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Edited Transcript of EFX earnings conference call or presentation 10-May-19 12:30pm GMT

Q1 2019 Equifax Inc Earnings Call

ATLANTA May 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Equifax Inc earnings conference call or presentation Friday, May 10, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* John W. Gamble

Equifax Inc. - Corporate VP & CFO

* Mark W. Begor

Equifax Inc. - CEO & Director

* Trevor Burns

Equifax Inc. - SVP of IR

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Conference Call Participants

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* Andrew Charles Steinerman

JP Morgan Chase & Co, Research Division - MD

* Andrew William Jeffrey

SunTrust Robinson Humphrey, Inc., Research Division - Director

* Ashish Sabadra

Deutsche Bank AG, Research Division - Research Analyst

* Brett Richard Huff

Stephens Inc., Research Division - MD

* David Mark Togut

Evercore ISI Institutional Equities, Research Division - Senior MD

* Gary Elizabeth Bisbee

BofA Merrill Lynch, Research Division - Analyst

* Georgios Mihalos

Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

* Keen Fai Tong

Goldman Sachs Group Inc., Research Division - Research Analyst

* Kevin Damien McVeigh

Cr�dit Suisse AG, Research Division - MD

* Manav Shiv Patnaik

Barclays Bank PLC, Research Division - Director & Lead Research Analyst

* Timothy John McHugh

William Blair & Company L.L.C., Research Division - Partner & Global Services Analyst

* Toni Michele Kaplan

Morgan Stanley, Research Division - Senior Analyst

* William Arthur Warmington

Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Analyst

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Presentation

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Operator [1]

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Good day and welcome to the Equifax First Quarter 2019 Earnings Conference Call. Today's conference is being recorded.

At this time, I'd like to turn the call over to Trevor Burns. Please go ahead.

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Trevor Burns, Equifax Inc. - SVP of IR [2]

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Thanks and good morning. Welcome to today's conference call. I'm Trevor Burns, Investor Relations.

With me today are Mark Begor, Chief Executive Officer; and John Gamble, Chief Financial Officer. Today's call is being recorded. An archive of the recording will be available later today in the Investor Relations section in the About Equifax tab of our website at www.equifax.com.

During this call, we will be making certain forward-looking statements, including second quarter and full year 2019 guidance, to help you understand Equifax and its business environment. These statements involve a number of risk factors, uncertainties and other factors that could cause actual results to differ materially from our expectations.

Certain risk factors inherent in our business are set forth in filings with the SEC, including our 2018 Form 10-K and subsequent filings. Also, we'll be referring to certain non-GAAP financial measures, including adjusted EPS attributable to Equifax and adjusted EBITDA, which will be adjusted for certain items that affect the comparability of our underlying operational performance.

For the first quarter of 2019, adjusted EPS attributable to Equifax excludes costs associated with the realignment of internal resources and other activities, acquisition-related amortization expense, the income tax effects of stock awards recognized upon vesting or settlement and foreign currency losses from remeasuring the Argentinian peso-denominated net monetary assets. Adjusted EPS attributable to Equifax also excludes an accrual for legal matters related to the 2017 cybersecurity incident, legal and professional fees related to the cybersecurity incident, principally fees related to our outstanding litigation and government investigations as well as the incremental nonrecurring project costs designed to enhance our technology and data security. This includes project costs to implement systems and processes to enhance our technology and data security infrastructure as well as the projects to replace and substantially consolidate our global network and systems as well as the cost to manage these projects. These projects that will transform our technology infrastructure and further enhance our data security were incurred throughout 2018 and are expected to occur in 2019 and 2020.

Adjusted EBITDA is defined as net income attributable to Equifax, adding back interest expense net of interest income; income tax expense; depreciation and amortization; and also, as the case for adjusted EPS, excluding an accrual for legal matters related to the 2017 cybersecurity incident; costs related to the 2020 -- 2017 cybersecurity incident; costs associated with the realignment of internal resources and other activities; and foreign currency losses from remeasuring the Argentinian peso-denominated net monetary assets.

These non-GAAP measures are detailed in reconciliation tables, which are included with our earnings release and are also posted on our website. In addition to the non-GAAP measures that we posted on our website, we will post after this call certain supplemental financial information on our website to better help you understand our business. Included with the supplemental information is historical actual and 2019 forecast U.S. mortgage market inquiries.

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

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Mark W. Begor, Equifax Inc. - CEO & Director [3]

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Thanks, Trevor, and good morning, everyone.

As you could see from our press release this morning, this has been a busy quarter for us, particularly during the past few weeks and days. We're pleased with our start to 2019 with strong progress on our strategic priorities and our financial results were within the guidance we provided in February. While we are continuing to return USIS to a growth mode, we're executing well against our EFX2020 initiatives.

Before I get into a discussion of our first quarter financial results and the business units, let me spend a few minutes discussing the $690 million charge we took this quarter related to outstanding litigation and potential fines related to the 2017 cybersecurity incident. We delayed our earnings discussion until this morning because we've made significant progress on our legal and regulatory settlements in the past few weeks. As you know, we've been in active discussions for months related to the 2017 cybersecurity incident, and those discussions accelerated in the past month. Importantly, the $690 million accrual we booked includes our estimate of probable losses associated with our global settlement discussions with certain federal and state regulators as well as the federal class action cases. We recently reached confidential settlement terms in the consumer federal class action cases that upon approval by the court will resolve and dismiss the claims asserted in the consumer cases. The proposed global settlement provides for the establishment of a single consumer redress fund, which was our goal, and certain other nonmonetary terms. As we've discussed previously, we believe the consumers are better served through a single consumer fund and a global settlement of the federal and state government investigations together with the consumer class action litigation. We expect to complete definitive settlement agreements with the parties in the coming weeks.

While this charge represents our current estimate to resolve many of the significant issues facing the company, we expect to incur additional losses associated with the other claims and litigation related to the 2017 incident. We will continue to work with all parties to bring these matters to closure as soon as possible while balancing the needs of our company, employees, customers and shareholders. As you know, we've prepared ourselves financially for this settlement by strengthening our balance sheet, including us suspending our stock buyback and freezing our dividend in 2017. This settlement will not have an impact on our internal investment plans, new product introductions, our $1.25 billion EFX2020 technology and security program or our plans to grow and expand Equifax with acquisitions. This is a positive step forward for Equifax as we work to put the 2017 cybersecurity event behind us.

Let me now move to our financial results. We're pleased with our start to the year as our first quarter financial results were consistent with the guidance we gave you in February with revenue in the middle and adjusted EPS at the top of the range provided. Revenue at $846 million was up almost 1% in constant currency. Foreign exchange further weakened during the quarter relative to our February guidance impacting revenue negatively by just under $2 million.

During the quarter, U.S. mortgage market inquiries again declined meaningfully, down 10%, but were better than our projection of down 13%. Excluding the almost 2% negative mortgage market impact, total constant currency revenue growth was 2.5%, and we were pleased with that.

Overall, our combined U.S. B2B businesses, USIS and EWS, performed better than our expectations, both benefiting relative to expectations due to the mortgage market with U.S. also delivering nice growth in off-line revenue and EWS delivering very strong Verification Services revenue growth.

EWS saw weakness in Employer Services revenue, which impacted overall growth. International revenue was only marginally weaker than our expectations as somewhat weaker-than-expected revenue in Australia was mostly offset by stronger revenue in Canada. And GCS was a bit weaker than we expected driven by lower U.S. subscriber growth. This weaker-than-expected GCS revenue was offset the better -- offset the better-than-expected performance in U.S. B2B. Adjusted EPS of $1.20 per share was on the top end of the guidance we provided in February.

In the first quarter, total nonrecurring or onetime costs related to the cybersecurity incident and our transformation, exclusive of the accruals for legal matters related to the 2017 cybersecurity incident, were $97 million and consistent with our expectations. This includes $83 million of technology and security spending, $12 million for legal and investigative fees and $2 million for consumer support. We continue to expect 2019 onetime costs related to the cybersecurity incident and transformation, exclusive of any legal accruals, to be about $350 million.

Now for some comments on the business units. USIS revenue was down almost 3% on a reported basis, as we expected, compared to last year with USIS up about 50 basis points, excluding the over 3 percentage point negative impact of the mortgage market on revenue. And that 50 basis point increase ex mortgage was quite positive from our perspective.

In the quarter, we also saw a mix shift in our mortgage business with transaction shifting towards our reseller channel. This also negatively impacted USIS revenue by over 1% in the quarter. Adjusting for both of these factors, nonmortgage revenue growth was up almost 1.5%, a positive sign of continued improvement by USIS and was slightly better than our expectations for the quarter. Our new USIS leader, Sid Singh, is driving a new level of energy and accountability with our customers in the USIS team. Inside of USIS, Mortgage Solutions was down 23% in the quarter given decline in the overall mortgage market and due to the mix shift with mortgage resellers, which occurred in fourth quarter 2018. Our USIS mortgage revenue can be impacted by movements between our 3-Bureau business in Mortgage Solutions and selling a single file to a mortgage reseller, which is included in our online business. We manage our Mortgage Solutions 3-Bureau business such that its dollar profit contributions exceeds the dollar profit of a single file to the reseller. Mix shift had negative impact of over 1% in USIS revenue growth in the first quarter while USIS operating profit was not materially impacted. We expect the revenue headwind from the mortgage mix shift to continue for the remainder of 2019.

Financial Marketing Services was up about 6% driven by new deal wins. This is the first time we've seen growth in FMS since our -- since prior to the cybersecurity incident. While we are encouraged by the growth in FMS this quarter, the timing of closing deals is still not as predictable as it was prior to the cybersecurity incident, which may impact the timing of future revenue in -- may impact the timing of revenue in future quarters.

Online was down 1%, but was up 2% excluding the mortgage market impact. While online did benefit from the mortgage market mix I previously discussed, this was partially offset by a decline in our direct-to-consumer revenue, which is revenue we generate with the other bureaus. Online was also benefited from continued growth in our telcom and utilities verticals.

In terms of customers, we're selling across the portfolio of USIS customers, and we should start to continue to see those benefits from these commercial engagement in the second half of '19. Our pipeline of new business continues to grow positively. We continue to believe that our differentiated data assets in USIS, coupled with our technology investments, will return the business to its traditional growth mode, but we remain cautious on the pace of the recovery.

We are confident in the USIS growth plan for 2019. USIS adjusted EBITDA margins of 42.9% were down 120 basis points from first quarter '18 primarily driven by lower fixed leverage as revenue declined in the quarter and additional investments in security and data analytics to drive new product. Partially offsetting these margin declines, USIS continued to effectively manage their SG&A costs, reducing both the dollars and percent of revenue from the fourth quarter restructuring that we did.

Shifting now to Workforce Solutions, they had a very strong quarter with revenue up 9%. Verification Services delivered very strong results with revenue up 16% driven by strong double-digit growth across health care, talent solutions, auto and government. EWS, like USIS, was also impacted by a decline in the overall mortgage market, which negatively impacted revenue by about 2.5 percentage points. Overall, EWS revenue, excluding the negative mortgage market impact, grew almost 11%, which we were very pleased with.

Employer Services declined in the quarter, down almost 4% driven principally by tax management services given low unemployment levels and to a lesser extent, Workforce Analytics and our ACA business, talent solutions, our I -- and our I-9 and onboarding businesses also a -- saw a growth in the quarter, which we expect to continue throughout the year. We expect Employer Services revenue to be down for the full year, consistent with the levels we saw in the first quarter.

The strong Verifier revenue growth resulted from -- in a very strong adjusted EBITDA margins of 49.4% and expansion in the quarter of 50 basis points. EBITDA margin growth was slightly offset by investments in sales resources to support incremental revenue growth activities. EWS continues to be a great Equifax franchise and positioned for a very strong 2019.

International revenue was down 8% on a reported basis and up 2.5% in local currency, but slightly below our expectations. The slower growth continues to be driven by the weak consumer and commercial lending markets in Australia that started to soften late in the third quarter of last year and to a lesser extent, the ongoing weak economic condition in Argentina. We expect the Australia and Argentina markets to remain weak through the bulk of 2019, although the revenue growth impacts will begin to lessen in the second half of '19 as we approach the periods of their initial declines in the third quarter of '18 in Australia and the second quarter of '18 in Argentina.

Our Latin America businesses grew mid-single digits in local currency in first quarter despite the continued headwinds in Argentina. Revenue growth was driven by double-digit constant currency growth in Chile and Ecuador and high single-digit constant currency growth in Paraguay and Uruguay. Our Latin America franchises continue to benefit from the expansion of Ignite + InterConnect SaaS and strong NPI rollouts in both 2017 and 2018. I was in Peru earlier this week meeting with our team and key customers.

Our European business in the U.K. and Spain grew mid-single digits in local currency in the first quarter '19. We saw a mid-single-digit local currency growth in our European credit operations and low single-digit growth in our European debt management business. I'll be in Madrid and London next week meeting with customers and investors.

Canada delivered another strong quarter with high-single-digit growth in local currency in the first quarter, consistent with the full year revenue growth rate of 8% we saw in 2018, reflecting a strong focus on customer innovation and new products. We're excited about the benefits our technology transformation will have in Canada. In the first quarter, we migrated our first Canadian customer into InterConnect in the public cloud. We also completed a small bolt-on acquisition in Montr�al, JLR, that brings unique real estate data assets to Equifax in Canada.

Asia Pacific, which is predominantly Australia for us, declined 2.5% in local currency in the first quarter principally related to the weakening we began to see in the third quarter last year in Australia consumer lending, particularly in mortgage and other consumer and commercial credit markets on Australia. Although only 1-month data, in April, we began to see signs of market bottoming in Australia. We expect second quarter to also see revenue declines, but Australia should return to growth in the second half, particularly with easier comparisons to last year in the second half. Despite the strong headwinds in Australia, we are encouraged by the growth potential. We continue to win top customers, particularly in telco, and we continue to hold a substantial data advantage in the Australian market.

As we mentioned last year, the move to positive data in Australia continues to progress well. At the end of April, just over 50% of the consumer accounts that have been share -- have been shared, and we expect to have over 80% by the end of the third quarter of this year. Incorporating positive data will allow us to develop new products for our customers as well as enable new use cases. For example, incorporating positive data into portfolio management solutions we believe provides more predictive outcomes than just using negative data. I'll also be in Australia in the next few weeks to spend time with the team and customers.

International adjusted EBITDA margins at 25.3% were down 410 basis points in the first quarter, principally reflecting lower margins in Australia and Latin America driven by Argentina. We expect growth in international to improve in the second quarter and improve significantly in the second half. The second quarter will be driven by stronger growth in Canada and Latin America and in the second half, growth returns to Asia Pacific with easier comparisons. We believe this improved growth, along with some additional cost reductions taken not only in the fourth quarter but, in the first quarter, will significantly improve margins in the second half.

Shifting now to Global Consumer Solutions. Their revenue declined almost 9% on a reported basis and 8% in local currency basis in the first quarter, and this decline was greater than our expectations. Our global consumer direct business was down about 20% and was just over 40% of total GCS revenue. As we discussed throughout 2018, our U.S. consumer direct business saw revenue declines about 20% as a result of our suspension of U.S. consumer advertising in the fourth quarter of 2017 after the cybersecurity incident. GCS began limited direct marketing to U.S. consumers in the fourth quarter, which continued into the first quarter, and we're starting to see subscriber growth from our restarted marketing a good sign as we begin 2019. We're also continuing to invest in our new consumer platform and are rolling out our myEquifax consumer portal and seeing growth in myEquifax members. We expect to see U.S. subscriber growth as the year unfolds.

Our GCS partner businesses, which are almost 60% of total GCS revenue, delivered mid-single-digit growth in the quarter. And ID Watchdog grew double digits in the quarter, which we expect that growth to continue in 2019. We expect GCS revenue to be down in second quarter at levels similar to the first quarter. However, starting in third quarter as we lap the periods where the consumer direct revenue began to stabilize in 2018, we expect to see revenue to return to flat and begin to grow in the second half as we move through the remainder of the year and into 2020.

Adjusted GCS EBITDA margins declined as expected in the first quarter as we saw the effective revenue loss and an increase in advertising. However, margins were up nicely on a sequential basis from fourth quarter '18, reflecting the sequential revenue growth. We expect margins in GCS in the second quarter to remain in the low 20s. However, we expect margins to increase in the second half as we see the benefit from stable to growing revenue driven by our return-to-consumer marketing and growing partner revenue as well as some cost actions that we took in the fourth quarter and some additional cost actions we took in the first quarter.

Shifting now to technology -- our technology transformation. In the last call, we laid out detailed plan for our $1.25 billion EFX2020 technology transformation for 2018 to 2020. We're convinced that our technology transformation will differentiate our products and our ability to deliver them by combining unique data assets, analytics and leading technology. It will also accelerate the speed of our products to market and the ease of which they're consumed and reduce our costs as we move our data and applications to the cloud. We're on plan with our time line to be completed with most major activities in our EFX2020 transformation program by late -- by the end of next year. We'll be posting after this call, as we did in the first quarter, our quarterly technology plan milestones for 2019 in our Investor Relations deck.

Let me give you some commentary on where we stand with our major technology plan tracks through the first quarter. First, our data fabric is being built on the global -- Google Cloud platform in a virtual private cloud environment utilizing GCP native tooling. Our data fabric will fundamentally make it easier for -- to bring our unique assets together, including customer data, to create new products and solutions for our customers. Our data fabric pattern is now in place at Google Cloud -- in the Google Cloud platform. And our USIS EWS Canadian and corporate teams are working actively on migrating the U.S. consumer credit, The Work Number and Canadian consumer credit exchanges to our new cloud fabric.

Establishing our data fabric pattern at GCP was delayed from our original planning. However, we remain on track to migrate several of our other U.S. and EWS exchanges, including NCTUE, IXI, DataX, I-9 and unemployment claims as well as Ignite, to the common data fabric by the end of this year. Beginning in the third quarter, any new data sets will be directly ingested into this new cloud-based data fabric. So a very strong progress on this first priority for us in our EFX2020 transformation.

Second, building on the latest suite of InterConnect and Ignite native -- and Ignite cloud native product offerings, we are using reusable application in cloud native services to rebuild our customer applications. Over the past year, Equifax has worked to migrate these applications to a virtual private cloud using cloud native services. We completed production implementations of Ignite Direct and InterConnect in a virtual private cloud in all global regions. We expect to complete the integration of Ignite and InterConnect app services in our VPCs this quarter to allow customers to seamlessly promote attributes and models defined in Ignite, including those driven by machine learning into production on interconnect. These services should be broadly available by the end of the second quarter.

Third, we will migrate customers from legacy decisioning systems, interface systems and Ignite instances to Ignite and Ignite product suite. Over the course of 2019 and 2020, we expect to migrate the vast majority of our customers to our next-generation InterConnect and Ignite cloud applications.

In USIS, we are on track to migrate approximately half of these customers by the end of this year with the balance of the customers migrated during 2020. The technology and business teams are focused on deploying standard industry solution sets that will both productize this Ignite + InterConnect service and make the migration experience as frictionless as possible for our customers.

Last, we'll migrate our global consumer systems and customer and consumer support systems using standard application services and cloud native services and operate them in the private cloud. Our new consumer system, Renaissance, that will include digital consumer support, is in the process of being migrated to a virtual private cloud environment using cloud native services. We expect to launch the first phase with EWS in the third quarter. Separately, we are deploying Salesforce in an integrated Genesys-Google contact center AI solution for customer and call center support worldwide. We expect significant deployment of all this system to be ongoing through the third quarter with consistently -- consistent quarterly releases thereafter.

I hope this gives you a sense of our intense focus and positive progress we have on making our technology transformation that will deliver new cloud-based technology to our customers. We're excited about the strong technology team that Bryson Koehler has built in the past 9 months. And all of these actions are being executed consistent with our commitment to be a leader in data, analytics and cloud-based technology. We continue to be convinced this investment will differentiate Equifax and move us back to a growth and market-leading position. We made good progress in the first quarter and will continue to -- our focused efforts in 2019 and 2020.

Shifting now. M&A remains an important avenue of growth for Equifax and is one of the key elements of our strategy for the future. Last month, you saw that USIS closed the acquisition of PayNet, a leader in commercial lending data and insights. We're excited to add PayNet in the team to Equifax. Their proprietary commercial leasing and loan data enables commercial finance and lending institutions to improve credit analytics on business credit underwriting and portfolio reviews. PayNet complements our existing commercial database that includes trade line information on short-term loans with longer-term loans and leasing payment data, a very unique commercial data asset. Customer reaction on the acquisition is very positive and integration is proceeding quickly. USIS revenue was not benefited in the first quarter by the PayNet acquisition. We expect the contribution to USIS revenue growth to be about 1.5% in the second quarter from the PayNet acquisition.

Next on new product innovation. That continues to be a key component of our strategy and a core strength at Equifax. We have an active pipeline of new product innovations with over 110 new products at various stages in the funnel, and we expect to launch over 50 new products in 2019, a pace similar to each of the past 3 years.

We're starting to see an increase in new product deployments in USIS. In the first quarter, USIS launched 7 new products, which will start to generate revenue later this year, but have greater opportunities for revenue growth in 2020 and 2021. As we have discussed, we expect NPI revenue in 2019 will be below historic levels in the U.S. However, this is a positive sign as U.S. collaborates with customers and returns to a growth mode with their new product integrations.

In the first quarter, USIS launched Insight -- a new Insight Score for Personal Loans, which developed in collaboration with fintechs is a risk score optimized to help lenders evaluate applications taking unsecured personal loans. The Insight Score for Personal Loans uses advanced modeling techniques by combining Equifax' unique data assets from telecommunications, utility and trended data using patented explainable machine learning capabilities to cover a broad spectrum of consumer profiles for personal loans. The new Insight Score for Personal Loans is a win for fintech companies and consumers as we help lenders develop greater predictive power and improve accuracy when evaluating applicants within or no credit files.

While M&A and NPI are core to our long-term strategy, we believe partnering opportunities are another avenue to deliver revenue growth at Equifax. As you recall, in March, we announced a strategic partnership agreement with FICO to launch the Data Decisions Cloud, an integrated end-to-end data and analytics suite that addresses key risk -- key needs across risk marketing and fraud to enable financial institutions to meet the needs of consumers faster and more precisely than ever before.

While we continue to focus on embedding our Ignite + InterConnect platforms with customers, this is an example -- the FICO partnership is an example of using partnerships to extend our reach. You'll see more partnerships to extend our distribution as we move through 2019. We also expect to identify additional areas to partner with FICO on as we continue to work closely with them. I'm very energized about what the FICO partnership means for our financial institutions and consumers.

So wrapping up. We've made several big and positive steps forward in our drive back to market leadership and growth during the first quarter.

First, we're pleased with our continued progress with our global settlement discussions with certain federal and state regulators as well as the federal class action lawsuits. We expect these settlements to be completed in the coming weeks and include a single consumer fund. We are also pleased to reach confidential terms in the U.S. consumer class action lawsuits. As you know, we've been preparing for this settlement, and we have the financial structure to absorb it while continuing to invest in the growth of Equifax internally and externally via acquisitions, including new products and our $1.25 billion EFX2020 investment in security program. This is a positive step forward as we work to put the 2017 cybersecurity event behind us.

Second, financially and operationally, we're pleased with our start to the year. USIS has a new level of energy under Sid Singh. The team is under front feet with customers with pipelines and commercial activity growing positively. EWS had a very strong quarter and is positioned for a very strong 2019. We are watching our international business closely, particularly with the Australian economy.

Third, we continue to invest in strategic acquisitions to expand our data assets, including the PayNet acquisition we announced last week.

Fourth, we continue to focus intensely on our EFX2020 technology and transformation plans that will move our data and applications to the cloud. We believe the investment will deliver speed, growth and reduce costs and differentiate us from our competitors. We'll continue to share our progress on EFX2020 during the rest of the year and in 2020.

Fifth, we continue to focus on expanding partnerships. In this quarter, we launched our new strategic partnership with FICO that brings unique data assets, technology and analytics to our customers to help them grow faster. You'll see further expansion of partnerships from Equifax as we move to 2019. And then we also continue to focus on new products with strong collaboration with customers.

As I pass the 1-year mark at EFX, I'm more confident than ever that we are moving Equifax in the right direction with positive progress on all fronts. We're investing at record levels to make Equifax a market leader in data, analytics and technology and security. We know that we still have a lot of work to do. We're excited about the opportunity ahead. John will share more detail, but we're also committing to our prior guidance for 2019. We are confident in our path forward and expect continued positive progress in 2019.

With that, let me turn it over to John.

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John W. Gamble, Equifax Inc. - Corporate VP & CFO [4]

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Thanks, Mark, and good morning, everyone.

I will generally be referring to the financial results from continuing operations represented on the GAAP basis, but will refer to non-GAAP results as well. As Mark covered our overall results, the business unit details, I will cover overall margins, some corporate items, free cash flow and our guidance.

For all of 2019, U.S. mortgage market increase are expected to decline about 2% versus 2018, which is stronger than the down 5% we had expected in February. 1Q '19 inquiries were down 10% versus the 13% we had expected in February. Increase in 2Q '19 are expected to be down about 1% to be about flat in 3Q '19 and slightly positive in 4Q '19.

In the first quarter, we extended the resource realignment activities principally in Australia, the U.K. and GCS that we began in 4Q '18 to further improve our cost structure. Related to these activities, we incurred an $11 million charge in 1Q '19. Total savings from the 2 combined actions are expected to exceed $60 million in 2019 with second half '19 savings exceeding the first half by about $10 million.

In the first quarter, general corporate expense was $833 million, excluding the nonrecurring costs associated with the 2017 cybersecurity incident and technology transformation and the costs associated with the realignment of internal resources, the adjusted general corporate expense for the quarter was $74 million, up $9 million from 1Q '18. This was about $5 million better than we had expected. The increase versus 1Q '18 predominantly reflects the increased investment in security and transformation and related technology as we ramp these costs in the first half of '18 and increased variable compensation given the timing of hiring certain executives last year.

Adjusted EBITDA margin was 30.5% in 1Q '19, down 300 basis points from 1Q '18 and in line with our expectations. As we discussed in February and as discovered in Mark's remarks, the decline in adjusted EBITDA margins year-to-year is principally about 2/3 in the BUs; about half in GCS, reflecting the lower consumer revenue and return-to-consumer advertising that Mark discussed; 1/4 in USIS as declines in revenue impact fixed leverage; and 1/4 in international, again, principally as revenue declines impacted fixed leverage; about 1/3 was increased corporate costs in 1Q '19, as I just covered. The BUs continue to do a very good job managing SG&A.

For 1Q '19, the effective tax rate used in calculating adjusted EPS was 24.1%, in line with our guidance. We continue to expect our calendar year '19 tax rate used for adjusted EPS to be about 24.5% with 2Q slightly higher than this level.

In 1Q '19, operating cash flow was $31 million compared to $120 million in 1Q '18. The decline was driven by the following items, several of which are onetime in nature. 1Q '18 -- in 1Q '18, Equifax received $35 million in insurance proceeds, offsetting costs incurred related to the cybersecurity incident. Equifax received no proceeds in 1Q '19. Investments in security and transformation of $97 million were up $18 million on 1Q '18. Employee variable compensation for 2018 paid in 1Q '19 exceeded the levels paid in 1Q '18 for 2017, the year in which no bonuses were paid to the CEO and senior staff by about $15 million. And payments in 1Q '19 related to the $57 million of charges taken in 4Q '18 and 1Q '19 for cost-reduction actions were about $11 million.

Capital spending or the cost of capital projects that was incurred in 1Q '19 of $95 million was up $38 million from 1Q '18 as we ramp investment in the cloud capabilities Mark described earlier. The capital spending is aligned with our estimate of $365 million for 2019. Capital expenditures, which are equal to capital spending plus the net change in payables related to capital spending, were $115 million in 1Q '19 as the activity that completed just prior to year-end was not paid until January. We do not expect similar large decreases in capital-related payables to occur in the remainder of 2019. The negative free cash flow we saw in the first quarter reflected this high level of capital expenditures. Excluding any payments related to settlements of litigation or regulatory actions, as we look forward, we expect to deliver positive free cash flow in each of the remaining quarters of 2019 and for 2019 free cash flow to exceed $200 million.

Now turning to our guidance for 2Q '19 and 2019. For 2Q '19, we expect revenue to be $865 million to $880 million, up 0.5% to 2.5% in constant currency. FX is expected to negatively impact revenue by 2.5%. Adjusted EPS is expected to be $1.32 to $1.37 per share. FX is expected to impact adjusted EPS negatively by about $0.035 per share.

In February, we provided some perspective on the factors impacting 2019 resulting in an unusual seasonal pattern for Equifax and overall negatively impacting both 1Q and 2Q '19. Impacting revenue in the first half of '19 were market factors, including the U.S. mortgage markets, Australian credit markets and Argentinian economic weakness and expected GCS revenue declines in the first half.

In February, we had expected that in total, these factors would impact 1Q '19 revenue by about $30 million and would continue to impact revenue in 2Q '19, although to a lesser degree. In 1Q '19, although the U.S. mortgage market was about 3% better than expected, GCS, which declined about $8 million, and to a lesser extent, Australia, were weaker than expected, offsetting this benefit.

In 2Q '19, in line with our February view, we expect these factors to impact revenue by over $15 million. Again, although the U.S. mortgage market is now expected to only decline slightly, GCS will be down more than previously expected at about the same levels as 1Q '19. International is still being impacted by Australian credit market weakness. FX is also negative to revenue versus our February view by about $5 million.

Impacting operating profit and EPS in the first half of '19 were profit impacts of the revenue impacting factors and higher corporate costs in first half '19 relative to first half '18. As we indicated in February, the higher corporate costs reflect the significant ramp in security and related technology costs in 2018 that not -- that did not reach their run rate until the second half of '18, also higher equity and variable comp in 2018 relative to 2017 and increased spending on data and analytics.

In 1Q '19, these factors impacted operating profit by approximately $30 million as expected as lower cost -- corporate cost increases were offset by greater impact from GCS. In 2Q '19, we expect these factors to impact operating profit by over $15 million. Although mortgage market impact will be minimal and much less than anticipated in February, GCS operating profit will have a negative impact that will be greater than expected. Increased corporate costs, principally in security and related technology and data and analytics as well as lower Australia operating profit, will continue to impact 2Q '19 as we had expected.

The 2Q '19 tax rate and interest expense are expected to be consistent with the guidance we provided in February, specifically that our 2019 tax rate for adjusted EPS is expected to be just over 24.5% and that quarterly interest expense is expected to be approximately $2 million, reflecting our May 2018 bond issue.

The combination of the over $15 million impact to operating profit as well as the increased interest expense and expected 24.5% tax rate principally explain the year-to-year decline in adjusted EPS in the second quarter of '19.

Our full year 2019 guidance for Equifax revenue and EPS are unchanged from the previous guidance we provided in February with revenue between $3.425 billion $3.525 billion and adjusted EPS between $5.60 and $5.80 per share.

Revenue improvements from the acquisition of PayNet and a smaller decline in the U.S. mortgage market are principally offset by a decline in expected GCS revenue, a somewhat deeper decline in the Australian credit markets impacting international revenue and negative FX to revenue of about 0.5% since our February view. This change in revenue mix is negative to margin and operating profit. Our actions to manage costs will allow us to maintain our adjusted EPS guidance as well as the year-over-year improvement in BU EBITDA margins.

Our guidance for 2019 implies that our second half performance will be stronger than the normal sequential pattern in both revenue and operating profit. This is principally driven by nonmortgage growth in USIS as well as sequential growth across all regions in international. We expect EWS to continue the strong year-to-year growth that they will show in the first half of '19 into the second half, and we expect GCS to return to year-to-year growth in the second half of '19

In terms of operating profit, we expect all BUs to show stronger-than-normal sequential operating profit growth in the second half. This is driven by the stronger sequential revenue growth in USIS and international. This is also driven by the cost reductions executed over the last 2 quarters that will benefit sequential margins in international as well as GCS and workforce. Delivering this performance requires we continue strong execution across our team as well as continued focus on firmly managing costs throughout 2019.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question will come from Manav Patnaik with Barclays.

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Manav Shiv Patnaik, Barclays Bank PLC, Research Division - Director & Lead Research Analyst [2]

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

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Mark W. Begor, Equifax Inc. - CEO & Director [3]

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Yes. Thanks, Manav. As you heard me earlier mentioned, we've -- we're not prepared to talk about which settlements are included here and which are not, but that we were trying to be clear that included the significant issues facing the company. Our expectation is in the coming weeks, as I also mentioned earlier in the call, we'll have some real clarity around that once we finalize the discussions that are actively underway.

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John W. Gamble, Equifax Inc. - Corporate VP & CFO [4]

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

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Mark W. Begor, Equifax Inc. - CEO & Director [5]

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Yes.

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Manav Shiv Patnaik, Barclays Bank PLC, Research Division - Director & Lead Research Analyst [6]

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

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John W. Gamble, Equifax Inc. - Corporate VP & CFO [7]

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

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Manav Shiv Patnaik, Barclays Bank PLC, Research Division - Director & Lead Research Analyst [8]

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And for the full year?

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John W. Gamble, Equifax Inc. - Corporate VP & CFO [9]

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

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Mark W. Begor, Equifax Inc. - CEO & Director [10]

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

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Operator [11]

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We'll now hear from George Mihalos with Cowen.

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Georgios Mihalos, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [12]

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

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Mark W. Begor, Equifax Inc. - CEO & Director [13]

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Yes. I think on the last one, that's one that I tried to be clear in my comments. First off, we were pleased to see that growth, which is really the first growth that we've had since the cyber incident in 2017. Those pipelines are building also. But I would still characterize the pipeline's there and then broadly, in USIS is still building. Meaning, they're not at full maturity. We've made great progress. As you know, go back a year ago, we were on hold with many of our customers. And that really improved as it went through the year. So the pipeline's broadly, as well as in the financial marketing side, really started building in the fourth quarter and into the first quarter. And I tried to give some color that, that pipeline is continuing.

And I also highlighted our new leader has brought what I would characterize as a new level of energy and focus and accountability with that team as well as commercial engagement. I'm spending a lot of time with customers as does Sid, our new leader. And the -- all the discussions are around growth: help us with new products, help us with new ways to grow our business. We want to access Equifax assets. So we're seeing good momentum there and -- but we still expect USIS and financial services to be what I would characterize as choppy until they get the full maturity around their pipelines, which it's hard to predict when that's going to be. We just haven't seen it yet.

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Georgios Mihalos, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [14]

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

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John W. Gamble, Equifax Inc. - Corporate VP & CFO [15]

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

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Mark W. Begor, Equifax Inc. - CEO & Director [16]

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

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Operator [17]

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

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David Mark Togut, Evercore ISI Institutional Equities, Research Division - Senior MD [18]

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

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Mark W. Begor, Equifax Inc. - CEO & Director [19]

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Yes. In terms of the overall market performance, we haven't seen much of a change, really. I think you've probably seen that from what the banks have announced, right? Over the last several quarters, we're continuing to see the same trends that we saw in the fourth quarter continuing into the first quarter in the card market. In the auto market, you're seeing -- you might be -- you're starting to see delinquencies pick up a little bit in subprime, but that really tends to be relatively localized, we believe. And you're actually seeing the overall credit quality we think of the entire auto portfolio actually improving. So -- but generally speaking, the trends in the markets we serve, as you mentioned, other than mortgage, we think are relatively consistent with what we saw late last year.

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David Mark Togut, Evercore ISI Institutional Equities, Research Division - Senior MD [20]

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And the trended?

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John W. Gamble, Equifax Inc. - Corporate VP & CFO [21]

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Sure. Trended data, I think trended data is a key part of what we're trying to deploy, and we continue to expand our product focus on trended data. I think probably the most important thing, as Mark indicated, is as we move more and more to data fabric, you'll see an increasing number of products that are focused on trended information. We still think we're the only party out there with trended commercial products, which will certainly extend now that we have acquired PayNet. And it's something that we continue to expand in our portfolio. It isn't the driver behind our NPI, but it is an -- it is something that we're focused on in NPI.

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Operator [22]

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We will now hear from Andrew Steinerman with JPMorgan.

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Andrew Charles Steinerman, JP Morgan Chase & Co, Research Division - MD [23]

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This is Andrew. I wanted to ask about visibility in USIS. I definitely heard you talk about the new leadership and the growing pipeline and the new level of energy. But could you just give us a sense of how much revenue visibility you have now versus 6 months ago in USIS, and I mean that's separate from any mortgage dynamic?

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Mark W. Begor, Equifax Inc. - CEO & Director [24]

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Yes. Maybe I'll start, John, and then you can jump in. Andrew, you put a great mark around there. You go back 6 months ago, it's probably a good mark to look back on. There's no question our revenue visibility has increased dramatically in how we can look through in USIS versus where we were last summer. That visibility has improved as we went through the fourth quarter and certainly into the first. We are still trying to be clear with you and our other investors and analysts that while that visibility is getting stronger, which -- one metric for that is our pipelines and how they're growing and how they've been rebuilding, it's still not back to where it was before the cyber incident in USIS. That's really the business where that's still moving forward. So I would say, a lot more visibly that we had 6 months ago. And part of that is -- gives us the confidence in our comments around guidance for both second quarter and as well as the second half. I think, as you know, we're showing the second half of this year improving on a year-over-year basis at a faster rate than the first half. And we're doing that based on our confidence and our visibility. Would you add, John?

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John W. Gamble, Equifax Inc. - Corporate VP & CFO [25]

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I think Mark covered it all, right? But -- and the fact is, I think we're starting to see more consistency in terms of delivery versus near-term forecast, right? And that gives us comfort that the visibility that we believe we have as we look forward is starting to improve. It's not what it was 2 years ago, but the accuracy of our forecast versus delivery is certainly getting better.

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Mark W. Begor, Equifax Inc. - CEO & Director [26]

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

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Operator [27]

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

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Toni Michele Kaplan, Morgan Stanley, Research Division - Senior Analyst [28]

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

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John W. Gamble, Equifax Inc. - Corporate VP & CFO [29]

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

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Mark W. Begor, Equifax Inc. - CEO & Director [30]

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And the second half of your question about buyback or dividend, we're not prepared to make -- have any discussions about what our plans are in that front yet. We need to finalize these discussions, as John pointed out, finalize the timing of the payments. We've been clear with you and other investors that we also want to see some clarity on the USIS recovery, which is positive, but still not as predictable as we would like. And then the other leg on that chair about our capital allocation plan is around the EFX2020 technology investment that we're in the middle of, and we want to see a little more visibility on kind of schedule and delivery on that. So a long-winded answer around a question around stock buyback or dividend, that's the discussion that we'll be having in the future with you. We're not ready to have that today.

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Toni Michele Kaplan, Morgan Stanley, Research Division - Senior Analyst [31]

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

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Mark W. Begor, Equifax Inc. - CEO & Director [32]

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Yes. No, haven't seen those kind of dialogues around, you characterized, client caution. We have seen an increased dialogue with our customers around their work. And we're partnering with them to do that about preparing for a potential economic slowdown. And what that really means, as you know, some of their focus around data assets changes to line management, credit line decreases, credit and collections, a different focus on underwriting. So we've had -- got a number of customer dialogues going about wanting to work with us to be prepared for a potential economic slowdown. I don't think anyone is predicting it, but I would see -- say that's a change for me in the last 3, 4, 5 months than it was kind of the middle of last year where that dialogue has been added to the kind of growth dialogue.

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Operator [33]

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We will now hear from Kevin McVeigh with Credit Suisse.

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Kevin Damien McVeigh, Cr�dit Suisse AG, Research Division - MD [34]

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

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Mark W. Begor, Equifax Inc. - CEO & Director [35]

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Yes. I'd assume you're referring, Kevin, to like the benefits of speed to market and cost savings and all that stuff when -- if that's where you're heading, we're working on that. We're going to be prepared to share that in the future with you and our investors. We're not ready to do that yet. But we try to be quite clear that we view this investment, not only for USIS, but what we're doing around the globe, as being transformational. We think it's going to differentiate us from our competitors. It's something that would be hard for our competitors to do at the same pace we're doing. And we're seeing -- that there's clear cost benefits of cloud versus legacy. There's clear stability, reliability benefits. Meaning, our focus is to move to always on versus 3 9s, 4 9s, 5 9s of stability. In today's world, that's critically important. And then the speed to market, the ability to get products to market or in just data assets in weeks versus months, is going to be another real benefit. So we continue to be energized about what it's going to deliver, and we know we've got a plan and the requirement to really share with you guys some clarity around those benefits. And I think that'll certainly come to the table when we're ready to put our long-term framework back in place. I think that's the time that we'll share some real visibility about not only our view of Equifax for the future, but the view of Equifax including our investment in technology and security through EFX2020.

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John W. Gamble, Equifax Inc. - Corporate VP & CFO [36]

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

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Kevin Damien McVeigh, Cr�dit Suisse AG, Research Division - MD [37]

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Super helpful. And then just any initial thoughts on the reception to the FICO partnership from a client perspective?

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Mark W. Begor, Equifax Inc. - CEO & Director [38]

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Yes. It's a great question. It's quite positive. You know we made the announcement back in March, and we were working with FICO for about 6 months on this and started talking to customers really in the fourth quarter about it. And between us and FICO, we've got a pipeline of, I don't know, a couple of dozen customers that are really energized about it. But the feedback is quite positive from customers about this is an option. Customer still want to buy from FICO directly. They want to buy from Equifax directly. But there's a set of customers that are really energized about the benefits that come from an integrated solution of FICO's software assets and Equifax' Ignite + InterConnect and differentiated data assets. So we're energized about it as we roll through the second quarter and into the second half.

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Kevin Damien McVeigh, Cr�dit Suisse AG, Research Division - MD [39]

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Super. Congrats.

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Mark W. Begor, Equifax Inc. - CEO & Director [40]

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Thanks.

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Operator [41]

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And our next question will come from Ashish Sabadra with Deutsche Bank.

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Ashish Sabadra, Deutsche Bank AG, Research Division - Research Analyst [42]

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Just a quick follow-up on an earlier comment about trends in regards to FMS. So FMS is essentially batch downloads both for marketing as well as decisioning. Have you seen a better demand on one versus another or any particular verticals where you have seen trend?

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John W. Gamble, Equifax Inc. - Corporate VP & CFO [43]

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

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Ashish Sabadra, Deutsche Bank AG, Research Division - Research Analyst [44]

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

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Mark W. Begor, Equifax Inc. - CEO & Director [45]

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

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Operator [46]

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

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Timothy John McHugh, William Blair & Company L.L.C., Research Division - Partner & Global Services Analyst [47]

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

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Mark W. Begor, Equifax Inc. - CEO & Director [48]

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

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John W. Gamble, Equifax Inc. - Corporate VP & CFO [49]

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The team has done a nice job of putting the customers in categories. We have some customers where the impact on them will be relatively minor because they use gateways more than anything else. So that's a relatively small lift for them and quite straightforward. Other customers that use our decisioning very heavily, we actually manage the decisioning system for them. So in that case, we can do most of the work. And for them, it's mostly testing, which isn't a nothing lift, but it's -- but we can try to take a lot of the heavy-lifting ourselves. And then with kind of the rest of the customers, which is a large group of customers, the team has done a really great job of building out standard solution architecture sets that they can help the customers deploy more rapidly and that should actually give them more functionality than they have today.

So it's not just a migration we're saying, it's a migration that gets them more and gets them on to a standard product set that will allow them to actually extend the usage of the product. And we're going to build on that as we go forward, and that's a promise we're making to the customer. So I think they have a very good plan that's structured well and that they're progressing on.

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Timothy John McHugh, William Blair & Company L.L.C., Research Division - Partner & Global Services Analyst [50]

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Those customers that you're starting or you mentioned, should I think of those as the simpler ones that you want to start with? Or are they the bigger or smaller customers, anything about the kind of the initial cohort?

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John W. Gamble, Equifax Inc. - Corporate VP & CFO [51]

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No. Actually, it's done, as Mark said, based on when the customer's ready to engage. So a lot of the smaller ones occurred, that's certainly true because that's more within our control. But there's also substantial customers where we're also working on migration already. So it's really depending on when the customer is ready to receive the work.

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Operator [52]

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Your next question will come from Andrew Jeffrey with SunTrust.

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Andrew William Jeffrey, SunTrust Robinson Humphrey, Inc., Research Division - Director [53]

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

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Mark W. Begor, Equifax Inc. - CEO & Director [54]

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John, do you want?

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John W. Gamble, Equifax Inc. - Corporate VP & CFO [55]

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

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Mark W. Begor, Equifax Inc. - CEO & Director [56]

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

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John W. Gamble, Equifax Inc. - Corporate VP & CFO [57]

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

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Andrew William Jeffrey, SunTrust Robinson Humphrey, Inc., Research Division - Director [58]

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

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Mark W. Begor, Equifax Inc. - CEO & Director [59]

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

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Operator [60]

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We'll now hear from Gary Bisbee with Bank of America.

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Gary Elizabeth Bisbee, BofA Merrill Lynch, Research Division - Analyst [61]

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

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Mark W. Begor, Equifax Inc. - CEO & Director [62]

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

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Gary Elizabeth Bisbee, BofA Merrill Lynch, Research Division - Analyst [63]

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Okay. And so I mean if you...

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John W. Gamble, Equifax Inc. - Corporate VP & CFO [64]

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We have customers who want to work with us to help us do this faster so we can help them, right?

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Mark W. Begor, Equifax Inc. - CEO & Director [65]

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Totally.

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John W. Gamble, Equifax Inc. - Corporate VP & CFO [66]

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Yes. It's a very positive thing.

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Mark W. Begor, Equifax Inc. - CEO & Director [67]

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

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Gary Elizabeth Bisbee, BofA Merrill Lynch, Research Division - Analyst [68]

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

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Mark W. Begor, Equifax Inc. - CEO & Director [69]

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Yes. It's hard for me, Gary, to talk about the technology savings. I think we'll get to that when we put our long-term framework back in place. But I think you see us making decisions now and we have in the last 6, 12 months around investment decisions. We did our fairly significant restructuring in the fourth quarter and took some of those cost savings to the bottom line. But we also plowed savings back into more commercial resources. We've plowed savings back into more DNA resources. We're obviously investing a ton in technology. You're very visible on that and security. So -- and then NPI and new products has been and continues to be a priority for us where we're continuing to make significant investments. And we give you visibility on the new products we're rolling out to the marketplace. And some of that new product work is coming through our technology transformation. So we're investing in the future today. And what we do with the benefits from our technology and security investment, I think we'll talk about that when we get to our long-term financial framework.

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Operator [70]

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

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William Arthur Warmington, Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Analyst [71]

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So first, congratulations to Mark on hitting the 1-year mark and on settlement. So first question for you is on the price increase that FICO put through this year starting January 1. They -- that's going to phase in throughout 2019. Equifax is a big player in auto. And I was hoping you could help us understand how that could potentially help USIS in the second half.

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Mark W. Begor, Equifax Inc. - CEO & Director [72]

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John, do you want?

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John W. Gamble, Equifax Inc. - Corporate VP & CFO [73]

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Yes. So obviously, the FICO price increase impacts us. It impacts our customers. We pass it through to our customers, and it -- it's -- it will impact both revenue and margin. It's kind of a very similar story to what we had last year with the price increase related to mortgage. So it's really no different than that. In terms of magnitude, we don't give specific numbers in terms of the magnitude of dollars that occur with the partner. But it'll be very similar in concept to what happened with mortgage, just much smaller.

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William Arthur Warmington, Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Analyst [74]

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

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Mark W. Begor, Equifax Inc. - CEO & Director [75]

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

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Operator [76]

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

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Keen Fai Tong, Goldman Sachs Group Inc., Research Division - Research Analyst [77]

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

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Mark W. Begor, Equifax Inc. - CEO & Director [78]

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

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Keen Fai Tong, Goldman Sachs Group Inc., Research Division - Research Analyst [79]

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

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Mark W. Begor, Equifax Inc. - CEO & Director [80]

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Well, on the Salesforce, we continue to energize our sales team or incenting them and there's some new talent coming in. Obviously, we have a new leader in the business now, which I'm quite energized about the last 60 days under Sid's leadership. As regards to the pipeline building, I don't have any metrics. John?

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John W. Gamble, Equifax Inc. - Corporate VP & CFO [81]

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And we don't disclose pipeline metrics. So...

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Mark W. Begor, Equifax Inc. - CEO & Director [82]

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Yes. But we try to give visibility and just maybe more anecdotally here that John and I are seeing those pipelines build. And the evidence for you is USIS kind of delivering what they -- what we commit that they're going to do, and we've done that for a couple of quarters and we want that to continue.

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Operator [83]

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We'll now hear from Brett Huff with Stephens.

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Brett Richard Huff, Stephens Inc., Research Division - MD [84]

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Two questions from me. One, can you talk a little bit about PayNet? I want to make sure I understand that it's 150 basis points in 2Q on USIS help or total company help? I guess that's just a housekeeping question.

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Mark W. Begor, Equifax Inc. - CEO & Director [85]

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USIS.

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Brett Richard Huff, Stephens Inc., Research Division - MD [86]

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

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John W. Gamble, Equifax Inc. - Corporate VP & CFO [87]

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Yes. So for the full -- you wanted the full year?

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Brett Richard Huff, Stephens Inc., Research Division - MD [88]

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Yes.

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John W. Gamble, Equifax Inc. - Corporate VP & CFO [89]

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So the full year, PayNet was a plus, exclusive of the mortgage market would be better, would be less bad than we had indicated initially. And then the weakness at GCS is a bit weaker than we said initially back in February than we thought. And FX was quite a bit more negative than we thought, right? We said 0.5 point of growth is -- were being impacted by FX. And probably the smallest of the 3 is -- Australia is a bit weaker, but that isn't the driver.

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Brett Richard Huff, Stephens Inc., Research Division - MD [90]

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

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John W. Gamble, Equifax Inc. - Corporate VP & CFO [91]

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

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Operator [92]

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

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Trevor Burns, Equifax Inc. - SVP of IR [93]

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

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Operator [94]

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