressure, today you do that yourself in many cases, meaning you're taking calls from mortgage originators into the HR department and you've got a handful of people staffing a call center to respond to your employee calls on that. you know, if we go in and can, you know, share our value prop or we'll do it for free for them, we'll do it securely, it becomes a productivity improvement for that company. So that's a positive. So from a climate standpoint, it's always a good discussion. It's maybe better now. And then, you know, in the partnerships, you know, the idea of getting an incremental revenue share from Equifax from, you know, to a payroll processor, those conversations are positive too. So we like the pipeline. As you know, it's a bit choppy sometimes. You know, we added a large processor last September. We're benefiting from that now. Those can be clunky or chunky, but we have a consistent focus on adding records, and we've shown a pretty good trend of adding them. Your question about the impact of unemployment is something we're watching. We expect there to be some pressure on actives in there. We had some declines in the latter half of the second quarter that were offset by additions that we have of new contributors and new new employees or records coming in and, you know, we expect to keep that focus going in the third quarter, but we're definitely watching it. And I think lastly, I think as you know, we not only sell active records, meaning those that are, you know, working, but we also have a pretty large portion of our revenue workforce solution in active records, meaning where was someone working two weeks ago, two months ago, three weeks ago, because people change jobs and You know, if we don't have an active, many times we're able to sell the inactive, meaning what they were doing six months ago before they changed jobs, and that's another part of our revenue.

We'll go next to George Tom, Goldman Sachs.

Hi, thanks. Good morning. So USIS online mortgage revenue growth moderated from 63% in June to 35% in July, and then EWS mortgage growth went from over 100% in June to 70% in July. Presumably, this was all due to tougher comps. Any other factors that you might point out that could have contributed to the slowing growth, and if it was due truly to tougher comps, can you help frame how comps will evolve over the next two to three quarters? Sure.

That's it again?

Sure. Principally tougher comps, a little bit of a seasonality, right?

If you take a look at the way the mortgage market tends to run, you tend to see a weaker mortgage market as you get toward the back half of the year. But in terms of tougher comps, the mortgage market really started to strengthen in 2019 in August and was very strong in September and was very strong in the fourth quarter. So you're going to see those tougher comps run through third quarter and fourth quarter, and then obviously you know how strong the mortgage market was in the first quarter and second quarter of 2020.

Got it. That's helpful. And then on the technology transformation program, could you provide a timeline on when you expect to sunset your legacy systems and perhaps frame the timing of when you expect to fully realize your cost savings that you outlined in the presentation?

Yeah, I think, you know, for today we're not ready to do that. We've tried to give indications on it. That's really probably getting more into our long-term framework as well as our – you know, outlook for, you know, 2021 or something, which, as you know, we're not providing guidance. But, you know, I think we've tried to be clear about we've got a lot of confidence in the benefits. We've tried to talk about, you know, when we're bringing applications online and databases into the cloud and then, you know, how we're progressing on customer migrations because, as you know, we've got to complete migrations in order to sunset, you know, our legacy infrastructure. So I think we're going to hold off doing much more detail than we already have. you know, until we get, you know, closer to 2021 and we're putting our one-term financial framework back in place. Got it. Thank you.

Next is Gary Bisbee, Bank of America Securities.

Hi, thank you. So, you know, I understand you're not giving guidance and there's a lot of uncertainty around mortgage trends and just trends in general, but it's If we think about at some point, you know, the mortgage business softening and obviously unemployment claims as well, can you help us think through how the decremental margins or, you know, would be on softer sales from those two end markets?

So, Jerry, again, I think that's kind of getting into kind of a longer-term view and a 2021 outlook, and we're just not ready to do that yet.

We've given a fair amount of commentary even in this discussion around the fact that our margins in mortgage are obviously not nearly as strong as they are in a normal online business, principally because of mortgage solutions, right? Because mortgage solutions repurchase files from our two competitors. So there's Those margins are still good in our mortgage business on average, but not nearly as high as we'd see in a normal online poll. But there's a lot of moving parts that are going to go into what 2021 and 2022 look like, so I think we're all going to have to see how the markets evolve, and we'll give you a lot more view as to what we expect for that as we get toward the end of the year.

Let me take another cut at that, and if you can't answer that, that's fine. But as I look at the incremental margin on revenue growth in the last five years at Workforce Solutions, it's obviously been terrific, and it's been relatively stable within a range, including the last few quarters where there's been a major benefit to revenue. Is there any reason, and I'm not asking you when and asking about 21, but any reason to think, when revenue, you know, if revenue were to weaken in that business temporarily, that you would see a very different incremental margin on the downside than you've seen on the upside?

So, again, I don't think we're really going to answer that in detail, right?

But what also goes into that is what actions we would take to manage the cost of the business that we have across the entire portfolio, not just specific to workforce solutions. So, again, I think we're kind of getting into more of a long-term outlook here, and at this point we're going to

I think we're going to have to ask you to wait until we get toward the end of the year.

All right, fair enough. If I could just sneak in one then on the pipeline, encouraging commentary on the win rates as well. Can you use level set for us? Is the pipeline back to the pre-breach levels, or are you still in the process of rebuilding that? And same question for win rates. Thank you.

I think with the pipeline, what we're seeing is it's improved a lot over the past three years. comparing pre- and post-prep pipelines is a little bit difficult, right? But I think the really promising thing that we're seeing is the pipeline is growing consistently, and then the win rate we're seeing against the pipeline is continuing to grow as well.

And again, we're speaking about USIS here, right? So I'd say that's what it looks like, and I think we feel good about that trend. Thank you.

That's all the time we have for questions today. At this time, I'll hand things back to Jeff Dodge for any additional or closing remarks.

I'd like to thank everybody for their time today, and I think with that operator, we can terminate the call.

Ladies and gentlemen, that does conclude today's conference. Thank you all for your participation today. You may now disconnect.