Good day, and welcome to the Equifax Second Quarter 2017 Earnings Call. Today's conference is being recorded. And at this time, I would like to turn the conference over to Mr. Jeff Dodge. Please go ahead.

Thanks and good morning. Welcome to today's conference call. I'm Jeff Dodge with Investor Relations; and with me today are Rick Smith, Chairman and Chief Executive Officer; and John Gamble, Chief Financial Officer; and Doug Brandberg with Investor Relations. Today's call is being recorded. An archive of the recording will be available later today in the Investor Relations section in the About Equifax's tab of our website at www.equifax.com. 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 set forth in filings with the SEC, including our 2016 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 margin, which will be adjusted for certain items that affect the comparability and the underlying operational performance. For the second quarter of 2017, adjusted EPS attributable to Equifax excludes acquisition-related amortization expense and the income tax effects of stock awards recognized upon vesting or settlement. Adjusted EBITDA margin is defined as net income attributable to Equifax, adding back income tax expense, interest expense, net of interest income and depreciation and amortization. These non-GAAP measures are detailed in reconciliation tables, which are included with our earnings release and are also posted on our website. Please also refer to our various investor presentations, which are posted in the Investor Relations section of our website for further details. Now I'd like to turn it over to Rick.

Thanks, Jeff, and good morning, everyone. Thanks again for joining us for our call. The second quarter was another solid, broad-based performance by the team. Revenue performance at USIS, Workforce Solutions and International was very strong in the quarter with all 3 units meeting or exceeding our expectations. Global Consumer revenue was weaker-than-expected, which I'll discuss later. Overall revenue performance for the quarter was strong and within our expectations, even though the FX headwind was stronger-than-expected. Adjusted EBITDA margin and adjusted EPS performance were both very strong in the quarter. Both were better than our expectations. Strong revenue growth and very high margin, USIS and EWS Verifier and in Canada and Argentina led to the strong margin and profit performance. The performance we have coming out of the second quarter positions us very well for the second half of 2017. Total revenue for the quarter was $857 million, up 6% on a reported basis and up 7% on a local-currency basis when compared to second quarter 2016. For the quarter, FX created about almost approximately $10 million of year-over-year headwind, which is more than we had expected. Revenue for the quarter adjusted for the higher FX impact, again, was within our expectations. The adjusted EBITDA margin was very strong at 39.1%, which is up 250 basis points over a year ago with very good expansion across all of our business units. Adjusted EPS was also very strong at $1.60, up 12% year-over-year. As I always do, I'll jump into some BU activities and come back to some corporate highlights and then turn it over to John. Let me start with USIS. They delivered a strong 8% revenue growth in the quarter, up from 5% in the first quarter. We delivered a stronger growth despite a weaker mortgage market in the…

Thanks, Rick, and good morning, everyone. As before, I will generally be referring to the financial results from continuing operations represented on a GAAP basis. We had a solid 2Q and first half, which puts us on a good path to deliver 2017. Revenue adjusted for FX was within our expectations, and adjusted EBITDA margins and adjusted EPS were very strong and well ahead of our expectations. USIS revenue in 2Q '17 was $332 million, up 8% when compared to the second quarter of 2016. This is very strong when considering the impact of the decline in overall mortgage market increase. Online Information Solutions revenue was $233 million, up 6% when compared to the year ago period. Online Information Solutions reflect double digit growth in Identity and Fraud Solutions and telecommunications revenues. The 6% growth in Online Information Solutions represents very nice acceleration from 1Q growth despite the impact of a weaker mortgage market in 2Q. Mortgage market increase weakened in 2Q versus 1Q, declining in the high single-digit percentages in the second quarter, which was consistent with our expectations. Total market-related revenue for Equifax -- total mortgage-market related revenue for Equifax was up 13%. We continue to expect a significant decline in mortgage market inquiries in 2017, but we now expect the decline to be somewhat less for the full year than the 15% we had discussed in our 1Q earnings release. For 3Q '17, we expect the mortgage market to be down 10% to 15% year-to-year with a significant decline also expected for 4Q. Financial Marketing Services revenue was $61 million in 2Q '17, up 15%. While revenue performance can be lumpy quarter-to-quarter due to project-related revenues in this segment, we were very pleased with our 2Q growth of 15%, which was up nicely on a sequential basis…

Thanks, John. Let me just give you a little color first on the third quarter and then the full year, then the operator will open up for some questions for all participants. For the third quarter at current exchange rates, we expect revenue to be between $853 million and $861 million, reflecting a growth rate of 6% to 7% with limited FX impact for the quarter. Mortgage market headwinds impact third quarter revenue growth by approximately 300 basis points. Adjusted EPS is expected to be between $1.50 and $1.54, which is up 4% to 7% for the third quarter also with minimal FX impact. Mortgage market headwinds impact adjusted EPS growth by over 500 basis points in the quarter. Also John mentioned earlier, third quarter 2016 had a tax benefit that did not reoccur in third quarter 2017 and that will impact adjusted EPS growth by about 300 basis points. As you know, our long-term growth model of 7% to 10% revenue growth and 11% to 14% adjusted EPS growth, adjusting for the expect mortgage headwinds. Our outlook for both revenue and adjusted EPS for the third quarter is nicely within our long-term model. The full year of 2017 guidance has improved as we've narrowed the range and increased the midpoint, shifting both revenue and adjusted EPS toward the upper end of our previous guidance. At current exchange rates, we expect revenue to end the year between $3.395 billion and $3.425 billion, reflecting constant currency revenue growth for the year of about 9%. We're increasing the bottom end of our range by $20 million in the guidance we had given earlier, which was $3.375 billion. We expect adjusted EBITDA margin for the year to be above 37%, which is up nicely from our previous guidance. We now expect adjusted EPS to be between $6.02 and $6.10, which is up about 10% and up from our earlier guidance of $5.96 to $6.10, and this reflects the high level of execution by the team and the strength of our diversified business model. And this is -- just to refresh your memories, on top of 23% adjusted EPS growth we delivered last year. Within framework of our long-term model and adjusted for mortgage market impact this year, our full year guidance for both revenue and adjusted EPS is also at the high end of our long-term model. So with that, operator, if you could open up for questions, please?

[Operator Instructions] And we will take our first question from Toni Kaplan from Morgan Stanley.

This is Patrick in for Toni. John, you referenced in your prepared remarks that total mortgage-related revenue was up something like 13% this quarter, while inquiry volumes were down in the high-single digits. I believe you reported a similar level of outperformance last quarter. So I'm just wondering as we think about the third quarter, three point headwind from mortgage and sort of the guide for the back half, whether or not that mortgage guidance might be overly conservative?

Patrick, let me jump in first and then John -- well, this is Rick. The performance you saw, one, we don't think is over conservative, to answer your question. Two is the performances you saw in the second quarter of outperforming the market and market is defined in many different ways, has not been a 1 quarter or 2 quarter or 1 year or 2 year anomaly, it's been long-term trend. So we continue to expect ourselves to outperform whatever the market does. We've given guidance, assuming the mortgage market that I think is pretty consistent with many economists, we expect to outperform that.

The big gap you saw in Q2 and Q1 between our performance and market performance, a chunk of it is trended data, right. So we had a nice growth from trended data, which started, as we said, in the third quarter of last year. And so part of that very wide gap is because of trended data revenue. But as Rick said, we'll still outperform the mortgage market as we go forward.

Great. And then a quick follow-up, if I could. I believe in the past, you've talked about Canada as more of a mid-single-digit grower. Given the stronger performance in the first half of this year, I'm wondering if at least over the next couple of quarters, whether or not we should expect that to be more like high single-digit grower.

You get a lot of noise quarter-to-quarter and geography-to-geography. And I don't pay much attention to that. We get great momentum in NPI, great momentum in Cambrian and across many verticals. So you may see quarter-to-quarter something outperforming and some quarter is underperforming, but long term, we still felt very good about being in that mid-single-digit growth as we spoke of high margins.

And we will take our next question from Manav Patnaik from Barclays.

This is Greg calling on for Manav. I appreciate all the color on the mortgage segment. I was just wondering if you could give a little color on how you're thinking about some of the other consumer classes like auto and cars, just given the interest rate backdrop.

I think from macro perspective, with interest rates not rising as maybe the economy had expected earlier in the year, it's not as -- you're not seeing the growth at the macro level maybe in the car business as you would have expected earlier in the year. But we have a wide range -- array of customers, and we've got some that are doing extremely well. You saw the performance in our marketing services, prescreening was really strong in marketing. Auto, even though you're seeing a plateauing of new car sales in the U.S. projecting it will be something over $17 million for the year. As, we participate on used car, Greg, as well as new car. Used car continues to grow. And we talked about our EWS business being lightly penetrated with a lot of room to grow. We signed a great contract with a partner in that arena in the last 6 months. That's continuing to fuel growth. So even though new car sales are plateauing, we continue to expect place like EWS and auto to be a good growth driver for us.

And then on the fraud and ID side, you sounded pretty excited about the InstaTouch and some of the other things you're doing there. A bunch of your peers have also talked about fraud and ID as being an important growth driver. So I'm just hoping if you could give some color on what you think can be the differentiator for you guys versus the peers?

Well, one, it's important to know, Greg, that we thought about fraud and ID is not just in the U.S. where we have the traditional competitors. It's in countries where we don't have necessarily traditional competitors. You go to Latin America, we plan on bringing fraud and ID we have into those countries. You think about Australia, we're really excited about bringing products like InstaTouch to Australia. So it is a global excitement that you're hearing from us, not just in the U.S. And InstaTouch is very unique. And what makes InstaTouch unique is not just the technology itself and the first mover advantage. And that's one small piece of fraud, by the way. It is also that coupled with our unique data assets that makes InstaTouch really powerful. And by the way, Greg, we also alluded to InstaTouch being a really exciting capability we're bringing to Workforce Solutions. And as you know, Workforce Solutions has the unique capability that we have in our business.

And we will take our next question from George Mihalos from Cowen.

Just wanted to ask, Rick, on the financial marketing again, which historically has kind of been -- if that's strong, it's sort of a harbinger of future growth coming your way. Do you still view that sort of relationship intact, that if you have the prescreen and everything else going up that, that will lead to a bit of an acceleration, if you will, in some near-term revenue?

Good question, George. So the strength, first of all, was in three unique areas. It was the portfolio management, it was prescreen and it's out IXI business, all three exhibited really strong growth. The correlation and connection between prescreen and online, and we talked about this last few years. There seems to be a slight decoupling. It used to almost be a one quarter lag between prescreen growth and an uptick in online. We're not seeing that necessarily that correlation. We're keeping an eye on it going forward. And if it does correlate, obviously, that's nice upside for our online business and USIS. We've not seen that direct correlation for the past few years.

Okay. I appreciate that. And then just I might have missed it, but just your confidence on consumer coming back in the fourth quarter. It just a matter of there was a push out again of some new products, and is that the driver or anything going on in the customer base that might worry you a little bit?

The confidence level, George, is extremely high, and we've got great visibility into contract-level details. And again, if you look at the first half in compared to third quarter, we saw modest growth in the first half, slight decline to flattish in the third quarter. We got that visibility. It gives us high level of confidence that fourth quarter will exit nicely in the range, and that will bode well for 2018. Okay. Operator.

And we will take our next question from Brett Huff from Stephens.

Two quick ones. One, you'll mentioned that you're going to try and get back to doing some buybacks later in the year or in 3Q. On a broader question of capital allocation, how are we still prioritizing things? I know you want to invest a lot organically. But as you look around, is there anything that you're particularly more focused on now inorganically?

Yes. First of all, strategically, Brett, the priority remains the same. It's investing in organic growth, it's protecting the dividend we talked about and it's investing in share repurchase and inorganic growth. As you might guess, we have been focused the last whatever it's been, 18 months or 19 months or so, on the integration of Veda and de-leveraging. So as you think about capital allocation in the back half of this year and going into 2018, John mentioned share repurchase. We're back in that arena and expect us to get back in the arena of acquisitions as well. We do a good job of that and it's tied to our strategy. We've got a good pipeline and we have the financial capacity to do so.

And then second question is when you think about prioritization of sort of the growth opportunities at some -- I know you have a lot of them, but do you think -- do you see a greater opportunity of simply taking the existing products you have in your most developed markets like the U.S. and spreading them around the world to different geos? Or is it do you feel there's more growth opportunity in sort of your NPI and just generating brand new products or maybe there's a balance?

Yes, let me start at a high level and drill down. Number one, if I had to prioritize a single highest growth prospect we have over the next three to five years, it's obviously The Work Number. We alluded to that, that we have had a record number of adds of employers and records to the database. We talked back, I think it was October of last year, that we had a short-term goal of getting 300 million records on that database. We have blown through that number and are over 320 million and we're on our way to 350 million. And you couple that with the penetration of different verticals, you penetrate it's get smarter in that arena and taking that then global. So Work Number is by far the number one area that I see for growth over the next five years in the U.S. and globally. Number two, obviously, NPI is always a very strong part of our growth, and that hits across many verticals and many countries. Categorically, we've talked about fraud being a very, very important market for us. We talked about InstaTouch just a second ago, and that hits all markets. Your comment on moving products around the country, we're getting better at that. That's a big part of what we are. It's cost efficient and it's effective to do. We'll continue to move things like our OSHA platform globally, Cambrian globally. Ignite will be another area in both direct and marketplace. It excites us as we port Cambrian worldwide. And oh yes, and debt services. Debt services. Interesting point in debt services, we tend to talk a lot, and there may be some questions today about Indesser. Debt Services in Indesser that the government in the UK has been a great growth driver for us. And interesting thing is over 50% of our revenue for debt services now comes from opportunities outside of Indesser and roughly 30% to 40% of it is outside of UK all together. We're deploying debt services now in virtually every country we operate around the world, and that's a great driver of growth this year, next year and beyond.

And we will take our next question from Tim McHugh from William Blair.

You probably explained this, but I may have missed it. I guess what part of consumer underperformed in the second quarter, relative to what you had expected? I think you had said. And then as you think about 2018, can you elaborate on, I guess -- I know you said you have line of sight to specific contracts, but I guess what parts of the business just more qualitatively are you expecting better performance in?

Yes. The miss, Tim, was -- I don't know if I mentioned specifically or not but it was in our direct business. And we're trying to reposition the business as we talked about, before we have four-pronged approach that Dan Adams and his team have been operating on. NPI is a very important part of that, globalization is a very important part of that, working with our indirect partners, getting new indirect partners. So it's not a silver bullet. It's a continuation of repositioning of the business that he's been on now for six to nine months. John, you want to add something?

Actually, the biggest area was really consumer direct business and also some of the white label areas just didn't quite show the growth that we expected. And as Rick said, we didn't see the expanded growth through channels and geographies that we had expected we would see in the quarter, and that's just lower than we thought.

And Tim, to reiterate, so we have great transparency. We can look at contract level, customer level, product level, channel level and we wouldn't see replacing. We've got confidence in returning to that long-term growth model in the fourth quarter unless we saw it, and we do see it.

Okay. And then just some model questions quick. On the debt, that was, I think, fairly expensive debt. So is that just a change in kind of the absolute debt level will run at going forward? Or I guess, will you replace that? Or how should we think about the balance sheet in that regard? I mean just the guidance -- sorry, go ahead.

We refinanced it with commercial paper. So the debt level didn't change but the mix of debt did.

Okay. And the guidance -- the small acquisition you did earlier or at least announced, I don't know if it's closed yet, is that incorporated into this at this point?

It is, but it's extremely small. It is not closed yet, to be clear. The hope is that gets closed sometime here in the third quarter, but it will be de minimis in the third and fourth quarter. More importantly, it's strategically an opportunity for Dan to get in that world of the benefits world and sell and monetize products. So long term, we're very bullish on that, I mean in 2018, but 2017, yes, it's in our guidance but it's de minimis.

And we will take our next question from Gary Bisbee from RBC Capital Markets.

This is Gunnar Hansen in for Gary. I just want to touch base. I guess going back to Veda, you guys cited the onetime project making for a tough comp last year. I guess any sense as to how big that was? And I guess, just the underlying growth in Australia and Veda in particular? And any particular product or verticals that are seeing strong growth or maybe a little more insight there?

Yes, it was -- by the way, the guidance we gave in the second quarter, obviously, we have full transparency in the onetime contract we had last year. So it was not a surprise on our end. Two, we remain very bullish on Australia and Asia as a whole. It can end the year with great growth. It will have a great third quarter and have a great fourth quarter. Well positioned for next year. Economic outlook remains very good for Australia. The consensus is 2.3 4 5 6 7% growth next year. Paulino, as I mentioned, is down there if he'll accelerate the adoption of some of our platforms and products and processes. So I remain very bullish on the entire region.

We also said that we're going to see for the last 9 months of 2017 growth in the high-single digits, so that includes the second quarter. And that high-single digit is at the high end of the range we indicated we'd see for Veda when we acquired them. So again, we feel very good.

Okay. And then, I guess, just you guys, I think, in December announced the enterprise-wide agreement with Silicon Valley firm. It -- has that driven a meaningful contribution to revenues? And has that established or driven any new partnerships that you guys have been working on?

Gunnar, the latter is the more important. As we talked about, it's a nice revenue contributor. But more importantly, it gives us the kind of the cache, the credibility in the digital market space, and we're seeing the benefit of that.

And we will take our next question from Andrew Jeffrey from SunTrust.

Couple of questions for you. I guess, first of all, Rick, it's good to hear that Verifier is enjoying new vertical growth. Can you talk a little bit about how penetrated you think you are at some of those new verticals and how long the runway might be for sustainable growth in that subsegment of EWS?

Yes. Andrew, it's amazing. I say this all the time. It is -- one, the visibility into the long-term growth is phenomenal. Meaning we see the levers that we can pull to continue to grow. If I look out 5 years, I see significant growth over the next 5 years for that business just in the U.S. alone and it could even be longer. And then you say growth, planting the seeds we're planting in Canada, Australia, U.K. gives you confidence in growth for years to come even after that. So vertical penetration, expansion, I think there's a whole new world of things we can do in that entire employer space and HR space that is yet to be tapped. So I'm extremely bullish. It's been hell of a run for us since we bought that company 10 years ago. On the revenue side, on the profit side is converting the model from a BPO model to a data and analytics and insight model is remarkable. And it shows through, as you know, in the top line as well as the margin expansion. So I mean, it would not be farfetched to say that in a period of time, that may be our largest, most profitable business we have in the world.

Okay. I mean, that's exciting. And obviously, there are lots of moving pieces still around ACA. But given what you know today or where you think we are in the potential legislative process, barring, say, a full repeal of ACA, it sounds like EWS is a business that could grow above your current long-term trends for some time. Is it reasonable to expect that as we get clarity, you might be upping those targets?

Right now, we're assuming that there is continued headwind around ACA. And if that changes, if there's no repeal and no replacement, obviously, that bodes well for the analytics business within EWS.

But as an example, for the second half an employer we're expecting to see the whole employer business to grow nicely in the second half of the year, right. So kind of high single-digit range. So we've not only seen good growth in Verifier, we're seeing good growth in employer as well, and that's with a flat FWA business.

Okay. So anything short of full repeal could be an incremental positive, maybe in the way you're thinking about that business right now?

Yes. I think so that would be more for 2018 rather than 2017.

Right. Okay. So hopefully, we'll have clarity by then.

And we will take our next question from Shlomo Rosenbaum from Stifel.

John, why aren't we seeing like an uptick in the minority interest as Indesser is doing better? Or shouldn't we start to see that increase more?

So minority interest generally scales with the performance of our International property because we have partners in many of our International properties around the world. So what you should see -- it doesn't tie perfectly because it -- obviously, the performance of different countries varies in any individual quarter. But in general, as you see, International growing more aggressively, you're going to see minority interest continue to go up as well. And we take that into account in our EBITDA calculation.

So you're saying that there's more than just Indesser in there?

Absolutely. We have partners in multiple Latin American countries, in Spain, in Russia. So we have partners in many places around the world. Generally speaking, they have relatively small percentages, but yes, we have partners in many of our businesses around the world.

And Shlomo, that's not new. We've had those partnerships for a long time. In many cases, long as my tenure here; in some cases like Russia where it's occurring since we've been there, but that's not a new phenomena for us.

Right. I'm just wondering, is that what we should expect though over the next year or so that we should see this line item expand as Indesser does better?

Well, the line item will expand in general as International does better, right, because the partnerships are broader than just Indesser, right. And the impact of minority interest is really driven by improvements in Argentina, in Chile, in Spain and in other parts of the world where we have Peru or where we have partners.

Okay. And then can you give us a little bit of order of magnitude between the variance in the mortgage services line item and kind of the MBA applications index that was down like almost 18.5%? How much of that was that -- the trended data and how much of it was the fact that you guys generally are working hard to outperform the market?

So we focus on different measures. So as we indicated, second quarter increase was down high-single digits and we'll probably try to variance off of that. Historically what you've seen is Equifax has outperformed the overall mortgage market by 5, 6, 7, 8 points, right. So that's kind of what the historical -- it looks like historically. It moves around quarter-to-quarter, but that's been historical move. Again, as we said, we've done much better than that for the past four quarters, and it's something that's because of trended data. Also you're seeing, as Rick mentioned, a continued improved penetration in Workforce Solutions, and that continues to drive outperformance relative to the mortgage market in general. And that, we believe, has legs for quite some time as well as new products continually being added by USIS.

And we will take our next question from Jeff Mueller from Baird.

Just on the global consumer side, I guess, as the DTC component and then slower than planned on the geographic and NPI. So in terms of the -- I hear you loud and clear on the confidence for Q4. When you talk about delays, is it a delay where you're slower to get into a market? Or is it a delay where once you're in market, there's a slower rate of market adoption? And then on the DTC side for Q4, are you assuming kind of a stabilization in the year-over-year trend? Or is there some assumption that it could continue to worsen and you can still get to the growth you're talking about?

Yes, Jeff, it's largely a stabilization on DTC. And really, the slowness was not as geographic expansion in new geographies, but it might be taking products into new geographies and products into existing geographies. So to be honest, that was an execution mostly around NPI within GCS. But to your question, we do expect DTC to slow, stabilize in the fourth quarter. And again, the confidence level is very high that we'll be back in that range.

And then the Verification Services growth was phenomenal in this mortgage environment. I think that you said that mortgage grew, and I understand the growth is broad-based, but can you just confirm that that's the case? And where are you in terms of mortgage penetration within Verification?

Well, we indicated that we gave our growth rate for mortgage for all of Equifax, and we think we said up 13%, right. So I can confirm that's correct. And in terms of penetration for mortgage in the GCS, in the Workforce Solutions business, I think we believe we still have a long way to go, right. Our penetration continues to grow, but as we continue to add more records, the hit rate continues to go up substantially, so our opportunities to generate revenue off mortgage from the Workforce Solutions business is substantial.

That's key.

And we will take our next question from Kevin McVeigh from Deutsche Bank.

I wonder if you could give us a sense, given the success you've had on the trended data side on mortgage, does it make it an easier transition to other parts of the business, and thus, even kind of quicker acceleration, if you would, across auto and consumer credits, so on and so forth? Or was it just the power that data speaks for itself?

It's a lot of it, Kevin. It's every vertical. We're excited. And to be very clear, we're excited about the opportunity to trend data. We're trending data right now in different verticals in different parts of the world. But every case has got a stand on its own merits. The KS list and the value you get. In auto, in a particular country, it got to stand on its own. The fact you've got a success in mortgage market has no real bearing on the adoption in that new vertical in that new country, but we're excited short term and long term about trended data.

And then, Rick, could you just remind us the mix in new versus used in the auto side, I mean given the growth and things like that. Just is it pretty similar in terms of where the revenue sits new versus used?

We don't break that out, but we play in both. That's what you need to know. So we are -- any time a car is financing, whether used we're there to play on verification of income, verification of employment and credit and credit score. So we're agnostic.

And we will take our next question from Andrew Steinerman from J. P. Morgan.

It's Andrew. I just wanted to clarify and check on the Employer Services within Workforce Solutions. I definitely appreciate the outlook. I'm just talking about the second quarter. Was the decline solely related to ACA analytics? Or is there anything else to discuss?

The decline was specific to ACA analytics, right. Other than -- if you exclude the Workforce Analytics business, we had growth of over 5% and the remainder of Employer.

Thank you, Andrew. Okay with that, operator, we will terminate the call. I appreciate everybody's time and interest in Equifax, and have a good day.

And this concludes today's conference. Thank you for your participation. And you may now disconnect.