Equifax Inc. (EFX) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, welcome to the Equifax Trends and Workforce Solutions Update call. This conference is being recorded. At this time, I would like to hand the call over to Mr. Jeffrey Dodge. Please go ahead, sir.

Thanks, and good afternoon, everybody. Welcome to today's conference call. I'm Jeff Dodge. And today, with me on the conference call are Mark Begor, Chief Executive Officer; John Gamble, Chief Financial Officer; Rudy Ploder, our Workforce Solutions President; Joel Rickman, Senior Vice President of Verification Services; Joe Muchnick, Senior Vice President of Alliances; and Greg Creel, Workforce Solutions CFO. Today's call is being recorded. An archived recording will be available later today on our website at www.equifax.com in the Investor Relations section under Earnings Calls, Presentations and Webcasts. During to the call today, we will be making reference to certain materials that can also be found under Earnings Calls, Presentations and Webcasts. These materials are labeled June 2020 Trends and Workforce Solutions Update. During this call, we will be making certain forward-looking statements to help you understand Equifax and its business environment. These statements involve a number of risks, uncertainties and other factors, including the impact of COVID-19 and economic conditions on our future operations that could -- or could cause actual results to differ materially from our expectations. Certain risk factors inherent in our business are set forth in the filings with the SEC, including our 2019 Form 10-K, our first quarter Form 10-Q and subsequent filings. Also, we will be referring to certain non-GAAP financial measures, including adjusted revenue, adjusted EPS attributable to Equifax, adjusted EBITDA and adjusted EBITDA margin, which will be adjusted for certain items to detect the comparability of our underlying operational performance. Adjusted EBITDA is defined as net income attributable to Equifax adding back interest expense net of interest income, income tax expense, depreciation and amortization. Our non-GAAP measures for completed periods are detailed in reconciliation tables, which are included with our earnings release, and also are posted on our website. Now I'd like to turn it over to Mark.

Thanks, Jeff. And thanks for joining us this afternoon. We continue to face unprecedented times during the COVID-19 global pandemic. I hope you and your families are safe and managing in this unusual environment. We would like to again thank the dedicated and selfless health care professionals, first responders, volunteers and others around the world who are on the front line fighting this pandemic, and sympathize with the millions of consumers around the world that have been affected by the economic impacts of COVID. As we announced last week, Equifax' daily and weekly revenue trends have improved meaningfully in the past 4 to 6 weeks as economic activity has improved during the COVID lockdown and in the past 2 to 3 weeks as shelter-in-place orders have been relaxed, particularly in the U.S. While we are still unable to provide guidance for our operations in the second half of 2020, we wanted to continue sharing our near-term revenue trends, which have improved significantly from the trends we shared with you in mid-April. We also want to take the opportunity this afternoon to do a deeper dive on Workforce Solutions, which continues to deliver exceptionally strong performance. John and I will give you an update on Equifax revenue trends in second quarter and Rudy Ploder and his team will give you an update and outlook on our strongest business, Workforce Solutions. Turning to Slide #4. This is clearly the most challenging consumer environment we've seen in our lifetimes, with record unemployment, broad-based furloughs and salary reductions and record forbearances. This environment is exponentially more challenging than the 2008 and 2009 global financial crisis, which is creating real challenges for our customers. Data and analytics are always valuable, even more so in this unprecedented consumer environment. The volatility around consumer incomes and ability to pay is at a level we have never seen before. Friday's positive employment data is a sign there is some level of recovery underway, but we expect the challenges of the COVID economic event to continue into the second half of 2020, with continued corporate employment resizing to respond to economic activity and other economic challenges. As we'll discuss later, in this unprecedented environment, Workforce Solutions' TWN employment and income data is uniquely valuable as it is one of the only data sets that is updated each payroll cycle and at a scale that is 3x the 2008 and 2009 global financial crisis, with close to 50% of the U.S. nonfarm payroll in our database. We've begun to carefully reopen our offices in Atlanta, St. Louis and other U.S. markets with 50% density to ensure social distancing while using all the appropriate CDC protocols. We expect our international offices to follow later in June and in July. Equifax is performing exceptionally well and better than we expected in April, with improving revenue trends, particularly in our U.S. businesses. If current revenue trends continue through June, Equifax revenue should grow over 3.5% in second quarter, which is up dramatically from the minus 8% to 10% our revenue trends indicated 7 weeks ago. This is significantly stronger performance than the early stages of the 2008/2009 global financial crisis, where Equifax revenue was down 9% to 10% in the first 3 quarters of that economic event. Our strong outperformance in the second quarter is driven by the momentum from the second half 2019, our strong performance and momentum in the first quarter, our differentiated data, EWS' scale and performance and the market macros of mortgage from low interest rates and unemployment claims. Some key highlights in our quarter to date: U.S. mortgage revenue is continuing at record levels with refinancing continuing at a historic level driven by low interest rates. Based on rates today, about 10 million existing mortgagees would benefit from a refinancing, which is about 25% higher than the available refi pipeline in 2008 and 2009. Second, Workforce Solutions growth has been accelerated in the past 2, 3 years -- accelerating in the past 2 to 3 years from record growth, penetration, new products and new verticals. Their growth further accelerated in the second half of 2019 and continued with the strong 32% growth in the first quarter, driven by the strong U.S. mortgage market, record addition, new use cases and penetration into existing verticals. We expect Workforce Solutions to be up over 40% in the second quarter. In addition to growth in verifications, their unemployment claims processing business is seeing record volumes, resulting in over 35 million increase in UC revenue in the quarter. Rudy and his team will give you a detailed EWS update this afternoon. Third, we're seeing strong customer engagement across our Equifax commercial teams as we have deployed new recession products and we are seeing U.S. pipeline build in April and May. We are finding that external and internal engagement via video is very effective with our commercial connections at a very high level. The value of data and analytics has never been higher, and this follows USIS' momentum in the second half of 2019 and strong first quarter performance. Fourth, we are continuing our cloud data and technology transformation and are maintaining pre-COVID technology project milestones with no drop-off in productivity. We are already seeing benefits from the cloud transformation and expect these benefits to continue to accelerate in the second half and into '21 and beyond. Fifth, we're expanding our investments in innovation and new products and expect a number of new products implemented this year to be over 100, which is up about 90 from last year. Accelerating new product innovation is a top priority and our next chapter at Equifax as we leverage our cloud data and technology transformation for growth. And last, we're keeping tight controls on costs outside of our cloud data and technology transformation data and analytics investments and new products investments. And we expect these cost controls and our discretionary costs to deliver benefits in the second half -- in the second quarter and in the second half. Turning now to the next slide, on Slide #5. We have a very high level of engagement and connection with our customers over the past 2 months. Equifax is on offense. During this challenging period, we continue to take strong steps to support our customers and consumers and bring new solutions to market. USIS and EWS are hosting multiple targeted industry-specific webinars to assist customers with how to use our unique data and to navigate these unprecedented and challenging times. We've seen tremendous participation with almost 15,000 attendees over the past 10 weeks, an incredible level of engagement. Customer feedback has been excellent, and we plan to continue this proactive engagement with our customers to help them manage in this unprecedented environment. We continue to launch new and refine existing products to support our customer's specific needs during this COVID recession. This includes our Equifax Response Now product initiative in USIS and tailored I-9 and UC solutions in EWS. We're also taking proactive steps to support consumers, including free credit reports in the U.S. as they navigate the challenging environment. We're seeing significant customer interest and engagement with our unique Workforce Solutions TWN income and employment data assets. Rudy and his team will talk more about TWN data later in the presentation, but customers are increasingly seeing the power of employment and income data with an increase in unemployment as well as the number of Americans who have been furloughed or have received salary reductions. Our real-time TWN employment income data is a uniquely valuable asset in these unprecedented times. Turning now to Slide 6. Our performance to date in the current COVID recession is much stronger than it was in the global financial crisis of 2008/2009. As we discussed in April, we currently estimate that over 55% of Equifax' businesses, including Workforce Solutions, U.S. mortgage and unemployment claims will grow in a recession, which is much stronger than the 40% mix of those businesses we had in 2008. This stronger Equifax portfolio is driven by the substantial growth at Workforce Solutions over the past decade and our increased penetration in U.S. mortgage. As you can see on the right-hand side of this slide, at current trends, Equifax revenue is expected to be up over 3.5% in second quarter versus the down 9% to 10% results in '08 and '09. Not only are EWS and mortgage larger portions of Equifax revenue, they are also performing at much higher levels than the '08/'09 recession, with expected revenue growth up 2x from our performance driven by scale, new products and innovation. As John will discuss shortly, we are also seeing improvement in USIS non-mortgage and international revenue trends, but they are both continuing to perform as declines in the second quarter, consistent with what we saw in the '08/'09 recession. Our strong mix of recession growth businesses and outsized performance in Workforce Solutions, U.S. mortgage and our unemployment claims business allows Equifax to deliver strong results and continue to invest in our cloud data and technology transformation and new products in this challenging environment. Let me turn the discussion over to John, so he can provide more details on the revenue trends over the past few weeks.

Thanks, Mark. As Mark pointed out, we are seeing sizable improvements in our revenue trends from the discussion we had on April 21. On Slide 7 and 8, we are providing an update to the BU-level trends we shared during our April earnings call. The charts show the revenue growth rate you would see in 2Q '20 if the trends we are seeing through last week were to continue for the rest of June. As shown on Slide 7, USIS represents about 37% of our revenue in the first quarter, of which about 85% is online between OCIS and Mortgage Solutions. Looking at the second quarter trend through May, total USIS Online revenue has pointed up over 7% in -- versus 2019, a significant improvement from the down approximately 10% trend in April. Online mortgage revenue, the sum of tri-merge and online single file has continued to show strong year-to-year growth through May, pointing toward up 40% for 2Q. Online non-mortgage revenue through May has significantly improved from mid-April, and while still down is currently only pointing at a decline of about 12% versus last year compared to the down 30% through mid-April. We have seen improvements over the prior trends in all major verticals. Auto is showing slight growth in the last several weeks. Telco and insurance are seeing year-to-year declines of just under 13% for the same period, both significant improvements from steeper declines in April. Banking, principally car and personal loans, continue to show the weakest performance over the last [ 3 ] periods, down 25%, but this is also a significant improvement from April. The remaining revenue in USIS' Financial Marketing Services, FMS trends through May would point toward a decline of about 10% for the quarter, with portfolio review as expected performing much better than CMS. Workforce Solutions represented about 31% of Equifax revenue in the first quarter, of which over 75% is Online through Verification Services. Through May, Verification Services has shown high growth and based on these trends appears to be pointed at about a 38% increase over 2019. Mortgage, which is the largest of the Verification Services vertical, has remained extremely strong, up well over 50% versus 2019. Non-Mortgage Verification Services is up about half -- sorry, Non-Mortgage Verification Services is about half government services, with the remaining being health management; vet services; and banking, principally auto. Non-Mortgage Verification Services, based on the trends through May, was pointing toward a decline of about 10% for 2Q, slightly better than through mid-April. Government Verification Services revenue performed better than commercial verticals as expected. The nongovernment verticals are slightly stronger than in April, principally in Talent Management. Debt management is performing much weaker than expected in a traditional recession, as our customer base is weighted towards student loans and collection activity has been slow. In Employer Services, unemployment insurance claims management, as expected given the significant rise in U.S. unemployment, has seen substantial growth for May and is pointed toward revenue growth over 100% for 2Q versus the prior year. We expect these trends to continue as long as U.S. unemployment remains at the current levels. Workforce Analytics, our W-2 business and our talent management businesses are principally subscription-based businesses and make up the bulk of the remainder of Employer Services. In total, if May trends hold, we expect Employer Services revenue to be up over 50% in the second quarter. Our U.S. B2B businesses, USIS and EWS, make up about 68% of Equifax revenue. The Online portions of these businesses make up about 54% of Equifax revenue. And based on May trends, Online has pointed towards growth of over 18% in 2Q. Overall, based on May trends and assuming they hold throughout 2Q, our U.S. B2B is pointed toward growth of about 20% in the second quarter, a substantial improvement from the levels we were seeing at the time of our April earnings call. Moving to Slide 8. International represents about 25% of Equifax revenue, of which under half is Online across its 4 regions. Based on constant currency revenue trends through May, Asia Pacific has pointed to be down under 20%, which is better than we saw in mid-April, which reflects gradual openings beginning in Australia and New Zealand. This excludes revenue from our recent acquisition of the remainder of our India operations. LatAm's through May revenue trends point to a decline of about 20% in the second quarter, consistent with the trends we saw in April. As of yet, we have not seen a significant impact of new stricter shelter-in-place measures implemented across that region. Through May, Canada revenue trends have improved from mid-April, now pointing to a decline of about 25%. In Europe, the CRA business revenue trends through May have also improved from mid-April trends, pointing to a decline at current levels of about 25%. In our U.K. debt management business, the trends improved and are pointing to down about 40% for the quarter. Debt management is about 1/3 of our European business. On the basis of these trends, in total, International is pointed toward a 2Q revenue decline of about 24%, meaningfully better than our mid-April trends. GCS represents about 10% of Equifax revenue. Overall, based on May trends, GCS is performing consistent with the trends we saw in April, pointing to a decline of about 8% year-to-year. Overall the resiliency of our business model and strength of Workforce Solutions and our U.S. mortgage business is mitigating the impact of recession on our overall business, with trends indicating growth of 3.5% to 5.5% in the second quarter versus the down 8% to 10% we discussed in mid-April. Consistent with our April earnings call, we are not providing second quarter guidance. While the current trends are better than what we had expected with April trends, visibility remains a challenge, which adds to the difficulty in providing meaningful guidance. On Slide 9, we are providing an update to the illustrative second quarter framework we provided in April for perspective on total Equifax 2Q '20 performance. To the extent total Equifax revenue continues at the pace I described earlier based on new trends, at current FX rates 2Q '20 revenue would likely be up 3.5% to 5.5% or $30 million to $50 million versus the second quarter of '19, resulting in Q2 '20 revenue of $910 million to $930 million. On a constant currency basis, this would represent revenue growth of about 5% to 7%. At these revenue levels, adjusted EPS would be in the range of $1.22 to $1.32 per share, down 6% to 13% from the $1.40 per share earned in 2Q '19 and up significantly over the framework we provided weeks ago. Slide 7 also provides a walk explaining the translation versus 2Q '19 of the revenue impact to pretax income and adjusted EPS. The ranges provided for 2Q revenue and adjusted EPS reflect current variability in trend, not a view of potential quarter outcomes. Importantly, at these adjusted EPS levels, Equifax could deliver over $300 million in adjusted EBITDA in the second quarter. As we consider the second half of 2020, there is still substantial uncertainty regarding the pandemic and its impact on the economy, limiting our core visibility and ability to forecast. And therefore we do not expect to provide third quarter or full year guidance at our earnings call in July. As we consider the second half of '20, in addition to Equifax' strong first half '20 performance, factors to consider would include: The strong mortgage market has been a significant tailwind in the first half of '20. As we enter second half of '20, year-to-year comps get substantially more difficult as the mortgage market and our mortgage revenue strengthened substantially in the last half of 2019. At the levels -- and the level of strength the mortgage market can retain through the rest of 2020 is also uncertain. In 2Q '20, Equifax revenue in our unemployment claims business is expected to increase by over $35 million due to the unprecedented growth in U.S. unemployment claims filed in the quarter. This is increasing the overall Equifax growth rate by 4 percentage points. It is unlikely we will see this revenue level in the second half of '20. USIS non-mortgage, GCS and international revenue have improved substantially, but remain below 2019 levels. The timing of those markets returning to growth remains unclear. We hope the detail and framework we provided on the impacts we have seen to date are helpful as you estimate Equifax' second quarter results. Let me turn it back to Mark.

Thanks, John. We're extremely encouraged by the strong improvement in our revenue trends, especially in our US B2B businesses, EWS and USIS, and the progress our commercial teams are making, focusing on products that support customers in this unprecedented recession. The substantial strengthening of our business performance in the second quarter is significant as it further supports our commitment to accelerating investments in our cloud technology and data transformation and new products. These investments are critical, as a leading data analytics and technology company it will position us strongly for '21 and beyond. Before I turn this presentation over to Rudy and his team, let me spend a minute on EWS. Turning to Slide 10. EWS is clearly our most differentiated, fastest-growing and highest-margin business. EWS revenue growth rates have been accelerating in the past 12-plus months, with very strong second half 2019 and first quarter growth. EWS revenue is growing at over 2x the Equifax average, which adds 100 to 200 basis points to our overall Equifax growth rates. Adjusted EWS EBITDA margins are about 1,500 basis points higher than the EFX average and are now above 50%, a significant milestone. EWS has multiple growth levers, including record growth, new products, customer value chain expansion and a growing number of verticals and use cases. EWS is benefiting from our cloud data and technology transformation, which has allowed them to accelerate customer system-to-system integrations to support real-time online delivery of data, and simplifying integrations with data contributors to speed contributor additions and record growth. Our investment in the cloud transformation is also allowing EWS to deliver solutions they could not do a year ago. Their capabilities will only expand as we complete the cloud transformation. And last, we made big steps to further integrate the selling effort with USIS for joint sales of USIS solutions in EWS and USIS products, and both teams are increasingly working together in the marketplace. Now let me turn the presentation over to Rudy and his team, who will provide you with an update on our Workforce Solutions business. As you know, I'm very energized about our EWS business and the performance that Rudy and his team have delivered for our customers, partners, consumers and shareholders.

Thank you, Mark. I'm honored to be on the call today to discuss our Workflow Solutions business. Along with our team of over 2,000 Workforce Solutions professionals, we are proud of our business and we work diligently to support our customers, partners and consumers and deliver value to our shareholders. I am joined today by 3 of my colleagues: Joel Rickman, Senior Vice President of Verification Services; Joe Muchnick, Senior Vice President of Alliances; and Greg Creel, my CFO. Let me start by providing a high-level overview of how the Workforce Solutions business model operates. Please kindly turn to Slide 12. We have a trusted and resilient multi-sited business model. That business model provides great value to individuals in their lives as employees and as consumers. At the center of the business model is our proprietary Work Number database where we securely store employment, income and other payroll information. There are 3 sources of payroll data to The Work Number database. First, our Employer Services business provides solutions, insights and analytics to human resources departments to support the efficient operation of their internal employee services, including unemployment claims, I-9 integration, onboarding, W-2, Work Opportunity tax credits, Affordable Care Act and paperless pay. In support of these solutions, employers provide us with their trusted payroll information in a secure manner and provide us with their consent to incorporate the payroll data into our Work Number database. Second, employers directly contribute payroll information to the database through standard integrations built into their human capital management systems or through custom integrations. And third, employers that use third-party payroll service providers contribute their payroll information through integrations we have built with their payroll providers. In just a minute, I will provide insight into the value proposition for employers, our data contributors. Our Verification Services business uses the secure employment, income and other payroll data in The Work Number database to provide verification solutions and insights to vendors and other institutions such as mortgage, credit card, auto, personal loans, federal and state governments and companies screening for potential employees. A critical underpinning to the business model is permissible purpose. We only provide the sensitive payroll data to third parties that meet strict regulatory guidelines. Furthermore, we only provide the income data to a third party when the consumer has given their consent to do so. The value proposition for employers who are the data contributors, their employees and the data verifiers is very strong. Please turn to Slide 13. On the left-hand side of the slide, we provide value drivers for data contributors and their employees, and the right-hand side for verifiers. Let me give you a sense of how we deliver tremendous value to multiple stakeholders, starting with the data contributors and their employees. First, our Verification Services reduce costs for the employers as the employers do not have to staff resources to perform Verification Services. Those resources can be reallocated to support other functions within an organization. Second, we reduce compliance risk for organizations as we ensure that sensitive information is only provided to institutions who have a permissible purpose to receive and use the data. Over many years, we have built thousands of system-to-system integrations with lenders and other companies that allow for automated validation of permissible purpose. We support the employees of data contributor companies in buying a new home, refinancing a home, buying a new car, obtaining a credit line increase or receiving government benefits. Our systems are always on. We are able to support consumers whenever and wherever they need our solutions, which clearly reduces friction and increases speed. This is a significant benefit to employees. And number four, for employers, we assist in the onboarding process. We simplify W-2 tax forms, determining eligibility for health coverage and if necessary, assist with unemployment claims processing. As we move to the right-hand side of this slide, the data verifiers also receive tremendous value from our solutions. Number one, The Work Number database is updated with every pay cycle to deliver the most recent income and employment information. This is especially valuable in the current COVID-19 environment, with tens of millions of fellow Americans recently filing for unemployment benefits and countless more who have been furloughed or received salary reductions. The volatility around consumer income and employment has never been higher. The distinction between whether a consumer is currently employed or has lost their job has immense value in assessing underlying repayment risk. Second, The Work Number data is the most verifiable source of employment and income data as it is sourced directly from employer payroll systems, not from a legacy tax return or derived from consumer pay stubs. With the risk of pay stub fraud on the rise, the verified data is increasingly more valuable to verifiers. Third, while credit is an excellent data source to assess repayment risk, it is not always a complete picture of a consumer's risk profile. As many lenders during this COVID-19 pandemic are offering their customers forbearance options, employment and income data is providing our customers a much more complete assessment of repayment risk. And lastly, as lenders increasingly move transactions online, The Work Number data is digitally accessible in real time via system to system, web and batch. The technology transformation investments to move our business to the cloud will increase the speed at which we can access data from the employers and partners and the speed at which we can deliver solutions and analytics to our customers and ultimately improve the lending experience for consumers. I would now like to introduce Greg Creel, our Workforce Solutions CFO.

Thanks, Rudy. Please turn to Slide 14. At the center of the vast array of Equifax data assets across both Workforce Solutions and USIS is our employment and income data. While we often refer to our data set as employment and income, the data set goes well beyond just where an employee works and how much they earn. On the right-hand side of the slide, we have provided some of the data elements that we receive into The Work Number database every pay period, including job title, job status, hire date, social security number and date of birth. We use AI tools to validate the accuracy of the data coming from employers to ensure the quality of the data furnished to verifiers. All of these unique elements help us provide unique solutions and analytics for our customers and enhance the efficiency of the lending process for the consumer. And we are adding new assets to deepen and broaden the solutions we can provide. Some of the new data assets that are supporting key verticals include our Work Number ID to support identity validation in mortgage and other financial institution verticals. In our government vertical, we are adding third-party incarceration data along with The Work Number to support benefits decisions. In our Talent Solutions business, to provide a more complete view of candidate qualifications, we are adding education, licensure and certifications data to our talent report. In fintech, through our TWN inquiry database, we are able to provide insight on loan stacking in addition to supporting identity validation with TWN ID. Further, as Mark and John have mentioned to you on previous earnings calls, our ability to create multi-data asset solutions will increase with our cloud-native technology transformation as we deploy data fabric. This also accelerates and deepens how we work with USIS in go-to-market, new products and data and analytics. Please turn to Slide 15. Given the strength of our business model and the investments we continue to make in record growth, new products, use cases and technology, the Workforce Solutions business has shown tremendous revenue growth and adjusted EBITDA margin expansion over the past 10 years. Our revenue compound annual growth rate since 2014 is a strong double-digit 14%, with our Verification Services compound annual growth rate an even stronger 19%. Our revenue in 2019 was $950 million, and for the most recent trailing 12-month period exceeded $1 billion. And since the 2008 recession, we have grown adjusted EBITDA margins 800 basis points. And in 1Q '20, they exceeded 50%. While Workforce Solutions generates about 30% of Equifax revenue, we generate about 40% of Equifax adjusted EBITDA before corporate expenses. The power of the business model is clearly showing up in our financial results. Please turn to Slide 16. We have numerous growth levers in our business, and we are investing behind each one of the levers. On the left-hand side of the slide, you will see our 2019 revenue mix. We are well diversified across mortgage, government, financial institutions and corporate customers in Employer Services and Talent Solutions. On the right side of the slide, our key Workforce Solutions levers include The Work Number database record growth, deeper integration with USIS in key verticals of mortgage, government, banking, auto and fintech. This accelerates both our and USIS' expansion in these verticals, expanding key employer verticals with new products and capabilities in Talent Solutions, in I-9, increasing the penetration in the number of data pulls and transactions, new products and use cases, further enabling solution distribution via assisting system integrations and APIs and international expansion to key markets like Canada, Australia, India and the United Kingdom. The growth levers are clear, and we are very excited about each one. Each of these growth levers have continued runway, and we are making the needed investments. We've nearly doubled revenue from 2014 to 2019, while also expanding our margins. As Mark has mentioned, we are only in the second inning. I am now going to turn the presentation over to Joel Rickman, who leads our Verification Services business, so he can share some insights on that portion of the business. Joel has deep domain expertise in the Verifier business.

Thanks, Greg. It's great to be here today. I'm extremely excited to present our Verification Services business. Please join me on Slide 17. Within Verification Services, we sell our solutions and analytics across a distinct value chain, from initial identity verification and application to account review for existing customers as evidenced across the top of this slide. Moving from left to right, identity is a significant challenge for lenders and other institutions, especially as transactions move more to a digital environment. With massive increases in identity fraud, our Work Number ID and other identity products mitigate synthetic fraud risk, streamline the identity process and provide more visibility to our customers on thin-file applicants. At the origination stage, we provide frictionless employment and income verifications, optimize client offers and mitigate risk through the use of The Work Number ID and indicator data at application and the full Work Number verification of employment and income at funding. And to support our customers in understanding their customers and providing them the appropriate services throughout their borrowing relationship, we provide account review solutions such as The Work Number batch, monthly data refreshers and portfolio monitoring. As Rudy mentioned, our verified data is updated every payroll period, further enhancing each one of these solutions across the value chain. As you can see from the left-hand side of the slide, the Verification Services revenue CAGR since 2017 is an impressive 18%. Let me spend a minute talking about our strategic verticals. Please turn to Slide 18. As Mark and John had mentioned on prior earnings call, the Verification Services mortgage vertical is our largest and most mature vertical. We have deep domain expertise that allows us to move horizontally to expand our distribution and go deep vertically, to build products that solve the most complex mortgage challenges and increase the efficiency of the lending process. From a distribution perspective, we have several key objectives, including: to grow transaction volumes through connector partners; to increase the number of data pulls per transaction. Historically, mortgage lenders pulled The Work Number data at loan closing to meet GSE requirements. Lenders have increasingly seen the value of pulling our data early and more often during the mortgage lending process to identify the best mortgage products for their customers, which assist the lenders in winning the business. The Work Number also assists lenders to mitigate loan fraud and therefore mitigate future repayment and loan buyback risk. There is tremendous value in building new system-to-system integrations with connector partners. Connector partners are often the platforms where the loans are being decisioned, originated and serviced. These connectors allow for a more efficient and automated access to The Work Number data across their customer base. Our leadership and innovation in mortgages has allowed us to deliver revenue growth with a CAGR of 16% since 2017. Moving on to our government vertical. We see tremendous opportunities for growth in this space. Please turn to Slide 19. In the government space, we have 3 transformative growth pillars. Our key client program is working with the largest clients to optimize use cases and operational workflows to access The Work Number data; Alliances which leverage increased buyers to the data; and number three, increased penetration in state agencies and programs. Through this growth model, we have built relationships at the federal and state level, including the IRS, Departments of Treasury and Homeland Security, U.S. Postal Service, Center for Medicare Services and the Social Security Administration. Mark discussed on the last earnings call, our recent win with the SSA. Today, we provide the SSA with an initial employment and income verification solution to screen for initial benefits eligibility. The new solution will provide an employment and income verification as SSA benefit checks are issued to consumers to reassess eligibility. This solution will support the SSA in their fight against benefits fraud. We are very excited about this ongoing revenue stream that has a revenue opportunity of $40 million to $50 million per year once fully implemented. Further, we recently assisted the federal government with data in response to the COVID-19 pandemic. In addition to our federal agency relationships, we also do business with 38 states, including the District of Columbia. Our services assist state jurisdictions with employment and income verification for social services programs. Our solutions increase the speed at which eligible participants start receiving benefits as well as supporting identification of fraudulent applicants. While the government is one of our fastest-growing verticals, we currently only support one in 10 government social services transactions. In addition to the new SSA contract, we believe that key growth levers include CMS record growth, state use case expansion and distribution channel expansion with connectors and partners. We're extremely excited about the opportunities to assist federal and state governments. Before I wrap up, let me take a minute to highlight some of our other financial institution verticals that we are very excited about. Please turn to Slide 20. Our auto, card and fintech verticals are not as large as mortgage and government, but we are seeing a nice growth across these verticals. Since 2017, our revenue CAGR is an impressive 13%. We are clearly benefiting from record growth as well as an appetite for our unique verified data across these verticals. In fintech, our instant online verification of employment and income improves conversion of online applicants, and our Work Number inquiries provide new loan stacking solutions. We are also seeing new opportunities to use data earlier in the order funnel, verifying active employment as part of the core credit decisioning process. In auto, our verifications of income helps clear stipulations of funding for subprime and near-prime consumers, helping our customers approve more loan applicants. We see opportunities in auto to expand our distribution through more connector partners and increase the usage of data and portfolio reviews. During this time, we are also seeing clients pull The Work Number across higher credit band applicants. In card, we support our customers with new card originations, credit line increase programs, portfolio reviews and portfolio monitoring. Our new bundles include The Work Number Indicator and The Work Number ID. And finally with the success of The Work Number in the U.S., we are actively engaged in developing this business in other countries including Canada, Australia and India, with our sights on the United Kingdom. The domain expertise in the U.S. and the power of our technology transformation will make standing up this business globally much easier. Again, this is a trusted and resilient business model. Now I would like to introduce you to Joe Muchnick, Senior Vice President of Alliances.

Thanks, Joel. If everyone could please turn to Slide 21. In our Talent Solutions vertical, we improve the quality, accuracy and speed of information used by employers as they hire new individuals into their organization. There is tremendous cost to an employer in hiring unqualified applicants. Our employment Verification Solutions increase the effectiveness of the hiring process by verifying current job status, validating job experience and detecting jobs omitted from resumes. While our solutions are valuable in -- across any industry, our solutions have even more relevance in regulated industries and with companies with high turnover who are motivated by retention. With approximately 7 million new hires made annually in the United States, we see a lot of opportunity to further penetrate this vertical. Revenue in the Talent Solutions space grew a strong 19% over the 2017 to 2019 period and is approaching $80 million per year. Please turn to Slide 22. A critical driver in the growth of our business has been the increase in the size of The Work Number proprietary database. While we have owned the business for 13 years, The Work Number database has been built up over 20-plus years, as you know, Equifax acquired TALX in 2007, when TALX had less than 40 million active records. For your understanding, an active record is a payroll record of an employee actively employed by a specific employer. So it is possible for an individual to have more than one active record on The Work Number if that individual is employed on more than one company. EWS has a dedicated team that is solely responsible for acquiring new records from employers and building partnerships and integrations with payroll providers and HR systems providers to simplify the ability of an employer to contribute their records to The Work Number. These partnerships and integrations also enable medium and small businesses to contribute to The Work Number. Through the team's outstanding efforts at the end of the first quarter 2020, we had over 105 million active records and over 700,000 employers contributing to The Work Number, which compares to about 90 million active records and 30,000 employer contributors at this time last year. Our relationships with strategic payroll providers have enabled the tremendous growth in contributors. Within the over 105 million active records, there are approximately 85 million unique underlying consumers, which represents just over half of the 160 million U.S. non-farm payroll. Additionally, we have recently begun adding individuals who are self-employed or may work on a contractor basis to The Work Number. This step allows The Work Number to begin representing individuals classified as contingent workers, which is estimated to make up as many as 17 million U.S. workers. As we exit the second quarter 2020, we expect the number of unique consumers to be down slightly from the 85 million we had at the end of the first quarter. We expect to continue to substantially grow the number of companies contributing to The Work Number in the second quarter. However, this growth in records from new contributors will be offset by reductions from U.S. unemployment in the second quarter. However, we see continued substantial growth in new employer contributors. We are well positioned for growth as the economy and the employment recover. Our path to future record growth lies in the strong value proposition for data contributors Rudy laid out earlier. Employers, partners, verifiers and consumers all benefit from the growth of The Work Number database. Unlike some other industry exchanges, The Work Number is only about 50% penetrated. That fuels the EWS's team drive for growth. Let me talk about our Employer Services businesses for a few minutes. Please turn to Slide 23. Our Employer Services business provides a full suite of HR solutions to employers, from talent acquisitions through active employment, to offboarding. These value-added solutions increase the overall efficiency of our employer customers. Several of the key solutions we offer include: number one, pre-employment verifications connected by our compliance centers such as I-9, E-Verify management work opportunity tax credits, state and federal new hire forms, federal, state and local tax forms, and employer-specific forms; number two, active employment engagement with the Affordable Care Act management, W-2 tax form management, paperless pay, employer tax services and I-9 audit and remediation; and number three, offboarding through our unemployment claims management business. Now please turn to Slide 24. Our I-9 product is an important growth lever within the Employer Services suite of solutions. Equifax is the leader in providing a full suite of I-9 digital services from hiring through audit. U.S. companies hire approximately 70 million new employees each year, and each new employee must complete an I-9 form to validate employment eligibility. Our I-9 solution helps companies complete that regulatory requirement. And coupled with The Work Number, we help companies identify risks that may result from employees who do not complete an I-9 form. To further improve our solution, we recently enhanced our capability by increasing the nationwide network of locations where an employee can schedule and complete their I-9. This solution is especially relevant as companies are increasingly hiring remote workers and HR organizations are continuing to struggle with the completion of I-9 forms as a result of COVID-19. As we connect the dots of our business model, it's very important to understand that our Employer Services business is a direct link to the payroll record sourced to The Work Number. And while the Employer Services revenue growth and margin profile have historically been lower than our Verification Services business, Employer Services fuel Verification Services revenue growth through record growth. Now let me turn it back over to Rudy.

Thank you, Joe. Let me talk for a minute about our cloud-native technology transformation, which will take our business to another level, enhancing the ease of integration and distribution, improving uptime and response time and fueling our growth. Please turn to Slide 25. Our primary actions for our Verification Services business in 2020 include moving employment and income data to the data fabric; making Verification Services products and portals available on Google Corporate Platforms, or GCP; and Employer Services moving I-9 and compliance center to GCP. We see a number of key benefits on our moves to the cloud: speed and scale in cloud batch delivery; easier integrations with application programming interfaces; faster new product development and multi-data asset configurations; our scaling, self-healing infrastructure, enhancing our digital experience, fully integrated across Workforce Solutions and USIS with mobile-first self-service onboarding and wide enabling capabilities with resellers. As we wrap up, please turn to Slide 26. The power of our business is strong and accelerating. As you know, Mark frequently refers to the Workforce Solutions business as being in the second inning, given the tremendous opportunities for growth that we have laid out for you today. The number -- The Work Number records grew almost 20% in 2019, and the number of unique individuals in the database is only halfway to the U.S. non-farm payroll. The number of contributors is growing exponentially, from about 30,000 at the beginning of 2019 to over 700,000 today. Our partners are fueling this growth and we see more opportunities for partnerships, deepening our partnership with USIS and GCS across key verticals in new product development and data and analytics. I meet with Bev Anderson, Craig Crabtree, Joy Wilder Lybeer, Joel Rickman in deep frequency -- frequently. We have a regular cadence with our integrated commercial teams. We are optimizing commercial team incentives to drive integrated workflow solutions, GCS and USIS growth. We see opportunities to leverage our Workforce Solutions data with USIS assets as well as GCS service offerings. Mortgage and financial institution customers are expanding their utilization of The Work Number database as they increasingly see the value in accessing the data across the life cycle of lending and other transactions. The risk is not static, and our data is real time. We are generating new products to penetrate growing and emerging verticals such as government, talent solutions, I-9, consumer finance, auto and card. Increasingly, transactions are processed online via system to system, and the data is embedded in customer workflows. The cloud-native technology transformation will increase the speed at which we can deliver new solutions to our customers and increase the efficiency of digital transactions in the marketplace. The existing tailwinds are allowing us to grow at 2x the Equifax growth rate, and our adjusted EBITDA margins are about 1,500 basis points higher than the average -- the Equifax average. Our path is clear, and our opportunities are growing. With that, I will turn it back over to Mark.

Thanks, Rudy, and the Workforce Solutions team. What a great story and a powerful and uniquely Equifax business that's driving strong top and bottom line growth. Wrapping up, turning to Slide 28. As we battle through the economic impacts of COVID-19, we are confident that the future of Equifax is strong, and we remain on offense during this challenging time. The breadth of our portfolio of data businesses allows us to deliver strong financial performance while continuing to invest in our cloud data and top technology transformation and new products. As we look forward to the rest of 2020 and into '21 and '22, we are confident in our business model, our investments and our ability to perform in this challenging COVID-19 economic environment. Our response to the COVID pandemic has been strong and proactive. Engagement with our customers is very high, and we are building solutions to help them navigate these challenging times. Our team is on offense. Our momentum from the second half of 2019 that carried into the first quarter of 2020 is helping us outperform during this COVID pandemic versus the 2008-2009 financial crisis. Our performance is significantly stronger than the '08-'09 recession. We've seen revenue trends improve meaningfully in the past 7 weeks as some commercial activity resumes and shelter-in-place orders begin to be lifted. As Rudy and his team pointed out, EWS is a very powerful business that we expect to grow through the COVID-19 recession and have strong long-term growth potential. Our unique TWN employment and income data is even more valuable in this unprecedented economic time due to scale, accuracy and latency of the data. The momentum of the USIS recovery in the second half of 2019 and during the first quarter gives us confidence that our business is competitive and well down the path of recovery following the 2017 cyber event. USIS is performing well in the COVID environment. As Rudy pointed out, USIS and EWS are increasing their commercial collaboration across key go-to-market verticals in mortgage, auto, card and fintech as well as accelerating collaboration in D&A and new products. Our unique and differentiated data assets, including consumer credit, TWN employment and income, NC Plus (sic) [ NCTUE Plus ] cell phone utility data and property data assets along with unique commercial credit data assets position Equifax to deliver on products and analytics that our customers will demand as they manage through this difficult environment. As I mentioned earlier, we'll continue to invest in our cloud data and technology transformation and new products at pre-COVID levels. As you well know, NPIs fuel our growth not only in the current year but in the future. Our NPI capabilities are being accelerated by our cloud transformation and remain a priority for 2020 and the future. We will continue to expand our investments in new products and expect the cloud transformation to accelerate our growth in NPIs in the future. And we have the right team in place with seasoned leaders who understand data and analytics and how to operate in a recessionary environment. And last, we have a strong balance sheet and liquidity that allows us to stay on offense. Equifax is operating very well in the second quarter with current trends indicating growth of 3.5% to 5.5%. And we are well positioned to weather the COVID economic challenges with strong levers for growth in '21 and '22. We hope that this level of transparency is helpful to you in these unprecedented times. We'll give you another update on our trends during our July call on second quarter earnings. And with that, operator, please open it up for questions.

[Operator Instructions] Our first question comes from Manav Patnaik from Barclays.

Yes. The first question I had was on the Workforce business. I think you can apply it on the Employer Services piece, particularly. Obviously, with the surge in unemployment claims that drives your revenue growth higher. But I think you were trying to explain last time, at least there's a baseline of subscription and so forth. And I guess what I was trying to understand is if the unemployment claims drop, like maybe you saw in the last jobs report, the rehiring happening, does that drop off as suddenly? Just trying to get some color on how we should think about the reverse side of the equation.

Yes. There's no question that, now, if I got -- you're garbled a little bit. But if I got the question right, yes, I think you were talking -- asking about our unemployment claims business and Workforce Solutions, where we pointed out that we've got some very significant incremental revenue. I think we may have mentioned on this call, we have in prior ones, that we're processing now 1 in 5 or 1 in 6 unemployment claims. So we talked about an incremental, based on current trends, $35 million in the quarter of revenue. There's an ongoing revenue stream in that business where we have subscription fees with the different companies we're providing the claims management for. The incremental revenue is just really driven by overages and additional fees because of the significant number of claims that have been processed. It's hard to predict what's going to happen in this third quarter or second half with unemployment claims. They'll likely -- you see, like I do, announcements by companies talking about reductions in -- later in the year. So likely, there will be some additional claims, incremental claims revenue for us going forward.

The significant bulk of the revenue this quarter is from new claims filing. So if that goes away, you're right. But on the upside of that is to the extent that they're -- that unemployment is not to the extent that was indicated, obviously Work Number records will be better.

Okay. That makes sense. And then just in the USIS business in terms of the momentum and so forth that you have talked about the last few quarters. Can you just talk about the, maybe, have there been other trends from the banking customers in [ USIS ex mortgage ] really, where I guess you had lost some of that momentum, and how that is shaping up?

Yes. We talked a little bit in a couple of parts of the conversation this afternoon, Manav, about what's happening with banking customers. So I'll leave mortgage aside because I think you're probably pretty well versed on that. We talked that John mentioned that on auto, we're seeing auto financing, actually, some growth in recent weeks on a year-over-year basis, which is really not what we anticipated 60 days ago. So there's been some level of perhaps pent-up demand, and then there were incentives for a while, so that's been quite strong. Some of the weaker areas in the banking and lending has been in cards and P loans, where a lot of our customers have curtailed originations or dialed back originations. We haven't seen much change in that yet, although there's a lot of discussions going on. We have, as I mentioned on -- in my comments, we've seen the deal pipelines in USIS, which are with our FI customers, grow in the last 60 days. And a lot of those are around portfolio reviews, which is quite typical when you go in an economic event like this where there's going to be more focus on your existing portfolio and using more data assets from Equifax, including the TWN database in those portfolio reviews. So there's quite active discussions for us with FI on that front.

Our next question is from David Togut, Evercore ISI.

I appreciate the helpful, detailed update. Can you comment on the propensity of companies to contribute data to Work Number database since the onset of COVID-19? In other words, is there an increased propensity given the difficulty of determining employability? And then do you have any update on the hit ratio as The Work Number database grows?

Sure. I'll start on that. And then, Rudy, if I miss anything, feel free to jump in. First on the hit rates, obviously they've been growing as our database grows. They varied based on the kind of consumer that is being a verifier or a company is using to come to our database on. As a reminder, more than half of the inquiries we get we're unable to fill because we only have half of the nonfarm payroll, and that obviously provides real opportunity as we grow records and grow the database. So our hit rates vary from 30% to 40%, sometimes a bit higher depending upon the application. And as records grow, we expect them to grow. The first half of your question was on just the propensity. Rudy, you could jump in here. But I think we've seen continued strong momentum in discussions. As you know, there's 2 avenues to the record growth that Joe talked about. One is going company by company. In many regards, the value prop of having Equifax do this for free for an HR department, to do it securely and privately, it provides real value to a company's employees as was pointed out by Joe and Rudy and the team. So that value prop has always been strong and if anything, it's stronger now. And then with our other partnerships that we have, the opportunity to get incremental revenue by partnering with Equifax is also quite valuable in this environment. Rudy, would you add anything to that?

The data fully supports what you said, Mark. We continue to see employers embracing the concept of The Work Number and even within the COVID environment. And as you said also the partners, payroll companies continue to embrace this concept and continues to give us more records and employers. So things are growing on both sides.

Just as a follow-up, could you comment on pricing for Work Number inquiries, especially as the database grows and the product becomes more valuable?

Yes. We typically don't comment on pricing at that level of detail, David. When you think about Equifax as a portfolio of businesses, we clearly have a very strong business in Workforce Solutions. We bring value to our customers. That's how we sell in. We're constantly rolling out new products, which Rudy and his team talked some about. That's one way that we provide new value to our customers with a higher price point, which is an attractive way for us and for our customers to grow. And we're always looking for new solutions to help our customers grow.

And next up, we'll hear from Toni Kaplan, Morgan Stanley.

Mark, I'd be curious to get your thoughts on the economy as a whole just based on what you've seen across the business. Do you think we're solidly in a V-shaped recovery here? Or do you think there's a risk of a W, like when we see PPP loans and other incentives from the government expire? Just wanted to hear your thoughts on that.

Yes. Let me start, Toni, by saying I'm not an economist. I minored in econ at college, but that was a long time ago. I'll give you a point of view. First, the resiliency of our business, and I would say the data analytics space has been much stronger than I anticipated. And if you look at our performance in the last 6, 7, 8 weeks versus how we performed in the '08-'09 recession, I think those are great benchmarks about the value of data. With regards to what's going to happen to the economy, a couple of points. It seems that if -- my hypothesis is interest rates are going to stay low for an extended period of time, given the scale of unemployment and the impact on the economy. So that's point one. I think that bodes well for us in the mortgage business. With regards to V shape or W shape, we've already seen -- almost every day, you see a big company either preannouncing or beginning to dialogue about additional reductions in workforce, particularly in the airline, aviation, hospitality, leisure spaces, just because of the impact that social distancing's going to have on travel and some of the other markets. So it's -- it seems pretty clear to me that there's going to be additional pressure on the number of people employed as we go into the second half of the year. That said, as I mentioned a couple of times in my comments, data is always valuable. You know that because you follow the space. From my perspective, it's even more valuable in this really unprecedented time that we've never seen before, not only about unemployment but about salary reductions and furloughs and the scale of forbearances. It's really challenging for our customers, which provides a real space for Equifax and others in the D&A space to really play and support them.

That's great. And you touched on, a couple of times, the opportunity to expand workforce internationally. I guess how should we think of the TAM of that opportunity? How big is international right now? I know you're in a couple of geographies. How fast is it growing internationally? And just basically how to think about the competition internationally versus in the U.S. just because you have such a big stronghold here, just wondering if competitive dynamics are similar or if there's more competition internationally.

Yes. It's a great question. It's one that -- as you know, I don't know, 3 years ago, we started investing in Canada, Australia and India. I would say we paused after those 3 markets because it was quite expensive to scale up the technology. And with our cloud transformation that we're doing, it's likely we will -- and Rudy alluded to that or Joe did, I think, that we'll start looking at other markets like the U.K. There's a lot of benefit in taking a business where we have real scale in the United States and taking it global. A lot of the companies that contribute to us in the United States have employees in markets around the globe, and they want us to provide this service for them. Second is our customers. We have a lot of global customers that are using the product here in the states, they want it in the markets they're in. And then some of our partnerships that we have and record contributors, those are global companies, too, and they'd like to partner with us in other markets. With the question on the scale of the business, it's not going to be a meaningful addition to Workforce Solutions or to Equifax revenue in, I would call it, the near term, meaning the next year or 2. This is an investment we're making for the next 3 to 5 years versus the next 1 to 2. And it's one where we want to make these kind of long-term investments. And on competition, we actually don't see competition in other markets, which is why we see an opportunity for us to take our technology scale and the relationships we have and move it around the globe. But you -- what you heard from Rudy and his team, all the levers they have in the United States and my reference to Workforce Solutions being in the second inning is really around the United States. There's just so much growth potential here. But at the same time, we're long-term focused, and we're investing in those international markets. And you should look for us to do more investing globally as time unfolds.

Next up, we'll hear from Hamzah Mazari, Jefferies.

You had mentioned a deeper integration with Workforce Solutions and USIS in various verticals, mortgage, government, banking, auto, fintech. Could you maybe comment on -- is this something you're seeing already? Or do we wait for the tech transformation to sort of be complete before you see this sort of deeper integration begin to materialize?

Yes, it's a great question. There's actually a couple of layers to it. First, Equifax is a -- Workforce Solutions has been a part of Equifax for 12 years. So it's been integrated into our business. And I think as you know, USIS is the commercial selling arm for all Equifax products to the FI industry here in the United States. And then conversely, Workforce Solutions is the selling arm for government customers here in the United States and then also to some of the Talent Solutions customers. So we really leverage the 2 commercial footprints. And my comments and Rudy's were mostly focused on that effort. We've always had a very close collaboration between the 2 businesses, but it's been one of my goals since I joined 2 years ago to really leverage and strengthen that collaboration. And between Rudy and Sid's team, who runs USIS, we've seen just the increased level over the last 12 months and even in the last 6 months of Rudy and Sid jointly doing account plans with the teams, developing new sales incentives to make sure that we're incenting the sales of all Equifax products, both USIS and EWS. And we're starting to see some of that traction. As you point out, there's another level of integration that will come with the single data fabric that we're going down the path on with our cloud transformation. And as that gets further along, gets completed, there will be another level of product capability that we're excited about, where we're able to more effectively combine our unique income and employment data with some of the USIS data assets in a very seamless way. We do it today, but it's more complicated, so that's kind of a second gear that will be coming later this year and '21 and '22.

That's very helpful. And just my follow-up question, I'll turn it over. Mark, just broadly speaking, are you thinking about capital allocation any differently today? And what I mean by that is the legal settlements behind you around the breach. We're sort of in the ninth inning of the tech transformation spend or maybe it's eighth, seventh or eighth inning. You have a little more visibility with May improving relative to April. I think you were going to have an Analyst Day this year to talk about USIS organic growth targets and maybe capital allocation. But -- so any high-level thoughts you can give us as to how you're thinking about capital allocation framework going forward?

Sure. And I'd start by saying that you corrected yourself. I don't think we're in the ninth inning on the tech transformation yet, we're probably in 6 or 7. We still got a lot of wood to chop there, but we're making great progress. And it is going to be quite transformational for us. And you've pointed out that, really, the 3 areas that John and I and the leadership team wanted to get some real confidence on before we put our long-term financial framework back in place, which would include, of course, the capital allocation plan. And that was the legal settlements, which are behind us as you pointed out. We finished those up last year and early this year. The second was USIS on a path to recovery. And we've seen that in the second half of 2019 where they accelerated over the first half and then very strong performance through February and into March before COVID hit. USIS is performing well in the COVID recession. And then the last was the tech transformation. We want to make sure we have some clarity on our ability to execute it, which we feel very confident in and then also the benefits from the tech transformation. So as you point out, and we talked about it on the April call and also on the February call with our year-end earnings, we were working towards putting the framework back in place in the second half of this year. I would say our plans still haven't changed on that. We want to see a little bit more of the COVID recession unfold and watch our performance. Certainly, the performance is much stronger than we anticipated a short 60 days ago -- or not even that, 45 days ago when we did our April earnings discussion in the first quarter. And we've talked before on these calls, you shouldn't expect a dramatic change in how we think about the capital allocation plan. We're not ready to put it back in place. But our prior capital allocation plan had a consistent growth in the dividend, had an element of stock buybacks, so returning cash to shareholders in that element. And then of course, a bolt-on M&A element to it. We continued the bolt-on M&A in the last 2 years since I've been at Equifax, making acquisitions like DataX and PayNet. That -- you should expect that to continue. And we want to stay on offense and -- as we go into the second half of 2020 around bolt-on M&A. And when the time is right, we'll certainly be ready to put the long-term financial framework back in place, including that capital allocation plan.

Our next question comes from Andrew Steinerman, JPMorgan.

John, this is a little bit of a technical question. When I look at Slides 7 and 8, the right-hand column that says May, I really kind of read the title that says through May. So my question is, is this column that we're looking at through May, which would include April results? Or is this just the results in the month of May?

Yes. What it really is it's, to the extent that the May trends continue, it's how we'd expect the second quarter to come in. So it certainly reflects April and May and then a continuation of what we were seeing at the end of May through June. Is that it?

So just to say differently, so May was better than this because this is kind of May and April together?

I think universally that may not be true, but generally speaking, absolutely, yes it is, yes.

Our next question comes from Andrew Nicholas, William Blair.

Going forward, how should we think about the slope of the curve in terms of the number of records you have in your TWN database? I guess I'm just -- I'm wondering how much more difficult it is to add the next 10 million records and the next 10 million records after that versus the previous 10 million? And at what point does record growth slow simply as a result of the fact that incremental records are maybe more difficult to obtain or are being pulled from smaller companies?

Yes. I'll start, and then I'll ask Rudy to jump in, too. The next record is always harder to add than the last one as you point out. And we've seen and you've seen from Rudy and his team a pretty consistent track record of adding records, both from individual companies as well as through our partnerships. I know both -- I know Joe and his team and Rudy and the team out there, they've got a strong pipeline of records that they're working on, both individual companies and through partnerships. We don't really forecast, and we're not forecasting in this meeting, record additions as we go into the second half or into '21 or '22, but we've shown a pretty good track record of continuing to grow records. It does get harder to grow the same percentage increases as you get larger, but there's still a lot of records out there for us to get. And I think as Rudy pointed out, we're not only focused on the nonfarm payroll, but we're also focused on independent contractors and others that are not in the formal payroll as we continue to build out that data set. So we've got a dedicated team that all they do is work on record additions. And we expect to continue adding records going forward. And I guess one last point I would make is that they can be a little bit choppy, the record additions. If we have a large partnership come in, there can be a large slug of those records come in. And then there can be a smaller amount coming in, in future periods. But the consistency of adding them and our focus on it is very clear.

Great. And then just one more on the TWN database. Is there a way for us to think about what percentage of records are tied to partnerships versus the direct feeds? And any color you can provide on how the economics differ between those 2 types of relationships would be helpful.

Yes, that's not one that we've disclosed in the past, and we probably won't on this call. But we share some of our revenue with some of the partnerships that we have. So the margins on those, if you want to think about it that way, would be different than the ones that we're not sharing margins on. But obviously, you see the performance of the business, it's an extremely high margin, any way you cut the record additions. And the addition of any record is quite valuable because -- a reminder that I already mentioned in my comments earlier that we're only able to fulfill about half of the requests we get, less than half of the requests. So as we add a record, we're able to monetize that, particularly through the system-to-system integrations that we have, we get higher hit rates.

Our next question comes from George Mihalos, Cowen.

I guess the first one, John, when you look at the improvement in the business, which could be fairly material from April to May. I think on the earnings call, you had lined up something like $90 million of discretionary spending cuts or somewhere thereabouts. Is that level of cut still on the table? Or does that -- does the improvement in the business cause you to maybe rethink some of that?

No. I think so far, we're continuing to hold to the level of expense management that we talked about before. Certainly, if there are specific places where we'd like to invest to accelerate growth, Mark talked about new products, we're doing that. So we think the improvement in the performance of the business gives us flexibility to invest where it makes sense, but a lot of those savings are in areas where they probably will continue. Mark's already talked about the fact that travel is likely to stay down on all internal travel for an extended period of time. There's no real reason why we have to go back to the same level of internal company travel between sites that we saw before. And quite honestly, on some of the discretionary spending, if we restructure it deeply, some of that spending is stuff we probably should have stopped previously. So I think what you're going to see is that we'll have -- you'll see that the improvement we try to drive through expense reduction we're expecting to continue. Also, a tremendous amount driven by the fact that there's still a lot of uncertainty in the world and we want to manage prudently. But the fact that we have the strong balance sheet and have taken the actions we have means that where we want to invest, we can. We're investing heavily in the tech transformation, and that won't slow down. And as Mark has said in the past, to the extent we can find ways to accelerate that, we'll spend to do it. And we have been willing to and have increased spending on new products.

Got you. Very helpful. And just a quick follow-up as it relates to EWS. I think Rudy commented on some of the smaller verticals where there's runway. I think it was auto, card and fintech in that category. And just 2 questions on that. One, is there one vertical that really stands out to you as having more of a near-term opportunity? And then as we think about the services we provide, is pricing stronger in a vertical such as auto, say, than card or fintech? Just curious if there's any sort of pricing differential to think about.

Yes. So a couple of comments there. I would say in this current environment, and we've talked about it a bit, we're finding a lot of customer discussions in all those verticals. I'll leave mortgage aside because you were talking about auto, fintech, cards, P loans and those markets. They all have the same dynamics. The consumer is extremely challenged. There's uncertainty about who's still working, who's not. There's uncertainty about who's had their income reduced from salary reductions or furloughs, which really creates the need for new data assets, and of course, uniquely, our TWN data assets. So that's front and center with every dialogue we have. We talked about the webinars that we've been running over the last 10 weeks. And a big percentage of those webinars have been focused on the TWN income and employment data, which is really incredibly valuable in this time frame. When it comes to pricing, we have different products in all those different verticals. And because of the different products we offer, they'll have different price points. In mortgage, we may offer a product that is 15, 20, even up to $150 or $175 per transaction. Where in other verticals, there could be a different pricing, but they're getting a very different data set. And maybe perhaps just a flag that says if someone's working or not is a very different value than having my whole work history and my job titles and everything else. So that product variation is, really, the beauty of the data analytics business. It's taking the data sets you have and really positioning them for the use case of the customer set or the vertical you're playing in and that's what Rudy and his team do. And of course, we do it across the rest of Equifax quite effectively.

From Goldman Sachs, we'll hear from George Tong.

On Slide 7, you show EWS online verification is up 38% year-over-year through May, with mortgage up 50% and non-mortgage down 10%. Can you elaborate on why the non-mortgage piece of revenue in EWS is down, given the recession-resistant nature of the business and the significant number of growth drivers you have in the segment?

It's being impacted on some of the verticals we talked about that just haven't recovered in the same way yet. Until recently, auto originations were down. P loan has been significantly impacted in the FI space, which is a non-mortgage vertical for the business. John, on debt service?

All right. Debt service is a chunk of the business. And although we'd expect that to be recession-resistant, a big portion of our business is around student loans and there's really no activity there now. So it's really the dynamics of the market that are driving the reduction in non-mortgage.

Debt services should improve later in the cycle. A lot of customers have tailed back on collections while they're in the forbearance period, but that will change once things stabilize, perhaps sometime in the second half.

Got it. That's helpful. And you indicated earlier that mortgage certainly was a significant tailwind beginning in the second half of 2019, and so you come up against tough comps in the second half of 2020. Can you remind us how much of a lift to reported revenue growth mortgages had over the past 3 quarters?

Yes. I don't have it off the top of my head, but we disclose it all. So it's all disclosed in our filings. And I think it's actually also in the slide deck. So George, I'm just going to have to refer you back to those, George, and it's all there. And of course, if you call Trevor and Jeff, then they'll be happy to help.

Up next is Jeff Meuler, Baird.

Yes. Is there an untapped partnership opportunity to increase penetration amongst verifiers for The Work Number for verifier? I guess I'm thinking of things like Ellie or Black Knight, CDK, Reynolds and Reynolds. Just to what extent do you go to market with partners like that on the verifier side?

And Jeff, your question is around the record additions or around...

No. Use cases, the penetration of the verifiers.

Sure. So we have a number of those relationships. Rudy, do you want to maybe talk a little bit about some of the partnerships you have or -- on the verifier side?

So we just connected with Ellie Mae, for example, that gave us a significant penetration with many brokers and mortgage operators. That would be a great example. The other one is we have plotted all of the 38 states that we do business like the federal government. And there are many major corporations that provide platform services to these governments, for the government eligibility programs that we have to connect with those platforms from these third parties that provide solutions to federal and state. That's another significant avenue for us to improve the ability of those states to really do what they need to do with their constituents, which is immediately give them the eligibility for that particular government benefit. So those are 2 examples out of many that we have done in auto and personal loans, et cetera, of the integrations with third parties.

That is a great question because we see some opportunities for further growth there for some new relationships, and particularly with the database and scale, it's a very valuable data set.

And Mark, does the tech transformation also -- is it meaningfully different in terms of the ability to partner with those software providers?

Yes. Both ways, Jeff. It's on the inbound side on contributors. The tech transformation has really allowed us to scale from the -- what Joe mentioned, 30,000 contributors a year ago to 700,000. We really couldn't do that a year ago, so really dramatic there. And then same thing on the other side, having APIs be in the cloud just allows us to move the data more readily through lots of relationships. And also, Joel's talked about our system-to-system integrations, which is a very powerful way for us to be in the workflows of our customers. And that's another big thrust by the team in order to connect on a system-to-system basis.

And the next question comes from Bill Warmington, Wells Fargo.

So a question for you on The Work Number. So you've seen growing importance to The Work Number and the fact that Equifax is the only one that has it. Are you finding that you've been able to take share as a result of that from the other deals?

I think you're talking on the credit side. Bill, I think we've talked about the fact that there's a great interest in Workforce Solutions. We have strong share with Workforce Solutions, with all kinds of customers, and we're working to better integrate our commercial selling. We really haven't talked about share and wouldn't on this call, but we're encouraged about the interest in Workforce Solutions. And the way we're going to market is increasingly integrated, which we think is a real positive.

Got it. And then you talked about the bank capacity being a constraint on the ability to put through the process of what it is in this long refi environment. Are you finding that the banks are adding capacity and if that's improving? Or is that still pretty much flat?

Yes. I think you're referring, probably, when we looked back in April, we talked about there was a lot of capacity issues, at least from our discussions with customers. And what we saw is that kind of 7 weeks ago, they've really adapted during the COVID environment to work-from-home protocols. And yes, they are adding capacity. They're adding originators. They're adding processors. All of our customers are working on that, many of them working 7 days a week in order to process the volume. So there's quite a bit of demand there. And as I pointed out in my comments, the refi pipeline is much larger today than it was previously of those that are eligible to go through refi. And we're also starting to see, in the last couple of weeks, purchase volume move back up. Part of that was consumers adapting to a lockdown environment and looking at new home purchases through video. And [ using ] mortgage originators and closing processes being done that were contactless and remote. But then as shelter-in-place orders have been lifted, we've seen some increase in activity there.

Our next question is Kevin McVeigh, Crédit Suisse.

I guess my first question is -- and you've had Workforce Solutions for a while, but why the incremental detail now? Is there anything that kind of -- just strategically why you've given extended level of detail on EWS? Is it a function of kind of where we are in the cycle or the technology transformation, number one? And I guess as part of that, are you seeing the structural level of demand post-COVID? And is there a way to think about that, just given, again, the increased frequency? Is that going to be more structural in nature? And if it is, is there a way to maybe frame that?

I'll do the first one first, why Workforce Solutions. It's just that we've had a lot of -- John and I do investor calls, we get a lot of interest in Workforce. So we thought it would be prudent to -- and productive to share a little bit more detail with Rudy and the team in front of you. Second is the business is performing extremely well. It's a business that's our largest -- our fastest-growing business, our highest-margin business, and we thought the time was right, particularly in this economic event where we're seeing increased commercial discussions around Workforce Solutions. And of course, its performance is so exceptionally strong. And that was the reason why we took the opportunity to add Workforce Solutions to our trends update this afternoon. Can we repeat the second half of your question?

The second part was just along those same lines. And then more for -- it seems like there's been kind of increased frequency and clarity around kind of frequency in general. And just post-COVID, is there a structural level of demand that -- within kind of the Workforce Solutions product set itself and particularly to [ leverage that as highest ]?

I think the answer is yes. And there's a number of factors, which Rudy and Joe went through, that are really driving the increased inquiries, the increased usage, the increased penetration of Workforce Solutions. I think one thing you've got to really look at is the scale of the business. So if you think about the last big economic event, Workforce Solutions was only having a hit rate of 1 in 10 or 1 in 12, and now we're approaching 1 in 2. And when you have a database at that scale, it becomes a very valuable data asset, both in good times and in bad. And we've seen even pre-COVID many of our customers in different applications using the Workforce Solutions data at different points in the origination process, where you go back a number of years ago, it might have just been used at closing, as Joe pointed out. And increasingly, it's been done early in the application process or multiple times in the application process to make sure that they're getting the right product for the customer. Or that the customer will -- can really qualify for that product and this -- we're spending the time in the origination process with that customer. So there's just a lot of avenues that are really driving the increased utilization. And we think the combination of the scale and the uniqueness of this economic event, where income and employment data is so valuable because of the consumer, there could be a catalyst that will be quite positive for the business kind of post-COVID recession as we get embedded in more workflows and have more utilization in other verticals outside of mortgage, where we have much higher penetration, we see some big opportunities for the business.

We'll take the next question from Gary Bisbee, Bank of America Securities.

I think that's a good place to follow-up on. So you talked about, in the COVID response, a number of new solutions tailored to COVID and certainly in Workforce Solutions. Uncertainty around who's working and the level of income and all of that is driving incremental demand. Is there any risk that some of that goes the other direction on the other side of this? Or so, if you're seeing in auto, some of the other financial areas, increased usage, but you get back to a more normal unemployment rate, they don't need that expense or that cost? Or do you think this is much more an opportunity to drive penetration that is sustainable? Is there any way to weigh in on that?

Yes. I lean more to the sustainability side here. Because remember, every time we have a data asset like this, there' a lift in the KS score, the predictability of using those additional data assets. And while we have the catalyst of the uniqueness of the income and employment being so confusing and volatile in this environment, pre-COVID, we would begin talking to our customers about the value of combining certain data assets together and the lift that they get. And many times, they buy into that and take advantage of it. Other times, they would wait and say, "Well, I'm going to work on that a little bit later." Now that you have that being embedded into their workflows in COVID because of the uniqueness of this environment, they're going to get the same benefit of better predictability because of the multiple data assets in that workflow, that it would be my expectation that we'd stay in that workflow more often than not as we continue to add value in the originations. And we're seeing in this environment, auto originators who historically would just pull between data as a subprime customer, move into near-prime and prime customers because of the impacts on income and employment. But that lift in predictability is still going to be there post-COVID. You're still going to have a higher predicting solution by having the additional data assets. So the catalyst is really the opportunity to get that data set into the workflows and get it into the processes.

Great. And then just a follow-up, you've talked a lot about each of these, but is there any way to rank order or give a sense for the relative opportunity, growing more records in the database, new use cases, which you've talked about several over time, and then sort of penetration of some of the existing end markets and use cases you've had? I mean are those all significant opportunities at this point? Is there one that's really going to be driving the bus over the next couple of years? Any comments here would be helpful.

I think what's unique about the business, Gary, is that they have so many multiple levers. And that's why we spent a lot of time this afternoon on it. I know it was a deep dive. But what's really unique about Workforce Solutions is it has the multiple levers for growth. Many of our data businesses and our competitors, your growth profile is new products, there might be some level of penetration. And you're, generally, in most of our data assets, fairly well penetrated in most verticals, meaning like the credit file is pulled in a credit card application. It's pulled in a P loan application. It's pulled in an auto loan. It's pulled in a mortgage application. With The Work Number, we don't have that same level of penetration, so there's just a huge opportunity there. And then you go to the next one on products. Historically, we've been fairly narrow about our product offering. In the last couple of years, Rudy and his team have really accelerated using different slices of the data to bring it to market. So that whole product element is a big one. Then, of course, you pointed out on records, most of our businesses have all the records. And we're always working to enhance them to some degree. But they have the kind of growth, with the system-to-system integrations, where we can instantly monetize record additions is a very unique lever at Workforce Solutions. So I'm not helping you by prioritizing which are more important. I'm maybe helping in what's unique about Workforce Solutions is it has so many levers for growth. And that's why I give the team a hard time about being in the second inning. Even though we've owned the business for over a decade, there's just so many avenues for growth. We just see a lot of runway here in this business.

Up next is Brett Huff, Stephens Inc.

I'll be quick as I know the questions have been long. One question on the non-mortgage USIS, I know that's a business that you've been focused on kind of post-incident. You mentioned it a little bit, but I wondered if you could drill in a little bit on that in terms of sales cycles, competing, get some share back and things like that.

Yes. It's a good question. I think you know that their performance in the second half of 2019 was stronger than the first half, so that was positive. In the first quarter. We saw non-mortgage organic growth of 2.5% through February, which was a positive step forward. Pre-COVID, our internal plans that USIS exiting the year at kind of the 5% range. Obviously, that's different now with COVID. But if you look at their mortgage performance and -- which is very, very strong and, of course, their non-mortgage performance so far in our trends in the second quarter, they're certainly improving, which gives us confidence that they're back in the marketplace and that they're competitive. We've had competitive wins. We talked about one on the first quarter call a few weeks ago. And we mentioned in this call that we've seen our pipelines build in the last 60 days, which is quite encouraging even in this COVID environment.

We'll now go to Shlomo Rosenbaum, Stifel.

I want to ask a little bit about integration, further integration of The Work Number together with the regular credit reports. How integrated is that? And is it possible -- are there any legal barriers or practical business barriers for being able to put that income data into a regular credit report in order to have your own kind of super credit report?

Yes. And we talked about the fact that it's not only just The Work Number in our credit report. We've got a very proprietary database, which is our NCTUE Plus cell phone utility data that's only Equifax and the wealth data. There's a lot of different data elements. And I think as you know as a part of our cloud transformation, we're going to a single data fabric, which will really facilitate that combination of data assets much more easily. Limitations, so far, have been historically around the data assets are siloed. And we think the cloud transformation is going to really facilitate that going forward. With regard to any legal or regulatory implications, Rudy and his team talked about that. Our data assets are all done with a permissible purpose. They're only sold to institutions that have that permissible purpose to do that. And they're also only used when the consumer's consenting to the data being used for whatever transaction that they're completing, whether it's buying a car or a home or a cell phone or whatever the process is. So we follow very strict regulatory requirements, including the consumer consenting to having that data being used to complete an origination or transaction on their behalf.

So is that consent asked for in standard form now in terms of credit cards and things like that? I'm trying to understand if you're going to get to a point where, hey, we have data elements that are in our credit report that are not in anyone else's credit reports.

Yes. Whether we call it a credit report or some other data combination, I think it's probably more nuanced. But it definitely is in the consumer disclosure statement when they want to apply for a mortgage or an auto loan. If they're pulling any of our data assets, those are part of that disclosure and that consumer consents to it. So the answer is yes.

Okay. And then if you don't mind, just touching a little bit about how The Work Number plays in the fraud market. I saw you talked a little bit about that in the slides, so maybe you can hit on that in a little bit more detail.

Yes. It's a very valuable data set from their header records, meaning knowing that someone -- their identity from 2 weeks ago from the payroll assets is very valuable from an identity and fraud standpoint. And that database is used in that fashion in a very positive way in the marketplace.

That does conclude our question-and-answer session for today. I'd like to hand things back to John Gamble for any additional or closing remarks.

I'd just like to thank everybody for participating today, and we hope everyone stays healthy. Thank you.

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