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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, and welcome to the Equifax First Quarter 2018 Earnings Call. Today's call is being recorded. At this time, I'd like to turn the call over to Trevor Burns. Please go ahead, sir.
Thanks and good morning. Welcome to today's conference call. I'm Trevor Burns, Investor Relations. With me today are Mark Begor, Chief Executive Officer; Paulino Barros; John Gamble, Chief Financial Officer; and Jeff Dodge, Investor Relations.
Today's call is being recorded. An archive of the recording will be available later today in the Investor Relations section in the About Equifax tab of our Web site at www.equifax.com.
During this call, we will be making certain forward-looking statements to help you understand Equifax and its business environment. These statements involve a number of 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 our filings with the SEC, including our 2017 Form 10-K and subsequent filings.
Also, we will be referring to certain non-GAAP financial measures, including adjusted EPS attributable to Equifax and adjusted EBITDA, which will be adjusted for certain items that affect the comparability of the underlying operational performance.
For the first quarter of 2017, adjusted EPS attributable to Equifax excludes, among other things, acquisition-related amortization expense, and the income tax effects of stock awards recognized upon vesting or settlement. Adjusted EPS attributable to Equifax also excludes certain costs related to the cybersecurity incident. These include cost to investigate the cybersecurity incident, legal and professional services and a contingent liability for costs associated with providing free credit file monitoring and identity theft protection services to consumers. Included with cost related to the cybersecurity incident and therefore excluded from adjusted EPS attributable to Equifax of the incremental non-recurring project cost designed to enhance IT and data security. This includes projects to implement systems and processes to enhance our IT and data security infrastructure, as well as projects to replace and substantially consolidated our global networking systems, as well as the cost to manage these projects. These projects that will transform our IT infrastructure and further enhance our IT and data security are expected to occur throughout 2018 and 2019.
Adjusted EBITDA is defined at net income attributable to Equifax adding back interest expense net of interest income, depreciation and amortization, income tax expense, and also as is the case for adjusted EPS, excluding certain one-time items including costs related to the cyber security incident. These non-GAAP measures are detailed in reconciliation tables, which are included with our earnings release and are also posted on our Web site. In the Form 10-Q, to be filed later today, we will disclose the future losses from litigation or reasonably possible but not yet estimable at this early stage in the proceedings.
Now, I'd like to turn it over to Mark.
Thanks, Trevor, and good morning everyone. I think as all of you know, I joined Equifax last week, so I'm into week two here at Equifax. It's exciting for me to join my first Equifax earnings call. And most importantly, take the helm of Equifax at such a pivotal time in our history. I want to start my comments by assuring consumers and customers of my absolute commitment, as well as our team's absolute commitment, to making Equifax a leader in IT and data security, to protect the sensitive consumer and customer data with which we have been entrusted, and to empower individuals to understand and manage personal data.
I also want to take a minute to thank Paulino for the outstanding job he did as interim CEO and for continuing to be a part of our leadership team into early 2019. During Paulino's time as CEO Equifax has made significant progress in four areas of focus outlined as critical to our success in transforming Equifax following the cybersecurity incident. And those four elements are: Number one, to protect and empower consumers. Number two, become an industry leader in data security and identity protection while transforming our IT infrastructure and data security to industry leadership levels. John will talk about the sizable investments in this are in the first quarter and in 2018. Third, rebuild confidence with customers and partners, and I'll talk a little bit about our progress there. And fourth, respond to and work with the government and other regulatory bodies as they investigate the incident.
In the fourth quarter earnings call, in early March, Paulino and John covered in detail our plans and progress across these areas. Ensuring continued consistent execution in this transformation in this massive infrastructure investment that we're making is critical to the success of Equifax, and has my personal commitment as well as the focus of the entire Equifax team. I came to Equifax two weeks ago because I believe in the business. I believe in the strategy and I believe in the team. Equifax's strategy over the past decade has been based on the sound yet simple principle of combining industry-leading analytics and machine learning, unique credit income and asset-based data, and customer-specific data to be a leader in creating new analytical products that solve customer problems in financial decisioning, identify verification, fraud identification, and human resource processes.
My experiences at GE and Warburg, including my two years on the FICO board position me well to take over this leadership role and help lead the transformation to deliver industry-leading IT and data security, improve customer support in customer-leading products and services. I'm convinced we have the opportunity to make Equifax again the leader in providing data-driven insights to our customers and deliver a great future for Equifax customers, consumers, employees, communities, and shareholders. It's that opportunity that drew me to Equifax, and I'm energized and excited to get going. In my first 90 days as Equifax CEO I'll work closely with my team to immerse myself in the business, and that's already underway. As I do this, I'll prioritize my efforts in a few critical areas of our transformation.
Number one, employee engagement in the team, delivering on commitments Equifax has made to consumers and customers requires that we fully engage our talented workforce and leadership team, deepen and expand that talent, particularly in IT and data security. And I think you know we're taking very aggressive steps there to improve the leadership team. And also bring new technologies in that we're deploying as a part of our IT transformation. I believe in our leadership team. They have deep domain. They understand our products, our customers, and technology. And I'm really excited about some of the new members of the leadership team. I think you know a few weeks ago, before I arrived, we brought in a world-class CISO leader, Jamil Farshchi, from Home Depot, and we're very close to landing a new CTO to bring into the business from another leading company.
Number two, execution in our critical IT and data security and IT transformation initiatives. This includes the continued focus on ensuring Equifax strengthens its security first culture with supporting governance. It also includes a focus on people and talent acquisition in these highly competitive areas. And we're being very aggressive about attracting the absolute best talent in the IT and data security space. We're investing heavily to ensure we are market leaders around data security, and we will also enhance the transparency of all our transformation efforts with all our constituents, our customers, consumers, and the public as we drive this transformation forward.
Number three, strengthening customer and partner relationships and reestablishing trust in Equifax as a premier partner. I'm already out meeting with customers. I had a meeting two weeks ago. I've actually got a dinner tonight with a customer and another one tomorrow in Boston. Engaging with customers is a critical priority to me and our leadership team. We're all out there spending time to customers to regain their trust and confidence in our business and in the initiatives that we're taking to enhance our data, and data security and IT infrastructure.
Number four, strengthening consumer support, both in processes and technology. And importantly, building a culture focused on continuously improving customer support. This is another area that's central to me in my nine years leading the Synchrony Financial business at GE when it was a part of GE, that B2C interaction with customers was critical to me, and it's one of the many things I'm going to be bringing to Equifax. I'll also focus time and meeting with our shareholders in getting your input on our performance and our direction. I expect to begin those meetings in the coming weeks. Engaging with shareholders is a big priority for me, and I look forward to meeting with you in the coming weeks and months.
First quarter was a solid start to the year for Equifax. We made positive progress in the quarter and our focus areas for improving IT and data security, improving consumer support with the launch of Lock & Alert, as well as importantly, in progress with our customers and our financial performance. I'll walk through the highlights of the quarter, and then John will take you through the details on our results.
Total revenue for the quarter was $866 million, up 4% on a reported basis and up 3% on a local currency basis versus last year. Adjusted EPS was $1.43, down 1% versus last year. Both revenue and adjusted EPS were above our guidance range and better than our expectations. So we feel some really positive momentum coming out of the first quarter. USIS revenue was down 1% versus last year, consistent with the guidance we provided in March. Total online revenue was down about 2%. Marketing services was down slightly, although importantly we saw continued growth in credit marketing services. Trey and his team are making great progress with working with our customers regarding the reviews following the cybersecurity incident. I've been part of many of those. We have institutionalized more formal customer communications. We're holding regular updates with both security and the non-security leaders from our customers. And I've been a part of those also.
In the period after the breach customers were naturally focused on the incident and rebuilding confidence and trust. While that is still a central priority and topic of discussion with our customers, we're also seeing then increasingly willing to reopen discussions with us about new business opportunities, and our pipeline is strengthening for both new applicable [ph] core and new products. Our customers are focused on our investments in data security and infrastructure, but they also want to get back to a normal growth discussion with us. We continue to have success moving our customers to that normal position around new and expanded business. This allows us to better engage in new products as well as the credit marketing service transactions we've discussed in both third quarter '17 and fourth quarter '17 earnings calls.
Our Workforce Solutions business had a very solid quarter with revenue up 6% versus last year, slightly better than we expected. Importantly, verifier revenue was up a strong 12% driven by the strong growth across governments, talent solutions, mortgage, and debt management. Employer Services was down 3%. So Workforce Solutions and Rudy and his team had a very solid quarter in the first quarter.
John and the international team had another strong quarter with revenue up 13% on a reported basis and 9% on a local currency basis slightly stronger than our expectations. Latin America and Asia Pacific had their double-digit local currency revenue growth in European credit operations in Canada continue to serve strong single digit local currency growth.
Lastly European debt services declined in the quarter specifically in our venture with U.K. government. Global consumer revenue was down 3% on reported basis and down 4% on local currency basis, a slightly better performance than we had expected. U.S. consumer direct revenue declined 21% in the quarter again within expectations as we indicated last quarter, we will not be doing any advertising in our U.S. Consumer Direct business through at least the second quarter 2018 and therefore we will see continued decline in revenue driven by customer churn.
We expect to make a decision on the U.S. Consumer Direct business over the next over the coming quarters. This decline was partially offset by growth in our reseller business and the Canadian Consumer Direct business as we have seen continued growth in these two operations and also our ID watchdog acquisition performed well in the first quarter. While our first priority must be to deliver our IT and data security and IT transformation commitments and to continue to improve customer support, it's also a critical importance that we get the broader team at Equifax back to focusing on the essential operations, operating practices that will drive us to move back to a leadership position in delivering new products and insights to our customers.
So I'm spending a lot of my time both balancing on the infrastructure of data security investments they're making but even as importantly working with our teams to get back to focusing on customer growth.
New product innovation or NPI has consistently been a growth lever for Equifax and is off to a strong start in 2018, despite being impacted as we focus project management and technology resources on IT and data security, we're tracking to plan with a consistent number of NPI launches versus last year which is good news. Several of the new products we believe has strong revenue potential and NPI will be a strong focus in the second quarter and in the future for all of us at Equifax.
Our global data and analytics practices is critical to NPI and leveraging Cambrian Ignite direct and Ignite marketplace to advance our capabilities and combining Equifax public and customer data utilizing sophisticated analytical techniques to deliver industry leading insights. We now employed Cambrian in four major geographies, the U.S., Canada, Australia and most recently Argentina we quickly followed Cambrian deployments with global deployments of customer facing Ignite Direct and Ignite marketplace, these solutions which are based on Cambrian capabilities provide clients with Premier data in advanced analytics in support of full analytic lifecycle from data access to insight development and deployment.
Cambrian Ignite Solutions routinely incorporate machine learning into customer decisioning, an example of how we're using machine learning to improve results is our Patent Pending Neuro Decision Technology or NDT, NDT is the first regulatory compliance machine learning credit scoring system reviewed by regulators and credit scoring experts. This technology develops a neural network model that improves performance and accuracy and gives customers the ability to make more informed decisions when assessing risk. This unique process is important to customers and regulators and enable the deep learning of customer behavior is applicable and deployable wherever traditional score cards are appropriate. So we're excited about this new technology.
In the first quarter, we also launched an extension of FraudIQ in the U.S. which allows us to better identify bust out fraud which we all know is in increasing industry problem. FraudIQ utilizes unique machine learning techniques which will address this growing industry issue. Launch of Cambrian Ignite in Argentina demonstrate the progress we're making to deploy Cambrian Data in analytics platform globally, the Ignite solution is providing customers in Argentina with access to more data bringing our data together with our customers data and enabling faster and improved decisioning. We're also employing NDT in Argentina to enhance the performance of customers scoring models in that area. Other drivers in NPI revenue in 2018 continue to include InstaTouch, Digital IV, ID and Fraud and a variety of new such solutions in the housing and auto verticals.
Continuing to ramp up NPI new product efforts with our customers will be a critical priority for me and our entire team in the second quarter and beyond. I and the entire leadership team at Equifax are committed to delivering on the critical objectives discussed today and in the past quarters. We're committed to regaining the consumers and confidence and how we manage and secure information. We're also committed to regaining the trust of our customers and partners. This is the priority for the team and a priority for me personally. And making Equifax the industry leader in IT and data security while delivering new products that deliver unit insides that allow our customers to execute against their most value creating opportunities is critical to Equifax.
I'm excited to be at the and here at Equifax and excited to be part of the team and I'm excited about the path forward for Equifax. I support the team strategy. I support the leadership team. The first quarter is a solid start to 2018. We have a lot of work to do and we're making very strong progress.
With that, let me hand it over to John.
Thanks, Mark and good morning everyone. As before I'll generally be referring to the financial results from continuing operations represented on a GAAP basis. For 2018 additional items excluded from our non-GAAP results or the onetime costs related to the cybersecurity incident. We'll provide the details on those items you can consider at your analysis.
In total in 1Q, '18 we incurred non-recurring cost related to the cybersecurity incident of $79 million. These have been partly offset by insurance recoveries of $10 million resulting in a net non-recurring charge of $69 million. The non-recurring charges excluded from adjusted EBITDA margin and adjusted EPS.
$29 million of gross costs were generally for legal fees and other professional services principally related to outstanding litigation and government investigations related to the cybersecurity incident, $46 million were generally for one time incremental project and other costs incurred to implement our IT and data security plans improve our infrastructure and develop and launch the lock-and-alert free service launched in 1Q, '18.
Going forward, all operating costs related to lock-and-alert will be included in our ongoing P&L. $4 million in accrued and incurred gross expenses related to the trust at IT premier service we offered free to all citizens. Give up cost were offset by about $10 million of insurance recoveries committed in 1Q, '18. Total non-recurring in onetime thing incremental project and other gross costs incurred since 3Q, '17 related to the cybersecurity incident are $243 million. We have a $125 million of cybersecurity insurance under our E&L policy against which we received commitments to pay $60 million in recoveries today which partially offsets the cost reference above. We continue to expect to made claims the fully utilized policy.
For Equifax in 1Q, '18 as Mark indicated revenue of $866 million was up 4% from 1Q, '17. Cash EPS of a $1.43 was down a penny per share from last year. Adjusted EBITDA margin was 33.5% in 1Q, '18 down 250 basis points from 1Q, '17; about two-thirds of the reduction in margin reflects the increased security related insurance and other ongoing costs is specifically referenced in March as part of our 2018 guidance.
Much of the security increases, much of the increases in security related ongoing costs are being incurred directly in business units. As we discussed in March we are expecting continued revenue impact from the cybersecurity incident in USIS and Workforce Solution in 2018 with a greater impact in the first half of 2018 and the impact of planning for other remainder of the year. This continues to be our expectation however at this point going forward wills not quantifying impact at the length of time since the incident does not allow for reasonable comparison versus premiums and expectations. USIS revenue in 1Q, 2018 was $307 million down 1% compared to the first quarter of 2017 and consistent with our expectations.
Online information solutions revenue was $220 million down 2% was compared to the year ago period. Identity and fraud solutions and commercial risk online drove the majority of the decline. The decline in identity and fraud was more than explained by the decline in our government business. We saw decline in commercial risk online as we transition to CFM. We expect commercial risk online to return the growth in the second half of 2018, core online was also down about 1%.
Over mortgage related revenue for USIS is up 8%. Total mortgage related revenue for Equifax including Workforce Solutions mortgage revenue was up 9%. Our mortgage revenue growth was stronger than the overall market which saw inquiries declined 3%. USIS mortgage solutions business in which we sell Tri bureau mortgage reports was benefited by the launch of three bureau trended data for mortgage.
In 2Q, 2018, we expect mortgage market volumes to be down high single digits for 2Q, 2017 and for all of 2018 we continue to expect mortgage market volumes to be down about 10%. Financial and marketing services revenue was $46 million in 1Q, 2018 down slightly just under $100 million. Importantly credit marketing services revenue which represents about 80% of financial marketing services revenue was up slightly in 1Q, 2018 as it was in 4Q, '17. IXI revenue was down in the quarter over IXI revenues traditionally lumpy and the decline in 1Q '18 reflects the delay in timing of specific transactions.
As Mark indicated earlier, we continue to make progress working with customers and the reduced volume in cybersecurity incident. For our discussion in March, our plans and guidance reflected diminishing impact of the event as being moved through 2018.
Consistent with prior discussions today, the principle impact then our ability to sell products into certain customers impacting NPI and to sell best transactions in financial marketing services, principally credits marketing services as well as likely some impact online -- on some impact to online. This was resulted in loss sales and share as we have worked through this process. We believe that the good progress we have made today with customers will benefit our sales efforts as we look forward in 2018 and into 2019. The adjusted EBITDA margin for USIS was 44.1% down approximately 450 basis points from last year.
USIS margins were principally impacted in 1Q '18 by three factors. Revenue mix particularly increased mortgage represented almost half of the impact, remainder primarily reflected increased third-party cost particularly impacting mortgage and increased security related in other technology and legal cost.
Looking at 2Q, we expect USIS margins to increase substantially from 1Q '18 levels reflecting a lower mix of mortgage revenue and expense management. Workforce solutions revenue is 2011 million in the quarter of 6% when compared to 1Q 2017. The 12% growth and verification services that Mark referenced reflects double-digit growth across government panel solutions, mortgage and debt management and was slightly better than expectations. We also grew both active and total records again in 1Q '18.
In Florida, service revenue of $83 million was down slightly less than 3% from last year an improvement from 4Q '17. Workforce analytics is up slightly and continues to be impacted by uncertainty regarding the status of U.S. Affordable Care Act.
Unemployment claims, which makes up about half of the remainder of employer services is being impacted by the very low unemployment rate. We are also seeing some weakness across actual related services and on boarding businesses. The continued growth of the verification services and the work number and shift and mix of revenue toward verification services is positive long-term and consistent with our plan. The workforce solutions adjusted EBTIDA margin was 48.9% in 1Q '18 down a 130 basis points from 1Q '17. The decline was more than explained by the expected increase in cost related to security and technology partially offset by positive mix due to the growth in verifier. We continue to expect workforce solutions EBTIDA margins to be flat to up slightly in 2018 versus 2017. International revenue was $245 million in 1Q '18 up 13% on a reported basis and up 9% on a local currency basis.
Asia Pacific revenue was $82 million up 14% U.S. dollars and up 11% in local currency driven by strong growth in our government vertical and identify commercial and consumer products. Europe's revenue was $71 million in 1Q '18 up 15% U.S. dollars and 1% in local currency.
As Mark mentioned earlier, we saw high single-digit local currency growth on our combined U.K. and same credit operations. This was offset by a local currency revenue decline in our debt management business specifically in Aventure with the U.K. government. Aventure continues to deliver greater than expected value to the government. However, the U.K. government budget cycles are resulted in lower revenue in first half '18 than the prior year. We expect for the full year total debt services, local currency revenue to be about flat as U.K., as revenue with the U.K. government recovers in the second half of the year.
Latin America's revenue was $56 million in 1Q '18 up 10% in U.S. dollars and up 15% in local currency. Revenue growth was broad based with strong double-digit local currency growth and our Argentina cluster as well as in Mexico and Ecuador. We also saw good growth across Chile and Central America. Canada's revenue was $36 million up 13% in U.S. dollars and up 8% in local currency. Candidates' growth was driven by online volume and analytical services and continues to reflect their strong execution.
International suggested EBITDA margin was 29.4% in 1Q '18 down 180 basis points from 1Q '17. The decline reflects expected increase random technology as well as growth in data and analytics spend as we expand globally.
Consumer solutions revenue, at $103 million in 1Q '18 was down 3% on a reported basis and down 4% on a local currency basis. Our U.S. consumer direct revenue declined 21% in the quarter. As we discussed in March, this reflects a reduction subscriptions as we did not advertise during 1Q '18 and will not for at least 2Q '18. U.S. consumer direct business is now just over 30% of GCS revenue.
Non U.S. consumer direct revenue was up slightly reflecting continued growth in Canada offset by a decline in the U.K. Our partner in reseller business, which is approximately 40% of GCS revenue, delivered mid single-digit revenue growth following growth in 4Q '17 as well.
Revenue in the quarter was benefited by the ID Watchdog acquisition completed in 3Qs. In a non-recurring cost associated with cybersecurity incident, the adjusted general corporate expense for the quarter was $65 million up $4 million from 1Q '17 reflecting expected increases and security transformation and insurance spend that we discussed with you in March.
Our GAAP effective tax rate of 23.9% includes a $3 million benefit from the income tax effective stock awards. Our non-GAAP effective tax rate using calculating adjusted EPS for 1Q '18 was 26.4%. We expect our effective tax rate for 2018 to be approximately 26.5%.
In 1Q '18 operating cash flow was $120 million and free cash flow was $63 million up 15% and 19% respectively. Net cash flow benefited by lower cash outflow related to variable compensation and other working capital partially offset by spend related to the cybersecurity incident including capital spending, net of the cash received from insurance recoveries.
Capital spending incurred in the quarter was $56 million. For 2018, we continue to expect capital spending to be approximately 8% of revenue. Total net debt at the end of 1Q '18 was $2.38 billion. Our gross leverage was 2.43 times and net leverage was 2.2 times at the end of 1Q '18. We did not repurchase shares in 1Q '18 and do not expect Q1, Q2 '18.
Now turning to our guidance for 2Q '18, at current exchange rates we expect revenue to be between $880 million and $890 million reflecting growth of 3% to 4% versus 2Q '17. FX based on current exchange rates is expected to be a 1% benefit in the quarter.
Adjusted EPS is expected to be between 151 and 156 per share, this reflects the decline of 3% to 6% from 2Q '17 with no impact from FX in 2Q '18. Using the midpoint of our guidance range adjusted EPS increases approximately $0.11 per share in 2Q '18 versus 1Q '18, which is consistent with our average over the last five years. As a reminder, 2Q '17 was Equifax strongest quarter ever had adjusted EPS of a $1.60 per share and adjusted EBITDA margins of 39%. Our full year, 2018 guidance for Equifax revenue and EPS are unchanged from the March call.
In total, we continue to expect Equifax revenue for the year of between $3.425 billion and $3.525 billion. This reflects revenue growth of 2% to 5%. FX based on current rates is expected to be a 1% benefit to revenue in 2018. Consistent with our March guidance, this assumes total mortgage market volumes decline about 10% in 2018. We expected adjusted EPS to be between 580 and $6 per share unchanged from our March guidance.
FX is expected to be up 2% per share benefit to EPS in 2018. We continued to expect in 2018 to incur approximately $200 million of net incremental cost for investments and IT in data security projects and legal and professional fees being incurred specifically to address the litigation claims in governmental and regulatory investigations related to the cybersecurity incident. This represents gross cost of $275 million offset by $75 million of assumed insurance proceeds.
Investments in IT and data security are expected to represent about 75% of the cost. These costs are being excluded from our non-GAAP financial results and guidance. In 2Q '18, we expect these costs to be at or slightly less than what was incurred in 1Q '18. These estimates do not include any estimates or damages, fines or other announcements that result from the resolution of litigation and investigations relates to the cybersecurity incident.
Looking at the first half of 2018 using the midpoint of our 2Q '18 guidance, revenue was $1.75 billion and adjusted EPS of about 297 per share provides a very strong start to 2017 relative to our full year guidance.
And with that, we will open it up for questions.
Thank you. [Operator Instructions] And we will take our first question from Manav Patnaik with Barclays. Please go ahead.
Thank you and welcome to the call, Mark. My first question, Mark, just in your initial assessment, I know you've talked about the commitment to security and infrastructure and there's clearly been a lot of spend in that area. I guess, how would you describe where you are in that process, early mid stages or how long do you think this continues?
Yes, Manav, good morning, and thanks for your comments. I'm only two weeks in so it's hard for me to give a detailed assessment. I'll ask John, maybe to weigh in also. But my look is that there's a lot of work that's been done in the last six seven months by the team, so we're making good progress. But I would also say it's still early days, there's still a lot of work to do. As you know, our new system has only been on the ground for less than 60 days, he is a really strong talent, he's bringing some new people in and I guess, in summary I would just, say early days.
John, anything to add to that? We've got a lot of work to do in the rest of this year?
Absolutely. And we've indicated that the spend of the MD activities will run at least through 2019 and obviously as we move through 2018, as we have greater visibility, we'll update people on how we're doing.
But just maybe to close on that, I hope you feel and others on the phone feel our commitment to this. This is a very large effort by the team, it's a massive undertaking and it's one that we're extremely serious about and we're committed to industry leadership around data security and it will go through for sure for the rest of this year.
Got it. And then John, I think you went through it a little quickly, but just on the global consumer breakout, I think that was the area where it felt like you beat the expectations the most, but -- so I think you said that direct, which was a little over 30% of the mix was down 21%, and then did you say that the rest of the piece was up slightly and then I think in there you threw in something was up middle single digits as well. Can you just help me with that and what -- how much ID watchdog contributed to that?
Sure. So we said our partner and reseller, which is about 40% as ECS revenue, we said it was up mid single-digits. And our non-consumer direct revenue was up slightly. And that's really Canada and the U.K. and that was Canada growing and the U.K. declining and then ID watchdog contributed just under $5 million.
Okay. All right. Thanks, guys.
We'll take our next question from David Togut with Evercore ISI. Please go ahead.
Good morning, this is Rayna Kumar for David Togut. In terms of some of the government contracts that were delayed in previous quarters, can you just flush out how some of those conversations are going and if you can just provide us some milestones we can track so we can get a better idea of how your progress is with those contracts.
Yes, so I think we haven't actually spoken specifically about government contracts, but we've indicated rather that in general we continue to work with customers and that there have been some deferrals of agreements where we execute in our CMS business and our financial marketing services business. But as we talked about last quarter we said anything that's really been deferred since the cyber security incident which was in September we would assume as lost. And then going forward what we're doing is just working on winning new agreements with new customers.
And as Mark walked you through, we think we're making very good progress there in moving our customers to the point of considering new transactions with us and new products with us. So what we provided was some discussion around the impacts of the cyber security incident last year. But I don't think we specifically talked about government.
Got it. One of your competitors is starting to sell trended data outside of mortgage and into the auto and credit card verticals; can you just discuss your plans with trended data?
Sure. Absolutely. So we consider trended data to be a critical part of our NPI process. We're seeing trended data growing in our business as well. We do think there's applications in auto, we do think there's applications in credit card, and trended data, quite honestly, is something we'll also start to apply around the world. So we would expect that we will see growth from those areas as we move through the future as well.
Okay. And one final question…
And we did just launch a commercial trended score this quarter.
That's very helpful. One final question from me, when do you expect to restart share buyback?
Yes, so we talked a little bit about this last quarter, right, so until we have clarity around the outcome of the consumer and other litigation and class action litigation, we'll likely not be executing share repurchases until we have a good understanding of what that liability may look like.
Q - Rayna Kumar
Thank you.
All right. We'll move to our next question, will come from Andrew Steinerman with JPMorgan. Please go ahead.
Welcome, Mark. John, you just mentioned that the IT spend will run at least, "At least through 2019," and then the last quarter the description was heavy lifting in IT spend and data security in 2018 and 2019, so my question is does Equifax have a full sense of what the total spend will be to IT and data security to build an industry leading system?
I'll take the first crack at that and John should jump in with more color probably, but Andrew, great to connect with you here for the first time. The answer is no. We don't have that full visibility yet, we're working very hard to do that. The team has -- I would characterize is a pretty good visibility for what we're planning to do in 2018 and I think in the last quarter, John, we talked about that and decided that for you.
We haven't really gone beyond '18 yet, but my expectation is that there will be work that will go beyond '18 to complete our data security and infrastructure rebuild and as we get into the second half of the year, I would hope we can give you some visibility around that.
Okay. Thank you.
We'll move next to George Mihalos with Cowen. Please go ahead.
Good morning guys, and Mark, welcome aboard.
Thanks, George.
Just wanted to go back to one of your comments in your script around -- it sounds like the tenor of conversations with customers is improving. Are you seeing more inquiries though from non-traditional customers as well, basically people that have not been using Equifax in the past that are willing to have conversations around potentially buying some services?
That's when I got lost. John, maybe can give you a little color on it. I'd give you some color on the customer meetings that I've been in is that customers want to understand deeply our investments and our pace around our data security upgrades. And as you know we've got a myriad of communication processes with the [indiscernible] customers, individual meetings with senior executives of our customers. So I would characterize the dialog that they appreciate the transparency, they expect the transparency. I think they're pleased with the scale of our investment and our commitment to it, how serious we're taking it and the comments that we've made about industry leadership around data security.
At the same time, my meetings with customers is that they also want to get back to the normal dialogs that we had pre the incident around growth, around new products, around NPI, so my interactions have been with existing customers, I don't know, John any color about beyond that?
Sure. Some of the new products we talked about last year a little bit like for example, InstaTouch, is starting to attract interaction for us with different parts of our existing customers as well as potentially with new customers. Also we've increased our activity in terms of pursuing fintech in the fintech markets. Some of it because of the new products we have offered and has been also further reasons. So we think that's an expansion of the focus that we have had probably over the past six to eight months.
Okay, that's helpful. And then John, just as a quick follow-up, the Q2 guide on the revenue side suggests -- call it 3% revenue growth down a little bit from the 4% in the first quarter. Anything that particularly will be slowing down or is it just sort of the tougher comp in USIS that's impacting the number?
Generally, what should be occurring as you go up -- we're going to see GCS performance weaken, so that will be the thing that probably drives the impact more than anything else if we move through the rest of the year. We would expect you'll see the decline in consumer lightly accelerate.
Okay, thank you.
Our next question will come from Brett Huff with Stephens Inc. Please go ahead.
Good morning guys and Mark welcome to the call.
Thanks, Brett.
Two quick questions, one sort of a big picture one, we've kind of talked around it. But on GCS or the direct to consumer business, we've gotten a lot of questions on the fate of that. I know Mark, you're in the middle of that decision strategically, but could you just outline sort of the puts and takes or the main issues that you all are weighing as you consider that and then I have one follow-up.
Yes, I'll start on that one and ask John to jump in too. For me it's early days on that. I've only been here for a little better than a week and a half and had some dialogs around it. Really what I want to take a hard look at is what are the opportunities? There's going to be real balance in the consumer space around a lot of the activities that we're going to deliver to consumers for free and that's something we're committed to and we're committed to giving consumers more control in access around their data and really looking at what are some of the paid services that we may offer in the future and value-added nature. So that's really the kind of calculus for me. I think I mentioned my background is kind of B2C from the synchrony updates and I got a real appreciation for both the protection of consumer data as well as a kind of value-added services you could add, you can deliver to consumers but it's going to take the better part of the second and the third quarter, I would think for us to come as a conclusions about a strategy there that we feel good about. We are going to be thoughtful about it and we will share that when we complete that analysis.
And as Mark covered, we are also relooking at to state basically the consumer direct market broadly because that market has been changing as we know over the past several years and how much of that market we believe is continue, going to be delivered direct or through resellers and through the premium models somewhat as Mark, referenced. So we look at the market in general to see what we think has happened, we did that a couple of years ago, we are doing that again now, and then, also obviously specifically whether or not we think we have anything differentiate that would let us participate well, if we think that market is still going to, is still going to be a growing opportunity. So, still more work to do.
Thanks. It's helpful. And then, the second question is on the NPI, I know this is one of the key hallmarks of Equifax and something you guys continue do really well, part of your culture. But my understanding was, there was some shift in talent from some of the NPI, sort of projects to the cybersecurity incident issues, am I understanding that right and if so how do we think about the ongoing allocation of resources to NPI, how much talent will that -- will the cyber issues kind of heat up for long you know, that sort of negatively impact NPI in the near term?
Yes, it's a great question. This one is on my mind just a short time I've been here. First is I think you properly point out NPI has been a real strength of Equifax as it's you want to think that many things that attracted to be the business there. They rigor their processes around partnering with customers around bringing new products to market and we got a long history of doing that and as you also pointed out there we have had and would some resources on the technology side and other areas working on the data security breach and infrastructure we built, but we are working hard, so we fill those resources on the NPI side. So we expect there will be some pressure there. My goal is to work hard to mitigate that with the addition of resources and focus around NPI because it's important to us and important to our customers going forward.
I think it's probably hard to articulate any kind of metrics around that plus there the first quarter was encouraging on the NPIs that we did bring to market versus our expectation. So even six plus months into - since the incident, we are bringing products to market but it will be real focus of ours to continue to resource that and make sure that momentum continues.
Great. Thank you.
Thank you Mark and very confirmation progress with customer. So, one of the re-launching products, and then, obviously one of the impact as well as how rapidly we are able to turn them to revenue and so it's very important that we improve the engagement with customer as we are, so that we can get back to a more normal type with customer acceptance with the new products even after their launch. So, certainly an impact on NPI this year for those two reasons.
Great. I appreciate it.
Our next question will come from Andrew Jeffrey with SunTrust. Please go ahead.
Hi, good morning guys. I appreciate, you taking the call. Look forward to working with Mark.
Welcome.
Have you think about this re-platform and obviously there are a lot of costs in management focus headed to it. But as you get past the technology investment and the security investment, have you started to think about how the new platform and the new delivery motion could benefit the long-term growth and competitive positioning of Equifax's business?
Yes, I think it's a great question. Just wondered on my mind being nine days in here at Equifax and just wondered we are the heat of it obviously ramping up some projects around data security of our infrastructure rebuild. Some of the dialogue I had with the team of goals I'd like to get on the other side of this investment is speed of market with the investments we are making will allow us to bring products to market or quickly an ability to have higher dependability and liability of our infrastructure on the other side. So my goal is that after the market I hope it will improve our cost structure as we make some of these investments and first and foremost we are going to have a data infrastructure and a data security infrastructure that will be industry leading and that should position us well competitively going forward.
Okay, and will you anticipate to the extent that our benefits associated with have been talking about this time next year, is that a reasonable expectation?
At this time, next year I think having some visibility on our side in years around that, I think it's very, very simple and that's a great goal.
Okay, and as a follow-up, with regard to the U.K. and TDX in particular John it sounds like some of the demand softness is transitory. Can you just fresh that out a little bit and how you think that impacts specifically the European sub segment revenue growth this year?
Yes, those we said the credit business performed very well, right with high single-digit local currency growth. So the impact really was specific to debt, with the debt service the business is very specific really mostly around the one large contract with the U.K. government. The contract itself is performing very well, we think we are collecting at rates that are above the expectations we are improving collections at rates that are above the expectations of our customer, which we think is very good.
However, the funding of the project is part of the U.K. government budget cycle and we are working through that right now. Obviously, that's something that's a little bit new to us, in terms of working through the U.K. government budget cycle, but it's specific to that cycle that has resulted in a lower level of activity in the first half of this year. So we are hopeful that we will be able to work through that and as I said to move back type of performance throughout the year but it isn't a issue of the performance of the product of Aventure is performing well, it's really just very specific to the U.K. government budget cycle.
Okay, helpful. Thanks.
Our next question will come from Tim McHugh with William Blair. Please go ahead.
Thanks. Mark maybe first one, it was helpful, you've given us a lot of contacts and I understand at early days in terms of your time there but to get to the high level a lot, what you describe I guess there are some other things I thought we are kind of in motion. Are there things that you would call out as you walk in at this point that you want differently you are emphasizing I guess maybe more than, we otherwise thought the kind of the plan was partially getting in it, just kind of understanding your perspective.
Yes, I think first I'll start with - I think the team has been, has got a great plan in place and when I think about areas of interest for me nine days in is it's around the patent accountability about around all our projects, as you might imagine there is a lot of work being done here and I'm a big ownership accountability follow-up kind of leaders. So the team had prophecy to place around that, I will just say that I'm going to try to strengthen those and make sure that we are really executing on these projects on a timely basis.
Second, would be around this team was operating quickly. I'm a leader that that's the high bar and also my team and that place is really around let's get these projects done and get on with the next one. Third, would be around people, we are adding a bunch of resources here and I want to make sure we are adding top talent in the organization and retaining the talent that we have, so that's an important initiative and the last one is really around customers and transparency. I try to be clear about that and I think the team in the last few months was contributing towards a lot more open in transparent conversations with our customers and that's kind of a table six for me is being really clear with our customers having really strong relationships in connections with them and those four items I rather go off really aren't different probably from what they were doing but you can take from me perhaps some emphasis and really focus on those areas as being important and how I want to lead the business.
That's helpful. And John, one question, just numbers when the rest from five year old reports now being fully trended, I guess I believe that does that kick in I guess throughout the full year? Is that a type of a fact that we should see during the next couple of quarters?
We should yes, but that was I think the bulk of the quarter that occurred this quarter. So you will see it in any quarter going forward. Obviously mortgage tends to be a relatively high percentage of revenue earlier in the year in the first quarter and some of the second quarter investment does tend to tail-off but actually see that live throughout the year.
Okay, thank you.
Our next question will come from George Tong with Goldman Sachs. Please go ahead.
Hi, this is Allison Chou on for George. Thanks for taking my question. The International segment revenue grew 13% in 1Q has strengthened in couple of key regions, can you discuss how the operating environment for the International business is evolving and your outlook there as well as internal initiatives you have in place to sustain that growth?
Yes, so international actually performed very nice other than that management which we talked about international performed very nicely, the growth rate we talked about across Latin America, U.K., Canada, Australia, were all very good. We're fortunate that it looks like the economy is really in all of our major countries are going to perform we think relatively well this year and so we feel very good about that.
Some of the major focus areas for them are really continuing to be around NPI, Mark already covered it right NPI is the growth engine of the company, International has long been a very strong performer in NPI, they tend to perform frequently above our goal of vitality index of 10% and the deployment of Cambrian and then our decisioning systems international in international is really accelerating and our expectation is that will allow them to deliver new products faster and develop new products faster.
Also what Mark talked about in terms of delivering machine learning through Cambrian and now most of our major international markets we think is something that is going to be very beneficial as we go forward. So we're excited about it and the trend across those businesses really in the credit business has been very strong.
Thanks, that's really helpful. And on NPI and kind of as a follow-up to Brett, you guys launched 17 new products in 2017 which is up about 30% year-over-year. Can you discuss how the ongoing personnel changes or kind of headcount shifts will impact the number of new product launches this year and NPI contribution or revenue growth?
Just fraction and we launched kind of mid-50s in terms of new products in 2017 that is correct.
I think I mentioned in what is the prior question on NPI is there is no question, we've got some resource constraints versus pretty incident in all areas of business including NPI and as I said earlier we're working hard to backfill those resources that have been diverted over to work on the data security infrastructure rebuild and IT infrastructure rebuild. So I would say we expect to see some pressure, we want to work hard to try to mitigate that pressures we go through the year and it's it is only the first quarter and I think we said earlier the first quarter was a good start versus last year when it comes to NPI rollouts and we want to say on that important growth quarter for us.
Great, thank you.
We will move next to Bill Warmington with Wells Fargo. Please go ahead.
Good morning everyone.
Hey, Bill.
So Mark, first of all welcome to you, I have to confess it, it's a bit of mixed feelings though because I think it's a nice hire for Equifax but we're losing you on the board in FICO, so that's kind of the offset. But you're welcome.
I missed Will and his team have a great business and I enjoyed my three years on the board.
So a couple of questions for you, the first is and talking about the return of the project based business on the marketing side, I wanted to ask how are the reviews by clients going, are most of those now completed or they still there are some that are ongoing when you think, you can expect them to be completed and so you'll be fully greenlighted for new business?
Bill, I think it's really what Mark covered in his opening comments, right. We continue to make very good progress, the discussions are ongoing, we haven't really set an end date right and quite honestly probably continue as we through much of the year as we continue to make progress with customers. This is an evolving process but as Mark indicated, very good progress and moving conversations back towards normal, backward consideration of new products and backward consideration of the type of CMS jobs that have been impacted certainly last year and through this quarter to a degree. So we think very good progress but in terms of setting an end date I don't think that's something we can do.
I will give you a live example from a meeting over there, a week ago Bill with one of our big customers, we spent the first 30 minutes or so giving an update on all the actions we're taking around the data security incidents, the investments and technology and in data security and the CEO of the business we were kind of halfway through our presentation and he said great dialogue let's spend the rest of the time talking about what we're going to do about partnering together help us grow.
So I think that an example of that, we're going to be in this dialogue with them for as long as I can see meaning the what the next three quarters or may be longer of reporting out how we're doing but customers are counting on us making those investments, they're counting on it making the data and infrastructure security improvements. They are serious in our progress and they want to get back to talking about business and growth in our NPIs and how we can help them grow.
And then my follow-up question for you is on the IT and security system side. It sounds like part of what has the preacher has done is given you an opportunity to really shut down a number of older versions of products and move clients to the latest base SaaS delivery as well and that sounds like a win-win in terms of getting the no more secure system and then also for you guys simpler and less expensive to support going forward. I wanted to ask how are those transitions going with clients have you found them receptive to it?
I think their first off you hit the nail in the head. I think you laid out what we're trying to do and the opportunity for us in the benefit to come to ask our customers and the other side of this transformation and it's still early days, we're I would say the first John correct if I'm wrong but the first six months or so since the incident, most of our work was around our data security efforts and I would say in the last couple months we started to move towards lot of the infrastructure improvements that you described they have a data security elements to it but they're also going to bring a lot of simplicity; a lot of cost, hopefully improvements to us and also. Allow us to be faster the market with products because we've got a simpler infrastructure and how we interact with our customers.
And some of the transactions on the sizzling system our acceleration of the things that have been occurring so we been moving customers to SaaS system for some time this is just going to make they go much quicker.
Got it. All right, well thank you very much for the insight.
Thanks, Bill.
We will take our next question from Jeffrey Meulerw with Baird. Please go ahead.
Hey, good morning guys. This is [indiscernible] on for Jeff. Just look at the margins outside of the GC as some of the other excitements I guess for little surprising to ask in the quarter. Despite stripping out the onetime cost you've outlined since trying to think about that John you mentioned the make shift to mortgage but is there anything else you guys can talk about what your ramping non onetime costs that may be impacting Q1 and then how that should sequence throughout the rest of 2018?
Yes, so I think that in the bridges that we try to provide in the script, right, we did talk and I think in each of the businesses other than GCS really in and it present there as well about security and for information cost, we in the fourth quarter we have given some very specific discussion around cost we expected to incur in 2018 related to security and IT investments as well as related to as related to insurers costs and we think we're seeing those, they're impacting our those are certainly impacting that the margins we saw on the first quarter and will likely impact throughout the year is consistent with the guidance we gave in March.
Okay, just specific to GCS given that you guys are marketing Q2 would you expect to similar kind of year-over -year margin in Q2 was relative to 2017?
We didn't really provide guidance on margins but please do remember right we're going to see continue acceleration and decline of the Consumer Direct business, so the marketing spend is out was out in the prior quarters and you can see an acceleration in the decline of it consumer direct business. So that certainly has an effect on margin.
Okay, that's helpful. Thanks.
Our next question will come from David Ridley-Lane with Bank of America Merrill Lynch. Please go ahead.
Sure. Appreciate the details on revenue related to the U.S. direct-to-consumer business when you're making that decision on the business later this year with the direct consumer direct-to-consumer business still be profitable at that point just to help shareholders understand the potential impact?
Obviously that the outcome of the decision, right, on how we are going to move forward will take into account the level of profitability we can deliver. So, at this point in time I don't think I can really address that specifically, but we will wait and see, we'll give you updates on how we are performing at USIS as we move through the year, and as we get to the point of making that decision obviously the level of profitability we think we can drive going forward will be an important consideration.
Understood. And just how is the NPI-related revenue contribution in first quarter of this year versus last year?
Yes. So we don't generally give very specifics around NPI revenue by quarter. We tend to give it by year. And I think the update we gave today was simply to give people some perspective on the number of products that were launched in the quarter, so that we are seeing -- we are continuing to see momentum in product launches, but we had indicated pretty specifically that we would expect to see NPI revenue impacted in the year because of the customer impacts that we talked about a few times today.
Understood, thank you very much.
We will take our final question from Toni Kaplan with Morgan Stanley. Please go ahead.
Hi. Welcome, Mark.
Hi, Toni.
I know this has been asked in a couple of ways and even on the last question, but I think it could be helpful in understanding, you know, there is a pretty start difference between your growth in USIS and that of one of your primary competitors and you mentioned the government deferrals, but is there some sort of way to quantify some of the impacts on the commercial side? So just directionally like, how much is sort of this lower growth coming from like lower upselling or versus delayed spending of customer, just directionally, or if you just want to quantify in some other way I think that would just be very helpful. Thank you.
Yes, I think the level of detail we provided is what we can give right now, Toni. I mean, we specifically indicated that we're going to be trying to quantify dollar impact from the cybersecurity incident going forward, just because it's been so long since the event occurred that really isn't a reasonable comparison point. So at this point I think going forward we will talk about the revenue we generate and how it's moving forward, but I don't think we can provide more detail than we did in the script.
I think we said in the call a couple of times, there is no question that the USIS team is seeing some pressure, and has seen some pressure from customers. It's really around the delay of new product work while they get comfortable around our cybersecurity and data infrastructure or rebuilt. And I characterized it a couple of times you know, it feels like those conversations are moving back towards more normal discussions as they get more comfortable with the seriousness that we are invested -- and large investments we are making in our infrastructure. So, that's kind of the color that we have so far, and the team is working hard as you might imagine, to get those NPIs and other product rollouts in front of customers.
Okay. And I'm sure the answer is no, but I guess there is no way to sort of give us a color on how many customers have just actually gone somewhere else versus continuing conversations with you?
I think the detail we have given today is what we can provide.
Thank you. Okay.
This concludes our question-and-answer session for today. I would like to turn the conference back over to Trevor Burns for any additional or closing remarks.
I just want to thank everybody for joining the call. I appreciate your time. Have a good day.
This concludes today's conference. Thank you for your participation. You may now disconnect.