Equifax - Earnings Call - Q2 2020

Transcript

Speaker 2

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

Speaker 1

Thank you. Good morning, everyone. Welcome to today's conference call. I'm Jeff Dodge. You're listening today on Mark Begor, Chief Executive Officer, John Gamble, Chief Financial Officer, and Trevor Burns with Investor Relations. Today's call is being recorded. An archival recording will be available later today in the Investor Relations section in the About Equifax tab of our website at www.equifax.com. During the call today, we will be making reference to certain materials that can also be found in the Investor Relations section of our website under earnings calls, presentations, and webcasts. These materials are labeled Q3 2020 earnings release presentation. During this call, we will be making certain forward-looking statements to help you understand Equifax and its business environment. These statements involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from our expectations.

Certain risk factors inherent in our business are set forth in the filings with the SEC, including our 2019 Form 10-K and adjustment filings. Also, we will be referring to certain non-debt financial measures, including adjusted EPS attributable to Equifax and adjusted EBITDA, which will be adjusted for certain items that affect the comparability of our underlying operational performance. These non-debt measures are detailed in reconciliation tables, which are included with our earnings release and are also posted on our website. Now, I'd like to turn it over to Mark.

Speaker 0

Thanks, Jeff. Good morning, everyone. Thanks for joining our second quarter earnings update. Businesses and consumers around the world continue to face challenges brought on by the COVID-19 pandemic. I hope you and your families are continuing to be safe and managing in this unusual environment. We'd like to once again thank the dedicated and selfless healthcare professionals, first responders, volunteers, and others around the world who are on the front line fighting this pandemic, and we sympathize with the millions of people in the U.S. and around the world that have been affected. The health impact of the COVID pandemic is devastating. What is equally challenging to our customers is the unprecedented impact from the COVID pandemic that is unlike anything in our lifetimes with record unemployment, furloughs, and salary reductions. Data and analytics in this environment are more valuable than ever.

During the second quarter, we operated very effectively in a work-from-home mode after COVID restrictions were put in place in late March. After shelter-in-place orders started to lift in early June, we opened up offices in markets like Atlanta and began to return to office on a 50% density and red-blue team rotational basis. Currently, we have 34 of 51 offices open and are operating in that mode. We expect to stay in the 50% density and in our red-blue rotational mode until a vaccine is available. We are operating at a very high level and have realized meaningful productivity and engagement with customers and across our Equifax team through video collaboration, including meeting all of our cloud technology and data transformation milestones.

Turning now to slide four, our financial results for the second quarter were very strong, and our second consecutive quarter of double-digit revenue growth and margin expansion driven by Workforce Solutions, the U.S. mortgage market, and our positive performance in the marketplace. The results follow our momentum in the second half of 2019 and the strong first quarter, and we're well above our expectations. Our performance in the challenging COVID economic environment reflects the strength and resiliency of our business model, our differentiated data assets, including the twin income and employment data, telco utility and commercial data, and the value of data analytics in these unprecedented times.

Revenue was $983 million with a 12% on a reported basis and 13% on a local and organic local currency basis, which was well above our expectations and above the framework of 3.5-5.5% that we shared with you in early June. If you adjust for the $48 million of incremental Workforce Solutions and employment claims revenue in the quarter, our revenue increased a strong 8% in local currency. As the quarter unfolded in June, our revenue on all fronts continued to improve from the trends we shared on the June 8th call as shelter-in-place orders lifted and economic activity improved. These strong results position us well as we move into third quarter in the second half. Our growth in the quarter was powered by our U.S. B2B businesses, USIS, and Workforce Solutions.

They both performed extremely well with combined U.S. revenue up 28% and a combined adjusted EBITDA margins of over 50%. Workforce Solutions revenue was exceptionally strong at up 53%, and EBITDA margins were 56%, which was their strongest quarterly results since the acquisition almost 13 years ago and followed a strong first quarter and second half of 2019. USIS revenue was up a strong 10%, which reinforced their return to a competitive market position. International revenue was down 15% in local currency but continued to show broad-based potential improvements throughout the quarter, and Global Consumer revenue was down just under 5%, principally in our U.S. partner business.

Revenue growth drove adjusted EBITDA to $353 million, up 19%, with an over 200 basis point expansion of our adjusted EBITDA margins to 35.9% as we balanced cost controls while executing our cloud data and technology transformation and making targeted investments in new products and data and analytics. Adjusted EPS of $1.60 a share was up over 14% despite incurring increased data analytics and incremental cloud costs of $0.12 per share and increased interest expense of $0.06 per share for our April bond offering. EBITDA and EPS were both above our expectations in the EPS framework of $1.22-$1.32 we shared with you in early June. The very strong U.S. B2B revenue growth was driven principally by two factors.

First, U.S. mortgage revenue was up over 70% versus 2019 and was extremely strong in the current record low interest rate environment as Equifax outperformed the overall mortgage market growth on the order of 30 percentage points, principally in Workforce Solutions. As you know, we over-indexed in mortgage versus our competitors due to Workforce Solutions in our U.S. tri-year mortgage business. U.S. mortgage market inquiries, our proxy for the overall mortgage market growth, were up 41% in second quarter versus our 70% combined growth in Workforce Solutions and USIS mortgage.

Although USIS mortgage revenue growth of 44% grew 300 basis points above the mortgage market, the driver of the substantial outperformance versus the overall market was Workforce Solutions, where mortgage revenue more than doubled in the quarter driven by the value of our unique twin income and employment data and new products through customers, improved customer penetration, and the expansion of our twin database. We expect continued strong mortgage growth in the third quarter. Second, our unemployment insurance claims business, also part of Workforce Solutions, delivered more than 150% growth in the quarter to $76 million. Incremental revenue growth of $43 million in the quarter was driven by a significant increase in unemployment claims that we all know about during second quarter, which added 5 percentage points to overall Equifax revenue growth. As you know, Workforce Solutions processes close to one in five unemployment claims in the U.S.

We expect unemployment claims to continue above 2019 levels in third quarter, but at a rate below the second quarter. Third, our U.S. B2B non-mortgage revenue, excluding unemployment insurance claims-based revenue, showed substantial improvement as we moved through the second quarter and was down only about 7%. Our U.S. B2B non-mortgage revenue, excluding UC claims impact, showed sequential improvements during the quarter from down 10% in April to down just 2% in June as shelter-in-place restrictions were lifted and economic activity improved, which reflects our competitive market position and provides good momentum going into third quarter. I'll provide more detail on these factors as we discuss each of our business units on slide five. Starting with USIS, their revenue was $366 million, was up 10% in the second quarter on a reported and organic basis, and their 12% first half revenue growth was their strongest since 2013.

Mortgage revenue grew 44%, 300 basis points faster than the overall market inquiries that were up 41%, driven by new products, new customers, and pricing. Total mortgage revenue growth from both purchase and refund transactions strengthened significantly through the quarter, exiting June at over 60% above 2019. Total non-mortgage revenue, online and offline combined, decreased 7%, much better than expected when we entered the quarter, as down 13% in April. Total non-mortgage revenue was down only 1% in June as economic activity improved sequentially during the quarter, which was above our expectations and a reflection of the USIS competitive position in the marketplace. For the quarter, online revenue was up 7%. Online non-mortgage revenue was down 10% in the quarter, but strengthened significantly during the second quarter, with June just down over 2% versus down 17% in April.

In June, we had positive growth in auto, insurance, ID and fraud, and direct-to-consumer, with the commercial declining high single digits as U.S. economic activity improved. Telco and banking were both down mid-single digits in June and showed improvement during the quarter. Banking remains down as customer marketing continues to be at a reduced level until the direction of the economy and the consumer becomes clearer. Mortgage Solutions, our mortgage and tri-year business, was up 44% in the quarter, outgrowing the market by 300 basis points from new products, new customers, and pricing. Financial Marketing Services revenue was up 1% compared to last year and better than our expectations. Risk decisioning, which includes portfolio review revenue and makes up over 30% of total Financial Marketing Services, was up over 15% in second quarter as companies expanded their portfolio review activities.

Marketing revenue, which also makes up about half of FMS in the quarter, was down just under 20%. The remainder of FMS, which includes our ID and collections products, was up over 25% in the quarter. These general trends are consistent with our expectations. However, portfolio review revenue was stronger than expected. We expect portfolio review activity to remain strong as customers manage challenging customer collections and take proactive portfolio management actions. We are also starting to see increased activity from customers for our marketing services as the quarter ended, although at much lower levels than in 2019. USIS is winning competitively and continues to accelerate commercial activity, and their new deal pipeline remains strong. USIS's new deal pipeline opportunities as of the end of June were at their largest level since 2017, up almost 10% over last year.

Equally positive, USIS's win rates in the quarter were up over 300 basis points from last year. USIS's new deal pipeline growth and win rates were both above our expectations and reflect Sid Singh's commercial focus and leadership as USIS returns to market competitiveness. USIS's adjusted EBITDA margins of 44.1% were down 150 basis points from last year and down 60 basis points sequentially. The decline is principally driven by the higher mix of lower margin mortgage revenue and resulting higher royalty costs and data purchases than with our non-mortgage online revenue. USIS also continued to invest in commercial resources and NPI resources during the quarter for future growth. Following USIS's commercial momentum in the second half of 2019 and strong above-expectation results in first and second quarter, we are confident that Sid Singh's leadership has moved USIS back into a competitive position in the U.S. market.

Shifting to Workforce Solutions, they had another exceptional quarter with revenue of $353 million, up 53%. This was the strongest revenue growth since we acquired Fox in 2007. EWS results were up a strong 33%, excluding the $48 million of incremental UC claims revenue in the quarter. Trailing 12-month revenue was $1.15 billion, up 32%, with 49.6% EBITDA margins of 350 basis points. Rudy Foder and his EWS team gave you a deep dive on our EWS business and growth outlook in early June. They continue to leverage core growth, new products, penetration, pricing, new verticals, and record additions to fuel their growth. EWS is on track to be well over a billion dollars of revenue in 2020 for the first time with 50% plus margins. Workforce Solutions is clearly our strongest business, particularly in this unprecedented consumer environment where twin income and employment data is immensely valuable.

Verification services revenue of $252 million was up 46% versus 2019. Verification services mortgage revenue more than doubled in the quarter, growing more than 60 percentage points faster than the 41% growth we saw in the mortgage market credit inquiries in the quarter. This dramatic outperformance relative to the overall mortgage market was driven by the strategic and operational focus on new products, penetration, usage, and record additions that we discussed on our June investor call. As a reminder, the presentation from our June call is available on the Equifax website. Several growth levers are driving this outperformance of verification services mortgage revenue relative to the overall mortgage market, including growth in twin contributor and records.

During the quarter, the number of companies contributing to the twin database increased substantially to over 900,000 from over 700,000 in March and 37,000 a year ago as we expand into more mid and smaller market companies. Due to this growth in new contributors, Workforce Solutions was able to offset the negative impact on active twin records of increasing unemployment. Total active records were 105 million at the end of the quarter, with over 80 million unique individuals, which is just over 50% of the U.S. non-farm payroll. Total active records were up over 15% from a year ago, but flat with March due to the impacts on the database from unemployment. The twin database now includes about 435 million active and inactive records, and as you know, we are able to monetize both active and inactive twin records.

In addition to growth in employer contributors and overall Twin records and a focus on adding new customers, several new critical strategies have been important components of driving the Verification Services mortgage revenue growth in excess of the overall mortgage market. First, direct-to-consumer integrations with mortgage underwriters continues to grow with The Work Number integrated directly into our customers' underwriting processes. These integrations increase the usage of Twin records and the frequency of Twin pulls in the mortgage origination, underwriting, and closing process, which drives Twin verification revenue. Second, new products focus on increasing the number of times that Twin income or employment verification is used during the mortgage application and approval process.

We shared some of the new solutions we are bringing to the marketplace that drive twin usage and provide value to our customers with you on the June call, and many of these products have pricing that is two to four times our base twin pull cost. Number three, expanding real-time access to additional income sources to include the increasing number of people that work as individual contractors or 1099 self-employed consumers to deepen and broaden the twin database beyond non-farm payroll. Shifting to Verification Services non-mortgage revenue growth, it was down less than 5% in second quarter and delivered 2% growth in June. The decline in the quarter was driven by substantial weakness in Talent Solutions of hiring-related services business, where companies across the U.S. cut back on hiring during the quarter, and in debt management services, where temporary reductions in collections activity were implemented by many companies.

Partially offsetting this were new product rollouts in talent solutions, strengthened government verticals related to government healthcare and support services, as well as the growth in records in the Twin database. We also saw growth in the second quarter in auto through increased Twin penetration with auto loan originators and increased use of Twin with higher credit score applicants. We also saw growth in our Twin ID product and in portfolio review product solutions, principally for card and personal loans, which we expect to continue to grow in the second half, given the unique value of income and employment data in the current environment. Employer services revenue of $101 million increased a strong 75% in the quarter, driven by our unemployment claims business, which grew over 150% versus last year with $76 million.

Adjusting for the $48 million of incremental UC claims revenue in the quarter, employer service was down about 8% as companies cut back on hiring. As a reminder, our UC businesses manage the process of providing the required unemployment data to state and local agencies for employers. Our typical contract is an annual subscription with volume limits and incremental fees as UC claims are above those limits. We operate in all 50 states, Washington, DC, Puerto Rico, and the US Virgin Islands. In the second quarter, Workforce Solutions processed about 7.5 million claims, which is roughly one in five initial U.S. claims during the second quarter. Claims spiked in April and May to about 5.8 million from a monthly run rate of 300,000 per month in the first quarter.

In June, we saw a steady decline in new claims from the elevated April and May rates to 1.7 million claims processed for the month, which was still up dramatically over pre-COVID in 2019 levels. The remainder of employer services saw revenue decline 17% in the second quarter because of lower new employee hiring activity in the quarter. I-9 and onboarding in our workforce analytics business make up the bulk of the remainder of employer services. We saw 9% growth in our I-9 and onboarding business, which partially offset the declines in workforce analytics in our tax services business. The strong EWS verifier revenue growth resulted in adjusted EBITDA margins of 56.3% in the quarter, which was a record for Workforce Solutions and an expansion of 710 basis points versus last year. The strong margin growth was partially offset by incremental costs incurred in the quarter from new Twin records.

Workforce Solutions is clearly our most differentiated business with their unique twin income and employment records. The twin data assets are increasingly valuable in this COVID consumer environment where verification of income and employment is critical. As we discussed in June, we think about EWS being in the second or third inning with multiple growth levers for future growth in 2021 and beyond. International revenue of $181 million was down 15% in local currency and down 21% on a reported basis, and in line with our expectations. COVID shelter-in-place orders have been deeper and longer in our international markets, with some markets, including Australia, the U.K., and Canada, still not open. This has impacted their revenue, but we've seen sequential revenue improvements from down 20% in April improving to down 7% in June.

Asia Pacific, which is our Australia, New Zealand, and India business, delivered second quarter revenue of $65 million, down 9% in local and 10% in organic local currency versus last year. The revenue growth was much stronger than the revenue trends of down 20% we experienced in April, as revenue trends continue to improve, with June down 4%, adjusted for a large collections deal that closed late in the second quarter. In Australia, revenue growth in fraud, ID, and collections partially offset declines in our consumer and marketing services businesses and to a lesser degree in our commercial business. European revenues of $48 million were down 25% in local currency in the quarter. Our European credit business was down about 20%, with Spain performing slightly better than the U.K.

In the U.K., credit business revenue improved meaningfully during the quarter from down 27% in April, but they were still down 15% in June as the U.K. is still in a lockdown. Spain credit revenue also improved during the quarter from down 21% in April, but was still down 9% in June as shelter-in-place orders had just begun to be lifted a few weeks ago. Our European debt management business declined 34% in local currency as expected, principally driven by government inactive policies that temporarily halted consumer debt collections. We expect debt collection activity to resume in the second half. Our Latin American revenues of $34 million decreased 14% in local currency in the quarter. Our two largest markets in Latin America, Chile and Argentina, make up over 50% of the revenue.

Importantly, these two markets performed relatively well in the quarter, with Chile down 6% and Argentina down 10% in local currency compared to last year. April revenue declines for Chile and Argentina were at elevated levels due to COVID lockdowns. However, June revenue declines were in the low to mid-single digits. These markets continue to benefit from the expansion of Ignite and Interconnect SaaS customer rollouts and strong new product introductions in those past three years. Most of our other Latin American markets were down over 20% consistently through the quarter from the economic impact of the strong COVID lockdowns in those markets. Canada revenue of CAD 33 million declined 13% in local currency in the second quarter.

Revenue improved from a decline of about 25% in April to down only about 1% in June as economic activity improved, but shelter-in-place orders still have not been fully lifted in many parts of Canada. Fraud and ID revenue grew in the second quarter from higher government volumes associated with increased applications for government social services, and we saw growth in June revenue in our mortgage, auto, and small business verticals in Canada. International adjusted EBITDA margins of 21.7% were down 690 basis points from last year, principally reflecting the lower revenue across all regions, partially offset by cost savings achieved during the quarter. Global consumer solutions revenue was down 5% on a reported in local currency basis in the quarter. Our global consumer direct business, which is just under half of our GCS business, was down about 3%.

Our U.S. consumer direct business had revenue decline of about 5% versus 2019, but increased sequentially from the first quarter by about 200 basis points. Canada and the U.K. combined consumer direct revenue was about flat in the quarter. Importantly, we are seeing substantial subscriber growth in the U.S. and Canada, our two largest markets. Based on a continuation of these trends, we expect our consumer direct business to show positive revenue growth in the second half, which will be our first growth since 2017 in this market segment. GCS also continues to grow with myEquifax member base, with over 6 million consumer members up from about 2 million a year ago, which provides a foundation for new product offerings. Our remaining GCS business, principally our partner business, as well as our benefits channel and events-based business, decreased by 5% in the quarter.

We delivered high single-digit growth in our benefits channel and events-based business, but this growth was more than offset by declines in our U.S. lead gen partner business as banks pulled back on card and P1 marketing and originations. As we look to the second half of 2020, declines in our U.S. lead gen partner revenue are likely to accelerate as consumer marketing remains at reduced levels, more than offsetting the expected growth in global consumer direct, our benefits channel, and events-based business. This will likely result in second-half revenue declines in GCS of greater than the 5% decline we delivered in the second quarter. GCS adjusted EBITDA margins of 20.8% decreased 210 basis points compared with the prior year due to the effective revenue declines, partially offset by operating cost efficiencies.

In what has been the most challenging economic and health environment we faced in our lifetime, Equifax delivered a very strong performance with revenue up 12% and adjusted EBITDA to EPS of 14% in the first half. Our resilient business model, differentiated data assets, cloud data and technology transformation, new products, and focus on commercial execution has driven our broad outperformance. Our U.S. B2B businesses, USIS and EWS, delivered mortgage revenue growth that outperformed the overall mortgage market, substantial growth in our UC revenue, and improving revenue trends across our non-mortgage businesses in the U.S. and international drove our results. Shifting now to slide six, this page highlights the uniqueness and challenges of the current COVID recession. It is clear that this is the most challenging consumer environment in our lifetime.

Compared to the 2008-2009 global financial crisis, unemployment rates are up almost 500 basis points with over 20 million Americans out of work. For the 10% of Americans with negative wage impacts, their wages are down 5-6%, with many households struggling to manage 25% or more salary reductions or even larger if they're in a furlough. These unprecedented consumer impacts significantly cloud the ability for our customers to manage their business, including marketing, underwriting, and portfolio management. We've seen a significant performance deterioration of prime and near-prime credit portfolios driven by these job losses and wage reductions. Many predict a continuation of job losses or wage reductions as government support programs expire in the coming weeks.

In April of this year, approximately 50% of those who suffered a decrease in pay in excess of 25% were individuals with a credit score of 680 or higher, which further complicates the environment for our customers. Forbearances are also driving material loss of predictiveness of traditional credit scores in the subprime market. Further, the CARES Act, with the CARES Act, will accommodations keep delinquency rates artificially low and make them not representative of the actual portfolio health. Accommodations have grown from 2.8% pre-COVID in March to 9% of balances today. In these challenging times, differentiated data is more valuable than ever. We're seeing a meaningful increase in customer discussions in this unique environment about data solutions broadly, but with a particular focus on our unique twin income and employment data, which is sourced every pay period.

Turning now to slide seven, we updated the comparison of our performance in the current COVID pandemic-driven recession to our performance in the 2008-2009 global financial crisis. Based on the growth of Workforce Solutions in our U.S. mortgage business, we are seeing significantly stronger performance in the current COVID recession with our 13% revenue growth in the second quarter than in the early stages of the 2008-2009 global financial crisis, where Equifax revenue was down 7-10% quarterly during that recession. The key drivers of our strong outperformance relative to 2008-2009 include our resilient business model and stronger mix of businesses, with 55% of Equifax delivering growth or countercyclical performance in 2020 versus only 40% in 2008-2009. Second, U.S. mortgage revenue is at very high levels, with refi and purchase transactions continuing historic levels driven by record low interest rates.

We saw mortgage application purchase volumes rebound as we exited the second quarter as consumers take advantage of record low interest rates. The MBA application purchase index was up 15% versus 2019 in the last week of June. This strength continued into July. Based on current rates, over 15 million existing mortgages would benefit from refinancing, which is up about 70% higher than the available refi population in 2008-2009. John will give you some further perspectives on the second-half U.S. mortgage market outlook shortly. Mortgages clearly much stronger today, with revenue in the second quarter for Equifax up over 70%, which is significantly higher than the 20% peak revenue growth we delivered during 2008-2009. Third, Workforce Solutions growth has been accelerated from record growth, penetration, new products, and new verticals.

Their 53% growth in the second quarter significantly outperformed their peak quarterly growth performance of about 20% in the 2008-2009 global financial crisis. In addition to growth and growth occasions of 46%, the unemployment claims processing business is seeing record volumes, resulting in the $48 million of incremental UC revenue in the second quarter I talked about earlier. Last, our commercial momentum from the second half of 2019 and strong first quarter performance as we entered the COVID environment in late March is clearly also driving our results. The Equifax business model and recession resiliency is clearly much stronger than the last recession in 2008-2009. I'll turn the discussion over to John to discuss recent trends in revenue on our underlying markets, as well as review some of the other financial items.

Looking at trends at a high level, USIS and Workforce Solutions mortgage revenue continues to be very strong and relatively stable at the elevated levels we saw in June. While we expect mortgage revenue growth rates on a year-over-year basis to remain strong in the second quarter, we do expect growth rates in the third quarter and second quarter to decline versus second quarter, as we saw strong growth in mortgage markets in the second half of 2019. In USIS, the improvement in non-mortgage revenue has flattened over the past few weeks after consistent sequential improvement throughout the second quarter. In some markets and verticals, we've started to see some slight declines in the last few weeks as COVID case counts increased and some shelter-in-place orders returned.

In Workforce Solutions, Verification Services trends in non-mortgage revenue remain slightly positive to prior trends, driven by the strategic dynamics of the business and new products rollouts, as we discussed earlier. Workforce Solutions unemployment insurance claims revenue remains at elevated levels at a run rate of over $40 million for the quarter, which is, while positive over 2019, will be substantially lower than the employment claims we expect to be substantially lower than the unemployment claims volume we saw in the second quarter. Given the continued uncertainty regarding the direction and pace of the U.S. and global economy, we do not expect to provide guidance throughout the remainder of 2020. As we did last quarter and in June, we will provide details on the trends we are seeing and an indicative view of their implications.

After John's discussion, I'll come back and review our progress on the technology transformation, new products, and our focus on the second half in 2021. John? Thanks, Mark. I'll generally be referring to the results from continuing operations represented on a GAAP basis and on a non-GAAP basis. In the second quarter, general corporate expenses was $122 million, excluding non-recurring costs. Adjusted general corporate expense for the quarter was $75 million, up $8 million from Q2 2019. Corporate functional expenses such as finance, HR, legal, are down year-to-year, reflecting the cost containment activities Mark discussed in April. The increase in total general corporate expenses is primarily due to higher incentive compensation costs in 2020 due to the very strong financial performance, as well as increased depreciation and amortization. We continue to exercise disciplined cost management across the business.

We are and will continue to invest in our technology transformation, data and analytics, new products, and security, and will accelerate investment in these areas as we believe we can deliver accelerated benefits. Outside of these areas, headcount additions are being held at levels below attrition, and discretionary spending has been reduced. Across the company, business travel remains at virtually zero. We are in the process of reviewing our real estate footprint, as well as other areas that may allow further structural cost improvements. We expect to begin implementing cost improvement items over the next several quarters, but do not expect meaningful cost improvements in 2020. For Q2 2020, the effective tax rate used in calculating adjusted EPS was 24.4% and about 1% higher than we expected for the quarter. We expect the pre-Q2 2020 tax rate to be about 21%.

Full-year effective tax rate used in calculating adjusted EPS is expected to be about 24%. In Q2 2020 and year-to-date, operating cash flow of $251 million and $282 million, respectively, were both up $34 million from 2019. Increases in operating cash flow in Q2 2020 and first half 2020 were partially offset by $48 million and $95 million of legal settlement payments in Q2 2020 and year-to-date, respectively. The timing of payments of the remaining $347 million to the U.S. Consumer Restitution Fund is principally dependent on the resolution of the appeals filed related to this case. At this time, we do not expect to fund the remainder of the settlement until late 2020 or early 2021. Our liquidity and balance sheet remained strong.

As indicated on slide eight, we had almost $2.7 billion in available liquidity at June 30, including $1.4 billion in cash and available borrowing capacity on our bank credit and facilities of $1.3 billion. As Mark mentioned, our Q2 results were substantially stronger than the implication of the trends through May that we discussed in our June investor call. The improved results were about 70% in our U.S. B2B business, with the bulk of the remainder in international, broad-based across our geographies. In U.S. B2B, online was about two-thirds of the improvement, split evenly between mortgage and non-mortgage. The remainder was strength in USIS financial marketing services and Workforce Solutions unemployment insurance claims business. The strength in adjusted EPS reflects the margin impact and the stronger revenue.

Slides 9 through 12 show details of revenue trends on a local currency basis that we saw in one Q and two Q, as well as in April, May, and June. There were two more business days in June this year versus 2019, which benefited growth rates on the order of 3%. We are also providing a view of the trends so far during the month of July and their implications on Q2 2020 if they were to continue throughout the quarter. For line items for which daily trends are not available or not relevant, we did not provide monthly actuals, but did provide one Q and two Q data, as well as an estimate for Q2 2020. The monthly actual provided should be viewed as directional.

Starting with slide nine, U.S. B2B revenue trended very positively through June as online strengthened across USIS and EWS, driven by strength in mortgage online and improving trends in non-mortgage online revenue. This, coupled with the very strong Q2 performance in Workforce Solutions unemployment insurance claims business and the growth in USIS Financial Marketing Services, and much better performance than we had expected, resulted in the very strong U.S. B2B revenue growth in Q2. Trends in U.S. online over the past month have approximately flattened. Online mortgage daily revenue levels continue to be strong but are somewhat variable by week and have been about on average consistent over the past month. The July trends for mortgage reflect a continuation of the current daily revenue trend, adjusted for seasonality, with a lower growth rate due to the significant increase in mortgage revenue we saw last year in Q2 and Q4.

Online non-mortgage revenue growth has flattened over the past month. USIS non-mortgage online revenue growth levels have shown slight declines, while EWS non-mortgage revenue has remained relatively flat. July trends provided for online non-mortgage revenue reflect these trends. Workforce Solutions employer services, driven by unemployment insurance claims activity, is expected to show growth in Q2 again, but at levels much lower than in Q2. USIS Financial Marketing Services in Q2 benefited from new business both in portfolio review and marketing services. Given the uncertainty in the economy, the mid-July estimate provided for USIS marketing services does not assume that this recurs again. In total, for U.S. B2B, if the trends and assumptions hold for Q2, we should see another very strong quarter. Turning to slide 10, as Mark discussed earlier, international saw improvements in all regions as we moved through Q2, with June revenue down only 7% versus 2019.

This consistent improvement across all regions resulted in a much smaller revenue decline in the quarter than anticipated. The July revenue growth trend shared reflects, in general, a continuation of the daily revenue trends seen over the past month through the rest of the third quarter. GCS July trends here would reflect the trends Mark discussed earlier. In Consumer Direct, growing total subscribers are expected to lead to slight revenue growth in Q2. Partner revenue, which includes our benefits channel and event-based business, is expected to decline about 10% in Q2, with a significantly larger decline likely in Q4. As Mark mentioned, GCS total revenue in second half 2020 is expected to decline by more than 5%, with a decline in Q4 much larger than Q3 due to expected significant declines in lead gen-related partner business.

Slide 11 provides a comparison of economic factors impacting the mortgage market in the current environment during the 2008-2009 financial crisis and the 2013-2014 mortgage downturn. We're sharing this information to provide you with additional information for your use as you estimate Equifax second half 2020 results. Based on data provided by Black Knight, at current 30-year mortgage rates of about 3%, there are over 18 million mortgages likely eligible for refinance. This is the highest level we have seen over the past year and much higher than in 2008-2010 or 2013-2014. The refi potential is highly dependent on a number of factors, including interest rates. For example, again based on Black Knight data, an increase in the 30-year fixed mortgage rate to 3.5% would reduce refi potential to 10 million, and an increase to 4% in the interest rate would reduce the refi potential to under 5 million.

As you saw last week, mortgage rates hit an all-time low of just under 3%. Current U.S. unemployment at 11% is higher than we saw in either 2008-2010 or 2013-2014. The forecast for unemployment in second half 2020 that is provided in this chart is by Moody's Analytics. In addition, we'll continue to watch key metrics, including mortgage delinquency rates, credit scores, leverage levels, both in terms of debt-to-income and loan-to-value, closely, as it is still early in the current crisis and the impact on consumer employment income and the direction of ongoing government support are still evolving. Due to the continuing uncertainties in forecasting the direction, depth, and duration of the recession related to the actions to combat COVID-19, we're not going to provide third-quarter guidance and do not expect to provide guidance for the remainder of 2020.

However, for perspective on total Equifax Q2 2020 performance, we will again provide an illustrative third-quarter framework to help you think about our performance. Please turn to slide 12. To the extent total Equifax revenue continued at the pace I described earlier, Q3 2020 revenue would be up 4%-6% year-to-year, resulting in Q3 2020 revenue of $930-$950 million. Adjusted EPS in Q3 2020 at these revenue levels could be in the range of $1.30-$1.40 per share, down 6%-12% from Q3 2019. Slide 19 also provides a walkthrough explaining the translation versus Q3 2019 of the revenue growth to the decline in pre-tax income and therefore adjusted EPS. Importantly, at these adjusted EPS levels, Equifax will deliver over $325 million in adjusted EBITDA.

This is not guidance because there is still much uncertainty as to what impact the pandemic will have on the economy, our customers, business activity, the path to opening the economy, and therefore our revenue and earnings. This range provided reflects current variability and trends, not a view of potential quarter outcomes. As a reminder, in our April earnings call, we provided detail on the cost and capital spending savings we expect to generate when the tech transformation is completed. As shown on slide 13, total cost savings, excluding DNA, are expected to be on the order of $125 million from the reduction of cost of goods sold and lower development expense. There will also be substantial capital spending savings as capital spending with a percentage of revenue declines to on the order of 7%, a level that is at or slightly below that of our peers.

We expect to begin seeing net COGS savings, excluding DNA, in late 2021 and are targeting approaching the run rate of COGS, development expense, and capital savings during 2022. We will certainly reinvest in some of the savings so it will not all fall to margin. As Mark referenced earlier, we continue to look to accelerate the completion of our tech transformation, including increasing investment levels in 2020. At present, we expect 2021 time costs related to the Equifax 2020 technology and data security transformation, exclusive of legal accruals, to be about $340 million. We expect capital spending to be about $390 million for the full year. As a reminder, in 2021, we will no longer be adjusting our financial results for one-time costs related to the technology transformation.

These one-time technology transformation costs are expected to decline substantially from the levels seen in 2020 and will likely be largest in Q1 2021, decreasing throughout the remainder of 2021. These one-time technology transformation costs will impact development expense, DNA, and COGS. We will continue to disclose these one-time tech transformation costs to allow you to have comparability with our adjusted financial results from 2017 through 2020. With that, I'll turn it back over to Mark. Thanks, John. I'll wrap up by giving you an update on our cloud transformation, cloud technology, and data transformation in our accelerated focus on the products. First, moving to our EFX 2020 technology transformation, during 2020, we focused the bulk of our efforts in the cloud technology and data transformation on our North American operations, which represent over 80% of our revenue and an even higher percentage of our income.

Investments in Europe, Latin America, and Asia-Pacific in deploying cloud-native data fabric and our Knight Interconnect API analytical and decisioning framework are also progressing well. Initial migration to GCP of our major North American data exchange, the U.S. Canadian Consumer Acro list exchanges, The Work Number and NCTU, is principally complete, and we expect to have complete full migration, including all data ingestion processes for the exchanges in place by year-end. It is at this point that these migrated exchanges become our system of record with our customers. These are critical deliverables for 2020, and completing them as planned remains a strategic focus and priority. These exchanges generate about 70% of North American online revenue. We're also making very good progress in the full migration to GCP of our secondary U.S. exchanges, the commercial risk exchanges, IXI, Property, and DataX exchanges.

We expect a number of these exchanges to have completed full migration by year-end, with the remainder completed in the first half of 2021. The Canadian commercial risk exchange full migration will also occur in early 2021. In April, we discussed with you the initial migration of our EID identity validation systems, which we expect to complete in the third quarter. Customer migrations are expected to start in the second half, and we expect to have fully migrated all EID customers by year-end. Our new Luminate Cloud Identity and Fraud Suite, being deployed as a cloud-native solution, will be available to customers in the US and Canada in the third quarter. A new EID cloud-native service is also available for the US as part of the new transformed Luminate offering.

We are continuing our progress to migrate our customers onto our new cloud-based systems, including our Interconnect Ignite API framework. As a reminder, this is a common set of services on which we are working to migrate all USIS, EWS, and international customers. At the end of the second quarter, USIS had migrated 1,200 U.S. customers and international completed migrations of about 2,000 customers. We expect to continue this pace of migration. We expect this pace of migration to accelerate in the second half of 2020, with over 10,000 USIS customer migrations completed by year-end and the majority of the remaining U.S. customer migrations completed by mid-2021. We continue to adjust our development priorities to add platform capabilities to ease our customers' ability to easily migrate to our new platforms.

As we discussed in April, our new Ignite Analytics and Machine Learning platform is available and in production at AWS and will be available at GCP this quarter. We continue to make strong progress globally, rolling out our Ignite Analytics platform with over 200 customers using Ignite Direct and Marketplace, including two new FinTech customers added in the second quarter. An additional substantial benefit from transforming our own and on-premise infrastructure to Google will be a significant reduction in our carbon footprint, which is a focus area of our ESG strategy. Google remains the only cloud provider that uses 100% renewable energy in their centers, which we will benefit from. We are making strong progress in our cloud technology and data transformation and remain energized about the future top and bottom-line benefits John discussed earlier. Our cloud-native data and infrastructure is and will differentiate Equifax in the marketplace.

Shifting to slide 14, this highlights our new product initiative focus, which is a key component of our EFX 2020 strategy. It is our next chapter as we leverage our cloud data and technology transformation for growth. To strengthen our capabilities in product management and MPI, we recently added a new Chief Product Officer, Cecilia Mao, who has deep product expertise from prior roles at FICO, Verisk, and Oracle. Cecilia joins Mark Luber, our new USIS Product Officer, with a goal of accelerating our product management capabilities to drive new product growth. We expect to continue to add product resources in the second half to position us for growth in 2021 and beyond. We continue to launch new and refined existing products to support our customer-specific needs during the COVID pandemic. This includes our Equifax Response Now product initiative in USIS and tailored i9 and UC solutions in Workforce Solutions.

USIS recently announced the addition of an industry-specific FICO score segmentation data to our weekly consumer trends reports. With this integration, Equifax is the first company to offer weekly industry-specific FICO score segmentation reports, enabling businesses across industries to better track and minimize consumer trends, behaviors, and credit performance across the US, which allows our customers to better anticipate consumer behavior changes as a result of the COVID recession. As we progress through the year, we're continuing to make strong progress on our goal to expand our MPI rollouts and deliver over 100 new products in 2020, which is up from about 90 last year and 60 in 2018. Through June, we've launched 70 new products, and we have an active pipeline of new products at various stages in the pipeline funnel. Some of the new product launches include a USIS launched FICO 10T.

The FICO 10T score incorporates trended data for strategies and use cases that benefit from additional trended data insights into consumer behavior. We work with FICO to incorporate trended credit bureau data to offer a view on the trajectory of certain credit data fields over time, such as account balance amounts reported over the past 24 months. Consumer payment behavior and credit limit information can also be captured via the trended data. Workforce Solutions also has a strong MPI focus. As we discussed on our June 8th call, Workforce Solutions recently launched a number of new mortgage solutions, including Mortgage Twin ID and i9 Anywhere products. Both are seeing strong market growth. Another area of focus is the expansion of the data sets in our talent reports.

New multi-data solutions incorporating employment, ID verification, and degree verification can add value to hiring decisions in high-turnover industries such as retail, restaurants, manufacturing, and hospitality, especially as we look at the post-COVID recovery period. We also continue to make good progress with our positive data in Australia and now have over 80% of positive data from contributors, with about 90% of the credit card and mortgage data and more than 50% of the auto and P1 data in our database. We have begun to use this positive data in Australia to provide analytical insights to our customers and expect to launch additional new products later this year. MPIs continue to be an important lever for Equifax growth and a priority for me and for the team.

We've prioritized our focus and resources on driving MPI rollouts in 2020 and more recently a global focus on products that support our customers during the COVID recession. We will continue to prioritize new products and innovation in the second half to leverage our cloud data and technology transformation for future growth. During the COVID-19 pandemic, we remain actively engaged with stakeholders in the public and private sectors regarding Equifax solutions that accurately portray the risk profile of consumers while recognizing the unique and likely temporary nature of the financial impact of the pandemic. In every country where we do business, Equifax is in discussions with lawmakers and regulators to enable continued credit reporting that captures the status of consumer payments and lender accommodations.

Depending on the geography, we work independently in conjunction with our peers and our trade associations to provide proactive assistance to financial institutions seeking guidance on how to report during this time frame. In the U.S., we're in regular communications with federal regulators, including the CFPB, where we're sharing data trends with the Bureau regarding both consumers and furnishers. We're proud that our input has contributed to regulatory guidance that the Bureau has published to broadly inform the marketplace. Furthermore, in at least three of our most significant markets around the world, Equifax is providing data and insights directly to federal governments to help policymakers understand the pandemic's consequences on consumers and the credit economy. We recognize that many consumers have been impacted by the COVID-19 pandemic and are experiencing economic distress.

Equifax has established a code resource section on our website to assist consumers looking to manage their pandemic's potential impact on their credit standing. In April, we joined the other U.S. credit bureaus in announcing that we're providing free credit reports to all U.S. consumers through April 2021. We're also offering free credit reports to Canadian consumers. More recently, Bev Anderson, our Business Unit Leader for GCS, hosted a series of informational webinars for consumers on managing credit during the COVID pandemic. Our GCS team is also participating in industry webinars and events to educate stakeholders regarding the options as well as the reporting standards. We will continue to support consumers and remain engaged as a constructive partner to help consumers, businesses, and the overall economy during this challenging time. Wrapping up, turning to slide 15.

As John outlined earlier, we're still unable to provide guidance for the third quarter or the second half. We still see meaningful uncertainty from the impacts of the COVID pandemic as cases rise tragically in many markets, impacting shelter-in-place orders, consumer confidence, and economic activity. There's also a real risk of a second COVID wave in the fall and potential for increased lockdowns. We also expect further impacts from unemployment, furloughs, and salary reductions as government support programs expire in the coming weeks. Like other companies, we have very limited visibility into the depth, breadth, and length of the COVID recession or the timing or strength of recovery until we have a broadly available vaccine. This uncertainty makes it challenging to provide our traditional guidance for the third quarter and second half.

We hope the framework John provided is helpful as you think about the range of outcomes for Equifax in the third quarter and second half. Even in this challenging environment, Equifax is operating extremely well. Our strong business model is resilient and delivering in the COVID environment while allowing us to invest in the future. Our performance in the second quarter follows a strong first quarter and a momentum in the second half of 2019. Our strong results allow Equifax to continue to invest in our cloud data and technology transformation, data and analytics, and new products to position Equifax for future growth in 2021 and beyond. As we look forward to the rest of 2020 and towards 2021 and 2022, we are confident in our business model, strategy for growth, cloud data and technology investments, and the ability to perform in a challenging COVID environment.

We have a very strong team with deep domain expertise, and we continue to strengthen that team. We delivered strong financial results again in the second quarter with double-digit constant currency revenue growth for the second quarter in a row, with over 200 basis points of margin expansion while continuing to invest in our cloud data and technology transformation, data and analytics, and new products. Workforce Solutions is a franchise business that is strongly outperforming. We gave you a deep dive on Workforce a few weeks ago and expect continued strong performance from Workforce Solutions in the COVID recession with strong growth potential in the long term. Workforce delivered exceptionally strong revenue growth in the second quarter, up over 50%, with adjusted EBITDA margins of 55%.

These results are the strongest since we acquired the business in 2007, driven by macro events in mortgage and unemployment claims businesses and new twin record growth, increased penetration, and launching new products. Workforce Solutions is strongly outgrowing the mortgage market. Our unique twin income and employment data is even more valuable in this unprecedented economic event due to the scale, accuracy, and latency of that unique data. We believe Workforce Solutions is well positioned for attractive long-term growth. USIS had another strong quarter with revenue growth of 10% and the strongest first-half revenue growth since 2013, led by strong growth in U.S. mortgage. USIS's pipelines are the strongest since 2017 from their renewed commercial focus and rollout of new products. The business is operating well and winning in the marketplace.

International executed well against a challenging global economic environment, and our GCS direct business is poised for growth in the second half of the year. As I outlined, we are making very good progress in our cloud technology and data transformation and beginning to take advantage of the new cloud-based capabilities. Execution of the cloud investments is a clear priority for our team in 2020. We have accelerated some of our spending and our focus on the cloud transformation remains strong. We expect a number of our data exchange migrations to be completed by year-end and are well down the path on customer migrations. We know we still have a lot of work to do. We are energized about the strong benefits that will come from this transformation, including all-week-round stability, speed to market, ability to rapidly move products around the globe, and the strong top-of-mind benefits John talked about.

We're continuing to invest in new products and innovation by investing in new product leadership and resources to drive innovative new product rollouts. Our MPI capabilities are being accelerated by our cloud transformation, and we expect to launch over 100 MPIs in 2020. MPI remains a top priority for 2020 and the future, and we continue to expand our investments in new products, leveraging our cloud transformation. We're also making broad investments in technology and DNA new products and security while balancing cost controls across the rest of Equifax. Our balance sheet, as John pointed out, remains strong, ensuring we are prepared to make the necessary investments in our EFX 2020 cloud data and technology transformation, new products, and data security while looking for attractive bolt-on acquisitions. We continue to support consumers through these challenging times, which we credit for through consumer education on our website.

As we look to the second half of 2020 and towards 2021 and 2022, I'm more excited than ever about our future as a market-leading data analytics and technology company. With that, operator, let me open it up for questions. Thank you, sir. Ladies and gentlemen, if you have a question today, please press Star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute button is turned off to allow your signal through to our equipment. Once again, everyone, Star 1 to ask a question. We'll go first to Tony Kaplan, Morgan Stanley. Very much. Congratulations on the quarter. I was hoping you could talk about the trend of non-mortgage USIS and how it improved significantly in June, but then it looks like it got a little bit weaker in July.

Just wanted to understand what you're hearing from customers in terms of what's led to this lower July and how we should be thinking about going forward. Yeah, this is Tony Alcidarte. Then John can jump in. We were pleased with the kind of sequential improvement in USIS broadly and then, of course, in non-mortgages. We went through the quarter, particularly as shelter-in-place orders were lifted and economic activity improved. That was a positive. We just wanted to point out there's still real uncertainties in the marketplace. We've seen markets like Florida and Texas and California that have had some of the recent COVID spikes. From our online volumes, we're seeing some impact on that. It's not meaningful, but it's not continuing those sequential trends. We really just wanted to point out that we expect some uncertainty going forward.

One of the other positives that I pointed out a couple of times is the fact that the USIS new deal pipeline and their win rate continued to grow through the second quarter off of the first quarter and off of last year. For us, that's probably the most important element. It's quite challenging to forecast the economic outlook, but seeing Workforce Solutions accelerate their new product rollouts and really winning in the marketplace competitively is quite positive for us as we think about the third quarter. Tony, if you're looking at slide 9, right, just as a reminder, as you look at June, June, because of the number of business days in the month, right, there's about a 3% benefit or a little over 3% that you see in June that doesn't really continue into July.

That can help you understand the trend better between June and July. For example, if you look at banking and lending, Mark mentioned banking and lending there, if you adjust for that three points, you're probably looking at banking and lending goes down 10%-15% in the June period. What we have seen is slight weakening as you go into the very end of June into July in the trends across several USIS verticals. It wasn't substantial, but the substantial improving trend we've seen from April through June flattened and then weakened slightly. This is maybe one last point, Tony, the biggest challenge right now is when will our customers restart marketing? We've seen some increased activity from a low 2019, but there's just so much uncertainty for our customers around the consumer and the economy.

Many of them have pulled back on marketing. Counter to that, we've seen a significant increase in activity and dialogues around portfolio management, which is typical in an economic downturn. A lot of resources shift to managing the backhook, managing existing customers, managing credit lines. You have that positive going in. Marketing, when will our customers get comfortable to market again, I think, is the big question. I think there's a lot of uncertainty on that. That's very helpful. For my follow-up, just wanted to ask about the really strong margins in Workforce Solutions. Obviously, you had a very strong verifications quarter. Was that the real driver, or are you also getting some additional leverage from the employer services vertical as well? Just wanted to understand the strength of margins and the sustainability of that. Yeah, you hit the two items that are very strong, obviously.

UC claims is high incremental margin, as is the growth in verification. Both of those are driving our margins. We've got, as you know, revenue growth broadly in our business and in Workforce Solutions. Incremental revenue growth delivers very, very high incremental margins, which is driving that. The other thing in Workforce that we pointed out that we were pleased with is how we outgrew the mortgage market. That really is a reflection of the power and the uniqueness of the data assets they have and the multiple levers we talked about on the June call with Workforce Solutions. The other thing I was going to mention is that this is happening in a period when we have strong cost controls in place. You're seeing costs are being managed very, very tightly while they're seeing very high revenue growth. Makes sense. Thanks a lot.

Next up from Credit Suisse is Kevin McVeigh. Great. Thanks, Kevin. Hey, just going to. Hey, how are you? I've got a lot of really nice detail in terms of how EWS positively impacts mortgage. Can you kind of help us frame how it impacts the rest of the credit products that you kind of offer right now? As we think about that into 2021, as we kind of start to sync up the core USIS more broadly across mortgage and EWS? Yeah, we've talked to Kevin before. I think you're talking about the fact that we go to market as one Equifax with our customers. As you know, USIS sells to all of our financial institutions, the USIS credit products, as well as the Workforce Solutions verification products. That kind of bundled approach to our customers, we think is a smart way to go to market.

It gives us the ability to incent our commercial teams to sell a full Equifax solution. It gives us the ability to leverage product positions on both the credit and verification side when we're in discussions with customers. We are clearly seeing the ability to approach customers with a broad Equifax solution that would include credit data, our wealth and employment data, our NPTE data, and then, of course, our verification data from Workforce Solutions and bundled solutions in many cases, which we think is attractive for Equifax. Got it. Real quick, you talked about kind of 100 new MPIs and part of that being just positively impacted by your cloud transformation. Is the cloud transformation sort of the expense benefit that allows you to do that, or do they become more seamless through the cloud?

Could you just help us frame that out a little bit more from an MPI perspective? Yeah, we've been consistently talking about this, Kevin, for the last couple of years. It was our expectation that the cloud transformation would allow us to accelerate the ability to get more new products to market and also get products to market more quickly. We're starting to see that. The good news is we're already, really in the last six months, as we've gotten deep into the cloud transformation, we've been able to roll out new products. We talked about this on the April call.

We're putting new products in the marketplace that we couldn't do two years ago because of the single data fabric, our ability to combine data assets, our ability to ingest new solutions, having a simpler application infrastructure is speeding up our ability to bring products to market. We are excited about starting to see the early benefits of that. We do believe those benefits will accelerate, meaning our ability to do more new products in the future. We are seeing that as we go from 60 products to 90 last year to over 100 this year. Our goal is, and we're putting resources around it, to really leverage our massive investment in the cloud transformation for both data and our technology to accelerate our new products rollouts in 2021 and 2022.

I think, as you know, that's a real fuel for growth in our industry and for Equifax. We have a really big focus on it. We brought some great new talent in. We're going to add resources and people against it in the second half because we really look at new products as being the next chapter for Equifax around driving our growth and really leveraging our cloud data and technology transformation. Our next question comes from Manav Patnaik, Jeffries. Thanks, actually. Thanks, Kevin. Hey, guys. The first question I had for you is the commercial momentum that you talked about, particularly in the USIS business. I was just wondering if you could give us some colors.

Is that pipelines and wins that we talked about coming from your competitors, or is it stuff that maybe was just kind of put on hold or on the penalty box till you got back to where you are today? We're just hoping for a little bit more color on some of the mix there. Yeah, it's all of the above. I think you've got a new—not a new leader anymore, but Sid Singh's been on the ground now for 18 months. He really remade the commercial organization that's been in place for six months. There's a real increased focus commercially in the marketplace. I think that's positive number one. The pipelines are a combination of new products. When you go from 60 to 90 and then towards 100, there's just more opportunities for Sid and his team to bring new solutions to our customers.

The pipeline growth, we also believe that, Manav, is from the COVID response products that we've rolled out. We tried to highlight on the call earlier, this is a really unprecedented time for our customers. The value of data broadly for all of us in the industry is even more valuable. Actually, if you go back to 2008, 2009, there were just new options for our customers to use data to manage in a recession. I think that's driving all of our capabilities in our conversations with our customers. There is no question we talked about our win rates being up on a year-over-year basis. We're clearly more competitive in the marketplace. The overhang that was perhaps here a year ago from the cyber event, we believe, is way behind us.

We're really just focused in a normal mode, but I would call it a fairly aggressive mode in the marketplace to really support our customers in this challenging time. Got it. Just on the new products, 70-100 new products a year, I know all the credit bureaus have actually had their cadence for a while and just been impressive. I was just wondering, how do you define what a new product is? I think in the past, Equifax has talked about how you would expect the MPI to contribute kind of 10% of revenues in a three-year time frame or something. Do you have any such goals with that to provide some perspective? Yeah, we have a very kind of standard, rigorous process around what a new product is. It's got to be new.

We have had a consistent process for five plus years on how we define new products. We try to be transparent with you and others about our new product rollouts because of the importance to our future growth. We think they are quite accretive to the future. That is why we are doubling down on people and resources to really leverage the cloud transformation. I know there was a framework in the past in our financial framework around the contribution of new products to our revenue growth. As you know, we do not have a financial framework in place today. We probably do not want to talk about how we think about that. I hope you appreciate the focus that I have and we have around new products because we believe it is a really important lever for growth that is going to be accelerated by our cloud transformation.

When you think about why did we do the cloud transformation, there are a lot of reasons. One for sure is to accelerate our top line. The way to accelerate your top line from the cloud transformation is to bring new solutions to market more quickly and more creatively and, we believe, more uniquely than our competitors. That is the focus that we have with the cloud. Of course, you get all the cost and cash benefits that John talked about that will start rolling in in 2021 and 2022 as we complete the execution of the cloud transformation. Got it. Thank you guys. Thanks. Next up is Hamza Mazari, Jeffries. Good morning. Thank you. Just a question on the international business, specifically just margins in the international business.

How much of the gap between the USIS business and international do you think is just structural, and how much can be closed over time, especially as you complete the tech transformation? Yeah, there's no question our international margins are lower than our U.S. margins. We have just so much scale in Workforce Solutions and USIS, as you know, versus many of our smaller markets. Some of that is going to be structural, just given the scale of those businesses. We do believe the cloud transformation is going to be accretive to that, improve those margins. Of course, we're focused on other actions, and we have been. This isn't new, to improve those margins, whether it's from new products or incremental growth. The biggest way to improve margins internationally is top-line growth because of the incremental margin impact that comes from that top-line growth.

Of course, they were impacted most significantly in the second quarter because of the depth and breadth and how severe the lockdowns were. Of course, many of our international markets are still in lockdown. Another meaningful difference is at this point, we do not have Workforce Solutions outside the U.S., and it is a very high-margin business. It negatively impacts the margins relative to the U.S. outside the U.S. Got it. Very helpful. Just follow-up question, I will turn it over. Could you maybe comment on your exposure to FinTech and how that compares to maybe some of your peers, whether that is an opportunity for you going forward? Thank you. Yeah, I think, as you know, we have talked about this many times, our competitors are much stronger in FinTech. That has been a priority focus of our team since I joined two years and change ago.

We had, two years ago, a handful of people covering FinTech, and today we have, I think, 15 or 16. It is a clear focus. We have more than tripled our commercial resources in the last couple of years. We see it as an opportunity. We are having wins there. I talked about in my notes that we had two U.S. FinTech customers add Ignite in the second quarter. We are actively engaged with FinTech. FinTech is a couple hundred million dollars space in the U.S., growing faster than the core market. It is actually a bit more impacted in COVID recession right now than the broader market. It is a space that we want to be bigger in and we are focused on. Great. Thank you. Our next question today is David Foge, Evercore ISI. Thank you. Good morning.

We'd appreciate your thoughts on Joe Biden's plan to mandate that federal agencies use a new public credit bureau. Could you just walk through your exposures to kind of government revenue and over what time frame this new bureau might be developed? Yeah, you got two different questions there, David. First, on the government revenues, from our perspective, are unrelated to Vice President Biden's and Senator Sanders' proposal. Our government revenues are really for social services. Our government revenues won't be impacted. As you might imagine, we think the current credit bureau system in the U.S. well-serves consumers and furnishers. There's plenty of competition between the large three credit bureaus. We don't see a need for what was outlined in that proposal. We would suspect it's perhaps more positioning in an election cycle versus something that would have broad bipartisan support.

If you look around the globe, the few global markets where there is a government credit bureau, over time, either they have been privatized or credit bureaus have operated next to them. We think the system in the United States today serves the market extremely well in a very competitive way. Got it. To the extent a government credit bureau were to be developed, how long do you think it would take to build it? Just trying to assess the overall risk to Equifax. Yeah, I think that is a tough question too, David. Equifax, we are spending $1 billion a year in technology in 2020, and we have for a long time. To go to the industry, this is extremely complex. There are trillions of records. There are thousands and thousands of contributors. It would be a very long road.

Again, from our perspective, that's maybe a reason why there wouldn't be bipartisan support for it. I think the broader perspective on why there wouldn't be bipartisan support is the system works today. It services the industry well. It services consumers well. There's great transparency. If you look at the increase in alternative data, there's just more opportunities to support consumers, which is really what I believe Vice President Biden is focused on, is how do you ensure that credit access to those that need it is available in the marketplace? We believe the bureaus today provide great support and great focus on that. Understood. Greatly appreciate your insights. Next, we'll go to Bill Warmington, Wells Fargo. Hey, Bill. Good morning, everyone. First question for you, what was total mortgage exposure as a percent of total Equifax revenue in Q2?

Actually, off the top of my head, I don't know. Bill, it's up substantially. I think it's on the order of 30%. If you take a look at slide 9 and slide 10, I think we give plenty of data there for you to come up with that number, yeah. Got it. Okay. It sounds like the new product pipeline is pretty full. I know you guys were the first bureau to do the beta test on the FICO Resilience Index. I wanted to ask if there was a way to tie The Work Number more closely into the FICO score. That's a good question. I think we talked, Bill, broadly about our focus. One of the benefits we expect from our cloud-native transformation is it's a technology transformation and a data transformation.

The single data fabric that we're going to, we believe, is going to allow us to do many more data combinations than we're able to do easily today. That is one of the many reasons we're doing the cloud transformation. That would be an example of using income and employment data with some of our other data assets to bring unique solutions that are only Equifax because of our Workforce Solutions business to the marketplace. We have those not in our current pipeline, but those kinds of things on our to-do list in our pipeline in the future. It is another reason, Bill, why I'm expanding our product resources across Equifax in the second quarter, and we're going to expand them further in the second half. It is really to really fuel up that new product engine, not only for the second half, but for 2021 and 2022.

That's a big focus of mine is to take advantage of the single data fabric in the cloud, in the cloud technology we're going to have to really accelerate our new product rollouts. Got it. Thank you very much. Andrew Nicholas from William Blair is up next. Hi, good morning. Thanks for taking my questions. Just wanted to first talk about operating expenses. I think now we're a few months into this. With your understanding, you already committed to, I believe, it was $90 million of cost cuts. I was just wondering if you could speak a bit more about how you're thinking about that line in the medium to long term.

I guess I'm wondering to what extent you've identified additional areas for cost rationalization over the past couple of months as the workforce gets more and more comfortable working from home, whether it be on the real estate side, T&E, so on and so forth. I hope you got the tone of our conversation. We're keeping a tight belt here because we still see meaningful uncertainty in the second half about the pandemic. At the same time, I hope you got our tone that we're making targeted investments. With our financial strength, we want to make sure we're making those investments for the future. We are accruing kind of net benefits on a year-over-year basis on our cost structure. Certainly during our plan we had in place early in the year from some of the belt tightening we've done. You point out T&E, travel.

When you think about the near term, no one's traveling at Equifax. And so that's a clear savings on a year-over-year basis. On a long-term run rate, I suspect the way we use video will meaningfully change our travel spend going forward. We spend about half of our T&L is spent in internal travel, meaning between Equifax flights. My view is post-COVID, that'll go to zero. We just won't need to do it because we're so much more adept at working together and collaborating through the use of Google Hangouts and other video tools. So I think that's kind of a change that'll be permanent. I think our business travel to customers will likely be lower just because of the efficiency of video.

Instead of making three trips to a customer to work on a new product, you might make one post-COVID and then have four or five video calls and do the whole project quicker just because of how we're working. I think the efficiency and collaboration on video, I do think, will have a significant change. On the real estate side, we're going to go through. We've got a handful of small offices that really got highlighted for us in the COVID recession. We're going to close those just because it makes sense to have 20, 30, 40-person offices. Those teams can either work from home or be consolidated in other sites. There'll be some real estate benefit there. We haven't gone off the next step of deciding whether we change our broader real estate footprint. I suspect we'll look at that as the year progresses.

As you point out, we operated very effectively in a work-from-home mode, and we're still operating with our red-blue teams in a 50%. We're actually higher work-from-home mode, meaning we only have less than half of the team in our offices every week and the other half working from home. Equifax is operating extremely well. That will be something that we'll look at in the second half. Did you have anything going on? No, we've covered all of that. Okay. You guys covered where you were heading? Yeah. No, that's really helpful. Thank you. Then just one more for my follow-up. It looks like in the case of Canada and Asia Pacific, you had a little bit of a spike in growth in June, or at least a less abrupt decline in June before slowing down again in July.

I mean, any color on what might be driving that spike? And then how you're thinking about the international recovery timeline more broadly in the second half. Thank you. Yeah, it's tough as you'd ever predict. I think what we've seen pretty consistently in all markets, if you look at April and May, fairly severe lockdown, not a lot of economic activity. As you got into May and June in most markets, our customers figured out how to operate in a lockdown environment and were having commercial activity, selling cars without showrooms being open. That's happening around the globe. It's that kind of adaptability to a lockdown. I think the challenge in international is their lockdowns. We've seen U.S. lockdowns kind of relax in the last four or five weeks in many, many markets.

Of course, you've seen some tightening or consumer confidence issues around the spikes in the last couple of weeks in many markets. International lockdowns have just been extended. They've been much longer. We have markets like Australia. I think Melbourne, in our Melbourne market, is not going to open until late August. Those delays, we believe, and the depth of the lockdowns in many international markets really dampened their economic activity, which impacted our revenue. As those markets open up, we would expect to see improvements, but we just can't predict when and how much. We would expect to see those improve as companies adapt and as actually restrictions are lifted and there's some level of kind of COVID normalcy. If you look at slide 10 also, just looking at APAC, it was a positive number.

As Mark said in his comments, there was a one-time sale to a government entity there that resulted in that positive step. Excluding that, it was down single digits. Again, just as a reminder, looking at June, there is probably a three to four-point benefit from the fact that the number of business days in June was higher. When you compare June to July, that is something you have to take into account. I must have missed the comment on the one-time sale. Thanks a lot. Next question is George Mahalo Stowen. Hey, George. Hey, good morning, guys. Congrats and thanks for taking my question. Mark, just wanted to talk a little bit about Workforce Solutions and obviously tremendous momentum there, particularly this year within mortgage and on the unemployment side.

We talked about it being still in sort of the second or third inning if we're looking at longer term from a growth perspective. I'm just curious, if we would have thought of Workforce as at least being a high single-digit top-line grower, probably a low double-digit top-line grower, should we be thinking that as we look out over the next year or two that some of that growth or a substantial part of that growth has been kind of pulled forward now in 2020, so that it may be sort of a subtrend for a year or two before sort of normalizing longer term from a growth perspective? Yeah, we don't want to get into giving 2021 or 2022 guidance. We have talked at length on the June 8th call and more this morning about the multiple levers Workforce Solutions has.

As you know, one of the very unique levers they have versus most of our businesses, and I think most of the industry, is the ability to grow their revenue by driving hit rates through increased records. I think that's a very unique element to that business. If you think quite simply, which sometimes I do, the business will be over $1 billion this year, and it has, call it, roughly 50% of the non-farm payroll in its database. Now, our long-term goal is to get all of non-farm payroll in our database. We've shown a pretty consistent ability to add those records. If we get from half to all of the non-farm payroll, you double the size of that business over a time frame. Extended for sure. That's a lever that's unique.

There's no question that there'll be, we're in the middle of a middle. I don't know what proportion we're in of the U.S. mortgage refi and purchase market that is exceptionally strong. There's going to be a grow-over challenge on that for Equifax in 2021, as you point out. If you saw in our comments, Workforce Solutions in particular significantly outgrew the mortgage market because of new products, because of new records, because of new customers. They have all of those levers and new verticals that they can get into outside of mortgage. Those give us a lot of confidence in Workforce Solutions' long-term growth, which is why I characterize it as being an early inning, meaning this is a mature business. It's a well-operating business, but it just has a lot of runway for growth opportunities. Okay, that's very helpful. Appreciate that color.

And then just a quick question for you, John, as it relates to corporate expense and the outlook there. I mean, those numbers came in a little bit better than what we were looking for. Is this sort of 2Q corporate expense run rate a good way to think about 3Q? Absent, I think, a $5 million increase in redundant system costs relative to 2Q. Yeah, so I think we're going to continue to perform well, relatively speaking, against corporate expenses. Within corporate expenses, there are obviously some things that are a little more variable, like incentive compensation and things that drive movement period to period. I'm not going to really give a forecast for 3Q and 4Q. In terms of the cost reduction actions we have in place, I think those are going to stay very firm in place around corporate.

You should see improving performance on our corporate expenses pretty consistently. Okay, great. Thanks, George. Thanks. Next up is Andrew Steinerman, JP Morgan. Hi, I just wanted to clarify a quick thing on international. I definitely pull out that you're saying stricter and longer lockdowns in some key international geographies like Australia. My thought was that Europe went into lockdown earlier and started reopening earlier. And so when I look on slide 10 on the European CRE line for Equifax, is that what you're seeing, or are you saying something about lockdowns that I'm not catching about Europe? Yeah, from our perspective, Andrew, the U.K. is still in lockdown, meaning our office is not open. Our customers' offices aren't open. They're still working from home.

Economic activity, we believe, is depressed because of that versus if you look at Georgia, which is open in other markets in the United States. Spain opened just a couple of weeks ago. Canada, particularly the Toronto market, is still in lockdown, meaning they're not open for most commercial activity. Australia is still in lockdown. Our experience is that, in our perspective, the international markets locked down sooner and stayed locked down longer. Of course, we don't do business in Italy, which, as you know, locked down sooner and opened up quicker. The markets that we're in are the ones I'm referencing. I got it. As you know, that's right. We're heavily U.K.-based, right? For us, the bulk of the CRE revenue is U.K. Yeah. Right. I know. Okay. Thank you. Next up is Jeff Mueller Baird. Hey, Jeff. Yeah, thanks.

Good morning. Just a follow-up, Mark, on that answer you just recently gave on the ability to consistently have records, twin records. Just how's the pipeline there? Is it being positively or negatively impacted by the current environment? There was a comment in the prepared remarks about kind of active records, I think, being more flattish since March, I think, tied to kind of initial double twins and unemployment. Is that a headwind that is at all meaningful, or are the individuals that are rolling off active records just not particularly active, I guess, from a credit application perspective? It does not really impact you. Thanks. Yeah. First, on the pipeline, as you know, we have a dedicated team. We talked about that in June 8th.

This is all they do is focus on records in either, as I would call it, going door-to-door to companies that are not a part of our database or working on partnerships with payroll processors and others that we do revenue share with. They have a very active pipeline. What I would characterize is put them on offense in the second quarter. They were before, but we are deliberately leaning in. On both sides, if you think about your company and you are under some financial pressure today, you do that yourself in many cases, meaning you are taking calls from mortgage originators into the HR department, and you have a handful of people staffing a call center to respond to your employee calls on that.

If we go in and can share our value prop where we'll do it for free for them, we'll do it securely, it becomes a productivity improvement for that company. That is a positive. From a climate standpoint, it's always a good discussion. It's maybe better now. In the partnerships, the idea of getting an incremental revenue share from Equifax to a payroll processor, those conversations are positive too. We like the pipeline. As you know, it's a bit choppy sometimes. We added a large processor last September. We're benefiting from that now. Those can be clunky or chunky. We have a consistent focus on adding records, and we've shown a pretty good trend of adding them. On your question about the impact of unemployment, it's something we're watching. We expect there to be some pressure on actives in there.

We had some declines in the latter half of the second quarter that were offset by additions that we have of new contributors and new employees or records coming in. We expect to keep that focus going in the third quarter, but we're definitely watching it. I think lastly, I think, as you know, we not only sell active records, meaning those that are working, but we also have a pretty large portion of our revenue at Workforce Solutions is inactive records, meaning where was someone working two weeks ago, two months ago, three weeks ago? People change jobs. If we don't have an active, many times we're able to sell the inactive, meaning what they were doing six months ago before they changed jobs. That becomes another part of our revenue. We'll go next to George Tong, Goldman Sachs. Hi, thanks. Good morning.

USIS online mortgage revenue growth moderated from 62% in June to 35% in July, and then even U.S. mortgage growth went from over 100% in June to 70% in July. Presumably, this was all due to tougher comps. Any other factors that you might point out that could have contributed to the slowing growth? If it was due purely to tougher comps, can you help frame how comps will evolve over the next two to three quarters? Can you say that again? Sure. Principally tougher comps, a little bit of it is seasonality, right? If you take a look at the way the mortgage market tends to run, you tend to see a weaker mortgage market as you get towards the back half of the year.

In terms of tougher comps, the mortgage market really started to strengthen in 2019 in August and was very strong in September and was very strong in the fourth quarter. You are going to see those tougher comps run through third quarter and fourth quarter. Obviously, you know how strong the mortgage market was in the first quarter and second quarter of time. Got it. That is helpful. On the technology transformation program, could you provide a timeline of when you expect to sunset your legacy systems and perhaps frame the timing of when you expect to fully realize your cost savings that you outlined in the presentation? I think for today, we are not ready to do that. We have tried to give indications on it.

That is really probably getting more into our long-term framework as well as our outlook for 2021 or something, which, as you know, we are not providing guidance. I think we have tried to be clear about we have got a lot of confidence in the benefits. We have tried to talk about when we are bringing applications online and databases into the cloud and then how we are progressing on customer migration. Because, as you know, we have got to complete migrations in order to sunset our legacy infrastructure. I think we are going to hold off to get much more detail than we already have until we get closer to 2021 and we are putting our long-term financial framework back in place. Got it. Thank you. Next is Gary Bisby, Bank of America Securities. Hey, Gary. Hi, thank you.

I understand you're not giving guidance, and there's a lot of uncertainty around mortgage trends and just trends in general. If we think about at some point the mortgage business softening and obviously unemployment claims as well, can you help us think through how the decremental margins would be on softer sales from those two end markets? Gary, again, I think that's kind of getting into kind of a longer-term view and a 2021 outlook, and we're just not ready to do that yet. You've given a fair amount of commentary even in this discussion around the fact that our margins in mortgage are obviously not nearly as strong as they are in a normal online business, principally because of Mortgage Solutions, right? Because Mortgage Solutions, we purchase files from our two competitors.

Those margins are still good in our mortgage business on average, but not nearly as high as you would see in a normal online poll. There are a lot of moving parts that are going to go into what 2021 and 2022 look like. I think we are all going to have to see how the markets evolve. We will give you a lot more view as to what we expect as we get toward the end of the year. Let me take another cut at that. If you cannot answer that, it is fine. As I look at the incremental margin on revenue growth in the last five years at Workforce Solutions, it has obviously been terrific, and it has been relatively stable within a range, including the last few quarters where there has been a major benefit to revenue.

Is there any reason, and I'm not asking you when and asking about 2021, but any reason to think when revenue, if revenue were to weaken in that business temporarily, that you would see a very different incremental margin on the downside than you've seen on the upside? Again, I don't think we're really going to answer that in detail, right? What also goes into that is what actions we would take to manage the cost of the business that we have across the entire portfolio, not just specific to Workforce Solutions. Again, I think we're kind of getting into more of a long-term outlook here. At this point, I think we're going to have to ask you to wait until we get toward the end of the year. All right. Fair enough.

If I could just sneak in one then on the pipeline, encouraging commentary on the win rates as well. Can you just level set for us? Is the pipeline back to the pre-breach levels, or are you still in the process of rebuilding that? And same question for win rates. Thank you. I think with the pipeline, what we're seeing is it's improved a lot over the past three years. Comparing pre and post-pre pipelines is a little bit difficult, right? I think the really promising thing that we're seeing is the pipeline is growing consistently. The win rate we're seeing against the pipeline is continuing to grow as well. Again, we're speaking about USIS here, right? I'd say that's what it looks like, and I think we feel good about that trending. Thank you. We've got little time we have for questions today.

At this time, I'll hand things back to Jeff Dodge for any additional or closing remarks. I'd like to thank everybody for their time today. I think with that, Offer Able, we can terminate the call. Ladies and gentlemen, that does conclude today's conference. Thank you all for your participation today. You may now disconnect.