Operator:

Hello, and welcome to the Equifax Inc. Q2 2024 Earnings Conference Call. [Operator Instructions] A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Trevor Burns, Senior Vice President, Head of Corporate Investor Relations. Please go ahead, Trevor.

Mark Begor:

Before I cover our strong second quarter results, I want to update you on the significant progress in our cloud transformation. Over the next several weeks, USIS will complete the migration on to the cloud data fabric of all customers and services for their consumer credit and telco and utilities exchanges, which is a huge milestone for Equifax. Along with the EWS Work Number Exchange, which we completed migrating to the Equifax Cloud over two years ago, we will have our three largest data exchanges in the new Equifax Cloud. As of the end of July, we expect over 80% of Equifax revenue will be in the Equifax Cloud, with about 90% of our revenue in the cloud by year-end. The cloud migrations have been a huge effort across Equifax over the four plus -- the past four-plus years. We expect to have a significant competitive advantage as we pivot from building to leveraging the cloud that will allow us to fully focus on growth, innovation, new products, and AI going forward. Completing the USIS cloud and expanding EFX.AI, along with continued expansion of our differentiated data assets, will accelerate innovation and new products at USIS that will drive our top and bottom line. We now have streamlined access to our proprietary data through the data fabric, which will accelerate new product development. We also expect to reduce product development times, resulting in faster time to market for our new solutions. USIS has already begun to see their New Product Vitality Index accelerate. USIS is deploying Equifax proprietary Explainable AI, along with Google Vertex AI across Ignite, our global analytics platform, and Interconnect, our global decisioning platform. For USIS, Vertex AI enables faster and more predictive model development on our Ignite platform. The USIS cloud will deliver always on stability and faster data transmission that will give Equifax a competitive advantage in today's digital market, driving share gains. We're also driving faster data ingestion and analytics with greater processing power with the new Equifax Cloud. And most importantly, completing the cloud is going to free up the USIS team to fully focus on growth and expanding innovation, new products, data sets and markets. With both USIS and EWS in the cloud, we'll also be able to begin development of new products that integrate TWN income and employment data with USIS credit data solutions for mortgage, auto, cards, and P loans that only Equifax can deliver. Completing the USIS consumer and telco and utility migrations to the Equifax Cloud allows us to start decommissioning legacy on-prem systems in the third quarter, supporting our goal of spending reductions in 2024 that will improve operating margins and lowering the capital intensity of our business. In the second quarter, we also made substantial progress on our international cloud transformation activities. Canada is expected to complete their consumer credit exchange customer migrations to data fabric next month. Europe continues to make significant progress with the goal of completing Spain's consumer credit exchange migration to the data fabric and decommissioning of their legacy systems by year-end, and the U.K. is on schedule to complete cloud migrations and decommissioning in the first-half of 2025. And in Latin America, we've completed the Argentina and Chile cloud migrations and expect to make substantial progress on several additional Latin American countries in the second-half of this year. It's energizing to be approaching the finish line of our cloud transformation. We're entering the next chapter of the new Equifax as we pivot from building the new Equifax Cloud to leveraging our new cloud capabilities to drive our top and bottom line. Now, turning to slide four, we had a strong second quarter, with reported revenue just over $1.43 billion, up 9% and just over the top end of our April guidance. Adjusted EBITDA margins at 32% were in line with our expectations, and adjusted EPS at $1.82 per share was well above the high end of our April guidance. Our global non-mortgage businesses, which represents about 80% of total Equifax revenue in the quarter, had strong 13% current constant currency revenue growth, which is above the top end of our 8% to 12% long-term growth framework. Non-mortgage organic constant currency revenue growth was at 9% in the quarter and also at the top end of our 7% to 10% organic revenue growth framework. This performance was driven by 20% non-mortgage growth in EWS Verifier, led by strong 30% growth in government and talent that was up over 13%. International delivered 28% constant dollar revenue growth and strong 12% organic growth, led by strong growth in Latin America and Europe. USIS non-mortgage revenue growth of 1% was in line with last quarter and somewhat weaker than our expectations. We expect to see accelerating growth in USIS non-mortgage revenue as we complete the US consumer cloud migration later this month. Total U.S. mortgage revenue was up 4% in the quarter. The growth in mortgage revenue was driven by USIS, where mortgage revenue was up a strong 27% and consistent with our expectations. The strong growth in USIS mortgage reflects the continued benefit from strong vendor pass-through pricing actions and performance in our new mortgage pre-qual products. EWS mortgage revenue was down just under 12% and also consistent with our expectations. Equifax also had another strong quarter of new product innovation with a Vitality Index of almost 13%, above our 10% frame for 2024 guidance and our long-term 10% vitality framework. The vitality was up 350 basis points sequentially from broad-based execution across all of our business units, and EWS was particularly strong with a 17% vitality. Turning to slide five, Workforce Solutions revenue was up 5% and well above our expectations. Non-mortgage verification services revenue delivered very strong 20% growth, up 500 basis points sequentially and well above our expectations. Government had another outstanding quarter, with very strong 30% revenue growth from continued growth in penetration in their big $5 billion TAM. Government revenue grew sequentially from strong growth in state revenues despite the substantial completion at the end of March of post-COVID CMS initial redeterminations. We expect continued strong government growth over the medium and long-term in Workforce Solutions. Talent solutions revenue was up a strong 13% in the quarter, up 17 percentage points sequentially and well above our expectations. Talent solutions volumes improved sequentially and we saw very strong growth in our insights incarceration data products in the talent vertical. Based on data through May, EWS talent solutions outperformed the BLS white-collar hiring markets by approximately 19 percentage points from new records, new products, and penetration into the vertical. EWS mortgage revenue was down just under 12% and in line with our April guidance. TWN inquires in the second quarter were down 18% and consistent with the down 19% we discussed with you in April. TWN inquiries continue to be weaker than USIS credit inquiries as buyers continue to have difficulty completing home purchases. EWS total mortgage revenue outperformed TWN inquiries by over 6%. We expect EWS mortgage revenue to benefit significantly in the third and fourth quarters from the significant growth in TWN records already delivered late in the second quarter and from planned additions in the third quarter and fourth quarter. EWS consumer lending revenue was up 8% from strong double-digit growth in P loans and debt management and high-single digit growth in auto. Employer services revenue was down 11%, principally from lower ERC revenue. Excluding ERC, revenue was lower than expected at down 2% due to lower WOTC revenue as we talked about in April, partially offset by positive ACA revenue growth. We expect employer revenue to return to growth in the fourth quarter. Workforce Solutions adjusted EBITDA margins of 53% were up 170 basis points sequentially and continue to be very strong from non-mortgage verifier revenue growth and good cost execution, while we continue to invest in new products, expand in high-growth verticals like government and talent, and grow our TWN records. Before moving on to USIS, I want to acknowledge the significant contribution of Rudy Ploder made to EWS and Equifax over the last 20-years. Under Rudy's leadership, EWS revenue grew from about $900 million in 2019 to $2.3 billion last year and has positioned EWS for strong above market growth, leveraging the Equifax Cloud. We're super energized to have Chad Borton, who joined us in May, leading Workforce Solutions. Chad's broad financial service experience, proven executive leadership, customer focus, and regulatory depth will be a big asset for EWS as they continue to drive above market growth. Turning to slide six, we continue to see very strong revenue growth in our EWS government vertical with 30% growth in the quarter and above our expectations. On the left side of the slide, we provided some of the federal agencies we are supporting with EWS digital income employment and incarceration data that accelerate the time to delivery needed -- to deliver needed social service benefits to over 90 million Americans and help government agencies ensure program integrity, a win-win for all parties. And in the middle of the slide, you see the substantial progress our EWS government vertical has made in a short time frame, penetrating that $5 billion TAM with a three-year CAGR of over 50%. We expect EWS government to continue to make significant progress in the government vertical from additional sales resources to federal and individual state capital level, strong record growth; new product rollouts; leveraging our differentiated incarcerated data -- incarceration data; and system-to-system integrations enabled by our cloud-native technology that makes our solutions easier to consume. EWS continues to help federal, state, and local government agencies improve the consumer experience and their own operating efficiency from the application and authentication phases to redetermination and recovery processes. The strength of the EWS government vertical was again clear in the quarter and we expect strong future revenue growth in this business in '25 and beyond. Turning to slide seven, EWS had another strong quarter of new record additions, signing agreements with four new strategic partners that will contribute over 3 million records collectively to the TWN database. Our continued success in expanding partnerships is a testament to EWS’ ability to deliver the highest levels of client service from technology, data security and accuracy, and operational excellence for our partners and their end customers. We expect these new partnerships to come online and begin generating revenue for Workforce Solutions in the fourth quarter. In the quarter, EWS added 8 million active records to the TWN database, ending the quarter with 180 million active records, up a strong 12% on 132 million unique individuals. Total records are now 695 million and were up 10% versus last year. At 132 million unique individuals, we have plenty of room to grow the TWN database towards the TAM of 225 million income-producing Americans. EWS is also making very good progress building a pipeline of pension and 1099 contributors, as well as with HR software companies in partnerships and they expect to close partnerships in the second-half of the year as we continue focus on expanding the TWN database. Turning to slide eight, USIS revenue was up 7%, solidly within our long-term revenue growth framework of 6% to 8%. USIS mortgage revenue grew 27% and was in line with our April guidance. Mortgage credit inquiries, while continuing to be down significantly year-over-year at down 13%, were largely in line with our April guidance. Despite the modest reduction in mortgage rates we've seen over the last several weeks, we have not seen an improvement in mortgage market inquiries, likely due to continued low new home inventory levels. Consistent with the first quarter, the strong pricing environment, along with the strength of our pre-qual products drove the very strong mortgage revenue growth and outperformance. At $143 million, mortgage revenue was about 30% of total USIS revenue in the quarter. Total non-mortgage revenue at up 1% was below our expectation of 2% growth. We saw strong growth in consumer solutions and financial marketing services, which were partially offset by a decline in USIS B2B online revenue. We believe growth in the second quarter was negatively impacted by the U.S. team's broad-based focus on completing customer cloud migrations, which likely dampened some of the new business activity we were expecting. USIS online B2B non-mortgage revenue was down about 4% and below our expectations. Consistent with trends from the first quarter, we saw a continuation of tight credit conditions, which impacted the auto market, as well as the broader FI vertical. Auto was also impacted by a software supplier system outage that we all read about. USIS saw double-digit declines in third-party bureau sales and a lesser extent low-single-digit declines in telco and auto. These declines were partially offset by growth in the broader FI market and in insurance. ID and fraud was also below our expectations, as was auto. Financial marketing services, our B2B offline business, was up 7%. Marketing revenue was up 4%, primarily due to growth in pre-screen marketing. Our pre-screen quarterly trends have been fairly consistent, with growth coming from large FIs and fintechs, offset by declines in mid-sized banks and credit unions. USIS is seeing growing demand for our suite of Ignite solutions, including Ignite for Prospecting. Fraud revenue was up a very strong 15% from new business wins. USIS consumer solutions D2C business had another very strong quarter, up 13% from strong double-digit growth in consumer direct channel and high-single digit growth in our indirect channel. We expect mid-single digit growth in our D2C business in the second-half of this year against strong comps from last year. USIS adjusted EBITDA margins were 33.2% in the quarter and below our expectations, reflecting its lower-than-expected revenue growth. In USIS, the significant efforts across the business to complete the cloud transformation clearly had an impact on USIS customer engagement and non-mortgage revenue growth in the first-half. As USIS consumer cloud migration is completed in the next few weeks, the USIS team will now be able to fully focus on customer engagement and growth and we expect USIS non-mortgage revenue to see improved growth in the second-half of this year and, of course, in '25 and beyond. Turning to slide nine, international revenue was up a very strong 28% in constant currency and up a strong 12% in organic constant currency in the quarter, excluding the impact of BVS and well above the 20% growth we guided to in April due to continued very strong growth in Latin America and Europe. Europe local currency revenue was up a very strong 12% in the quarter, with continued strong 6% growth in our credit and data businesses and from very strong 23% growth in our debt management business. Latin America local currency revenue was up 124%, principally due to the acquisition of Boa Vista, with very strong organic growth of 30%. Latin America organic revenue growth was driven by very strong double-digit growth in Argentina, Paraguay and Central America. Brazil revenue in the quarter on a reported basis was $41 million. We continue to make good progress on the Brazil integration. Equifax Interconnect solution was launched for small business and medium businesses in the second quarter in Brazil with full feature release to service larger clients in the second-half. The first apps of Ignite have also been launched. Identity and fraud solutions, including count and mitigator, are now available for Brazilian customers, and Brazil is driving accelerated negative data acquisition to add to their database. The team is making excellent progress on driving growth and integrating with Equifax. Canada delivered 6% growth in the quarter. As I previously mentioned, we expect Canada to complete their consumer credit exchange customer migrations to the new Equifax Cloud in the next few weeks. And similar to USIS, we are expecting to see accelerated new product rollouts and growth going forward from the Canadian team. In Asia Pacific, revenue was down about 2%, as expected, better than the down 10% in the first quarter. We expect Asia Pacific to return to revenue growth in the second-half. International adjusted EBITDA margins of 25.6% were above our expectations and up 130 basis points sequentially, given their strong revenue growth performance. Turning to slide 10, we continue to make very strong progress driving innovation, with over 30 new products launched in the quarter that delivered a 12.5% Vitality Index, which was up 350 basis points sequentially and was driven by broad-based performance across all of our business units. EWS had a strong second quarter with Vitality Index of 17%, up 700 basis points sequentially. And we expect EWS VI to remain strong in the second-half with new product introductions focused on incarceration data, mortgage pre-qual or shopping behavior and I-9 and onboarding solutions. USIS saw continued sequential improvement with a Vitality Index of 8%, up 100 basis points sequentially. We expect USIS to continue to show strong VI performance from cloud completion as they leverage our new cloud-native infrastructure for innovation and new products in identity and fraud, commercial, and our new mortgage pre-qual products. International also had strong 11% VI in the quarter, up 200 basis points sequentially. We expect strong Equifax double-digit VI in the second-half, leveraging our Equifax Cloud capabilities to drive new product rollouts with a full-year VI for Equifax of over 10%. EFX.AI is one of our key EFX2026 strategic priorities, enabled by our new Equifax Cloud. We're energized to have a new AI leader onboard who will drive our strategic vision and execution in Explainable EFX.AI. We are accelerating the pace at which we are developing new Equifax models and scores using AI and ML in areas such as identity and fraud and consumer loan affordability that drive performance and predictability of our solutions. In the second quarter, 89% of our new models and scores were built using AI and ML, which is up 400 basis points sequentially and ahead of our 2024 goal of 80% and last year's 70%. Before I turn it over to John, I wanted to provide a few comments on our full-year 2024 guidance. We're maintaining our 2024 guidance midpoint with revenue of $5.72 billion, up 8.6% and adjusted EPS of $7.35 a share, up 9.5%. This guidance implies a strong second-half for Equifax, with revenue at the midpoint of $2.9 billion, up over 9.5%, and adjusted EPS of $4.03 per share, up 13%. Consistent with our practice, this framework assumes mortgage market activity consistent with the levels we saw in June and early July, resulting in a estimated full-year USIS credit inquiries at down 11% and consistent with our April guidance. As you know, we're using current trends to forecast mortgage market activity and have not seen a strengthening in the mortgage market activity despite the recent modest decline in rates and have not reflected the impact of any Fed rate cuts in the second-half. Delivering this level of performance in the second-half against the U.S. mortgage market that continues at the levels we saw in the first-half, we believe, is very strong Equifax performance. It reflects constant dollar non-mortgage growth of about 10%, again led by very strong non-mortgage growth in our Workforce Solutions verification services businesses and with strong continued growth -- organic growth in international and improving non-mortgage growth in USIS despite the continuation of the tight credit markets we saw in the first quarter and second quarter in the U.S., leading to some weakening in the auto market and also impacting the broader FI market. While we expect a continued weak mortgage market, we expect to grow mortgage revenue by 18% in the second-half. Of course, we continue to expect significant future mortgage market improvements as rates come down and mortgage market activity returns to normal 2015 to '19 levels. As we've shared previously, we expect to flow the $1.1 billion mortgage revenue recovery through to EBITDA as mortgage market activity improves at our very high mortgage market gross margins. And we're continuing to deliver expanded EBITDA margin growth, principally in the fourth quarter as we complete the transformation of our US consumer businesses and our businesses in Canada, Spain, Chile, and Argentina. Now, I'd like to turn it over to John to provide more detail on our second quarter financial results and to provide our third quarter framework. Our third quarter guidance builds on our strong second quarter performance from new products, penetration, record growth, and pricing.

Mark Begor:

Thanks, John. Wrapping up on slide 15, Equifax delivered another strong quarter with 11% constant currency revenue growth, which was at the upper end of our 8% to 12% long-term revenue growth framework, reflecting the power and breadth of the Equifax business model and strong execution against our EFX2026 strategic priorities. Our very strong 20% EWS non-mortgage verifier revenue growth, 12% EWS active record growth, and strong 12.5% broad-based VI give us momentum as we enter the second-half of 2024. A big priority for 2024 is to complete our North America cloud transformation, as well as significant portions of our global markets, which will enhance our competitiveness, drive margin expansion, reduce our capital intensity, expand our free cash flow for bolt-on M&A, dividend growth, and share repurchases. Completing the USIS consumer cloud migrations in the next few weeks is a significant milestone for Equifax. We continue to expect CapEx to decrease in 2024 by about $100 million to under 8.5% of revenue with further reductions in 2025, allowing us to move towards our long-term CapEx goal of 6% to 7% of revenue as we exit next year. Entering 2025 with 90% of Equifax revenue in the new Equifax Cloud is a big milestone, so the Equifax team can move towards fully focusing on growth. Another significant EFX2026 strategic priority is to drive innovation through our investments in EFX.AI. AI and machine learning are changing the way we develop new products in our single data fabric, the way we -- and allowing us to build higher performing models, scores, and products, ingest and cleanse data, and operate our consumer care centers more effectively. We're on offense at Equifax with EFX.AI. We're entering the next chapter of the new Equifax as we pivot from building the new Equifax Cloud to leveraging our new cloud capabilities to drive our top and bottom line. We're convinced that our new Equifax Cloud, differentiated data assets in our new single data fabric, leveraging EFX.AI and machine learning, and market-leading businesses will deliver higher revenue growth, expanded margins, and accelerated free cash flow that will enable us to start returning cash to shareholders in 2025 and beyond. We remain focused on executing our long-term model, delivering 8% to 12% revenue growth with 50-plus-basis points of margin expansion annually on average over a cycle. Before I turn the call over to the operator, I'd like to thank Sam McKinstry on the Investor Relations team for his significant contributions over the past four years. Good news, Sam's staying with Equifax and is taking a position within the USIS business to further his career in finance. He's been a real asset to the IR team and the investor community. And joining the Investor Relations team from Equifax is Molly Clegg, and we welcome Molly to the IR team. With that, operator, let me open it up for questions.

Manav Patnaik:

Thank you. Good morning, and congratulations on getting close to this tech transformation ending. My first question was on that, which is, how much of the cost savings, I guess, have you baked into the third quarter, fourth quarter, and I guess, more importantly, just a run rate of what we should think this is now going to help in 2025 just on its own?

Mark Begor:

The savings are really in the fourth quarter and then we'll get the annualization of that next year.

Mark Begor:

And Manav, I think, as you know -- I appreciate you pointing it out, this has been a long road. We started this five years ago and to be close to this finish line with 80% of our rev in the cloud in the next month or two and 90% in the fourth quarter, it's really a huge milestone. It's been a huge effort by the entire organization to run the company over the last number of years, but also do the cloud work. And we're super energized to really be pivoting to leveraging that cloud in the second-half as we complete USIS in Canada in the next couple of weeks and then really go into 2025 in a very, very strong position.

Mark Begor:

Yes. We try to be balanced. I think you know that. We want to put forecast out that we know how to meet and we feel a lot of confidence in the forecast we put out. I think John and I in our prepared comments talked about some of the positives we have. We've had some challenges, you always do in a business. I think we highlighted USIS has seen some softening in the first quarter in some of their end markets and also in the second quarter. Mortgage hasn't really come back, and short of rate cuts, we don't expect that to happen in our guide. We've seen some impacts likely from the big focus in the first-half in USIS and cloud transformation. We expect those to obviously mitigate so the commercial team can be fully focused on just commercial conversations versus also commercial and cloud. EWS is performing exceptionally well. You look at the government performance, talent had a very strong quarter. Obviously, we talked about employer impacted by WOTC and some other kind of macros that will solve themselves, but likely later in the year, that will benefit 2025. But putting that all together and -- maybe just finishing with international, strong momentum there and all the businesses performing above our expectations. When we put that all together, we felt like we had the right framework in holding the year in the second-half.

Operator:

Thank you. Next question today is coming from Andrew Steinerman from JPMorgan. Your line is now live.

John Gamble:

Andrew, to your specific question, it's -- 21% was the exact number.

Mark Begor:

And to your question on USIS, I think we -- in our prepared comments, Andrew, I know you heard them. We've seen some softening in some of the end markets in USIS late in the first quarter, certainly continued in the second quarter. You talked about the CDK impact obviously, you know, was a negative late in the second quarter. That's obviously behind us. But the end market softening, for example, in auto, while mortgages have been impacted by higher rates, we're seeing some impact in auto where the payments for new and used cars are very high with the higher rates that are being charged. And we've seen some impact in just consumer demand for loans in auto. And then a broader, I would call it slight softening in second quarter. And we carried that forward in the second-half. So that's reflected in the USIS guide. I don't know if you'd add anything else John?

Andrew Steinerman:

Makes sense. Thank you.

Heather Balsky:

Hi, thank you for taking my question. I wanted to start off with EWS verification -- or verification in EWS broadly into the back half and thinking about the sequential trend from 3Q and what's implied into the fourth quarter. Especially for 4Q, there seems to be some implied material acceleration. And recognizing that the mortgage market has somewhat stabilized and the benefits from that, can you just walk us through the building blocks to kind of what gets you to the trends in 3Q and what's implied for 4Q and where you're seeing the biggest tailwinds?

Mark Begor:

And maybe adding to the records point, John, is that we have real visibility as we are in July now and in the third quarter and as we look out to the fourth quarter of meaningful record additions that we're working on, and we haven't closed those yet, so we haven't added them into our discussions with you. But -- and as you know, records, when we add them, when they come online, they turn into revenue that day, because we're already getting the inquiries. That's the beauty of the of the system we have. Sorry, John. Go ahead.

Heather Balsky:

Got it. Thank you. And I know you've gotten questions about where there might be a little bit of caution in the guidance and room for upside. There's been a couple of surprises the past few quarters, the WOTC, the transition taking a little bit longer. Do you feel like for the back half, you've given yourself some room for some things that might occur like that, some of the stuff that may be kind of out of your control?

John Gamble:

And as Mark referenced and we talked about in the script, right, I mean, obviously, we know third quarter to fourth quarter requires a lot of execution. But we have a lot of confidence in the way the teams are executing right now and it's around completing the transformations. We think we have very good visibility into how that's going to complete and the timing.

Operator:

Thank you. Next question today is coming from Kelsey Zhu from Autonomous Research. Your line is now live.

Mark Begor:

Yes. And in talent, you have to add to it also the penetration. Remember, that's a large TAM that we have a big position in, but there's a lot of runway for growth of just converting manual -- let's use just employment verification processes. As you know, we have incarceration, we have education data and other data elements, like medical credentialing data. But just the penetration is just a huge opportunity just like government. The -- when you've got a $450 million, $500 million kind of run rate business in talent, operating in a $3 billion-plus TAM, there's just a lot of penetration opportunity. Product is a big lever also. We've got a lot of focus around new products on incarceration, on education, on different depths of employment data. We rolled out an hourly solution for hourly background screens that don't require as much employment history. So, there's a big focus there. And I know the team is working on the next chapter of combining those data elements with our goal being to have a single transaction to deliver all the data that's required for a background screen, which would include employment history, would include incarceration, education, et cetera. We signed and announced a new partnership on education that goes beyond college degrees and into high school and vocational schools. So, that's another depth of element that's a part of our second-half focus on talent.

Kelsey Zhu:

Got it. Super helpful. And then my second question is on government. We also saw really strong growth this quarter. How much of that is driven by the CMS contract extension? And are there any one-off factors that contributed to growth this quarter? And how should we think about a sustainable growth rate going forward?

John Gamble:

Yes. And in terms of 2024, just looking at sequential trends, right, I think the sequential trends we're seeing in the second quarter were good and strong. And third quarter and fourth quarter, I think, are very consistent with what we've seen in the past. And specifically, the -- as we referenced, the growth we're expecting into the fourth quarter is heavily driven by CMS and the fact that ACA starts in the fourth quarter, and every year, we see a pop in revenue from that agreement with CMS, in 4Q and then again in 1Q.

Operator:

Thank you. Next question is coming from Faiza Alwy from Deutsche Bank. Your line is now live.

Operator:

Faiza, your line is now live.

Mark Begor:

Yes, we got you now, I think.

Mark Begor:

Yes. That's better, yes.

Mark Begor:

Yeah. And as John said earlier in one of the questions, we expect to see some benefits perhaps later in the year, but that's really going to be in '25, '26, and '27. There's no question that there's been some distraction for that team. This has been our most complex cloud transformation of the 40-year-old kind of consumer credit -- we call it, ACRO platform that we had. To be finishing it in the next couple of weeks is just a huge accomplishment and it's just taken so much bandwidth from the team to complete that. So, kind of the focus of the team is one positive that we'll have in the second-half, but you should think about that really benefiting as we get into '25 and beyond. You point out a number of really important levers. We believe the always-on stability, the ability to roll out new products more quickly just make us a more valuable partner to our customers. And we do expect to have share gains going forward. We've got some of those in flight and a lot of conversations going on. The feedback from our customers, that we've moved 99% of our customers to the cloud -- I think it's even higher than 99% as I speak today, has been outstanding. The performance, the speed, acceleration of moving the data, just the feedback is super positive. And as you know, that's one of the reasons we invested this substantial amount of money in the cloud four-plus-years ago was we believed it was going to give us a stronger competitive position with our customers. So you -- and we should start to see those benefits really in '25, but the momentum -- there should be some good guys as we get into the second-half on that. New products is another big deal. As you know, their vitality has been below our 10% goal for a number of years as they've been working on the cloud transformation. We've seen some positive acceleration in the quarter. I think there were 8% vitality and up 100 bps, which is positive. So, the team is starting to create some bandwidth for new products. And you'll see new products, really, from every element of USIS, a lot of stuff coming out from identity and compliance, which we're excited about, a lot of risk-based solutions, data combination solutions, given we have such really unique data in USIS versus our competitors, particularly in the alternative data with NC+, DataX, and Teletrack. So, a lot of traction there. Some products in marketing, leveraging our IXI wealth data have been coming out. And then the last one I'd comment on is -- I used it in my comments -- I mentioned in my comments is, with the cloud complete in EWS and now the cloud complete in USIS, we've got a big focus on delivering products that really combine TWN, our income and employment data, with the credit file. We think there's a lot of opportunities to put a flag on the credit file, for example, in mortgage, auto, P loans, so when one of our customers is pulling a credit file, they'll know that there is a individual there that's also working. That adds to the underwriting capabilities of that consumer and adds to the value of our credit file and our solution. And we're really energized about those kind of solutions that combine USIS and EWS products that will benefit both businesses, but we think make our credit file more valuable, which should drive credit file share. So that's a second-half focus on the product side, likely a 2025 implementation. So we're really energized around the always-on stability that will drive our competitive advantage, and then as you point out, the ability to roll out more new products, leveraging the USIS data, but then also bridging between USIS and EWS going forward.

Faiza Alwy:

Great. Thank you so much. And then my second question is on EWS mortgage side. Obviously, we've had a lot of conversations over the last few quarters, even years about TWN inquiries versus outperformance. So, just give us the lay of the land in terms of how you're thinking about outperformance from here. And then I know you talked about TWN inquiries sort of stabilizing maybe or being more in line with the credit inquiries. And I'm sure you saw the HMDA data came out last week. I'm just curious if you reflected on that, and any incremental thoughts around just EWS mortgage?

Mark Begor:

Yes, I'll just add again. I mentioned it earlier -- in one of the earlier comments. I think you know this, but record additions, we already have the inquiries coming. When we add the records, they turn into revenue. So it's such a powerful lever for us. And as you know, we've had really strong momentum there on records and we've signaled we have strong momentum in the second-half, and also good visibility. We don't have to do anything else, but get the records in our data set and they become revenue, because we already had the inquiries coming in from our customers. We just have higher hit rates.

Faiza Alwy:

Great. Thank you so much.

Surinder Thind:

Thank you. I'd like to start with a question just about the innovation cycle. When we think about all of the commentary that you've kind of provided, is the idea that we should be entering a period, especially within USIS, of accelerated innovation? And how quickly will those products come out? And then should we expect, what I would call, well above normal in the near term or -- help us work us through that cycle, I guess?

Surinder Thind:

Thank you. And on the implied 4Q margins, it sounds like there is a tax benefit in there as well. If we adjust that out, is that the right run rate for the firm on a go-forward basis from beyond 4Q?

Mark Begor:

And maybe I'd just add, John. I think we're all watching to see when the Fed's going to change rates, and we believe the positive impact that'll have on mortgage activity, we've been very clear that as that starts rolling in, that's going to be accretive to our margins in a very positive way, meaning it's going to drop through in very high incremental EBITDA levels, 70-plus, when that happens in -- likely in '25 and beyond as rates move down to some more normal level.

Operator:

Thank you. Next question is coming from Andrew Nicholas from William Blair. Your line is now live.

Mark Begor:

Yes, it's a whole range, as you might imagine. Use pension -- there are pension administrators that manage to find benefit pension payments, almost like a payroll processor for companies. We've signed one or two of those kind of relationships. So you think about those like a payroll processor. Those can be, call it, more chunky, meaning larger. We have direct kind of relationships around pension records and just a long runway in pension. And then there's a lot of pension records, as you might imagine, in federal, state and local government organizations, fire departments, police departments, government agencies, still have defined benefit pensions, most corporations do not, like the vast majority, but some of the legacy corporations still have that. So that's how we're going after pension, we have a dedicated group -- first off, we have a dedicated leader that works for -- our EWS leader that all they work on is records. And you may remember that's a change we made in December, to put a full-time dedicated leader. At the time, he had other tasks in EWS, and we just saw an opportunity to really continue to drive records. So, we asked him to fully focus on records. So, there's a dedicated team on pension and we have a dedicated team on 1099. We have a dedicated team on, call it, W2 or non-farm payroll partnerships, which would be payroll processors, HR software companies and others like that. And then also, remember that half of our records come from our direct relationships that we get through our employer business. So that's another important focus of ours, is we're continuing to invest in new products and capabilities to have those direct record relationships. On 1099, kind of we have a dedicated team. It's a different path that's going to some of the big Gig operators. But remember, 1099, income-producing Americans include doctors, dentists, lawyers that are self-employed and very high income. So you've got to go to like tax prep services that do their quarterly estimated taxes as a way to get some indication of their income. So, lots of different avenues that, I would say your question about, are some chunky and some more granular, the answer is, yes, it's a mix of all of the above across really all three kind of areas for focus on records. The positive we have is our scale, so we can focus on really going after those in so many different places. And we've got a big focus on it for the obvious reason because of the benefit we get. We're already receiving the inquiries. So, as we add records, we're able to translate those into revenue and give higher hit rates for our customers, which is what they're after.

John Gamble:

Now, in the second-half, we've assumed it narrows and that they tend to trend -- they're going to trend together. Now, again, that's based on our expectation. It's also based on the trends we're seeing today, right? So, as we just run out the trends for the rest of the year and apply seasonality, separately, it looks like the movement in USIS credit inquiries and in TWN inquiries, should move on a percentage basis year-on-year similarly, right? So we'll have to see, right? I mean, we have been surprised in the past, where sometimes the shopping behavior continues longer than we expect. But right now, it looks like it's starting to narrow and we can also see it analytically.

Operator:

Thank you. Next question today is coming from Jeff Meuler from Baird. Your line is now live.

Mark Begor:

Yes, no change, Jeff. We're going to flow that through. We're investing and we have been, and you've followed us for a long time, you know as well. While we were doing the cloud and putting outsized investment in our tech transformation for the obvious long-term strategic reasons and competitive reasons, we've been making the right investments in '21, '22, '23, '24, in new products and other resources, commercial resources, et cetera. So we're investing the right amount to grow Equifax today, and those incremental savings from the cloud will flow through to expand our margins. Same way that we've talked about is, when the mortgage market returns, we'll let that flow through. We're not going to reinvest that. We're investing the right amounts to grow Equifax at 8% to 12% and deliver that 50 bps of kind of what I'll call ongoing operating leverage from running the company. So, as we have like mortgage market recovery or, as you point out, the cloud cost savings, those are going to flow through and they're going to allow us to not only expand our margins, but as John pointed out, with our leverage coming down, we're getting closer to that stage, which we've been after for, as you know, quite some time to start returning cash to shareholders.

John Gamble:

Yes. So if we take a look at Kount and Midigator together, what we saw actually was, let's call it, the fraud part -- portion of the business performed better. We continue to see growth. We saw a little bit of weakness in chargeback management, which is, let's call, the Midigator part of the business, right? So we're expecting -- we've launched a lot of new products and platforms now in Kount, right? Kount 360 is now live. We're expecting to see that platform take hold. So we're expecting to see improved performance as we move through the rest of this year around Kount. And then around chargeback management, as we integrate chargeback management into the Kount 360 platform, we would expect to see some improvement there as well. So -- but I'd say that what we're seeing -- and it's a good news on the margin front, because the fraud business has better margins. We're seeing a little bit of performance in fraud, and given the launch of new products, our expectation is that the area will see improved performance first as we go through the rest of the year.

Operator:

Thank you. Next question is coming from Scott Wurtzel from Wolfe Research. Your line is now live.

Mark Begor:

Yeah. As you know, EWS has been really outperforming our 10% kind of vitality goal for, gosh, almost three years now, principally after they completed the cloud, and it was a real step-up. So they've had -- really broad-based in all their verticals, focused on innovation and new products. You point out talent, where they've rolled out some products and they've got more in the pipeline. And so, there was clearly some benefit there from products that were put in place late last year and in the first-half of this year. Mortgage has got products that they've rolled out. So there's probably some benefit there. We -- while we lapped Mortgage 36, they've got some other solutions that they're bringing in. Employer, we've got a new I-9 solution called I-9 Virtual that's in the marketplace. So, that vertical is focused on new products. And government is also -- got some focus there. So we've been quite energized about EWS, call it, above framework, ability to execute on innovation. We'd expect them, over time, to move back towards the 10%, but they've been well above it for the last three years. And as we talked about, international had a good quarter on innovation and so did USIS in -- even in the midst of their cloud work.

John Gamble:

We did. We have the -- it's -- it was in Brazil, right? And there's -- there was a substantial flooding in the South of Brazil and it certainly impacted our business, although our Brazil business has actually performed fairly consistently with the plans we put in place when we started the year. So...

Scott Wurtzel:

Great. Thank you, guys.

Kyle Peterson:

Great. Thanks, and good morning, guys. I wanted to start off on the records growth. It seems really strong there. Just want to see if you guys could unpack kind of what drove kind of some of the new additions. I know you guys have been talking about Gig and such, as well as some of these HR software partnerships. So, I guess, like if you kind of rank order what some of the bigger contributors were to the net new records this quarter, that'd be really helpful.

Kyle Peterson:

That's really helpful. And I just wanted to follow-up on auto, some of the moving pieces that you guys have seen there. I know you guys called out kind of the CDK issue. It seems like that's, I guess, largely resolved itself, but I guess, should we...

Kyle Peterson:

Think of that as kind of a late 2Q, maybe first week or so of 3Q impact? And I guess, if so, how are you guys thinking about auto, ex that impact for the -- at least for the balance of the year?

Kyle Peterson:

Got it. That's helpful. Thank you.

Shlomo Rosenbaum:

Hi, good morning. Thank you for taking my questions. Hey, Mark, I just want to get a little beat on the overall consumer credit environment. I mean, it sounds from your comments that there's some deterioration sequentially. And what I'm trying to understand, is it deterioration from the bank side of things? Is it deterioration from the consumers just saying, hey, I can't afford some of the loans? And what are you seeing over there? And some of the financial and marketing area, the area that has portfolio review, are you seeing some impact over there with the growth in revenue moving up to 7%? If you could just give us a little bit of color? And then I have a follow-up.

Shlomo Rosenbaum:

Okay, great. Thanks. And then you made a comment about the impact to margins, the reason margin guidance was lowered was just the timing of the cutover and some of the transition, but shouldn't impact 2025 outlook. Just trying to understand if things go out a quarter, why doesn't that snowball into 2025? Why wouldn't I kind of think about that as a 2025 number, also being kind of a quarter behind?

Shlomo Rosenbaum:

Okay. Thank you.

Owen Lau:

Good morning, and thank you for taking my question. So, going back to Mark's earlier comments about rate cut, the market currently expects the rate -- to cut rate by, I think, 50 basis points to 75 basis points this year, and it may even start in September. Let's say, if the Fed cuts by 50 basis point, how much incremental benefit do you think Equifax can capture? And how do you think about all these for this year? Thank you.

Owen Lau:

Got it. That's helpful. And then I remember, last quarter, talent revenue was down 4% and you saw some recovery in March and continued in April. In the second quarter, it was up 13%. Was it because of some pent-up demand from January or February, or high market has actually improved that you see the growth will be more sustainable? Thanks.

John Gamble:

Well, we also saw really nice performance in some Insights products...

John Gamble:

Meaning incarceration that's used in background checks, and we also started to see some growth around some education products. So, generally speaking, as we talked about last quarter, January and February are very weak in terms of hiring. What we saw was weaker-than-normal and then we saw a recovery in March and we got a little better performance in the second quarter because of that recovery also in our normal income and employment products, but also because we saw nice performance from some of the other products that we use that support the talent market.

Operator:

Thank you. Next question is coming from Craig Huber from Huber Research Partners. Your line is now live.

Mark Begor:

No, no, there's..

Mark Begor:

Yes.

Mark Begor:

Yes. And it's -- well, I don't know. We don't -- I don't think about it's hurting our margins, but we're investing for obvious reasons in what we believe is a very important growth lever for us of enhancing our scores, models, and products using AI and ML. This isn't new at Equifax, but we've been consistently increasing our focus and spend around resources and capabilities for AI. The tech transformation provides a big lever there with our own AI capabilities and then leveraging that with Google's Vertex AI. So, being in the cloud is a big positive for us. And then we've been investing in more resources and people. I mentioned that we brought on a really strong leader from the industry -- it was actually from one of our customers, that we're excited to have in the business to lead AI and ML for us. You've seen the use of AI expanding. We had a goal of 80% of our models and scores this year to be using our new AI and ML. And I think we're at 89% in the quarter, so north of our goal, which is a good thing. As we move forward, we will move to 100%, right? That's where we're heading. So this is a big lever, and it's one of the pillars of our EFX 2026 strategic priorities, is to really leverage. And what it's going to deliver for our customers is just higher-performing solutions. They're going to be more predictable. They'll help them drive higher approval rates at lower losses, or higher identity validations in our identity businesses. We're super energized and the ability to have all of our data in a single data fabric and to have the Equifax cloud substantially complete as we finish up in the next number of weeks in the USIS, that gives us big, big opportunities to really take our product capabilities and really charge them with AI and ML. So we're super-excited about this as a priority going forward.

Craig Huber:

And then my follow-up question, please. On credit cards, you just touched on your outlook there for the rest of the year-on a year-over-year basis. Just refresh us what happened again in the first quarter and second quarter there.

John Gamble:

Yes. Banking and lending, we said, has been growing kind of mid-single-digits, a little higher in the first, a little lower in a second. But that's what it's looked like in the first-half. So we think relatively good performance there.

Mark Begor:

We do. Again, you go from -- kind of take second-half, take 2025, the consumer is strong, they're working. If you think about prime/near-prime consumers, they're -- have -- they have wage growth and they have balance sheet growth from the equity markets. We've all seen the spending behavior from, broadly, the U.S. consumer base kind of post-COVID is very strong. So, that's a good outlook, and our customers are strong. They have strong balance sheets and these are important businesses for them that they want to keep growing. So they're spending money on marketing and they want to originate. And then for us, if we can continue to deliver differentiated solutions that help them grow their businesses faster, that's going to be a good thing for USIS in the card space and along the rest of FI.

Operator:

Thank you. Next question today is coming from Toni Kaplan from Morgan Stanley. Your line is now live.

John Gamble:

Yes. Toni, we would characterize it as much consistent with the guidance we gave, right? Slight up to slight down is pretty close to the same thing. So we think we were very consistent with the guidance we gave. I can't point to anything specific, right, as to why there would be a small variances between where it came in and what we said. But overall, it was fairly consistent with what we expected, which is what gives us some comfort that as we go through into the second-half of the year that we're going to see the improved performance that we expect because, again, we talked about it multiple times because of records, right? So we feel good about that.

Mark Begor:

Yes. In LATAM, the principal driver in there is outside of Brazil. Brazil had a good quarter, and we do expect over the medium and long-term to continue to grow that business well, but it's still early days in Brazil. But strong performance in really most of the markets in Latin America, driven by new products and innovation, Argentina, Chile, a lot of the markets where we have strong leadership positions in those markets. But if you go across the rest of International, U.K. CRA was very strong. U.K. debt management was very strong. Those are growing kind of above market in U.K., particularly CRA, had another very good quarter and likely some share gains in that market. Canada was just above mid-single-digits, which was a very good performance. Australia, below where we would like them to be, but we expect them to recover as it moves forward. But product -- new products, a very positive driver across International as they're driving innovation.

Toni Kaplan:

Thank you.

George Tong:

Hi, thanks. Good morning. I wanted to go back to an earlier point, which was in the USIS nonmortgage business, you saw a continuation of tight credit conditions that impacted the auto market and...

George Tong:

Yes. I guess how are you thinking about the broader credit conditions in the second-half of the year?

George Tong:

In the second-half of the year, how are you thinking about broader credit conditions, not just in auto, but just broadly.

George Tong:

Got it. And then in EWS non-mortgage, a lot of the growth is linked from record additions and volumes. Can you talk a bit about how much pricing is contributing to growth, particularly in Verifications?

George Tong:

Got it. That’s helpful. Thank you.

Operator:

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over to Trevor Burns for any further closing comments.

Operator:

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation.

Operator:

Hello and welcome to the Equifax Inc. Q1 2024 Earnings Conference Call. [Operator Instructions] A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded. It's now my pleasure to turn the call over to Trevor Burns, Senior Vice President, Head of Corporate Investor Relations. Please go ahead, Trevor.

Mark Begor:

Thank you, Trevor, and good morning. Turning to Slide 4, we're off to a strong start in 2024. First quarter reported revenue of $1.389 billion was up 7% at the high end of our February framework. Adjusted EBITDA margins of 29.1% were slightly above our expectations, and adjusted EPS of $1.50 a share was well above the high end of our guidance. Total U.S. mortgage revenue was up 6% in the quarter, stronger than expected. The strength in mortgage revenue was in USIS, where mortgage revenue was up 38% against credit inquiries that were down 19% and 700 basis points better than expected and continued strong performance in our new mortgage prequal products. EWS mortgage revenue was down 15% and consistent with our expectations. Twin inquiries are down 22% was slightly better than expected, and this was offset by slightly lower than expected revenue per inquiry, principally driven by product and customer mix. Our global non-mortgage businesses, which represented about 80% of total revenue in the quarter, had strong 9% constant currency revenue growth, which is well within our 8% to 12% long-term revenue growth framework. This was slightly below our expectation of 9.5% non-mortgage revenue growth. Non-mortgage organic constant currency record growth was 5% in the first quarter. At the BU level, EWS Verifier non-mortgage revenue was up a strong 15% and stronger than expected, driven by very strong 35% growth in government and good growth in auto and debt management, slightly offset by some verticals in talent. Employer revenue was down 10% and weaker than expected. This was principally driven by a more rapid decline in ERC revenue than we expected and delays in state government processing of WOTC claims. ERC is now at a run rate of 103 million a quarter and should stay at about that level for the rest of the year. For WOTC, the federal requirement for states to validate WOTC claims changed late last year and most states have not yet completed the changes required to process claims, which dampened our revenue in the quarter. This impacted our WOTC revenue in the first quarter, but we expect this to be a timing issue as this essentially creates a backlog of WOTC submissions that will have to be completed by the states that will begin turning to revenue as state processing accelerates in the remainder of 2024. Offsetting these declines in the quarter, we saw mid single digit growth in I-9 and onboarding revenue. And going forward, we expect employer revenue, including ERC, to be up low single digit percentages for the remainder of 2024. In total, EWS non-mortgage revenue was up 7% and overall EWS revenue was up 1% and adjusted EBITDA margins of EWS at 51.1% were over 50 basis points stronger than our expectations from strong operating leverage and strong performance. USIS had a very strong quarter with revenue up 10%, its highest quarterly revenue growth in three years, even against the 19% mortgage market decline. As I referenced earlier, mortgage revenue was up 38% and stronger than expected from mortgage and pricing pass-through and our new prequal solution. Non-mortgage revenue was up 1% and was weaker than expected. Although we had very strong double digit growth in Kount and consumer solutions and mid single digit growth in banking and lending, we saw double digit declines in third-party bureau sales and low to mid single digit declines in Telco and Auto. In USIS, adjusted EBITDA margins were up – were 32.7% in the quarter and up about 70 basis points higher than our expectations. International delivered 20% constant dollar revenue growth and 6% organic constant currency revenue growth, excluding the impact of the BVS acquisition, both of which were above our expectations. Very strong growth in Latin America and Europe was partially offset by lower than expected growth in Asia Pacific. International delivered 24.3% adjusted EBITDA margins, up slightly from our expectations. As you can see from the right hand side of the slide, we added a new strategic priority this year to focus on driving AI innovation. As mentioned in February, 70% of our new models and scores were built last year using AI and ML with a goal of 80% this year. In the first quarter, we exceeded this goal with 85% of our new models and scores being built with Equifax AI and Machine Learning. Equifax.ai, leveraging our proprietary data, Equifax Cloud and API capabilities, is a big area of focus and execution for Equifax in 2024 and beyond. We're maintaining our 2024 guidance with revenue at the midpoint of $5.72 billion and adjusted EPs of $7.35 a share. Our strong first quarter with revenue at the top end of the range, EPS above the top end of the range gives us confidence in our ability to deliver the full year guidance we provided in February. We expect strong constant dollar non-mortgage revenue growth of over 10% and our full year guidance is based on the assumption that the U.S. mortgage market continues at levels consistent with current run rates with U.S. credit inquiries down about 11% from 2023. Before I cover our business unit results in detail, I want to provide a brief overview of what we're seeing in the U.S. economy and with the consumer. Broadly outside of the bottoming of the mortgage market, there is not a lot of change from our view back in February. The U.S. consumer and our customers remain broadly resilient. Employment remains at historic levels with low unemployment, which is a positive for consumers and customers. Employment turnover and hiring at lower levels entering 2024 than last year, hiring levels in January and February were at their lowest levels in three years. This is more pronounced for higher salaried roles than lower salaried or hourly jobs. Credit card and auto delinquency rates for prime consumers, which represent about 80% of the market, are stable and at historically low levels of less than 1%, but above pre-pandemic levels and subprime credit card and auto delinquency rates continue to remain above pre-pandemic levels with auto subprime delinquencies above 2009 levels. As we've discussed before, it's our view that when consumers are working, they largely have the capacity to keep current under financial obligations, which is good for our customers and good for Equifax. Turning to Slide 5, workforce solutions revenue was up 1% in the quarter, slightly below our expectations. EWS mortgage revenue was down 15% as expected. Twin inquiries are down 22% or slightly better than expected, although weaker than USIS credit inquiries as homebuyers continue to have difficulty completing purchases while shopping behavior continues to be fairly strong. Our revenue outperformed inquiries by 7% which was below the about 11% we have guided during February relative to our February guidance, the benefit of the mortgage price increases implemented in January by EWS and stronger fulfillment rates due to the growth in twin records, whereas expected. However, these were partially offset principally by a shift in product and customer events. As we look to the remainder of 2024, we expect twin record growth to result in improved mortgage outperformance with the second quarter up slightly from first quarter levels and the second half of the year at about 14% outperformance. For the full year of 2024, we expect mortgage outperformance to be about 11% at EWS. This is down significantly from the 20% we saw last year as we lapped the late 2022 launch of our higher-priced Mortgage 36 trended data solution. Non-mortgage verification services revenue which represents over 70% of verifier revenue, delivered a very strong 50% growth at the top end of the EWS long-term revenue growth framework of 13% to 15% and was also above our expectations. Government, which is now our largest Verification Services vertical, had another outstanding quarter and was stronger than our expectations with 35% revenue growth. Government revenue benefited from both our new CMS and SNAP contracts, continued expansion of state contracts, continued TWN record growth and pricing. We expect continued growth in government throughout 2024 with stronger growth rates in the first half as post-COVID CMS redeterminations principally complete in the first quarter. Talent Solutions revenue was down 4% in the quarter which was weaker than expected as we saw very slow volumes through both January and February. Market saw about flat revenue which was more consistent with our expectations – which we expect to continue into the second quarter. Consumer lending revenue was 6% in the quarter as we saw strength in our auto and debt management businesses slightly offset by declines in card. This is the second consecutive quarter of consumer lending revenue growth as we're lapping headwinds from the FinTech lending pullbacks in 2022 and 2023. Auto and debt management revenue growth was principally driven by strong record growth and our pricing actions in the first quarter. As I referenced earlier, Employer Services revenue was down 10% compared to the – about 4% decline we discussed in February from ERC and ROIC reductions. Moving forward, we expect employer revenue, excluding ERC, to be up low single digits for the remainder of 2024. Workforce Solutions adjusted EBITDA margins of 51.1% continue to be very strong from non-mortgage revenue growth, due to cost execution, while we continue to invest in new products, expanding the high growth verticals like government and talent, and grow our TWN records. As a reminder, EWS first quarter margins are seasonally lower from a higher mix of employer solutions revenue, principally from ACA and W-2 in the first quarter. Turning to Slide 6 and expanding on our discussion of EWS TAMs, in February, we provided additional details on our fast growing government vertical. On the left side of the slide, we outlined some of the federal agencies we're supporting with EWS Workforce Solutions, digital income, employment, and incarceration data that accelerate the time to deliver needed social services benefits to over 90 million Americans and help government agencies ensure program integrity, a win-win for all parties. And in the middle of the slide, you can see the substantial progress our EWS government vertical has made in a short period of time, penetrating the $5 billion TAM with a three-year CAGR of over 50%. We expect EWS to continue making significant progress penetrating the government vertical from additional sales resources at federal and individual state capital level, strong, clean record growth, new product rollouts with our differentiated incarceration data and system-to-system integrations enabled by our cloud-native technology that makes our solutions easier for our government customers – our government customers to consume. Our SSA contracts, last year's $1.2 billion CMS contract extension and the new $190 million SNAP contract are examples of our EWS involving various government agencies improve the consumer experience and their own operating efficiency, from the application and authentication phases to redetermination and recovery processes. The strength of the EWS government vertical was clear again in the quarter, and we expect strong future growth in this business in 2024 and beyond. Turning to Slide 7, EWS had another strong quarter of new record additions and signing new payroll processors. During the quarter, EWS signed agreements with two new payroll processors, including one large payroll processor that will contribute over six million current records to the TWN dataset. This added the six partnerships we signed in the fourth quarter that are coming online in the first half of 2024, and this brings the total number of payroll providers added to the TWN database to 35 since the beginning of 2021 and the pipeline for new records continues to be strong. Both of these wins in the quarter are a testament to EWS’ ability to deliver the highest levels of client service from a technology, data security and accuracy, operational excellence, as well as the highest level of record monetization that EWS participates in a broad range of verticals including government, mortgage, talent solutions, talent screening, card, auto and personal loans. And given our advancements in AI and cloud-native capabilities, the time to board new records from payroll processes has decreased over the past few years. We expect these new record additions in the first quarter to come online and begin generating revenue in early third quarter. In the quarter, EWS added four million current records, growing the TWN database by 10% over last year. At the end of the quarter, the TWN database had 172 million current records on 126 million unique individuals. Total records, both current and historic, are now about 670 million and were up about 8%. These are very strong results given the typical churn in holiday season hiring in the first quarter. In terms of coverage, we have current employment records on about 75% BLS non-farm payroll and over 55% coverage on the estimated 225 million income producing Americans. At 126 million unique active records, we have plenty of room to grow the TWN database towards the TAM of 225 million income producing Americans. As shown on Slide 8, USIS revenue was up 10%, stronger than our expectations and well above their 6% to 8% long-term growth framework, principally due to stronger than expected mortgage revenue. As I referenced earlier, USIS mortgage revenue was up 38% and stronger than our expectations. Mortgage credit inquiries at down 19% were still down substantially, but 700 basis points above our February guidance. We also continue to see very strong performance from our new Mortgage Prequal solution. The strong pricing environment, along with the strength in our Prequal product drove the very strong mortgage outperformance of 57%. At $145 million mortgage revenue was just over 30% of total USIS revenue in the quarter. Non-mortgage revenue was up just over 1% and weaker than the above 3% growth we had expected. Third-party sales to credit bureaus, including Experian and TransUnion were down double digits in the quarter, excluding the impact of third party bureaus revenue, USIS non-mortgage revenue was up about 2% and closer to our February guidance. B2B non-mortgage online revenue growth was down less than 1% and below our expectations, again driven by lower third-party bureau sales into a lesser extent declines in auto – auto and telco. Offsetting these declines was strong double digit growth in Kount and very good mid single digit growth in banking and lending. Commercial revenue growth was up low single digits in the quarter. Financial Marketing Services our B2B off line business was down 1% and slightly below our expectations. Marketing revenue was down 4%, principally due to a 10% decline in IXI revenue versus a difficult comp in the first quarter last year. We expect IXI revenue to grow for the full year. Pre-screen marketing was down less than 1% and at similar levels to the quarterly revenue we had in 2023. We continue to see declines smaller FIs principally or partially offset by growth in larger FIs. Within risk and accounting reviews, we did see limited growth in our portfolio review business, but not to the level we would typically see if our customers were expecting a weakening economy. And fraud revenue was up a strong 8% from new business. USIS Consumer Solutions D2C business had another very strong quarter up 10% from very good performances in both our consumer direct and indirect channels. And USIS EBITDA margins were 32.7% in the quarter and higher than our expectations from stronger mortgage revenue growth. Turning now to Slide 9, International revenue was up 20% in constant currency and up 6% in organic constant currency, excluding the impact of International revenue was up 20% in constant currency and up 6% in organic constant currency, excluding the impact of BVS and above the 18% growth we guided to in February due to better-than-expected revenue in Europe and Latin America. Europe local currency revenue was up very strong 10% in the quarter from strong growth in our UK, CRE, CRA B2B consumer and direct-to-consumer channels as well as our debt management business. Latin America local currency revenue, excluding Brazil, was up 31% versus last year driven by strong double-digit growth in Argentina and Central America. Brazil revenue in the quarter on a reported basis was $41 million. We expect to make good progress on the BVS integration as we expect to implement Interconnect, our end-to-end decision platform this summer, for small- and medium-sized businesses and by year-end for large businesses, and implement Ignite, our advanced analytics platform by year-end. The combination of our Ignite and Interconnect platforms will bring significantly enhanced capabilities to both the business and to the Brazilian market. Canada delivered 4% in the quarter as expected. And Canada is on track to complete their migration to the Equifax Cloud in the second quarter. And similar to USIS, we expect to see accelerating NPI as they complete the cloud. Asia-Pacific revenue was below our expectations with revenue down 10% due to lower market volumes principally in our Australian commercial business. We expect Asia-Pacific to have declining revenue in the first half due to the softer market conditions and the near-term impact of long-term contract extensions we signed with several large customers. We expect Asia-Pacific to return to revenue growth in the second half of this year. International adjusted EBITDA margins of 24.3% were above our expectations due to revenue growth and continued strong cost management. Turning to Slide 10. We continue to make very strong progress with new product innovation, launching over 25 new products in the quarter with a 9% up Vitality Index from broad-based strong performances across all of our BUs. As a reminder, our VI measure includes NPIs for the last three years. And on January 1, drops out NPIs or on January 1 dropped out NPIs from all of 2020. While our first quarter VI was slightly below our long-term goal of 10% as we lacked a large EWS Talent Solutions product launched in 2020, we expect our quarterly VI to accelerate throughout the year leveraging our EFX Cloud capabilities to drive new product rollouts for the full year 2024 VI of over 10%. Consistent with the fourth quarter of last year, USIS delivered another strong quarter with VI of 7% as we're closer to cloud completion and able to leverage our new cloud native infrastructure for innovation in new products, such as our suite of Ignite solutions including Ignite for prospecting and Ignite for financial services. EWS delivered VI of over 10%. We expect EWS VI to accelerate throughout 2024 with new product introductions focused on incarceration data, mortgage prequal and I-9 and onboarding products. As I mentioned earlier, EFX.AI is a pillar of our EFX2026 strategic priorities enabled by our EFX Cloud. In the middle of the slide, you can see that we're accelerating the pace at which we are developing new models, scores and products using AI and machine learning. In the first quarter, 85% of our new models and scores were built using AI and ML, which is ahead of our 2024 goal of 80% and last year's 70%. NPI and AI are a clear focus for Equifax, which will drive innovation that can increase the visibility of consumers to help expand access to credit and create new mainstream financial opportunities as well as drive EFX top line growth and margins. Before I turn it over to John, I want to spend a few minutes on our progress on two of our critical EFX2026 strategic priorities that support our long-term growth framework of 8% to 12% top line growth and 50 basis points of annual margin expansion. Completing the cloud and inhibiting from building and leveraging our cloud capabilities is a big 2024 priority, which is fundamental to accelerating NPI and execution of AI and more broadly analytics as well as substantially strengthening system response time and resilience of our technology for our customers. Completing the cloud also frees up our team to fully focus on growth and expanding innovation, new products and new markets. Our progress towards completing the cloud is gaining momentum with over 70% of our total revenue in the new Equifax Cloud at the end of the quarter. And we're focused on executing the remaining steps to reach 90% with Equifax revenue in the cloud by year-end. USIS expects to complete their consumer credit, mortgage and telco and utilities exchange customer migrations to the new Equifax Cloud data fabric principally in the third quarter, which will allow them to decommission legacy systems in the second half of this year as planned. Customer feedback from the thousands of customers that we migrated to Equifax Cloud year-to-date has been very positive. Canada is progressing as planned to complete their consumer credit exchange migrations to the data fabric in late second quarter of this year with their data center decommissioning planned for the third quarter. Europe continues to make significant progress with the goal of completing Spain's consumer exchange migration to data fabric and the decommissioning of their legacy systems in the third quarter. And UK is on schedule to complete cloud migrations, decommissionings of their technology and data centers in the first half of 2025. In Latin America, we completed the Argentina and Chile cloud migrations and expect to make substantial progress on the remaining Latin American countries throughout the rest of 2024. And lastly, as planned, we expect Australia to make big progress this year towards completing their consumer credit exchange migrations to the Equifax Cloud in 2025. Second, driving AI innovation is an important EFX2026 strategic priority that leverages our cloud-based data fabric and application architecture and global Ignite analytical and Interconnect decisioning platforms. We're making great progress in embedding these EFX.AI capabilities across our global footprint. Ignite and Interconnect are now broadly available worldwide. And during 2024, we're deploying both Equifax proprietary explainable AI along with Google Vertex AI across Ignite, Interconnect and our global transaction systems. For Equifax, Vertex AI enables faster and more predictive model development on our Ignite platform. And for our clients, Ignite, which combines data analytics and technology into one cloud-based ecosystem, customers can connect their data with our unique data through our identity resolution process to gain a single holistic view of consumers. We now have 100 – access to 100% of the U.S. population through our data sets in our single data fabric. This is expanding the global population of its consumers for our customer cases by over 20%. And we're driving faster data ingestion and analytics with greater than five times the processing power of our legacy applications tied into our clients' existing campaign, account management and business platforms. Completing the cloud and expanding EFX.AI, along with continued expansion of our differentiated data sets will accelerate innovation and new products at Equifax will drive both our top and bottom line. In the first quarter, we're also off to a good start on our broader operational cloud restructuring plan across Equifax, reflecting cost reductions from the closure of North American data centers and other broader spending controls against our $300 million goals. These actions are improving operating margins and lowering the capital intensity of our business. We're entering the next chapter of new Equifax as we pivot from building the new Equifax Cloud towards leveraging our new cloud capabilities to drive our top and bottom line. And now I'd like to turn it over to John to provide more detail on our first quarter financial results and to provide our second quarter framework. Our second quarter guidance builds on our strong first quarter performance from new products, record growth and pricing. John?

Mark Begor:

Thanks, John. Wrapping up on Slide 15, Equifax delivered another strong quarter with 9% constant dollar non-mortgage revenue growth, which was well within our 8% to 12% long-term revenue growth framework, reflecting the power and breadth of the Equifax business model and strong execution against our EFX 2026 strategic priorities. As I mentioned at the beginning of my comments, a big priority for 2024 is to complete our North America cloud transformation as well as significant portions in our global markets, which will result in continued market expansion and reductions in our capital intensity as the key benefit of our data and technology cloud transformation. As we complete the cloud, we expect CapEx to increase in 2024 by over $100 million to about $475 million or under 8.5% of revenue with further reductions in 2025 allowing us to move towards our long-term CapEx goal of 7% of revenue as we exit next year. And exiting 2024 with 90% of Equifax revenue into new Equifax Cloud is a big milestone, so the team can move fully towards focusing on growth. Aligned with completing the cloud transformation is our strategic priority to drive innovation through our investments in EFX.AI. AI, ML are changing the way we develop new products in our single data fabric, build higher performing models, scores and products allow us to inject and cleanse more data and operate our consumer care centers more efficiently. We are on offense with EFX.AI. We are entering the next chapter of the new Equifax as we pivot from building new Equifax cloud to leveraging our new cloud capabilities to drive our top and bottom line. We are convinced that our new Equifax cloud differentiated data sets in our single data fabric leveraging EFX.AI and ML and market leading businesses will deliver higher growth, expanded margins and free cash flow in the future. We remain focused on executing our long-term model, delivering 8% to 12% revenue growth with 50 basis points of annual margin expansion annually. I’m energized by our strong performance in the first quarter and momentum as we begin 2024, but even more energized about the future of the new Equifax. And with that operator, let me open it up for questions.

Manav Patnaik:

Thank you. Good morning. I just had a broader question on just the visibility that you have because unlike the prior years, mortgage is actually much better than what you guys guided. But still there were, I think, a lot of moving pieces that didn't allow you to beat by more, I guess. Just curious I think this quarter, obviously, ERC was exceptional, but auto, APAC like, just – can you just help us understand how much visibility you have in these other areas?

Manav Patnaik:

Okay, got it. And then just the 7% mortgage outperformance in EWS, I know you guys had said that you expected 1Q to be the low end or the low point was seven, kind of in line with your expectations and then just thinking about the 11 for the year and beyond. Is that going to be the new norm then?

John Gamble:

Relative to our expectation for the first quarter, seven was a little lower than we expected. As we said in the script, it was really driven a lot by customer mix and channel mix, right. We saw some shifts in our customers and to some of our customers that had lower pricing than others, and that impacted our first quarter outperformance levels. Going forward for the rest of the year, we basically assume that level of mix is going to continue. And as Mark said, the growth is really driven by records. Long-term, I think we've said before that we're expecting mortgage outperformance to look pretty much like the level of outperformance excluding economy – of the economy that we're talking about for EWS in general, which is something like 11%, 12%, 13%. So I think long-term, that's the type of level we're thinking about.

Andrew Steinerman:

Hi. John, could you go back to the Slide 11 and the 500 basis point better assumption on a USIS mortgage credit inquiries for 2024. Does that translate into 500 basis points better mortgage revenue growth for OIS? And if not, why? And I'm going to give you my second question. We'll also make a comment about mortgage solutions trajectory for the year.

Andrew Steinerman:

And the other part was, could you just talk about mortgage solutions trajectory for the year?

Operator:

Thank you. Our next question today is coming from Kyle Peterson from Needham and Company. Your line is now live.

Kyle Peterson:

Yes, got it.

John Gamble:

And just as a reminder for 2024, right, as we said in the script, our guidance reflects current activity, current run rates, which is at current rates, right. So effectively, our guidance assumes rates stay where they are.

Mark Begor:

Yes. I wouldn't say, it's all dependent on hiring volumes. Obviously, hiring volumes have had an impact on us. We've been able to navigate through the hiring volumes, which are still quite low. Most companies are keeping a tight belt, as they think about where the economy is going. As far as hiring on the white collar side, obviously blue collar is super strong. There's, I don't know what is 9 million plus open jobs right now, but it's still a very vibrant economy from the hiring side. As far as that talent, we just see a big TAM there with lots of opportunity to grow. We have strong relationships with all the top players, including the two you mentioned, and we expect to continue those relationships. We've got a very aggressive pipeline of new product additions that we're continuing to roll out in the talent space. There's a lot of white space for us to penetrate, meaning background screeners that are still using manual, if you will, employment verifications. So that's an opportunity for us. So we remain very optimistic around the future for the talent vertical. And as you point out, when hiring, I would call it in the white collar side stabilizes or perhaps when rates come down and there's some increase in economic activity, we'll get some tailwind from the market side as people are expanding their businesses, and then we'll have things under our control to continue to adding records. The additional records result in higher hit rates there. The 4 million records we added in the quarter are 4 million jobs, that are now going to be able to be monetized in the hit rates we’re delivering at talent. I talked about new products, and of course, we took some price up in January and we’ll do that again in 2025. So we’re optimistic about talent. We’re super optimistic about government. As you know, with the 35% performance in the quarter, which is we see a lot of opportunities there, too.

Heather Balsky:

Hi. Thank you. I wanted to go back to the EWS outperformance versus the volume. And you talked a little bit about customer shift and it’s something, I guess, that hasn’t come up in the past. Curious if you could dive in a little bit more in terms of kind of what can drive a shift in the sort of mix of customers that you’re working with and how you’re thinking about that for the rest of the year. And is it a function of how the mortgage market is performing or is it new customers that you’re bringing in? Just help us understand that better.

John Gamble:

Let me just add. Just got to remember a point about performance is not a large number, right? So we can see shifts about performance of several points, and it isn’t a really large number on our mortgage revenue. And that’s why you saw that we had a little bit of outperformance in inquiries. And yes, we had some out – we had some underperformance and outperformance, but we ended up with revenue on, right? So I think unfortunately what we’re talking about here is really small percentages that can be impacted by not large movements in revenue. And that’s what you’re seeing here, right? But overall, Mark covered it already, right, the real driver here of this business is consistent, large growth in records, which makes the product more valuable, which is why we expect to see continued improvement in the level of mortgage revenue as we go through the year, relatively speaking. So we feel very good about what’s going on with the products we’re offering because of the fact that we’re adding records so rapidly.

Mark Begor:

Yes. I think I’d start with the comments I had earlier. I don’t know if you heard my response to Manav question. The first quarter, we still – a lot of – we have a lot of visibility in lots of parts of the business. I think the mortgage side is less visible as was pointed out. 60 days ago, all of us thought there’d be – at least the world thought there would be a bunch of rate cuts in the second half, including one in June. Two weeks ago, the June 1 felt like it disappeared. So, given it’s the first quarter, we were very pleased with what we saw as revenue being kind of the midpoint of our guidance, which is very strong and then EPS outperformance. We thought it was prudent to hold the year and give you a good outlook of what we think second quarter is. And as I said, we’ll look at it again as we get through second quarter and have, what I would characterize is more visibility. I think any of us expected inflation to, so called spike up a little bit in the last couple of months, when we set that guide earlier in the year. But we’re confident in delivering the full year guidance that we laid out and we’ll give you an update as we get through second quarter, we’ll have more visibility at that time.

Operator:

Thank you. Our next question today is coming from Owen Lau from Oppenheimer. Your line is now live.

Mark Begor:

Yes. We attribute when we talk to our customers, which are background screeners, that kind of softer January, February, just as kind of a very tight operating environment that most companies are operating on. Again, we over skew to white collar workers versus blue collar. Blue collar is still, I would call it red hot, meaning there’s more jobs open than people looking for them. That’s not the issue. Most companies are really watching the economy and we saw that in January, February. We did see an uptick in March and we try to operate off current trends we see and that’s still continuing in April and we expect that to kind of stay at that level. But I wouldn’t call it like a big recovery, just back closer to what we thought the year was going to be as we exited 2023.

Mark Begor:

Yes, certainly in our guidance, obviously, we haven’t given guidance for 2025 yet. We’ll do that as we get through this year, we expect those cloud completions this year to benefit 2024. That’s built into our margin expansion assumptions in 2024. And then there’ll be some carryover of the second half decommissioning that we have as we complete, like the USIS cloud transformations in the kind of middle of the year and some of the international cloud transformations, same kind of timeframe, those start layering in on kind of a monthly basis as we go through this year. And those will provide some benefits as we go into 2025. So I think we’ve given and we’re happy to share some more around the margin side. The top line side is one, there’s multiple layers of how the cloud is going to benefit us from a top line standpoint. We’re going to be a differentiated partner to our customers with the always on stability from the cloud. You’ve already seen the uplift in new product innovation coming from our differentiated data in the cloud. So that’s going to continue. And businesses like USIS that have been constructed by their cloud migration efforts over the last year and change as they complete the cloud, we would expect that to accelerate their new product rollouts going forward. So we have a lot of optimism of what it’s going to do from a competitive standpoint as we complete the cloud. And as I said in my prepared comments earlier, the other big benefit is the ability for the team as we get towards the second half of the year and into 2025 to fully focus on just growing the business. Over the last almost four plus years, we’ve been growing the business, operating the business, and doing this cloud transformation. It’s a heavy, heavy lift. Getting that completed is a big, big milestone for the company. So we can really take advantage of all of our differentiated data in the cloud. Our increased focus on AI and ML, that’s going to benefit us as we go into the second half and into 2025 and beyond.

Shlomo Rosenbaum:

Hi. Thank you very much for taking my questions. Hey, Mark, can you talk a little bit about the mortgage outperformance in USIS. There’s obviously the FICO pricing increase, and then you mentioned the new Prequal product. Given the magnitude of the outperformance, could you kind of parse that a little bit for us? Is it like overwhelmingly FICO with some Prequal or how should we think about that in terms of the impact the new products having there? And then I have a follow up.

Shlomo Rosenbaum:

Okay, thank you. And then here, this is for John. Can you just go over the puts and takes on Workforce Solutions 2024 guidance going to 7% from 8% despite the fact that the mortgage market inquiries are expected to be better. Some of the stuff that were mentioned sounds like they would be more delays rather than permanent impacts. And I'm just hoping you can just parse that out a little bit more because that's kind of surprising to people, I'd say one of the most surprising in what we saw in kind of the earnings report.

Shlomo Rosenbaum:

Okay, thank you.

Faiza Alwy:

Yes. Hi. Thank you. I wanted to ask about, the third party sales to credit bureaus that you mentioned that was weak and down double digits in the quarter. What exactly is that and what's driving it? And how should we think about this in the, for the rest of the year?

John Gamble:

Yes. We basically assume it's going to continue into the second quarter. Right. So we're seeing it to be at lower run rates. So we're assuming those run rates are just going to continue.

Mark Begor:

Yes. So I think that the number you're quoting for government we talked about back in February, and what we're seeing is government is outperforming that. So we feel very good about our government revenue very strong in the first quarter. Yes, redeterminations are technically completed by the end of March. So yes, that revenue should decline, but we're seeing really good performance across government strength in CMS, strength in other areas, strength within the states. Really good progress as we continue to do, to expand staff both through FDA and then also directly with the states. So we feel good about our ability to continue to grow government at a stronger pace than we had previously expected in talent. But we're indicating that we expected to get back to growth, right. I mean, we saw some weakness in January and February, nice recovery in March. We're expecting that to continue. We're going to get back to growth as we go through the year. And as I just mentioned, we do feel relatively good about what we're seeing overall in our non-mortgage financing structure, so that we feel relatively good there as well. So overall, non-mortgage and verification services looks like it's performing very, very nicely. And again, just like with mortgage, as we move through the year, the substantial growth in records, the tremendous growth that we're seeing in adding new payroll processors now large and small, is going to add to the strength in all three of those areas that I just talked about. Right. Government directly, talent also, because it not only adds hit rates, it also deepens the historical file that we're able to deliver to our customers. So it makes our product even more valuable. And then obviously also in non-mortgage financing.

Andrew Nicholas:

Hi good morning. I wanted to ask about the FHFA's kind of latest timeline for its credit score requirements. I think they put that out at the end of February. Just wondering how you think about kind of now with that out there, the timing of the impact to your business and if a couple months later or even a couple quarters later since I think you last spoke on it, what your expectations are in terms of the impact to Equifax broadly?

Andrew Nicholas:

Got it. Thank you. And then just for my second question, I wanted to go to Slide 14, I know this isn't a new slide, and you've talked about the 2015 to 2019 inquiry level relative to where we are today. I'm just wondering if there's any additional color you can give to that average inquiry level from 2015 to 2019 as it relates to kind of a mix between refi and purchase. And I ask because obviously it would seem like refinance after the wave of refinancing in 2020 and 2021 would be potentially subdued for a longer period of time than 2024, 2025, 2026 if we don't get back to those kind of interest rates. So is there any other context you can, could provide with that number? I guess, more succinctly, how much of that 2015, 2019 inquiry level is purchase versus refi? Thank you.

Andrew Nicholas:

That's helpful. Thank you.

Surinder Thind:

Thank you. Just a bigger picture question here. You talked about elevated activity in terms of rate shopping. Is that universal across, like cards, auto, mortgage, and then how much of an incremental benefit is it at this point in the cycle relative to maybe historical? So just some color would be helpful to understand as we think about longer term trends here.

Surinder Thind:

That’s helpful. And then it sounded like marketing spend, I realize this is not a large part of your business, but just conceptually seems to be down a little bit more than you were anticipating relative to last quarter. Any color you can provide there? And should that be concerning in the sense that if marketing spend is down that potentially is a negative for volumes down the road?

Operator:

Thank you. Next question is coming from Kelsey Zhu from Autonomous Research. Your line is now live.

Mark Begor:

We don’t think so. And we haven’t seen it. There has been – there’s various alternatives that can be used in a mortgage process. They generally have more friction, and they typically have less data. And the mortgage originators are – work hard to make sure that they’re getting the full picture of the consumer. And then the other element is the instant nature of our data. So we haven’t seen a change there, and we don’t expect one going forward. We saw a very wide utilization of our TWN income and employment data in the mortgage vertical, and we expect that to continue. And then as we add records, we’re already getting the inquiries from our customers, we’re going to have higher hit rates as we continue to grow our records.

Mark Begor:

Yes. We’ve never talked about the term of any of our contracts with our partners. Those are confidential for obvious reasons. We have said, and it’s the way they’re structured, they’re generally structured with auto renewals and they auto renew. And those are happening as we speak. There’s none that are like – there’s not like a cliff of these coming. If you remember our dialogues over the last one year, two years, three years, four years, five years, we’re adding partnerships every quarter. As you add those, those have a term to them, but they’re on auto renewal, and we deliver so much value to that partner. And the – not only from the integration, which is very complex. It’s not a simple integration. As you heard earlier, we signed a large partner in the quarter that’s going to add those 6 million records, it’s going to take us two, three, four months of very intense technology and data work in order to bring those records into our environment so then they can be normalized to be delivered in our TWN report. So there’s a lot of work that goes into that integration that makes our relationships quite sticky. And then, of course, from a monetization standpoint, as we keep growing our business, our partners’ monetization grows every quarter. So there’s a very strong relationship there. And as you may know, beyond just income employment with partners like payroll processors, we’re increasingly doing our other services like I-9 unemployment claims and WOTC in partnership with those kind of companies. So we have multiple relationships. So maybe said differently, we’ve got a lot of confidence in the long-term nature of our partnerships around TWN records.

Jeff Meuler:

Yes, thank you. You addressed the customer mix headwinds in TWN mortgage, but I think you also said there were some product headwinds, and it wasn’t clear to me. Is that just lapping kind of the Mortgage 36 adoption and losing that tailwind? Or is there some trade-down effect if you can?

Jeff Meuler:

Okay. And then can you just comment to kind of share dynamics on the nonexclusive records for TWN mortgage? And just remind us how you monitor that? Thank you.

Operator:

Thank you. Our next question today is coming from Craig Huber from Huber Research Partners. Your line is now live.

John Gamble:

Yes. So we haven’t broken down all of the different markets that we have in USIS. FI and auto are two of our largest segments. So certainly the case, but we haven’t specifically given dollar values within our online services for auto and card. But they’re large within our total OIS revenue.

John Gamble:

I think what we did is we’ve given a view specifically as it relates to total non-mortgage for USIS. And we talked about that in the call, both for the second quarter and for the year, right? And I think that’s the level of granular we’re going to talk about. We did indicate that we expect to see very nice performance in U.S. consumer, very nice continued growth above our long-term averages, right, with commercial, good performance also within ID and fraud right? Those we expect to continue to perform very, very well. We had very good performance in FI in the first quarter. We gave specifics on that as well. But in terms of specifics by segment, no, we don’t give guidance at that level.

Simon Clinch:

Hi. Thanks for taking my question. I wanted to just jump to the government vertical, please. And of the growth – the excellent growth that you delivered this quarter, are you able to break out how much of that growth actually came from redetermination so that we can get a sense of what the actual underlying growth rate is, to start with?

Simon Clinch:

Okay. Just time for a couple.

Simon Clinch:

Yeah. Okay, thanks. And as a follow-up question, I guess it's more of a high-level question here on the mortgage market and EWS's position within it. The industry is going to be going through an evolution over the next decade, becoming more automated, reducing costs, but also shrinking, hopefully the time it takes from origination to closing a mortgage. I'm wondering how does that impact your business in EWS in terms of the pricing power you have, but also the number of – the number of polls you might get per inquiry and all that kind of stuff. How is that factored into your long-term framework?

Operator:

Thank you. Our next question is coming from Toni Kaplan from Morgan Stanley. Your line is now live.

Mark Begor:

So records is certainly one that is important. We were pleased with our record additions. As you know, we added four partnerships in the fourth quarter. We added a bunch last year, but those four coming on in the first half of the year, and then landing this largest payroll processor with 6 million records, that's a lot of records to add. When you think about [indiscernible] million individuals that is a real positive to have that. And now we have visibility of where we expect that to come on. And as you know, the power in our business model is that when we add a new record or these 6 million records, we monetize them the next day because we're already getting inquiries from our customers for them. So that clearly records in the second half is a positive and ERC is kind of what it's going to be. The WOTC piece is a little – is a kind of a timing impact. As the government forms didn't get fully implemented in the first quarter. That's going to be a benefit from that small backlog as we go through the second half. What else would you add, John?

Mark Begor:

Toni, I shared this earlier, but you think about the 126 million individuals we have today in our data set for twin. There's 225 million out there, so we got 100 million to go, so there's a long runway for record growth and as John pointed out, we have a very active pipeline for second quarter, for third quarter, for fourth quarter. There's still a lot of momentum and enthusiasm for those that are not monetizing the records with equal crack to do so.

Toni Kaplan:

Yes. Great. And just as you think about the first four months of this year, basically when you think about what you've seen in terms of consumer demand or lender appetite, you mentioned strong employment persisting and that's obviously good from a consumer credit standpoint. But just any sort of changes or trajectory that you've seen, that either make you more constructive or this is something we're watching?

Operator:

Thank you. Our next question is coming from Arthur Truslove from Citi. Your line is now live.

Mark Begor:

Yes. So what we quote, right. Is our inquiry. So we quote actual inquiry data on the credit bureau. Right. And as a reminder, mortgage transactions require tri-bureau pole. So we and our peers see every transaction. Right. We know there's third parties that estimate originations. They don't know what they are. They're doing surveys and estimating a number, and we don't use that number or try to explain the difference between inquiries, which are actuals as of the day that we give them and what you're seeing from third party groups that are doing estimations. So when we're talking about mortgage inquiries in the first quarter and our estimation of mortgage inquiries for the year, it's based on actuals and what we can see transacting.

Mark Begor:

Maybe a couple of things, is this the data I think you're looking at and we look at too, we found historically to be too optimistic. Mortgage originations we don't see and the industry don't see except on a six month lag. Right. That's how it's reported. It doesn't show up. And what you're looking at is surveys. These are surveys where MBA and others will go out to some of the participants and say, what do you think mortgage originations are going to be? And some of those were done probably back in February or March when the expectation was of Fed rate cuts, maybe in second quarter, which obviously doesn't feel like that's how the Fed's signaling today. So there's a lot of change in that. When we look back historically at actual originations, which again are on a six month lag compared to our inquiry activity, there's a strong alignment with it, so we don't see it differing. And what we've done for a decade is use our mortgage inquiries as a proxy for the market because that's what we see. And then trying to share with you how we're doing versus the market, which is our mortgage outperformance typically. And what it has been. Not typically, but it has been meaning how far do we grow above the market from price product in the case of EWS records or penetration into either USIS or TWN customers.

Arthur Truslove:

Thank you. That's very helpful.

George Tong:

Hi, thanks. Good morning. Within your Workforce Solutions business, can you talk a little bit about what you're seeing around customer price sensitivity and overall competition in the quarter and impact that these might have had on EWS growth?

George Tong:

Got it. That's helpful. And I wanted to go back to your medium term mortgage outlook at this point, what proportion of mortgages have rates below 5% based on what you see? And how much would rates need to fall for mortgage volumes to go back to pre-COVID levels?

Operator:

Thank you. We reached end of our question-and-answer session. I'd like to turn the floor back over to Trevor for any further closing comments.

Operator:

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.

Operator:

Greetings. Welcome to the Equifax Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I would now turn the conference over to Trevor Burns, Senior Vice President of Corporate Investor Relations. Thank you. You may begin.

Mark Begor:

Thanks, Trevor, and good morning. Before I cover results for the quarter, I wanted to spend a few minutes on our 2023 performance. Equifax performed extremely well last year against our EFX 2025 strategic priorities. Our strong performance was against one of the most challenging mortgage markets in the last 20-plus years with our USIS mortgage inquiries down 34% and Equifax mortgage revenue down 17%, which equates to almost $500 million of lost mortgage revenue last year. Despite the significant decline in 2023 mortgage revenue, Equifax delivered. We delivered 2% organic constant currency revenue growth with 7% organic constant currency non-mortgage revenue growth, which was at the low end of our long-term 7% to 10% growth rate. Importantly, we had sequential improvement during the year with 8% total growth and 9% non-mortgage growth in the fourth quarter. We also delivered over 100 new products with a vitality of 14%, which was a record for Equifax and well above our 10% long-term goal. EWF delivered strong 10% organic non-mortgage revenue growth, which allowed them to deliver flat total growth despite mortgage revenue that was down 23%. They delivered sequential non-mortgage revenue growth and exited fourth quarter with strong 17% non-mortgage growth. Verifier non-mortgage revenue grew 14%, led by government that grew over 30% and talent that grew 5% despite the white collar hiring market that was down just under 10%. EWS grew current twin records to $168 million, up $16 million or 11% and grew total records to $657 million or $53 million records. We added 17 new twin partnerships last year, our highest number ever and have a strong pipeline for 2024. And in the third quarter, EWS signed a contract extension to provide income verification to the U.S. Centers for Medicare and Medicaid Services as part of a contract valued at up to $1.2 billion over the next five years, which is the largest contract in Equifax's history. EWS also delivered over 20% new product vitality. USIS delivered 4% revenue growth with 7% non-mortgage growth within their 6% to 8% long-term growth framework, while mortgage declined 5%. The USIS Commercial and Consumer Solutions business had very strong years with double-digit revenue growth led by strong market penetration and new products. International delivered 12% constant dollar revenue growth and 6% organic constant dollar growth, led by continued very strong 17% organic growth in Latin America with a vitality index over 15% and close to 10% revenue growth in our UK CRA. And in July, we completed the BVS acquisition in the fast-growing Brazilian market. We delivered these strong results while making significant progress towards completing our cloud migration, ending the year with about 70% of Equifax revenue in the new Equifax Cloud. We decommissioned seven data centers and migrated about 37,000 customers to the Equifax Cloud. We are convinced that our new EFX cloud single data fabric and AI capabilities are delivering new differentiated products faster with better performance and will provide a competitive advantage to Equifax for years to come. The strong progress we made in 2023 will enable the substantial completion of our North American transformation and customer migrations in the first half of 2024, including decommissioning of the mainframes and major North American data centers. Also in 2024, we expect to make substantial progress towards completing transformation activities in Europe and Latin America. By the end of 2024, we expect to have about 90% of our revenue in the new Equifax cloud with the vast majority of new models and scores being built using Equifax AI. In 2023, we executed very well against our EFX Cloud and broader operational restructuring plan across Equifax, reflecting cost reductions from the closure of major North American data centers and other broader spending controls in excess of our original $210 million goal. We expect an incremental $90 million of run rate spending reductions in 2024, which is up about $25 million from our prior forecast due to the additional actions we took in the fourth quarter that will benefit 2024. Of this $90 million 2024 spending reduction, about $60 million reduces operating expenses and $30 million reduces capital spending. These actions are improving operating margins and lowering the capital intensity of our business. As we move into 2024, I'm energized by our commercial momentum, NPI capabilities and the benefits of the new Equifax Cloud. Turning to Slide 4, our strong fourth quarter gives us momentum as we move into the new year. Fourth quarter revenue of $1.327 billion and adjusted EPS of $1.81 per share were both at the high end of our guidance. And EBITDA margins at 33.7% were up about 60 bps sequentially. Our non-mortgage businesses, which represent about 85% of total revenue in the quarter, were very strong with 14% constant currency and 9% organic constant currency non-mortgage revenue growth, also at the high end of our 7% to 10% long-term organic growth framework driven by strong performances at EWS and international. Total U.S. mortgage market was slightly stronger than we expected in the quarter with USIS inquiries down 17%. As mortgage rates declined during the quarter from a 23-year high of 7.9% in late October to about 6.8% late in the year, we saw some increased activity to expect we'll grow if rates continue to decline in 2024. Mortgage volumes began to strengthen slightly relative to normal seasonal levels in December, and we've continued the slight improvements during January, which is a good sign if the market has bottomed. Mortgage market outperformance of 33% for USIS and 18% for EWS last year in the quarter were strong and about as expected. We'll share further perspectives on the mortgage market when we discuss our 2024 guidance. At the BU level, EWS non-mortgage revenue was up a strong 17% and above our expectations, principally due to strength in our government and talent businesses, which drove adjusted EWS EBITDA margins sequentially to above 51%. USIS had a good quarter with revenue up 5%, slightly above our expectations, principally due to stronger mortgage revenue, which drove adjusted EBITDA margins up about 100 basis points sequentially to 35%. International delivered 22% constant dollar revenue growth and 6% organic constant currency revenue growth, excluding the impact of the BVS acquisition. Very strong growth in Latin America and Europe were principally offset by lower-than-expected growth in Asia Pacific. International delivered very strong 31.2% adjusted EBITDA margins, up about 500 basis points sequentially and much stronger than our expectations. Before I cover our business unit results in more detail, I wanted to provide an overview of what we're seeing in the U.S. economy and with the consumer. Broadly, outside of what appears to be a bottoming of the mortgage market, there's not a lot of change from our prior view. The U.S. consumer and our customers remain broadly resilient. Employment remains at historic levels with low unemployment and almost 9 million open jobs, which is a positive for consumers and our customers. However, there continue to be some constraints in white collar hiring. Credit card delinquency rates for prime consumers, which represent about 80% of the market are stable and at historically low levels at less than 1%, but above pre-pandemic levels. However, subprime borrower delinquencies, which have been increasing over the past year are now above pre-pandemic levels and are approaching 2009 levels. Auto delinquency rates for prime consumers, which represent about 80% of the market are also stable and well below 1%, but are above pre-pandemic levels. Delinquencies for subprime consumers are above pre-pandemic levels, as well as above the levels we saw in 2009. And any credit tiding that we've seen has been largely in fintech and subprime, which started well over a year ago. When consumers are working, they largely have the capacity to keep current on their financial obligations, which is good for our customers and for Equifax. Turning to Slide 5, strong twin record growth and the positive impact from new products, penetration and price drove a strong 18 points of EWS mortgage outperformance in the quarter. As expected, mortgage outperformance was down sequentially from the third quarter as we lapped the 2022 launch of our Mortgage 36 trended data product. EWS had another very strong quarter of twin record additions, adding five million current records in the quarter and $16 million during 2023. EWS grew twin records 11% in the quarter to $168 million on 124 million unique individuals, which was up 9%. Total records, both current and historic are now over $655 million and were up 9%. In terms of coverage, we have current employment records on about 75% of U.S. non-farm payroll and about 60% coverage on the $220 million income-producing Americans. At 124 million active records, we have plenty of room to grow the twin database. During the quarter, we signed agreements with six new payroll processors that will deliver records in 2024. In 2023, we added partnerships with 17 payroll processors and over the past three years, have added partnerships with 33 payroll processors. During the quarter, EWS also surpassed a significant milestone with over three million companies contributing to the work number every pay period, a huge milestone as we continue to focus on expanding our twin coverage. The market continues to adopt higher-value solutions that include trended employment and income history that only Equifax can deliver. For example, in the fourth quarter, over 50% of mortgage revenue incorporated historic records. Turning to Slide 6, Workforce Solutions revenue was up a strong 10% in the quarter, which is a very positive sign as we look towards 2024. Non-mortgage revenue growth of 17% was very strong and up 600 basis points sequentially and at the highest levels that we saw in 2023. Importantly, Verification Services non-mortgage revenue, which represents about 75% of Verifier revenue delivered very strong 27% in the growth in the quarter and was up 16 points sequentially. In Government, we saw continued very strong growth with revenue up 47% in the quarter and over 30% for the year. Government revenue was slightly stronger than our expectations given continued CMS redeterminations, the new SNAP contract, record growth, state penetration and pricing. We expect continued growth in government throughout 2024 with stronger growth in the first half as CMS redeterminations complete prior to the second quarter. Talent Solutions revenue was up 13% in the quarter and up 700 basis points sequentially. As we discussed, we are currently more heavily penetrated to white collar workers, including technology, professional services and financial services, which has seen a greater reduction in hiring activity and broad hiring freezes and layoffs than the total labor market over the past 12 to 18 months. These markets are off to a slow start again in January, and we would expect to see slower revenue growth in the first quarter in talent than we delivered in the fourth quarter. We outperformed these underlying markets in the fourth quarter by over 25 points as we delivered new digital solutions, strong new product growth, pricing and continued expansion of Twin records. Employer Services revenue was down 7% and in line with our expectations, driven by declines in ERC revenue, which is now about $5 million per quarter as the U.S. government has suspended processing new ERC claims. ERC revenue is expected to stay at about these levels through 2024, and we'll see headwinds in our employer vertical from this ERC decline through the third quarter of 2024. Excluding the impact of the declining ERC revenue, Employer Services revenue grew during the quarter driven by growth in our I9 and onboarding businesses despite the negative impact of U.S. hiring. Workforce Solutions adjusted EBITDA margins of 51.2% were better than our expectations, principally due to better expected revenue performance. The strength of EWS and uniqueness and value of their twin income and employment data, and employer services businesses would clear again in 2023. EWS is expected to deliver strong growth in 2024 and continue above market growth in the future. On Slide 7, I'd like to expand on the significant opportunities still in front of us for EWS. This slide details a big $15 billion EWS TAM versus their $2.3 billion of revenue last year. EWS has plenty of room to grow. As you can see, with the exception of housing, which includes mortgage, where our penetration is on the order of 60%, our penetration is in the range of 10% to 20% in each target market where we compete. In each of these markets, we principally compete against pay-per-pay stubs or other forms of manual verifications and we deliver instant verifications, productivity, speed and accuracy. In both mortgage, government and talent, where there's a requirement for broad coverage and depth of detail and in talent and mortgage, where there's a need for historical data, we have an opportunity to drive strong future growth from penetration in our existing verticals and leverage that penetration as we continue to expand twin record coverage towards the $220 million income-producing Americans in the United States. As shown on Slide 8, USIS revenue was up over 5% and above our expectations, principally due to stronger-than-expected mortgage revenue. USIS delivered non-mortgage revenue growth of about just over 3% in the quarter and slightly below our 4% growth expectation. USIS mortgage revenue was up 16% and outperformed the mortgage credit inquiries that were down 17% by 33 points. The strong pricing environment drove the very strong outperformance. At $78 million in the quarter, mortgage revenue was 18% of total USIS revenue. B2B non-mortgage online revenue growth was down slightly less than 1% and below our expectations. We continue to see double-digit growth in commercial and single-digit growth in telco and auto with banking and lending about flat. The declines were principally due to weakness in D2C, our business where we sell data to other credit bureaus and insurance. Financial Marketing Services, our B2B offline business was up 7% and much better than our expectations. In marketing, we saw mid-single-digit growth in the quarter led by double-digit growth in our IXI consumer wealth data business, partially offset by declines in pre-screen marketing. While pre-screen marketing revenue was down in the quarter, we did see an improvement over prior quarters with a return to growth in fintech pre-screen marketing. We continue to see declines in smaller FIs, partially offset by growth in larger FIs. Within risk and account services, we saw limited growth in our portfolio review business but not to the levels we would typically see if our customers were expecting a weakening economy. And within fraud, we saw double-digit revenue growth primarily from new business. USIS Consumer Solutions D2C business had another very strong quarter, up 15% from very good performances in both our consumer direct and indirect channels. And USIS adjusted EBITDA margins were 35.1% in the quarter and in line with our October guidance. Todd and the U.S. team are on offense as they complete their cloud transformation in the first half of 2024 and pivot to leveraging their new cloud capabilities to deliver new products and drive share gains. In the quarter, the USIS team signed an extension to the NCTUE cellphone and utility payment data relationship, allowing USIS to exclusively manage the database and continue bringing new products to market that expand lending to consumers, including our differentiated USIS mortgage credit file solution that incorporates NC+ cell phone and utility data that only Equifax can provide. Turning to Slide 9, International revenue was up 22% in constant currency and up 6% in organic constant currency, excluding the impact of BBS and above the 20% growth we guided to in October due to better-than-expected revenue in Latin America, slightly offset by lower Asia Pacific revenue. Europe, local currency revenue was up a strong 9% in the quarter from strong double-digit growth in our UK CRE business. And as expected, a return to growth from our UK debt management business. Latin America local currency revenue, excluding Brazil, was up 30% versus last year, driven by strong double-digit growth in Argentina, Uruguay, Paraguay and Central America from new product introductions and pricing actions. Brazil revenue in the quarter on a reported basis was $41 million. We continue to make good progress on the Brazil integration with strong progress in bringing new Equifax solutions such as count and mitigator to the Brazilian market as well as bringing EFX data and analytics expertise to our Brazilian customers. Our global Equifax teams are very engaged in integration activities, including moving BVS to the Equifax cloud and single data fabric. Canada delivered low single-digit growth in the quarter as expected. Canada will complete their migration to the Equifax cloud by mid-2024. And similar to USIS, we expect to see accelerated NPI growth going forward. In Asia Pacific, revenue was below our expectations with revenue down 2% and to -- due to lower market volumes in Consumer and Commercial, particularly late in November and December. We expect Asia Pacific to have declining revenue in the first half of 2024 due to the softer market conditions and the near-term impact of long-term contract extensions we signed with several large customers. We expect Asia Pacific to return to revenue growth in the second half of 2024. Despite the decline in revenue, Asia Pacific adjusted EBITDA margins were up over 200 basis points sequentially from strong cost management. International adjusted EBITDA margins of 31.2%, were up almost 500 basis points sequentially, an outstanding performance. The improvement was driven by revenue growth and good execution against our 2023 cost reduction plan by Lisa and the international team. Turning to Slide 10. In the fourth quarter, overall non-mortgage constant dollar revenue grew a very strong 14% with organic growth of 9%, up over 250 basis points sequentially. A very good sign as we move into 2024. The acceleration in organic revenue growth was driven by very strong EWS Verifier non-mortgage revenue performance. As we look to 2024, we expect non-mortgage constant dollar revenue growth to be over 10.5% with organic growth of almost 8.5%, about 150 basis points above the levels delivered last year. Non-mortgage organic revenue growth is expected to be led again by EWS, driven by strong growth in their government and talent businesses. Turning to Slide 11. We delivered strong 14% vitality, again in the quarter, led by very strong performance in EWS with a VI over 20% as well as over 15% in Latin America. Importantly, USIS accelerated in the fourth quarter to 7%, which was up over 200 basis points sequentially as we get closer to cloud completion and are able to begin to leverage our new cloud native infrastructure for innovation and new products. Our strong vitality index results are not only led by over 100 new products launched in each of the last four years, but the increasing average revenue per new product, which is up close to 50% since 2021. During the quarter, about 90% of new product revenue came from non-mortgage products leveraging the Equifax cloud. The positive momentum in our NPI and Vitality Index is encouraging for the future and reinforces our long-term strategy of leveraging our differentiated data assets and new cloud capabilities to drive new solutions for our customers. Leveraging our Equifax cloud capabilities to drive new product rollouts, we expect to deliver a vitality index of over 10% again in 2024. On the right side of the slide, we've highlighted several new products introduced in the quarter. These new solutions are a testament to the power of the Equifax cloud and driving innovation that can create the visibility of consumers to help expand access to credit and create new mainstream financial opportunities as well as drive Equifax top line growth and margins. Turning to Slide 12, we believe Equifax AI, leveraging our differentiated data assets, our new Equifax cloud capabilities and new product focus, is positioning our industry-leading EFX AI powered model scores and products. On the left of the side of the slide, our large and diverse proprietary data sets is a significant differentiator for Equifax. Our proprietary data at scale, keyed in linked in our single data fabric leveraging our new AFX cloud gives us significant advantages in using AI to build more predictive multi-data models, scores and products. Our ESXi is enabled by our EFX developed explainable AI solutions that leverage our Ignite platform and our Google Vertex capabilities. Our modern AI and ML-enabled cloud-based model scoring engine and our over 1,000 Equifax DNA professionals. AI leveraging our patented explainable AI capabilities is a big priority for Equifax in '24 and beyond as we complete the Equifax cloud. As shown on the chart in the middle of Slide 12, we've made tremendous progress building advanced models in leveraging our market-leading AI capabilities. In 2023, 70% of our new models were built using AI and ML tools, up from 60% in '22 with a goal of over 80% this year. Our investments in AI are generating results. To date, Equifax has received over 90 approved AI patents supporting areas such as our proprietary AI NeuroDecision Technology, or NDT, an explainable AI with over 130 AI patents pending. We've launched new products developing at EFX AI, including Equifax OneScore for consumers incorporating traditional credit, alternative credit, as well as cell phone utility and pay TV data, which has improved the performance of the solution to score 20% more consumers. We are energized about the capabilities that Equifax AI is bringing to strengthen our business and accelerate the value of our proprietary data through richer data combinations. Now let's turn to 2024 guidance. Moving to Slide 13, we entered 2024 with momentum from the fourth quarter and the underlying growth of our non-mortgage businesses and the strong execution against our EFX 2026 strategic priorities. The U.S. mortgage market appears to have bottomed and through January, we're seeing some slight improvements versus our expectations in both USIS and EWS, which is good news for the future. Our 2024 planning assumption is that the current level of U.S. mortgage activity will continue for the rest of the year with adjustments for seasonality. On this basis, U.S. mortgage inquiries across USIS and EWS would be down on a blended basis by 15%. We're assuming twin inquiries will see a slightly smaller decline in USIS credit inquiries as the level of consumer shopping behavior moderates. For perspective, our 2024 framework is over 30 points lower than the average current forecast from MBA, which is currently forecasting 24 origination units, up 17% versus our down 15%. And Fannie Mae, which is not forecast units, but is forecasting origination dollar volumes up 24%. MBA and Fannie Mae forecast mortgage rates move down to 6.1% and 5.8%, respectively, from 6.8% today. We will continue to forecast our mortgage market trends or current EFX run rates as we have done for the past 5-plus years. And as in the past, we do not include interest rate decreases or increases in our forecast. We will continue to share mortgage credit inquiry volume changes with you each quarter so you can make your own judgments on the mortgage market outlook for the future. Further, we are assuming that the U.S. economy will see modest deacceleration in '24 with growth slightly below the 2% average we generally assume in our long-term growth framework. In our key international countries, we expect slowing and low levels of GDP growth in Australia and in Canada, UK and Brazil, we expect about flat GDP. Despite the decline in the U.S. mortgage market and some modest economic deacceleration across our major markets, we expect to deliver 2024 revenue of about $5.72 billion at the midpoint of our guidance with reported growth at the midpoint of 8.6%. Constant currency revenue growth is expected to be about 10.5%, with organic constant currency revenue growth of 8.5% and again at the center of our 7% to 10% long-term organic growth framework. Total mortgage revenue growth should be about 9.5%, about 24 points better than the about 15% decline from the USIS and EWS mortgage inquiries in our framework. Non-mortgage constant dollar revenue should grow over 10.5%, with organic growth of almost 8.5% and FX is about 190 basis points negative to our revenue growth. We expect Workforce Solutions to deliver revenue growth of about 8% in 2024. This reflects mortgage revenue at up just under 2%, about 15 points better than underlying EWS mortgage transactions. And EWS non-mortgage verticals are expected to grow almost 10.5%. Excluding the expected significant decline in ERC revenue as that pandemic support program completes, EWS non-mortgage revenue growth is about 12%, which is a strong performance given the expected weak hiring market in 2024 as well as the weaker overall U.S. economy. Talent in EWS is expected to grow about 7% despite a decline in our underlying markets and government is expected to deliver over 15% growth against a very strong over 30% comp last year. Twin record growth in NPI Vitality Index of over our 10% EFX goal and continued strong growth in both pricing and penetration will continue to drive EWS outperformance. We expect USIS to deliver revenue growth of almost 8% in 2024 at the high-end of their long-term growth target of 6% to 8%. Mortgage revenue is expected to grow over 20%, over 35 points stronger than the expected 16% decline in mortgage market inquiries. We are continuing to see substantial revenue benefits from both pricing increases from one of our largest USIS mortgage vendors that we pass on to customers at levels to maintain consistent margins and new product and pricing benefits by USIS. Non-mortgage revenue in USIS is expected to grow almost 4% despite modestly slower economic growth. The non-mortgage growth will be driven by continued strong commercial and identity and fraud growth as well as mid-single-digit growth in FI and auto. Consumer Services is expected to grow about 5% with financial marketing services expected to grow in the low single-digit percent. And we expect to see weaker revenue growth in D2C and telco. International had a very good 2023 with 6% organic constant dollar revenue growth but saw some weakening in end markets late in the year, particularly in Canada and Australia. We expect international constant currency growth to be over 15% in 2024 with organic constant currency growth of about 10%. The accelerating inflation we are seeing in Argentina is expected to benefit overall international revenue growth by over 5 percentage points. Although uncertain, we have assumed currency devaluation in Argentina will be more than offset by inflation in our 2024 planning. We expect our new product vitality index to be over 10% again in 2024, led by EWS in Latin America. As U.S. and IS and Canada principally complete their cloud transformation, we expect their NPI rollouts to accelerate as we exit 2024. For the full year, EBITDA is expected to be about $1.9 billion, up over 12% with adjusted EBITDA margins of about 33.3%. And adjusted EPS is expected to be about $7.35 per share, up about 9.5% from last year. Capital spending will decline by over $100 million to about $475 million or about 8.3% of revenue. The reduction reflects our progress in completing our cloud transformation and is a significant step towards our goal of 7% or below as we exit 2025. Now I'd like to turn it over to John to provide more detail on our 2024 assumptions and guidance and also to provide our first quarter framework. Our 2024 guidance builds on our strong 2023 non-mortgage growth from new products, record growth and pricing. John?

Mark Begor:

Thanks, John. The unprecedented 50% decline in the mortgage market from normal 2015 to '19 levels had a significant impact on Equifax moving close to $1 billion of revenue over the past 24 months from our P&L. Against that unprecedented mortgage market decline, EFX's diverse mix of businesses delivered strong growth through outperforming the mortgage market by over 20 percentage points, strong 10% to 20% constant dollar non-mortgage growth, a 13% vitality index from new products and the addition of bolt-on acquisitions. As shown on Slide 19, based on our 2024 guidance, the U.S. mortgage market is on the order of 50% below its historic average inquiry levels. As the market bottoms and moves from a headwind to tailwind and the mortgage market recovers towards its historic norms, that represents over $1 billion of annual revenue opportunity for Equifax, none of which is reflected in our current 2024 guidance. At our mortgage gross margins is over $1 billion of mortgage revenue, we delivered over $700 million of EBITDA and $4 per share that we would expect to move into our P&L in '24, '25 and '26 as the market recovers. Wrapping up on Slide 20. Equifax delivered another strong and broad-based quarter with 14% constant dollar non-mortgage revenue growth, reflecting the power and breadth of the Equifax business model and strong execution against our EFX 2026 strategic priorities. We have strong momentum as we move into 2024. As we look at 2024, we expect to deliver 9% revenue growth and 110 basis points of adjusted EBITDA margin expansion from the revenue growth and our cost savings plans despite our expected about 15% decline in the mortgage market. As discussed on the prior slide, with the mortgage market bottoming, we expect mortgage to move from -- move to a tailwind over the next several years as the market returns to normal inquiry levels. A big priority for 2024 is to complete our North American cloud transformation as well as significant portions of our global markets, which will result in continued margin expansion and reductions in our capital intensity that is a key benefit of our data and technology cloud transformation. Exiting 2024 with 90% of Equifax revenue in the new Equifax cloud is a big milestone, so the team can move towards fully focusing on growth. We are entering the next chapter of the new Equifax as we pivot from building the new Equifax cloud to leveraging our new cloud capability to drive our top and bottom line. We are convinced that our new Equifax cloud differentiated data assets in our new single data fabric, leveraging EFX AI and ML and market-leading businesses, will deliver higher growth, expanded margins and free cash flow in the future. I'm energized by our strong performance in 2023 and the momentum as we enter 2024, but even more energized about the future of the new Equifax. And with that, operator, let me open it up for questions.

Unidentified Analyst:

This is Brendan on for Manav. I just want to ask real quick on your -- you guys gave some more detail on the inquiries versus -- USIS versus twin. It sounded like you were saying next year, actually twin will be a little bit better because USIS is actually comping, I guess, better shopping activity. So it will actually be a little bit better than that down 16%. Just want to confirm that. And then why because obviously, this year, the inquiries on TWN have been quite a bit worse than the USIS side?

Unidentified Analyst:

Okay. And then just one more on -- could you walk through some of your assumptions on talent like the volume assumptions that you're using?

Operator:

Our next questions come from the line of Andrew Sternerman with JPMorgan.

John Gamble:

So mortgage revenue in the fourth quarter was 15% of total. And for the fiscal year was 19%, right? And just for perspective, in the first quarter, it's going to be on the order of 20%, we think. A little under 20% based on the guidance we provided. That's driven by our outperformance in both EWS and USIS, that we talked about, Andrew.

Andrew Steinerman:

Yes. What's the incremental margin on mortgage revenues assumed in the '24 guide?

Operator:

Our next questions come from the line of Seth Weber with Wells Fargo.

Mark Begor:

Well, we think the 8.5% is quite good. It's obviously inside of our 8% to 12% range, which is how we want to grow the company. We've talked about some of the pressures on our non-mortgage really in the talent market. And then second is the ERC impact, which that program has been curtailed by the IRS. And John talked about the impact that, that's having, which is on Equifax is a meaningful amount on a year-over-year basis. As far as upsides, I don't think we think about any upsides to that 8.5% because we think it's a pretty good growth rate.

John Gamble:

Yes. So we haven't given specific dollar amounts. What we've indicated, right, is that it continues to be a benefit for us, it was in the fourth quarter, and we expect it will continue to be in the first and the second quarters. But then again, just as a reminder, right, redetermination is something that occurs consistently as part of benefits programs that are funded by the federal government. So yes, there was an accelerated redetermination program following the end of the pandemic freezes that occurred. But the fact is, as we go forward, we'll continue to see redetermination revenue across our government business, and it is -- it will be an ongoing driver of growth once we get through '24 and we get past the accelerated redetermination activity we're seeing right now.

Operator:

Our next questions come from the line of Kyle Peterson with Needham & Company.

Mark Begor:

I'd start with -- and I think we tried to be clear about that. We don't see any real change as we go into 2024 from those verticals like cards, auto, p loans, how they performed in the second half of last year. We talked a little bit about fintech was impacted in the second half of '22 and into '23, but that seems to be kind of a, I would call it, a stable level now, meaning it's not declining, which is good news versus the declines that happened last year. Large FIs are fairly consistent as far as they're still originating because consumers are strong. There's some choppiness with some of the smaller FIs that might be impacted by some liquidity stuff. But again, not a real change from what we saw in the second half of last year.

Mark Begor:

Yes. So I'll go near term, which is 2024, I think we laid out that CapEx is coming down again this year in 2024. We expect it to step down again next year as we complete the cloud, big cloud completion in our USIS business and some of our international properties in the first half of this year and getting to 90% cloud complete will be a big milestone. So you're going to see our CapEx come down over the short term, meaning in '24 and over the medium term in '25 again as we complete the cloud. Over that timeframe, we expect our margins to continue to expand, which will grow our free cash flow. Our free cash flow this year is up almost 2x.

Mark Begor:

So our free cash flow in 2024 is up substantially. We expect that to continue to grow as we get into '25 and '26. And so as you get over the -- again, back in '24, we have a pipeline of M&A that we're watching. I suspect that given we're already in February here that, that M&A would be in the second half if we do some. We're going to be very disciplined around M&A as we always have been. And we're focused on integrating the large number of acquisitions. We've done 14 in a little over three years that we're integrating like Boa Vista, as we talked about on the call. But when you get look forward to '25 and '26, we'll continue to add bolt-on M&A inside of that 8 to 12 framework that includes 1 to 2 points of revenue growth from bolt-on M&A. So that's clearly a part of our strategy. And we've been crystal clear that as our margins expand and we still have the goal of 39%, and we still have the goal of growing 50 bps a year post 39. As we move towards that 39% and our CapEx comes down, we would expect to have significant excess free cash flow when you get into '25 and '26, where we could look at restarting the dividend and also look at buying back meaningful amounts of our stock, and that's no change in that. We've been very clear in that over the last really three years that that’s the goal we’ve been working towards as we complete the cloud.

Kelsey Zhu:

I think you have raised government TAM numbers, again, from $4 billion to $5 billion. I was wondering if you can give us a little bit more color on where the incremental upside comes from? And just in general, what are some of the major programs that you're targeting or states that you're trying to get in growth into that will bridge to this $5 billion TAM number?

John Gamble:

I think one of the reasons the TAM is growing as we continue to integrate the insights business into Workforce Solutions fully. We're able to now see there's incremental products that can serve portions of that government market that we couldn't serve before. So I think the part of the increase in the TAM in addition to what Mark described is the broadening of our product set because of the Insights acquisition. So we feel very good how that's going to continue to allow us to broaden that TAM even further over time as we generate new products to service government needs.

Mark Begor:

Yes. I think as you know, there's two pieces to that potential change by the regulator that is still in a comment period. One is to add Vantage to every federally supported mortgage. That's going to be a good guide for Equifax when it happens going forward. And then second is the 3B requirement going to 2B. We've talked before that we expect on the second half of that mortgage originators to continue to pull the three credit files because there are meaningful differences between the three credit bureaus, three credit files. For example, there's 8.5 million consumers that are only in one of the three credit files in the United States. So the value of three is quite important. On the Vantage plus FICO, same thing. It’s still in a comment period. We haven’t put either of those into our framework for 2024 because we’re not sure they’re going to happen or what the impact would be. But you point out that if it’s a mandatory to have a FICO and Vantage score, that’s a positive for our business to sell a second score in every mortgage. And no, we haven’t thought about pricing on it because we really -- it’s unclear if it’s going to happen or when it will happen, if it does.

Heather Balsky:

I wanted to ask first -- well, I guess two clarifying questions for you. One is the issuance metric for workforce on the mortgage side. I know that's something you guys introduced last quarter. Can you just help us again walk us through what that measure, kind of how you're getting to that number? And there's a lot of data out there around what issuance is. So just kind of helping us think through if we're comparing your number to kind of market data out there, what should we be thinking about? And then my second question is on the incremental margins on mortgage. I think last year, the 80% came up a fair amount, and I realize there's a mix impact, I think you said 65% earlier. Just trying to reconcile that, too.

Mark Begor:

Regardless, incremental mortgage margins are super attractive. And we tried to be clear in including that our view of what normal mortgage volumes are in the 2015 to '19 range versus where we are today at 50% below that. There's a lot of upsides in '24, '25, '26, and we try to frame that in talking about the $1 billion of revenue potential in the future. On the second half of your -- or first half of your question about inquiries. The USIS inquiries because of shopping are different than the EWS inquiries, which generally are more involved in closed loans, meaning on the shopping side, someone will do shopping on two or three different mortgage originators, but close with only one. So that's the difference. And last year, we opted to try to disclose that data. You referenced market volume data that's out there. There really isn't any market volume data out there, except on a very long lag basis. There are forecasts which you can describe as data, I would call those forecasts and that data. And we talked about what MBA is forecasting and some of the others and some of the Street is forecasting improvements later in the year based on rate cuts that haven't happened yet for mortgage volume. We've been very clear, and we've been doing it since I've been here that we forecast mortgage volumes on the way up. We did it on the way down, and we're doing it currently based on our current trends. And as it changes, we'll share it with you. We tried to frame the positive potential impact on us on the top line as well as the bottom line as mortgage returns to normal. And again, we think over time, whether it's ‘24, ‘25, ’26, mortgage volumes will return to normal. It's just uncertain when the Fed is going to make those rate changes and we'll be transparent on what our activity is because we see activity every day. And that's what we talk about when we talk about trends. We have -- we know what the inquiries are we got yesterday, and we know what they were last week and the week before, and we used those to really forecast what we think they're going to be going forward.

Mark Begor:

It's actually, it's a little bit different. Originations, we don't get actual originations and the industry doesn't for until six months after they happen, somewhere in that time frame. It's a complex process for mortgages to close and then those mortgages to be posted in essence, on the credit file is when we see it. So the -- any mortgage origination data is actually on a lag basis. Obviously, there are forecasts that lots of people put together, but those are forecasts and not actual data. You can't determine what -- how many originations happened yesterday, that's just not available. Inquiries, yes, and we're super transparent with you about inquiries that we see on a current basis.

Shlomo Rosenbaum:

First one, John, for you. Could you talk a little bit about maybe quantifying the duplicative cost and migration costs during the first half of '24? That should go away as you start to hit those milestones. And is there a substantial risk of some of this stuff kind of trickling into 3Q and 4Q in terms of just not necessarily getting all the clients to migrate? That's kind of the first question I got.

Shlomo Rosenbaum:

Okay. And then also just going back to kind of those inquiries forecast. I think last quarter, you said that based on what you were seeing in the market, the inquiries would be down around close to 15%. And it seems like that's the same forecast this quarter despite the fact that rates are -- have gone down. And I was wondering, did you kind of hone your forecast a little bit based on changes in shopping activity like -- can you talk about the difference in terms of -- or I guess the reason why you kept that forecast the same despite the fact that rates have gone down?

Operator:

Our next questions come from the line of Owen Lau with Oppenheimer.

Mark Begor:

Yes, they're a little bit better than how we thought they would be when we gave guidance in October. That started in December, I said we called it slight improvements. But that's factored into the guidance we've shared with you this morning. So we've included that in the down 15%, and we'll continue to watch that closely. And watch it going forward. And obviously, we all know if, in fact, the Fed is going to take rates down. That's good news for our mortgage business in the future, which is why we tried to frame that $1 billion of potential revenue in the future as mortgage volumes return to more normal levels, and we expect them to return to normal levels. At these high rates, people are sitting on homes that they want to upgrade and move to that 4-bedroom home versus a three and they're waiting for rates to come down. Now what's that inflection point? We'll see. But the positive from our eyes is that it feels like the market has bottomed and with the Fed's managing inflation and indicating rate cuts in the future, that's going to be a good guide for Equifax and a tailwind going forward. The question is when?

John Gamble:

Our overall mortgage outperformance lended USIS and EWS, right? So again -- so it's kind of two drivers, right? So we've talked about. We expect in the first quarter, for example, EWS outperformed by on the order of 11 points, and we think that's really driven by price and records, right? And then -- and product, as we said, we're lapping the launch of mortgage 36, which occurred in the fourth quarter of 2022, right, and was kind of fully implemented in the first quarter of 2023. So we don't see the big product benefits that we saw in '23 recurring here in 2024. Over time, we will continue to launch new products. We do it very consistently across the business. and we should see that in mortgage as well, and that will continue to add to the outperformance in EWS. In USIS, obviously, the outperformance is extremely strong in the first quarter, right, on the order of 50 points relative to what we're seeing the market at. And again, it's really two big drivers. We've talked about it already. We've seen a substantial increase from a vendor that we passed through as part of our pricing and we mark it up to try to maintain our EBITDA margins. That is a little dilutive on our overall margins, but it is something that we generate significant incremental profit from. So we do mark it up to maintain EBITDA margins. We're also seeing some incremental growth because in the second half of last year, we saw some -- we saw acceleration in products that are sold very early in the mortgage cycle. And since they accelerated in the second half of last year relative to the first half of last year, we're seeing incremental growth relative to the mortgage market transaction levels in the first quarter of 2023 relative to what we would have seen last year.

John Gamble:

And it's also the prequal products that have gone on across the industry. So that's why we're indicating as, as we move through 2024, we would expect the level of outperformance in USIS mortgage to decline as we lap the periods in which those prequal products were launched.

Toni Kaplan:

I wanted to ask about the comment you made on the delinquencies. It seems like subprime has been getting worse approaching '09 levels, as you called out earlier. Do you see that spreading to near prime or prime? And I guess, so far, it hasn't -- you haven't seen changes in consumer behavior and things like that. But I guess, how do you think that this plays out?

Toni Kaplan:

Yes, makes a lot of sense. I wanted to ask a question on margins in a slightly different way. You talked about the moving pieces, very helpful bridge that you gave. And so the way I'm thinking about it is you have sort of the normal margin expansion from growth, you have the more cost savings than you previously expected. Better mortgage environment in the second half and then you have the redundant -- some of the redundant system costs going away in the second half. So basically, a lot of positives in second half of the year for margins. I guess where -- what kind of ballpark should we be thinking about exiting '24? And obviously, I'm trying to think about my '25 number.

Operator:

We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Trevor Burns for any closing remarks.

Operator:

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

Operator:

Hello and welcome to the Equifax Q3 2023 Earnings Conference Call. [Operator Instructions]. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to Trevor Burns, Senior Vice President, Head of Corporate Investor Relations. Trevor, please go ahead.

Mark Begor:

Thanks, Trevor and good morning. Turning to Slide 4, we continue to face a very challenging U.S. mortgage market that weakened substantially in August and September beyond our July framework with mortgage rates moving above 7% and now approaching almost 8% over a 20 year high. Revenue in the third quarter was 1.32 billion, was up 6% on a reported basis, 6.5% on a constant currency basis, and 3.5% on an organic, constant currency basis. An adjusted EPS of $1.76 per share was up 2% versus last year. In the quarter BVS, the Brazilian credit bureau that we acquired in August had revenue of 23 million and contributed $0.02 per share to adjusted EPS, which was not in our July framework for the third quarter. Overall, Equifax revenue of 1.32 billion was $34 million below the midpoint of the guidance we provide in July, which excluded Brazil, driven primarily by the weaker U.S. mortgage market and FX. Together, these items impacted revenue by about $28 million and adjusted EPS by about $0.10 per share. Adjusting for the mortgage markets and FX impact, revenue in the third quarter would have been just below the midpoint of our July framework, and both adjusted EPS and EBITDA margins would have exceeded the framework we provided in July. Overall mortgage market volumes, measured based on our credit and TWN inquiry volumes, we are on the order of 650 basis points weaker than we expected in our July guidance. Mortgage rates increased substantially during the quarter, with a 100 basis point increase in the ten-year Treasury rate, driving mortgage rates to almost 7.5% in September. The mortgage volume decline negatively impacted mortgage revenue by about 22 million, and the strengthening dollar negatively impacted revenue versus our July expectations by about $6 million. The U.S. mortgage revenue from EWS and USIS was down about 8%, reflecting the significantly weaker mortgage market conditions. Mortgage outperformance relative to the mortgage industry volumes I referenced remains strong in both USIS at over 30% and EWS at 22%. Non-mortgage constant dollar revenue was up a strong 11% in the quarter and was up 8% excluding revenue from BVS, against a strong 20% growth last year. Non-mortgage constant dollar organic growth was up 7% versus last year with our non-mortgage growth rate strengthening 300 basis points sequentially from the second quarter. Non-mortgage growth was led by EWS that was up over 11% and up 800 basis points sequentially. And USIS that was up almost 8.5% and up 50 bps sequentially. International organic non-mortgage revenue growth at 3% was slightly weaker than our expectations, principally due to lower revenue in our UK debt management business. We had another very strong quarter in new product growth with a record 15% vitality index, which is well above our 10% long-term growth framework for NPIs. As I referenced earlier, despite the much lower than expected mortgage revenue in the third quarter, we delivered adjusted EPS of $1.76 per share and adjusted EBITDA margins of 33.1%. Excluding BVS we delivered adjusted EPS of $1.74 and adjusted EBITDA margins of 33.3%, up 60 bps sequentially, both in line with the guidance we provided in July, while absorbing the significant impact of the $22 million of lower mortgage revenue. The impact of lower mortgage revenue and FX negatively impacted adjusted EPS by about $0.10 per share. We delivered very good execution against our $210 million cloud and broader spending reduction programs, which allowed us to grow margins sequentially in the quarter despite the lower mortgage revenue. We continue to expect to deliver spending reductions of $210 million in 2023, with 120 million benefiting operating expenses and over 65 million of incremental run rate savings in 2024. We also continue to make good progress on completing our cloud transformation with large North American customers migrating to the cloud during the quarter. We expect both USIS and Canada to complete their credit exchange cloud migrations in the first half of 2024. At the end of the quarter, about 75% of North American revenue was being delivered from the new Equifax Cloud. We are convinced that our Equifax Cloud single data fabric and AI capabilities will provide a competitive advantage to Equifax in the future. As we look to the fourth quarter, we expect revenue of 1.317 billion, adjusted EPS of $1.77, and adjusted EBITDA margins of 34% at the midpoint of our guidance ranges. This includes about 38 million of revenue from BVS, which adds about 3% to our revenue growth. We expect fourth quarter revenue will be up 10% with organic constant dollar growth of 7%, adjusted EPS to be up over 16%, and adjusted EBITDA margins will expand about 300 basis points versus last year. Non-mortgage constant dollar growth is expected to be strong at about 13%, with organic growth of about 9% led by EWS which should deliver over 15% non-mortgage growth. However, excluding BVS, this framework is about $70 million below the implied fourth quarter revenue guidance of $1.35 billion at the midpoint we provided in July. The sharp decline in the mortgage market and FX drive the majority or about $60 million of this decline. Our guidance assumes that substantially weakening trends in the U.S. mortgage market that we're currently seeing continue through the remainder of the year, and that we also see normal seasonal mortgage declines in November and December. On this basis, we're assuming U.S. mortgage credit inquiries will be down about 22% in the fourth quarter, driving a reduction in overall mortgage volumes of about 18 percentage points versus the guidance implied for the fourth quarter in our July framework. This negatively impacts mortgage revenue in the fourth quarter by about $47 million. At these levels, U.S. mortgage activity will be down an unprecedented more than 50% from 2015 to 29 averages, which we consider to be normal mortgage market levels. We expect FX to negatively impact revenue in the fourth quarter versus our July guidance by $13 million. The net impact of the $70 million reduction in revenue is driving the reduction in EPS and EBITDA margin from our original fourth quarter goals of $2 a share and 36%, respectively. The second half of 2023 has clearly been very challenging as the accelerated decline in the U.S. mortgage market in August and September, as well as FX negatively impacted revenue by almost $90 million. Like many, we are struggling to forecast the bottom of the mortgage market in this unprecedented environment of fed rate increases, driving mortgage rates up over 2X to 20 year highs in such a short 20-month time frame. Outside the unprecedented mortgage market decline, we are executing extremely well. As I'll cover in the remainder of my remarks, we are delivering accelerated non mortgage growth, executing on our cloud customer migrations and overall cost plans, outperforming our expectations for new products. and adding new EWS record partnerships and records at an accelerated pace adding over 25 million records since the beginning of last year. In both our mortgage and non-mortgage businesses, we are continuing to outgrow our underlying markets. Before I cover our business unit results in more detail, I wanted to provide a brief overview of what we're seeing in the U.S. economy and consumer. Outside of the challenging U.S. mortgage market, the U.S. consumer and our customers remain broadly resilient. Employment remains at record historic levels with low unemployment and about 10 million open jobs against about 5 million people who are looking for jobs. Excess consumer savings built up during the pandemic still exist, however, have declined to the lowest levels since the second quarter of 2020, particularly amongst lower and middle income households. Credit card utilization is increasing, credit card delinquency rates for prime consumers which represent about 20% of the market are stable but are above pre-pandemic levels in less than 1%. However, subprime borrower delinquencies which have been increasing over the past year are now above pre-pandemic levels and approaching the levels we saw in 2009 and 2010. Auto delinquency rates for prime consumers, which represent about 20% of the market, are also stable but above pre-pandemic levels and still well below 1%. Delinquencies for subprime consumers are above pre-pandemic levels as well above levels that we saw in 2009 and 2010. And any customer credit tightening has largely been in fintech and subprime, which started over a year ago. Overall, still a solid market for Equifax outside of mortgage and hiring. When consumers are working, they largely have the capacity to keep current on their financial obligations. Turning to Slide 5, overall workforce solutions revenue was up 3% in the quarter, a return to growth, which is a very positive sign as we look towards 2024. Strong TWN record growth, the positive impact of 2023 price actions, and strong NPI performance driven by the adoption of mortgage trended data drove a strong 22 points of mortgage outperformance again in the quarter. EWS had another very strong quarter of record additions with an incremental 2 million current records added to the TWN database. EWS closed the third quarter with 163 million current records on 121 million unique individuals or SSNs, which was up 12% and 9% respectively versus last year. Total records, both current and historic are now over 640 million and we now have current records on over 70% of U.S. non-farm payroll and over 50% of the 220 million people in the U.S. with employment and income records relevant to the TWN database. The EWS team has acquired over 11 million records so far in 2023 that are driving top line growth and will significantly benefit Verifier Revenue Growth when the U.S. mortgage and white-collar hiring markets recover. During the quarter, we signed agreements with four new payroll processors that will deliver records in the fourth quarter in 2024 and over the past three years, we've added partnerships with 27 payroll processors. As a reminder, about 50% of our records are contributed directly by individual employers from our employer services customer relationships. The remaining 50% are contributed through partnerships with payroll processors, HR software companies, pension administrators, and other relationships. Increasingly, more of our new products are incorporating both current and historical records with about 50% of our third quarter verification services revenue, as well as about 50% of our mortgage verification services revenue coming from products that include historical records. Turning to Slide 6, Workforce Solutions delivered strong non-mortgage revenue growth of 11%, a return to double-digit revenue growth with a growth rate up about 800 basis points sequentially. And as a reminder, EWS non-mortgage revenue was up a very strong 40% in the third quarter last year, which of course, was a very tough comp. Verification services non-mortgage revenue, which represents just under 70% of Verifier Revenue, delivered 11% growth versus last year in the quarter. This was also against a very challenging 72% non-mortgage growth comp last year. In government, we saw a continued very strong growth with revenue up 23% compared to over 90% revenue growth last year in the third quarter. Government revenue was slightly lower than our expectations due to timing of Medicaid redetermination volumes. We continue to expect that EWS will capture significant volume from these redeterminations as they complete prior to the end of the second quarter of next year. During the quarter, we signed a contract extension to provide income verification to the U.S. centers for Medicare and Medicaid services as a part of a contract valued at up to $1.2 billion over the next five years. This contract is the largest in Equifax's history and extends our services via healthcare.gov for ACA related determinations while allowing workforce solutions to continue to work to penetrate the state level Medicaid verification services market. Also during the quarter, USDA's Food and Nutrition Service awarded a national contract to Equifax Workforce Solutions to provide verification services in support of the Supplemental Nutrition Assistance Program, commonly known as SNAP. The award is for $38 million in the base year, which we began on September 30th with a potential total contract value of $190 million. These large new EWS government contracts reflect the uniqueness of the TWN data supporting the delivery of social services at the U.S. federal, state, and local level. These new contracts give us confidence in strong future EWS growth in the large 4 billion TAM for our government vertical. We expect to see accelerating sequential growth in our government vertical in the fourth quarter, driven by growth from CMS Medicaid Redeterminations, ACA open enrollment volume, further state government penetration, and pricing from state contract renewals, as well as revenue from the new SNAP agreement with the USDA. Talent Solutions was up 6% in the quarter versus a very strong over 110% growth last year in the third quarter from record levels of U.S. hiring. As a reminder, we are currently more heavily penetrated to white-collar workers, including technology, professional services, healthcare, and financial services, which has seen a greater reduction in hiring activity and broader hiring freezes and about 10% decline that the BLS reported in the third quarter through August. We outperformed the hiring market by about 20 percentage points in the quarter as we delivered new digital solutions and background screening, strong new product growth, continued expansion of TWN records and pricing. Employer services revenue of 118 million was up 13%, driven by growth in our I9 and onboarding businesses despite the negative impact of U.S. hiring, as well as growth in our ACA business. In the fourth quarter, we expect overall employer services revenue to decline slightly as growth in I9 and onboarding is offset by declines in ERC revenue as the U.S. government has suspended processing new ERC claims. Earlier this year, we announced the launch of PeopleHQ, a workforce solutions cloud native solution that brings together multiple best in class employer compliance services and a single unified customer experience. PeopleHQ will help companies of all sizes access EWS employer services, including income verification, I9, and ACA from our new self-service portal. Since the launch of PeopleHQ in the first quarter, EWS has onboarded about 45,000 companies, which also delivers new records for TWN. Workforce Solutions' adjusted EBITDA margin of 50.9% was up 140 basis points versus last year, but down 60 basis points from the second quarter from the mortgage market decline. The EWS team continue to perform very well despite the macro headwinds from mortgage and U.S. hiring, outperforming their underlying markets from strong TWN record growth, penetration, new products, and price. As shown on Slide 7, USIS revenue of 426 million was up over 7% and down slightly from our expectations due to the impact of the much weaker mortgage market. USIS delivered strong non-mortgage revenue growth of about 8% in the quarter. USIS mortgage revenue was up 4% and outperformed the mortgage credit inquiries that were down 29% by 33 points. The strong pricing environment that we discussed in July drove very strong outperformance. At 101 million, mortgage revenue was 24% of total USIS revenue in the quarter. B2B non-mortgage online revenue growth was up a very strong 10% total and up 5% organically. During the quarter, online revenue had strong double-digit growth in commercial and banking and lending from strong identity and fraud revenue and mid-single-digit growth in auto and insurance, offset by declines in telco and direct-to-consumer. USIS also saw a strong double-digit growth in count from very good new business and NPI performance. Financial marketing services, our B2B offline business had revenue of 51 million that was down just under 1%. In marketing, declines in pre-screen marketing revenue in the quarter that were consistent with declines in the first half, more than offset nice revenue growth from our IXI consumer wealth data business. In pre-screen, we continue to see weakness with the smaller FIs and Fintechs in the subprime space, offset by growth with larger FIs. Within risk and account reviews, we did see limited growth in our portfolio review business, but we have not seen a meaningful increase in risk-based portfolio reviews that are typical during challenging economic periods. USIS consumer solutions D2C business had another very strong quarter with revenue of $56 million of 12% from very good performances in both our consumer direct and our indirect channels. USIS adjusted EBITDA margins were 34.2% in the quarter and slightly below the 35% we had guided from the impact of weaker mortgage market as well as higher technology spend as we migrate customers to the new cloud data fabric. Todd and USIS team are on offense as they work to complete their cloud transformation and pivot to leveraging their new cloud capability to deliver new products and drive share gains. In the third quarter, USIS onboarded a new large FI customer to our new cloud platform, which you expect to deliver share gains moving forward. Turning to Slide 8, international revenue was 316 million, up 12% in constant currency and up 3% in organic constant currency, and below the 4.5% growth we had guided to in July due to the greater decline in our European debt collection revenue than we expected. Europe local currency revenue was down 2% in the quarter. Our UK and Spain CRA business revenue was up a very strong 8% in the quarter, a very good performance offset by the weaker than expected 17% decline in our UK debt management business. We expect Europe to deliver almost 10% growth in the fourth quarter from continued strength in the CRA business and a return to growth in our debt management business as we lacked difficult comps from last year. Latin America, local currency revenue, including Brazil, was up a very strong 21% comping off a very strong 34% growth in the third quarter of last year driven by double digit growth in Argentina and Paraguay and from new product introductions and pricing actions. We expect LATAM to deliver strong double digit revenue growth again in the fourth quarter. Canada and Asia Pacific both delivered low single digit growth in the quarter as we expected. International adjusted EBITDA margins of 26.3% were up 210 basis points sequentially. Excluding Brazil adjusted EBITDA margins of 26.8% were up 260 basis points and in line with our expectations. The improvement was driven by revenue growth and good execution against their 2023 cost reduction plans by Lisa and our international team. Turning to Slide 9, in the third quarter overall non-mortgage constant dollar revenue growth grew a strong 11% with organic growth of 7%, both inside our long-term framework. Positively, this was up 300 basis points sequentially. The acceleration in organic revenue growth was driven by strong 11% EWS non-mortgage growth and improvement of about 800 basis points sequentially. As we look to the fourth quarter, we expect non-mortgage revenue growth to be about 13% with organic growth of about 9% above the levels we delivered in the third quarter. The acceleration organic growth is expected to be led again by EWS with growth of over 15% driven by their government and talent businesses. Turning to Slide 10, new product introductions leveraging our differentiated data and new AFX cloud are central to our EFX 2025 growth strategy. In the quarter, we delivered a record 15% vitality again led by very strong performances in EWS and Latin America. EWS non-mortgage VI in the quarter was over 25%, a very strong performance. And in the third quarter, about 85% of new product revenue came from non-mortgage products leveraging the EFX Cloud. Leveraging our new EFX cloud capabilities to drive new product rollouts, we expect to deliver vitality index of approximately 14% in 2023, which is about 400 basis points above our 10% long-term vitality index goal. Importantly second half USIS VI is expected to be up about a 100 bps higher than first half as we are closer to cloud completion and able to leverage our new cloud native infrastructure in USIS for innovation and new products. This is broadly positive momentum for 2024. On the right side of this slide we've highlighted several new products introduced in the quarter. These new solutions are a testament to the power of the Equifax Cloud and AI in driving innovation that increase -- that can increase the visibility of consumers to help expand access to credit and create new mainstream financial products while driving Equifax's top line. Turning to Slide 11, we're very excited to have closed the Boa Vista AC acquisition in early August and welcome the Boa Vista team to Equifax. We're focused on driving growth in Brazil and expanding BVS's capabilities by deploying our cloud-based decisioning and analytical products, as well as expanding in new verticals like identity and fraud. In the third quarter for the period after our acquisition closed on August 7th, EFX Brazil delivered revenue of $23 million and was accretive to adjusted EPS by $0.02 per share. Going forward, Brazil will be included in our Latin American region for reporting, and as a reminder, we expect Brazil to deliver approximately 160 million in run rate revenue to Equifax to be accretive to adjusted EPS in its first year. And now I'd like to turn over to John to provide more detail on our fourth quarter and full year guidance. John.

Mark Begor:

Thanks, John. Wrapping up, Equifax delivered on its earnings guidance in the third quarter with adjusted EBITDA margins and adjusted EPS within our guidance range despite the challenging U.S. mortgage market. While the mortgage market was down significantly again, our non-mortgage businesses delivered strong constant dollar organic growth of 7% and overall growth of 11%, including BVS. Importantly, EWS returned a strong 11% non-mortgage growth and USIS delivered a strong over 8% non-mortgage quarter. We expect our strong third quarter constant dollar non-mortgage revenue of 11% to accelerate in the fourth quarter to about 13%, including EWS, above 15% and international, including BVS at about 20%. The breadth and depth of our non-mortgage businesses, which account for about 81% of Equifax revenue in the third quarter and execution against our 2023 cloud and broader spending reduction program, allowed us to deliver against our earnings guidance despite the decline in the mortgage market. While it's early to provide 2024 guidance, I wanted to give you a perspective on how we plan to operate in 2024 in what could be another challenging year from a macro perspective as we exit 2023 with U.S. mortgage volumes at historically low levels with record mortgage rates. We remain committed to executing against our EFX 2025 strategy with a focus on things we can control. As we move towards 2024, we're focused on

Manav Patnaik:

Thank you and good morning. Mark, I just had a question, I think the negative 15%, I guess potential decline in mortgage increase next year based on I guess, your current run rate, seasonality, etcetera. If that is the case, you've obviously been outperforming the market consistently this year, but are there other initiatives you can put in place to potentially outperform further, or just curious on what the strategy in a longer -- weaker for longer, I guess, mortgage market would be?

Manav Patnaik:

Okay. Got it. And then just on the margin front, the 34% for the fourth quarter, is that a right run rate to think about as you exit the year, I know you have a lot of, obviously, mortgage headwinds and then cost savings coming in to offset that. And if you could just remind us versus the 39% target that you had, how much of that is going to be a mortgage shortfall in terms of getting to that 39%?

John W. Gamble, Jr.:

And as you're specifically looking at 2024, right, we've already talked about the fact that we have significant cost reduction plans we put in place in 2023. They'll drive an additional $65 million of savings as we get into next year. We also look at some savings as we continue to migrate to the cloud, which weren't included in that $65 million. So we expect to have cost levers that will help drive our margins higher. Obviously, we're not giving revenue guidance but again, for us, for 2024 but for us, as you know, our variable margin on new revenue is very high, right. So as we drive more revenue, that also is a way that we drive margins as we go forward. So just as a reminder, those people think about next year, first quarter margins for us tend to be lower, right, because a significant amount of equity and variable compensation expense hits in the first quarter as opposed to being spread throughout the year because of the structure of our plan. So just as a reminder, first quarter margins tend to move down.

Andrew Steinerman:

Hi, two quickies. Well, actually, we'll see if it is quick. The first one is, for third quarter, what was mortgage as a percentage of total revenues? And then the second question has to do with, could you just review with us the cadence of Equifax government revenues from the Medicaid redetermination fourth quarter to second quarter. I'm also assuming that it might be higher in total now because you talked about additional state penetration?

John W. Gamble, Jr.:

19%, yes.

John W. Gamble, Jr.:

Just in terms of pacing, you covered it, right? It's just it's very difficult to forecast, right? So although we did see lift from redeterminations, it wasn't to the level we expected, and we certainly saw that to a degree in the third quarter and the fourth quarter. But we still think we're the best solution and expect to get the revenue related to redeterminations, as Mark said, by the time it completes at the end of the second quarter. But as we said, in the third quarter and certainly in the fourth quarter, a little lower growth than the level we'd expected.

Operator:

Thank you. Next question is coming from Kelsey Zhu from Autonomous Research. Your line is now live.

Mark Begor:

Yes, the 20% we were pleased with the market -- the business is up 6%, the talent vertical and from our measure, the BLS market was down 10%. We think the white collar market was down double that. So that's how you get close to double that. So that's how you get to the 20 points of outperformance. And there isn't really -- I wouldn't characterize a single lever that's really driving that outperformance. It's really similar in all our businesses. In talent, we've got the ability to drive price, which we do every year. We expect to do that as we go into 2024 in the talent vertical like our others because of the value we're delivering. In talent, quite uniquely, we have the ability to drive penetration. That's a big multibillion dollar TAM in a business that's roughly $400 million at run rate. So there's a lot of customers in talent that are still doing manual verifications of employment history that our 640 million jobs that we have in our database are just immensely valuable from a speed and productivity standpoint. So that's a lever in talent that we think is quite durable along with price. Product is another big one. You've seen us roll out almost every quarter, a couple of new products from EWS and the talent vertical really to get more narrowly focused around products that match kind of job categories. We rolled out an hourly solution, I think, last quarter for hourly workers to try to drive some growth there. So new products are clearly a growth. And then the addition of records. And as you know, with the 50 attributes we get every pay period, we get job title and 75 million people a year or roughly that number change jobs in the United States. So having those new jobs from our record additions every pay period is a very valuable asset that just drives higher hit rates, which drives revenue going forward. So we have a lot of confidence in our ability to outperform the underlying talent market, just like we do with the rest of our markets because of those levers.

Mark Begor:

Yes, I'll start and let John jump in. We've been consistent really. There's been a phenomena that's a major change, a meaningful change in the mortgage market over the last, call it, 12 to 18 months, where when rates were starting to increase consumers did a lot more shopping and that benefited our USIS business. Meaning that the consumers would go to multiple mortgage originators and as you know, as a part of that process, when someone applies online, the first thing a mortgage originator will do is determine is that a consumer that can qualify for the loan they're trying to get, meaning are they going to invest that 5,000 or 6,000 or actually 7,000 of COGS in that mortgage process. So there's an inquiry that goes into or a pull on the USIS side. And that's why inquiries versus originations or closed loans have really separated. There's been an increase in originations. And we expect that to continue with these high interest rates. Consumers, they'll be more deliberate around their shopping behavior. And that's why there's a positive, if you will, for USIS in inquiries or credit polls in this environment where EWS typically in the back end of the mortgage process in -- really around closed loans.

Mark Begor:

Maybe just one more point, John, as a reminder, as you know, we get mortgage originations because we have the credit file on every consumer. So we see the actual new mortgage originations, but they're typically on a what five to six-month lag. So between that five to six-month lag, we're forecasting based on MBA data, based on our own tracking, based on our own run rates, we use multiple inputs to try to forecast those originations. We obviously have been challenged by that in this current environment with interest rates increasing. But we have a lot of data around mortgage originations.

Operator:

Thank you. Your next question is coming from Andrew Jeffrey from Truist Securities. Your line is now live.

Mark Begor:

Yes, for sure. There's no question. Look, it's a big business. It's dealing in multiple verticals. In some regards, these -- like talent in government or I would still characterize them as fairly new verticals for us at scale, we've only been large in those verticals in the last couple of years. And you've got some macro impacts certainly in talent, leave mortgage side, which we talked about a bunch, but the hiring market is obviously under some pressure, particularly in white collar in the U.S. And we've tried to forecast that, and we're going to try to be more conservative or more balanced whatever word you want to use around that vertical. Same with government. There's a lot of moving parts there. I would say the most complex for us or the one we've been challenged by is the redeterminations. Outside of that, we have pretty clear visibility about adding new customers, adding new clients, new product rollouts, pricing actions and government, that is pretty dialed in. And I think the other -- if you think about 2023, both of those businesses had really, really, really strong 2022. So we're comping off very strong years, which is great because we're driving more penetration, more product, more price, and we had to look forward to where we're going to take those businesses. And while we've been off a little bit, we're really pleased with the growth of those businesses. Those are -- they both delivered strong growth in the quarter. You've seen accelerated growth in non-mortgage and EWS from second quarter. We expect that non-mortgage verifier growth to accelerate again in fourth quarter, which gives us really positive momentum going into 2024. But short answer to your question about, are we going to be more balanced around how we forecast there, for sure.

Mark Begor:

Yes. No change from what we talked about in July. In July, we tried to talk about the manual work we were doing for customers when we didn't have records. And that got I think somewhat misconstrued in the marketplace. We're not seeing an impact from competition in our mortgage business or any other businesses. We tried to be clear about that in July, and I'll be clear again today. We're well aware of what our competitors' data records that they have and what they don't have. To me, a big proof point about our competitiveness is our ability to continue to add new partnerships. We added four in the quarter. We added, I think, 27 in the last couple of years. We're growing our records. That's really, I think, a proof point of the strength of our ability to deliver solutions to our partners and execute for them. And they want to be partnered with Equifax. So I think that's a really important metric for us going forward.

Kyle Peterson:

Great, thanks, good morning guys. And appreciate you taking the questions. I wanted to touch on the consumer lending volumes within EWS. Looks like that was down a bit year-on-year. Just wanted to see, is that fairly broad based or was there any more concentration, whether it's card or personal loan or auto, just any more color would be helpful?

John W. Gamble, Jr.:

No, just as Mark said, our -- it tends to be in our consumer finance business, right, is that we tend to be more concentrated, we tend to be more concentrated in subprime and more concentrated on specific lenders. So the fact that that we're seeing subprime week, and we're seeing some fintechs week is driving it. And because we have more concentration other than the extremely broad coverage that USIS has, we tend to be -- we tend to move around a little bit more in EWS and our revenue for consumer finance.

Mark Begor:

Yes. I think as John mentioned, and we did earlier, we had the $65 million of carryover from our $275 million program this year. The bulk of that, as you know, is from cloud completion and cloud cost savings. And as we go through 2024 we mentioned, and we'll give guidance in Feb on that, but we'll have additional cloud cost savings as we complete migrations next year. As we said, we expect to complete USIS and Canada and other of our international platforms. And as a reminder, we're carrying double cost today in those environments where we have a cloud environment we're paying for, and then we also have a legacy environment. When we complete the migrations, we shut down the legacy. So that will be the incremental savings which we expect to have in 2024 and 2025, and we'll give guidance on that. Beyond those kind of savings, we're going to keep our belt tight in 2024. We're going to want to continue to invest in the right places, but I'd characterize that as we're going to be balanced around it given the environment.

Simon Clinch:

Hi, thanks for taking my questions. A lot of my questions have been asked already, but maybe we could zero in again on EWS mortgage. And I just wanted to -- just going back to your -- the way you're measuring the outperformance this time and the implied decline in origination volumes this quarter that you've seen versus what the sort of industry forecasts have been for third quarter. And there's quite a wide gap. And I just wanted to make sure that there's nothing else at play here in terms of I don't know, maybe sort of just you're not seeing all the volumes that you would otherwise be seeing or for any sort of color you can give around that sort of divergence would be useful?

John W. Gamble, Jr.:

And again, going forward, what we're going to try to make sure we do is we're going to make sure we're providing you with actual data, right. So I mean we'll be able to give you the benefit we're seeing from records, product, price and mix which are really the big drivers of our outperformance. And we'll be measuring that against our actual volumes across USIS and TWN separately so that we can validate the information. We know what the actuals are and we can explain how we're performing and driving those levers, which we think is what's really important to make sure we explain because that's what we're driving and delivering outperformance through.

Mark Begor:

We don't think so. The power of instant data, and in this case, we're talking about income and employment data is super valuable to every mortgage originator. They want to make sure that they have accurate data. We get it directly from the company every two weeks on the consumer. We deliver it instantly. In this environment of more shopping, a mortgage originator that's investing in a consumer, they want to make sure that they close that loan as they get down the path of delivering it. So we don't see a change in our ability to deliver new solutions, meaning products to the industry. Obviously, with more records, we're going to drive higher hit rates that happens really because we're getting the inquiries from our customers for all their applicants. And then we still believe that we have pricing power going forward because of the uniqueness of our data set, the alternative for our customers is to do it -- the mortgage customers to do the verification manually, which is very challenging, meaning getting a company on the phone to verify the income is very hard to do and it takes time, and that's labor and also time. So speed and productivity and accuracy is the value we deliver.

Shlomo Rosenbaum:

Hi, good morning. Thank you for taking my questions. Hey Mark, just my first question, I just wanted to talk a little bit more like how we should be thinking about the future with some of the items that you were talking about, the increase in subprime delinquencies. We talked about auto for a while, we're talking about credit cards, cash being used up, like how does that impact the business over the next 12 months, I mean I know the employment has been fairly good at the lower end of the spectrum, but like there's a lot of parts of the spectrum where there's open jobs. They're not really filling those open jobs. And so I guess the first question is, how are you thinking about this on a go-forward basis? And then I have a follow-up.

Shlomo Rosenbaum:

Okay, thank you. And then just going back to those government redeterminations, can you talk about like how does that work exactly, like once they get done, let’s say they get done by June of next year. Is this something that the government is going to be doing annually or is this kind of a big onetime bang and then we're going to end up with tough comps on that after we're done with it?

John W. Gamble, Jr.:

And these redeterminations apply across multiple government subsidized programs, it's not just Medicaid, Medicare. And so it's more broad and we participate in many of those.

Jeffrey Meuler:

Yeah, thank you. Sorry to keep pulling you back to this, but just given that it's a new metric you're going to be providing on an ongoing basis. So on the footnote and you said this as well, you're looking at internal data and then you're doing a Calcon [ph] records product, price and mix. It's not clear to me, like I know you said you don't think there's any change in share dynamics relative to a quarter ago. But if there are share shifts, is that accounted for in your market estimate, is it accounted for an outperformance, it's just -- it's not clear to me if you're looking at internal data based upon what volumes you're seeing how you would account first year...?

John W. Gamble, Jr.:

And so what we'll be disclosing -- so what we'll disclose every quarter, again, is the outperformance with records, product, price and mix. And then over time, obviously, you're asking -- and we're comparing that against our volume, obviously. So over time, to the extent anything was to occur, which we're not seeing, okay, but then we would obviously talk to you about whether we're seeing differences between our own volume, and what we think is happening broadly in the market. But the metric we'll disclose every quarter really is driven by records, product, price and mix, which compares effectively our revenue to our volume. Because that's what we can actually measure. So when we talk about -- and it's what we've been doing in USIS for a very long time, right, as long as I can remember.

John W. Gamble, Jr.:

More than 10 years. So what we're talking about doing for EWS now is the same thing we've been doing for USIS for a very long period of time comparing revenue and the drivers against our volume metrics.

John W. Gamble, Jr.:

Yes. So in terms of again, we're not forecasting mortgage originations. What we're using is our internal volume data. So we gave you in the guidance what we're assuming for credit inquiries in the fourth quarter. And that's the basis we'd ask you to consider if we are going to see, I think, credit increase down 22%, which is about 18 percentage points worse than what we expected back in July. And so we think that's an indication of the direction of the market. And it's the basis on which we're calculating our volumes for USIS. We have a similar metric we use internally with EWS on their own volumes. And that's the basis on which we generated our forecast. We didn't try to come up with a mortgage originations forecast because we're going to focus on using the internal volume that we can actually measure. As Mark said, we can't measure originations at the end of the fourth quarter, in the fourth quarter. It's something that we want to have visibility to for quite some time following.

Andrew Nicholas:

Hi, good morning. Thanks for taking my questions. First, wanted to touch on Boa Vista. I know you had given originally like $165 million revenue run rate. I think it was $160 million when you cited it in the second quarter, and you're holding that here today post close. Just kind of curious if you could bridge the performance there over the past nine months with how that end market is doing, how the business is doing, just kind of an update as it's now under your official ownership?

Andrew Nicholas:

Great, thank you. And then if I could ask just a clarifying question for my follow-up. In terms of the mortgage market outperformance in EWS, I think, first, I want to clarify that the 15% decline for 2024 that you talked about if conditions persist. I want to make sure that I understood that that's an inquiry estimate, or is that an origination estimate? And then also, when we think about the gap between those two numbers, is there any reason to believe that, that gap would -- and this is just kind of a question around the market itself, not your guys' performance. Any reason of that gap to narrow or widen in a prolonged weak environment, just kind of thinking about the different levels, levers if you can?

John W. Gamble, Jr.:

Sure. So the first question, yes, the down 15% was a statement specifically about to the extent the run rate we're talking about in the fourth quarter of 2023 for mortgage credit inquiries continues, then we would expect 2024 to be down 15%, if that's the level that the market stays at, right. So...

John W. Gamble, Jr.:

For mortgage credit inquiries, down 15%.

Operator:

Thank you. Your next question is coming from Craig Huber from Huber Research Partners. Your line is now live.

Mark Begor:

Yes. I don't think we give the actual revenue numbers, John.

Mark Begor:

And I would say we don't expect real change in the fourth quarter from that third quarter run rate.

Craig Huber:

So is your argument then with the much higher interest rates out there, obviously impacting mortgages, as you've talked quite a bit about here. You're not seeing significant impact to the rest of your business with a much higher rate. Obviously, the 10-year rate is approaching 5% here, has been at that level for many, many years are you not seeing an impact from much higher rates anywhere else in your business?

Craig Huber:

Great, thank you.

Faiza Alwy:

Yeah, hi, thank you. So I wanted to ask about mortgage again and really inquiries. So I know that the MBA forecast changes quite a bit. But I'm curious how you think about the MBA index and the application data that comes out every Wednesday morning because that showed that 3Q applications were down 29%, which is in line with your inquiry decline. So I would have thought that inquiries because you're talking about higher shopping, I would have thought inquiries would have done better than that. So just give us some perspective into how we should think about that data and really what's going on with inquiries relative to applications?

Faiza Alwy:

Okay. Understood. And then maybe just give us some perspective, again, on this inquiry question sort of where we were maybe pre-pandemic and what happened during the pandemic in terms of number of inquiries per whether it's application or for origination sort of how far ahead are we, was it three or four inquiries back in 2019, did that fall down, are we at seven or eight now. Just some perspective on how much higher inquiries are now would be helpful?

John W. Gamble, Jr.:

And again, and I know you know this right, but we disclosed -- we provide every quarter what the actual inquiry numbers look like, how the -- sorry, what the actual movements in inquiries were so you can see how that's trending over time.

Operator:

Thank you. Your next question is coming from Toni Kaplan from Morgan Stanley. Your line is now live.

Mark Begor:

Sure. First, I'm not sure when you talk about history, I've only been here five years, but over the past five years, price has always been a lever for Equifax and, I believe, for our competitors. I think it's one of the things that data analytics companies have is if you have more valuable data, you're able to charge more for it. Price, as you point out, we really execute two ways, pure price, meaning we do annual price increases. And we also get price through delivering new products with either more historical data or data combinations that deliver more value to our customers. And remember, our sale is an ROI sale. So with regards to the 7% to 10% organic, which is the subset of our 8% to 12%, if you go back to our Investor Day from a couple of years ago, there's charts on each business where we talk about the levers to deliver that 7% to 10%. And as a reminder, the 7% to 10% is really driven by EWS being north of that and International and USIS being south of that. And if you think about we have levers that are fairly balanced to deliver that 7% to 10%. You've got a few points over the long term of market in GDP. You've got a few points of price. You've got a few points each of these are kind of a couple -- 2 points to 3 points, a couple of points of product driving that top line. And then you've got penetration in new verticals that we move into. And that's kind of how you walk up. And then in EWS uniquely, we get a couple of points from records. So I think 2, 3, 4 points from record additions over the long term that drive our revenue. And as you know, on the records is because we're already getting inquiries and when we add a new record to the data set we monetize. So that drives the revenue growth. So I wouldn't characterize price as being disproportionate in -- versus the other levers that we have, and it's been fairly consistent over the time I've been here about how we've executed it.

Toni Kaplan:

Yes, terrific. And then if I caught your comments earlier correctly, you mentioned that 50% of your revenue is coming -- within EWS is coming from products containing historical records. Has that mix meaningfully changed versus like a year ago, just wanting to understand?

John W. Gamble, Jr.:

It's up certainly significantly, right. And I think if you just look at it by line of business, mortgage has grown substantially, as Mark's talked about, because of mortgage 36 and the use of trended data across mortgage very broadly now, and that's moved up towards 50% of transactions. The government is less, right, in terms of trended information. It tends to be more point in time. Talent is virtually all trended information. And then so as the mix of our business moves, that ratio can mix a bit, it can change a bit. But generally speaking, in all of our verticals, we're driving the mix to trended data from the levels they're at today.

Ashish Sabadra:

Thanks for taking my questions. I just wanted to drill down further on Toni's question on pricing. And particularly, FICO price increases was a significant tailwind for mortgage revenues within USIS or OIS this year. How should we think about those tailwinds going into next year and offsetting some of the mortgage inquiry headwinds for next year? Thanks.

Ashish Sabadra:

That's very helpful color. And maybe just on the Boa Vista earnings accretion. So that was pretty positive $0.02 accretion in the quarter. Is that the run rate that we should think about going into 2024 or can you talk about the puts and takes from an earnings accretion perspective in 2024? Thanks.

Operator:

Thank you. Next question is coming from Seth Weber from Wells Fargo. Your line is now live.

John W. Gamble, Jr.:

Fair enough. The EBITDA margin was -- for Boa Vista was slightly below, it was below the Equifax average margin. And what we're expecting over time, as Mark talked about, through the investments we're making through integrating them into Equifax processes that will work to drive that margin higher. But yes, for what you saw in the footnote, the BVS margins were below the Equifax margins for the third quarter. Now as a reminder, we've owned them for about six weeks, so we'll see what happens as we move through the fourth quarter and then into 2024.

Mark Begor:

Yes. Remember, that's an extension of an existing contract. So we've had a contract for five-plus years and maybe longer with CMS. It's certainly larger and it will roll in both at the federal and then at the state level as we go through fourth quarter in 2024 and 2025 and beyond.

Seth Weber:

Got it, okay. Thank you guys, I appreciate it.

George Tong:

Hi, thanks. Good morning. You've previously seen evidence of mortgage insourcing of their verification needs within EWS. Can you provide an update on some of those trends and in-sourcing activity outside of the mortgage vertical?

George Tong:

No, it's where mortgage originators because volumes are down so much and because they apparently had so much time on their hands they were just doing it themselves rather than...

George Tong:

Got it. And assuming that the same holds true outside of the mortgage vertical.

George Tong:

Got it, thank you for that. And then sticking with EWS. Workforce Solutions, non-mortgage, nongovernment, can you discuss some of the trends that you're seeing there and the sensitivity of customers to pricing trends in the Verifications business?

George Tong:

Focus on verifications.

George Tong:

Yes, non-mortgage, non-government.

George Tong:

Yes. Talent, I guess.

John W. Gamble, Jr.:

And talent, I know we've said this many times, no one likes price increases. But for example, in talent, one of the things we do in other segments as we provide incentives for people to be able to get better pricing from us by moving to top of waterfall, or by selling additional products to drive growth across the broader sweat -- I'm sorry, broader suite of our entire group of products that's talent solutions like our education solutions and other solutions, and we're launching now products that support health care directly. We have staffing products. We have other products that allow people to get better pricing from Equifax while helping us drive volumes through the system. So again, we -- just like we don't like price increases, we know no one likes price increases, but we try to be balanced, and we try to structure them so that people have the opportunity to purchase the products that they want at price points that are effective for them.

Operator:

Thank you. Your next question is coming from Heather Balsky from Bank of America. Your line is now live.

Mark Begor:

Yes. Look, cloud transformations are hard. This has been super complex and the most complex cloud transformation that we're executing is in USIS given the age of the legacy infrastructure and formats that we had. And we're clearly a few months behind, but we can see the finish line in completing it. As we said earlier, we're migrating large customers, as we speak, in the fourth quarter. Those will continue in the first quarter, and we'd expect to be complete with USIS as well as many of our international platforms in the early parts or first half of 2024. And that's a big pivot point, as you point out. When are we going to start seeing the benefits? We're starting to see it. And what we saw in EWS is what we would expect to see in USIS. And we talked earlier about EWS' ability to drive new product rollouts at a very rapid pace, well above our 10% goal at the 20% plus. We would expect USIS to grow their vitality index, which today is south of 10 and move towards 10. And I think we mentioned they've grown their vitality about 100 basis points. We also mentioned, and we've talked about it on calls really for the last four years, but in the last couple of calls, that in USIS in particular, because of the ability to deliver always-on stability, the ability to have faster data transmission and then obviously leveraging our differentiated data, we do expect in USIS to get some share gains. And that really comes forward, where we move from a tertiary position to a second or primary position. And we had one large FI in the U.S., which is where USIS is, obviously, that's making that move with us because of the cloud. So we would expect more of those to come forward as we complete the cloud in 2024 and then really between share gains and new product rollouts that to help drive USIS' growth rates in 2024 and 2025 and beyond.

Mark Begor:

No. When you talk about share gains, it's what you would think a share gain is, is where we're moving from secondary to primary or tertiary to secondary because of the cloud. And having the most advanced technology, we think, is an advantage. That's one of the reasons we embarked on this is at our gut, we believe, to be a great data analytics company, a great technology company. And when you overlay the digital macro of our customers doing the vast majority of their transactions with their consumers online, you have to delivered 99 [ph] to stability. You can't do that in the legacy environment. You can only do with cloud, and you have to have that for data transmission. So we think that's going to advantage Equifax going forward. And then you lay on top of it, you'd be able to roll out new solutions more quickly and more of them. That's going to be advantaged to Equifax to become a more important partner that will drive us up from those secondary positions that could be 20% or 30% of the volume to the primary positions, which could be 60%, 70%, 80%. And that's really what we have in front of us from the cloud investment, and we would expect those benefits to roll the USIS. And one last point that we mentioned is getting USIS cloud native will also allow us to do more between EWS and USIS. That was hard pre-cloud in two legacy environments with different data sets that are in different data environments. As you know, we went to a single data fabric and having them both in the cloud, that's going to be another gear for us going forward to have data combination solutions between USIS and EWS that was really hard to do before. And of course, only we can do that between credit data and the other differentiated data in USIS in combination with the income and employment data that's really only Equifax.

Trevor Burns:

Yes, it's Trevor Burns. If you have any follow-up questions, please reach out to me and Sam. Otherwise, have a great day. Thank you.

Operator:

Greetings and welcome to the Equifax Second Quarter 2023 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Trevor Burns, Senior Vice President, Head of Corporate Investor Relations. Thank you, sir. Please go ahead.

Mark Begor:

Thanks, Trevor. Good morning. Turning to Slide 4, we executed well in the second quarter against a challenging mortgage and hiring markets, while delivering on our 2023 financial objectives. We continued to outperform our underlying markets with broad-based 6% non-mortgage growth against a tough 22% comp last year. We continued strong mortgage outperformance in a challenging market and very strong new product growth with a record 14% vitality index. We also executed well against the $200 million cloud and broad-based spending reduction program we announced in February and delivered 350 basis points of sequential margin expansion in the quarter. Globally, with the exception of the U.S. mortgage and hiring markets, we continue to see good customer demand across our consumer – good customer demand across our consumer, commercial and government lines of business. However, the U.S. mortgage market weakened relative to our expectations as we moved through the latter portions of the second quarter when mortgage rates moved above 7%, which will impact our results in the second half. In the quarter, we delivered adjusted EPS of $1.71 per share and adjusted EBITDA margins of 32.7%, both above the guidance we provided in April. Execution against our cloud and broader spending reduction programs was also very strong and drove the 350 basis points of margin expansion in the quarter. Revenue at $1.318 billion was close to the midpoint of guidance with USIS and International delivering strong quarters, both above our expectations. EWS non-mortgage revenue at up 4% was below our expectations, but off a very strong 52% comp last year, principally due to the weaker hiring market that impacted our talent solutions and onboarding businesses. EWS had outstanding operational execution in the quarter, delivering a new product vitality index of 25% and expanded current twin records by 12% to 161 million records, a growth of 5 million records sequentially. EWS also had strong cost management as they fully operational their new cloud capabilities, delivering adjusted EBITDA margins of 51.5%, up over 100 basis points sequentially and stronger than our expectations. USIS had an outstanding quarter and delivered almost 6% revenue growth, much stronger than our expectations. Total non-mortgage revenue grew 8%, led by 9% growth in our B2B online and 10% growth in consumer solutions and adjusted EBITDA margins of 36% were also stronger than our expectations, expanding over 300 basis points sequentially. Total U.S. mortgage revenue from both USIS and EWS was down about 13% or 24 points better than the 37% market decline from pricing actions, new products, records and penetration. We continue to see stronger than expected consumer shopping behavior in these higher interest rate environments. So the weaker mortgage market we saw in June had a much smaller impact on USIS than in EWS, where their mortgage activity is more aligned with closed loans. International delivered 7% growth in constant currency, also stronger than our expectations with double digit growth in Latin America and high single digit growth in Canada and the UK CRA. International delivered 24.2% adjusted EBITDA margins of 70 bips sequentially and stronger than our expectations. New product innovation leveraging our differentiated data assets and new capabilities delivered by the Equifax cloud is also executing at a very high level. Our new product vitality index of over 14% in the quarter was a record for Equifax and 400 basis points above our 10% long-term vitality goal and up over 100 basis points sequentially. This is encouraging for the future and reinforces our long-term strategy of leveraging our differentiated data assets, our new cloud capabilities to deliver new solutions for our customers. We continue to make good progress on completing our cloud transformation. At the end of the quarter, over 70% of North American revenue was being delivered from the new Equifax cloud. We're convinced that our Equifax Cloud, Single Data Fabric and AI Capabilities will provide a competitive advantage to Equifax for years to come. As we look to the second half, we expect the weaker than expected U.S. mortgage market that we saw in the latter half of the quarter to continue through the remainder of the year. Our updated guidance is for U.S. mortgage originations to be down about 37% for the year and about 20% in the second half, a reduction of five points from our prior full-year framework. We expect EFX mortgage origination outperformance to continue to be very strong in 2023. We're also expecting to see weaker U.S. hiring market continue through for the remainder of the year, impacting Workforce Solutions talent and onboarding businesses. However, we expect to offset the hiring weakness principally from strength in the Workforce Solutions government business and continued solid performances at USIS and international. EFX non-mortgage revenue growth was up 6%, up a very strong 22% comp last year. We expect non-mortgage revenue growth to strengthen in the second half to up 11% and up over 300 basis points sequentially relative to the first half from continued commercial execution and strong new product rollouts. Our 2023 cloud and broader cost reduction program executed well in the quarter. As we continue to operate more of Equifax in the new cloud environment, we're seeing more opportunities for efficiencies and expect an additional $10 million of spending reductions in the second half. These new actions will deliver additional run rate savings of $25 million next year. So we now expect to deliver spending reductions of $210 million this year and over $275 million in 2024. And as a reminder, the 2023 savings are weighted to the second half and will deliver $65 million of 2024 run rate benefit. We expect the weaker mortgage originations to impact our mortgage revenue by about $40 million in the second half. Despite the weakening in U.S. hiring, we expect to deliver 2023 non-mortgage revenue growth of about 8% from strong growth in EWS government, USIS non-mortgage and international and stronger NPI growth. This above 8% non-mortgage growth is against a strong 20% non-mortgage growth last year, and well within our 8% to 12% long-term growth framework. The net impact of the weaker than expected mortgage market of about $40 million, partially offset by positive FX, is a reduction of our 2023 revenue guidance at the midpoint by $25 million to about $5.3 billion. The impact of the lower mortgage revenue results in a reduction of our full year 2023 adjusted EPS guidance at the midpoint of $0.22 to $6.98 per share. We remain focused on delivering EBITDA margins of 36% and over $2 in adjusted EPS per share in the fourth quarter, which we believe sets us up well for 2024 and beyond. In June we received shareholder approval for the acquisition of Boa Vista Serviços, the second largest credit bureau in Brazil. We're energized to complete this strategic and financially attractive acquisition. We expect the transaction to close in early August and are actively planning for integration and the transfer of our cloud capabilities, global platforms and products to help accelerate BVS growth. The BVS acquisition will add approximately $160 million of year one run rate revenue in the fast-growing Brazilian market, and we expect the transaction to be slightly accretive to year one adjusted EPS. The guidance we provided for 2023 does not include BVS. We intend to provide more details on our expectations for BVS in 2023 at our October earnings call after we close the deal. Before I cover results in more detail, I wanted to provide a brief overview of what we're seeing in the U.S. economy and the U.S. consumer. Since our April update, outside the challenging mortgage and hiring markets I already discussed, the U.S. consumer and our customers remain broadly resilient. We continue to navigate a higher interest rate environment that's negatively impacting the U.S. mortgage market. Mortgage interest rates have trended upward since April and were slightly above 7% at the beginning of July and were just under 7% at the end of last week, which is clearly impacting originations. We expect mortgage originations, as I mentioned earlier, to further weaken in the second half with originations down about 37% in 2023 or 500 basis points weaker than our April framework. Broadly, consumers are still strong and working with unemployment at historically low levels, and the market is resilient with roughly 10 million open jobs against 5 million people who are looking for jobs. Inflation is starting to abate at 3% in July, which should mean we are approaching a peak in Fed interest rates. Consumers are spending and borrowing with average credit card and personal loan balances back above pre-pandemic levels. With consumers working and still leveraging pre-cloud stimulus and savings, delinquencies are still at historic low levels, and close to 2019 pre-pandemic levels. Subprime DQs are the only areas of stress that we're seeing. We're also seeing credit card and personal loan utilization increases with some delinquency increases in subprime, but more broadly delinquencies are back at pre-pandemic levels, which as we all know were very low, although they remain significantly below levels we saw in the last economic event in 2009 and 2010. Auto delinquency rates for subprime consumers are above pre-pandemic levels, as well as above levels we saw in ‘08 and – I'm sorry, ‘09 and ‘10. We believe there's been some credit tightening by our financial customers, but principally in FinTech and subprime. And looking forward, consumers holding student loans will need to resume making payments to begin in October, and we believe removing student loan payment fees will have a modest increase – a decrease on average credit scores. Beyond the weaker motors market and slowing white-collar hiring market, which had a larger impact on EWS than we anticipated in the quarter. The combination of white-collar job reductions and broad hiring freezes has reduced both background screening and onboarding activity, and as I mentioned earlier, we expect this to continue in the second half. Turning to Slide 5, Workforce Solutions revenue was down 4% in the quarter. Mortgage revenue was down 20%, but up about 3 percentage points sequentially. The decline of 20% compares to a mortgage origination down 37% as estimated by MBA based on data through May. As I mentioned, overall market performance in the latter part of the quarter weakened relative to our expectations, resulting in lower mortgage revenue than we expected in our April framework. Strong record growth, the positive impact of 2023 price actions, and strong NPI performance driven by the adoption of our Mortgage 36 Solution, which is a 36-month trended mortgage product, drove to 17 points of mortgage outperformance by EWS in the quarter. And during the quarter, about 50% of twin mortgage inquiries were for products that include EWS trended or historical information, and of course, these are all at higher price points. In the quarter, Workforce Solutions saw declines in low margin, manual mortgage verification services revenue, as some customers move some of these activities back in-house. And this negatively impacted mortgage outperformance by about 300 basis points in the quarter. EWS had another very strong quarter of record additions with an incremental 5 million records added to the twin database, ending the quarter with 161 million current records, which was up 12%, with 120 million unique records or SSNs, which was up almost 10%. Over the past five years, EWS has doubled the size of the twin database, a strong testament to the record acquisition strategy EWS has executed across the multiple segments of direct employers, third party payroll providers, HR software management companies, pension administrators, and self-employed individuals. As a reminder, twin’s 120 million unique records represent individuals or SSNs on the twin database, and their 161 million current records represent current active jobs on the database, which means there's close to 40 million individuals in our data set that have more than one job, including self-employed or 1099 employees and people on defined benefit pension plans, we now covered just over 50% of the 220 million working and income producing individuals in the United States. And through our cloud tech transformation, we're expanding our capabilities to ingest all levels of records, including 1099 based self-employment records. And as a reminder, about 50% of our records are contributed directly by individual employers, as they are customers of our expanding employer services business, and the remaining are contributed through partnerships, principally with payroll companies. During the quarter we signed agreements with four new payroll processors that will deliver records during the rest of the year. The twin database now has 631 million total current and historical records, from over 2.8 million employers in the United States. Increasingly, more of our new products are incorporating current and historical records, with about 50% of second quarter verification services revenue, coming from products that included historical records. Turning the Slide 6, Workforce Solutions delivered non-mortgage revenue growth about 4%, with non-mortgage revenue, now representing over 70% of Workforce Solutions revenue. And as a reminder, EWS non-mortgage revenue was up a very strong 52% in second quarter last year, which was a very tough comp. Verification Services non-mortgage revenue which now represents about two thirds of verified revenue delivered 4% growth both sequentially and versus last year in the quarter, which was below our expectations. This was also against a very challenging 90% non-mortgage growth comp by Workforce Solutions last year. The miss versus expectations was predominantly in-town solutions from weaker white color hiring. Government performed exceptionally well, consistent with the high growth that we had expected and consumer finance declined somewhat in the quarter. In government we saw continued very strong growth with revenue up 21% off over a 100% growth last year in second quarter. And revenue also up almost 10% sequentially driven by strong growth was CMS at the state level, new products in twin record growth. Government now represents about 45% of verifier non-mortgage revenue. We expect to see accelerating sequential growth in our government vertical in the second half, driven by growth from CMS Medicaid re-determinations, ACA open enrollment volume, further state penetration and pricing from state contract renewals. We began to see incremental volumes from CMS re-determinations in May and expect to see this accelerate in the second half. This strong sequential growth will also result in accelerated second half EWS growth rates. Talent Solutions were down 6% in the quarter, but up about 1% sequentially, as we are comping off a very strong 130% growth last year from record levels of hiring in the second quarter. Also as a reminder, we are currently more heavily penetrated to white collar workers including technology, professional services, health care and financial services, which has seen greater reductions in hiring activity and broader hiring freezes than the about 7% decline that BLS is reporting through May. Approaching 70% of Talent Solutions revenue in the quarter was from industries that had negative hiring growth versus last year, with many of those industries having significant double-digit negative growth in the quarter. We are out growing the declining market from penetration of our digital solutions with background screeners, strong new product growth, continued expansion of twin records in favorable pricing. We are also seeing continued customer penetration of our new differentiated educational products. We expect these new products to continue to drive above underlying market talent revenue growth through 2023 and in a 2024 beyond. The consumer lending vertical and Workforce Solutions which includes P-Loan, card, auto and debt management was about flat sequentially, but down 11% versus last year to lower auto volumes with financial services and P-Loan declines with FinTech lenders, both principally in the subprime space. We expect modest consumer lending sequential growth in the second half driven by record growth penetration in pricing. This will result in revenue growth in the second half as we lap 2022 headwinds in the auto and P-Loan verticals. In total, we expect to see accelerated sequential growth in verifier non-mortgage in the second half, driven by strong government growth, as well as moderate sequential growth in talent and consumer lending. Employer Services revenue of $109 million was up 4% driven by growth in our I-9 and onboarding businesses despite the negative impact of U.S. hiring. In total, our UC and ERC businesses were up slightly. Despite the slowdown in U.S. hiring, we have not seen an increase in UC revenue yet. As a reminder, first quarter employer service revenues were seasonally higher than other quarters due to the higher Affordable Care Act in W-2 volumes. In the third and fourth quarters we expect to see overall growth in Employer Services sequentially from the second quarter levels driven by penetration and I-9 onboarding. Workflow Solutions adjusted EBITDA margins of 51.5% were up 110 bips from first quarter and in line with our April guidance from strong operational execution. The EWS team continued to perform well despite the macro headwinds from mortgage in U.S. hiring, outpeforming the underlying markets from strong record growth, new products, penetration and price. As shown on Slide 7, USIS revenue of $445 million was up 6% and much better than our expectations due to stronger mortgage and non-mortgage performance. USIS mortgage revenue was down less than 1% and outperformed the mortgage market credit inquiries that were down 33% by more than 30 points. The strong pricing environment that we discussed in April, both from the addition of Telecom & Utilities attributes to our new mortgage credit solution and the increased pricing for credit scores drove the very strong out performance. At $113 million mortgage revenue was 25% of total USIS revenue in the quarter. Mortgage credit increase again outperformed MBA's current estimate of originations by about five points from increased shopping behavior. We expect this increase shopping behavior to continue as we move through the remainder of the year. Total non-mortgage revenue of $332 million was up 8% in the quarter, with organic growth of about 4% and better than our expectations. B2B non-mortgage revenue of $278 million which represented over 60% of total USIS revenue was up 7% with organic revenue growth of 3%. B2B non-mortgage online revenue growth was up 9% total and 3% organically. During the quarter online revenue had strong double digit growth in commercial and identity and fraud with auto approaching 10% growth and telco and insurance growing low single digits. Banking was up slightly consistent with first quarter, with market volumes at larger financial institutions offsetting declines with smaller financial institutions and FinTechs that were more principally focused on subprime. Financial Marketing Services or B2B offline business had revenue of $56 million that was up 1%. Strong revenue growth in fraud and header, as well as risk and account reviews was partially offset by declines in marketing, principally pre-screen marketing with IXI wealth revenue growth about flat. Pre-screen marketing revenue was at similar levels at first quarter as we continue to see significant weakness from smaller FIs and FinTech in the subprime space, which was partially offset by growth from larger FIs. USIS is using the power of their ignite platform along with their proprietary data to ensure customers – to enable customers to drive deeper marketing insights and identifying extending offers to better prospects and delivering better marketing performance management. USIS has seen incremental penetration of growing pipeline from our advanced ignite capabilities. We did see limited growth in our portfolio review business, but have not seen a meaningful increase in our risk-based portfolio reviews that typically pick up during challenging economic times. USIS consumer solutions direct-to-consumer business had another strong quarter with revenue up $54 million, up 10% from very good performances in both our consumer direct and indirect channels. USIS is winning in the marketplace with strong momentum from new solutions and differentiated data and key verticals of identity and fraud, commercial and auto. We're also in active dialogues with USIS customers about the competitive benefits of the Equifax Cloud that will deliver always unsubility, faster data speeds and Equifax Cloud enabled new products driving us, which is driving a strong active new deal pipeline, which was up from the first quarter. Todd and the USIS team are on offense as they complete their cloud transformation and pivot to leveraging their new cloud capabilities to deliver new products. USIS adjusted EBITDA margins were 36% in the quarter, up 340 basis points sequentially and the strongest USUS margins since the beginning of the mortgage market decline a year ago. EBITDA margins were up sequentially from better than expected revenue performance and good execution against their cloud and broader cost reduction program. Turning the Slide 8, international revenue was $290 million, up 7% in constant currency and better than our expectations. Europe local currency revenue was down 2% through the expected about 16% decline in our U.K. debt management business. As we discussed previously, our U.K. debt management business was very strong in the first half last year, as the U.K. government made large catch up debt placements following COVID debt collection moratoriums. As a result, we expect to see declines in the first half versus last year. We expected to see those declines. However, we do not expect – we do expect to see consistent sequential debt management growth as we move through the second half and we expect debt management to return to revenue growth later this year. Our U.K. and Spain CRA business revenue was up 7% in the quarter in a very good performance. This strong performance was driven principally by strong growth within identity and fraud decisioning consumer and direct-to-consumer. Asia Pacific delivered solid local currency revenue growth at 4%, with growth in commercial identity and fraud and D2C, as well as continued very strong growth in our India business which was up 38% in the quarter. Latin America local currency revenue was up a very strong 23%, driven by double digit growth in Argentina, Uruguay, Paraguay and Central America from new product introductions and pricing actions. This is the ninth consecutive quarter of strong double digit growth for Latin America which we expect to continue in the second half. Canada local currency revenue was up 8% with broad base growth in consumer and identity and fraud decisioning and commercial. In Canada we recently completed a full migration to our new cloud base fraud IQ exchange and now have all of our Canadian fraud exchange customers on this new cloud based solution. International adjusted EBITDA margins of 24.2% were up 70 basis points sequentially and better than our expectations. The improvement was driven by good execution against their 2023 cost reduction plans. Turning now to Slide 9 and the second quarter overall non-mortgage, constant dollar revenue growth of 6% was lower than our expectations, but against a very strong 22% growth last year. USIS and international, both delivered stronger non-mortgage growth than we expected. This was offset by the slower growth in EWS non-mortgage that I mentioned earlier in Talent and non-boarding, despite their very strong growth in their government business. As we looked at the second half, we expect non-mortgage revenue growth to grow sequentially in the third and fourth quarter, led by very strong growth in the EWS government business, and growth in EWS talent and consumer lending from new products. We also expect continued strong performance in USIS and international, resulting in third quarter Equifax non-mortgage revenue growth above 9%, which is well within our 8% to 12% long term growth framework. Turning to Slide 10, new product introductions leveraging our differentiated data and the Equifax Cloud are central to our EFX 2025 growth strategy. In the second quarter we launched over 30 new products and delivered a record 14% Vitality Index. Our second quarter VI was again led by strong performances in EWS and Latin America. In the second quarter over 80% of our new product revenue came from non-mortgage products leveraging the Equifax Cloud. Leveraging our Equifax Cloud capabilities to drive new product roll-outs, we expect to deliver Vitality Index of approximately 13% in 2023, which is 300 basis points above our 10% long term Vitality Goal Index. This equates to about $700 million of revenue in 2023 from new products introduced in the past three years. New products leveraging our differentiated data, Equifax Cloud capabilities and Single Data Fabric are central to our long term growth framework in driving Equifax top line and margins. On the right side of the slide we highlighted several new products introduced in the quarter. These new solutions are a testament to the power of the Equifax Cloud and driving innovation that can increase the visibility of consumers to help expand access to credit and create new mainstream financial opportunities. We launched a new product this quarter, Talent Report Flex 2.0, a customizable pre-higher employment verification solution, that helps solve the challenge background screeners and HR professionals may experience when seeking to verify a candidate specific employment records. With a unique and first-to-market employer preview option, a list of employer names is now available on the work number using a candidate's SSM. This allows the customization of the employment history report by selecting only the records wanted. With the power of the Equifax Cloud, we'll bring new solutions to market to meet the needs of our customers. Turning the Slide 10, we were very excited to receive shareholder approval for our new Boa Vista acquisition in late June. BVS is the second largest credit bureau in the fast growing Brazilian market with over a $2 billion TAM. We expect the transaction to close and early August and Equifax will be able to provide Boa Vista with access to expansive Equifax international capabilities, our cloud native data, products decisioning and analytic technology for the rapid development of new products and services and expansion into new verticals like identity and fraud in Brazil. As a reminder, I mentioned earlier, we expect Boa Vista to deliver approximately $160 million in run rate revenue to Equifax and to be accretive to adjusted EPS in the first year. As I mentioned earlier, Boa Vista results are not included in the guidance we're providing today. We'll provide more detail on Boa Vista’s impact in 2023 during our October earnings call after the transaction is closed. Given the size of the transaction, we plan to pause on M&A activity in the second half to focus on integration of BVS and our ‘21 and ‘22 acquisitions. And our intention is to use excess free cash flow over the coming quarters to pay down debt and reduce our leverage. Turning this Slide 12, we believe that artificial intelligence is fundamentally changing Equifax business capabilities and is becoming table-sticks for data analytics companies to manage increasingly large diverse and complex data sets, within a highly regulated data bringing unique complex challenges around AI explainability. On the left side of Side 12, our large and diverse proprietary data base – data set is a big differentiator for Equifax including our income and employment data, traditional alternative credit data, cell phone, utility and Pay TV data, identity and fraud data in our commercial and wealth data. This proprietary data at scale, heat and length in our new Single Data Fabric gives us significant advantages in using AI to build advanced models, scores and products including identity and fraud solutions, enabled by our best in class Equifax Cloud native technology. To date, Equifax has about 70 approved AI patents supporting our AI NeuroDecision Technology which we call NDT, and Explainable AI which is critical to ensuring that the correct data is used to make credit decisions that surface by AI models and scores. Equifax will continue to invest in AI as we may remain on offense, leveraging Google's Vertex AI capabilities, combined with our own Equifax NDT capabilities will be building more predictive and valuable models and scores with our expanding data set, and accelerating the speed at which we develop new model scores and products to bring more current solutions to our customers. We believe Equifax is uniquely positioned to capture the value of AI going forward. Now I'd like to turn it over to John to provide more detail on our third quarter and full year guidance. We're executing very well against our strategic priorities and delivering revenue growth and expanding margins in a challenging macro environment.

Mark Begor:

Thanks John. Wrapping up on slide 17, Equifax delivered a solid quarter with adjusted EBITDA margins and adjusted EPS above our guidance despite the challenging mortgage and hiring markets. USIS and international delivered strong quarters offsetting some weakness in the EWS Talent and Onboarding businesses, to allow us to deliver revenue at about the midpoint and EPS above guidance. The breadth and depth of our businesses and execution against our 2023 cloud and broader spending reduction program allowed us to deliver despite a challenging macro environment. Summarizing at the business unit level, Workforce Solutions continue to deliver against their long-term growth strategy. While their 4% revenue decline was pressured by mortgage and hiring macros, they were comping off a very strong 21% growth last year. We expect that growth to recover in the second half, and importantly EWS had another very strong quarter of twin record additions, adding formula payroll providers, which brings a total added since the beginning of last year to 17, and increased current records to $161 million, up $5 million from the third quarter and toward 12% versus last year, with total records growing to $631 million. Workforce delivered a very strong NPI vitality index of 25%, leveraging their cloud capabilities which will benefit them in the second half and in ‘24 and beyond. In the continued growth of Twin, strong NPI and government growth positions EWS for 15% growth in the second half. And EWS operating focus delivered 51.5% EBITDA margins, which is up over 100 basis points and stronger than we expected. Second, USIS continued their momentum for the first quarter was strong non-mortgage growth of 8% total and at the top end of their long-term framework and 4% organic, driven by online B2B non-mortgage growth of 9% total and 4% organic, as they focus on customer migrations to the Equifax Cloud. USIS delivered EBITDA margins of 36%, up over 300 basis points sequentially through revenue growth and strong cost management. International delivered strong 7% local currency growth with strong growth in what’s Latin America, Canada, India and our European credit businesses. And they delivered EBITDA margins of 24%, up 70 basis points and stronger than our expectations. As mentioned earlier, our second quarter Vitality Index of 14% is an Equifax record and was 400 bips above our 10% long-term growth framework, as we've delivered over 60 new products year-to-date, leveraging the new Equifax Cloud. The focus of our Equifax Cloud Data and Technology Transformation is in completing those North American migrations, which will allow us to further accelerate new product launches and complete legacy system decommissioning. Our Cloud native technology will differentiate Equifax and allows us to be an offense with leading systems stability and capabilities that position us to leverage AI tools to drive revenue growth and cost efficiencies. We're executing well against our 2023 cloud and broader spending reduction plan that will now deliver $210 million of savings this year, with run rate savings of $275 million in 2024. And this is up $10 million in ‘23 and $25 million in ‘24 from our April framework. We remain focused on delivering 36% adjusted EBITDA margins and over $2 per share in adjusted EPS in the fourth quarter, which sets us up well for 2024. And we're energized about receiving shareholder approval for the BVS acquisition in June, and we're on track to close this strategic and financially attractive acquisition in early August. And as mentioned earlier given the weaker than expected mortgage market, we're lowering our full year revenue guidance by $25 million to $5.3 billion at the midpoint, with full year 2023 adjusted EPS at the midpoint to be down $0.22 per share to $6.98 from the impact of the lower high – high – lower but high margin mortgage revenue. We're energized to be entering the next chapter of new Equifax as we pivot from building the new Equifax Cloud to leveraging our new cloud capabilities to drive our top and bottom line. This is an exciting time for Equifax – exciting time for Equifax, and we're convinced that our new Equifax cloud-based technology, differentiated data assets, and our new Single Data Fabric and our market leading businesses will deliver higher growth expanded margins and free cash flow in the future. And with that operator, let me open it up for questions.

Andrew Steinerman :

Hi John! Let me just ask my two questions together. The first one is, could you just tell us what second quarter mortgage revenues is as a percentage of total revenues. I didn’t catch that if you gave it. And the second one is looking at the EWS revenue growth guide for third quarter of 7.5% which is on slide 15, and then kind of taking it together with the comments for EWS revenue guide on slide 16. It seems to imply a rather strong revenue ramp for EWS in the fourth quarter compared to the third quarter, and could you just comment on that?

Andrew Steinerman :

Thanks.

Andrew Steinerman :

Thank you so much.

Manav Patnaik :

Thank you. Good morning. Maybe my first question, just to follow-up on that. I guess you addressed the revenue visibility to seem to have as your ramp up into the end of the year. Can you just talk about the moving pieces on margins? Like how confident are you to hit that 36% and how that flows through to next year?

John Gamble:

And again, as Mark said, good focus on cost, we have good visibility on cost and we do – obviously we do need to see the revenue growth we're talking about. But I think we feel very good about the sequential movements we're talking about in our non-mortgage business. We delivered well in non-mortgage other than the Talent impacts we talked about in the second quarter. And then obviously we've made an assumption on the mortgage market. We think we've made a reasonable assumption, but having the mortgage market deliberate the levels we're talking about, obviously it’s also needed for us to deliver our 36% margins in the fourth quarter.

Mark Begor:

John, I'll let you jump on the hiring assumption, but you know we did mention Manav that for example in mortgage, we're seeing some mortgage originators move manual verifications back from Equifax in-house, so that had an impact us on the quarter. We expect that to continue, so that it is clearly a revenue impact and what we're seeing is that you've got mortgage originators doing less activity, so they've got people sitting in their offices and they are deciding to do some of those manual verifications in-house, so that clearly had an impact. I think there was no question that experience through, to a lesser degree, Transunion and they're kind of new focus on this or. In the marketplace we don't see that being a meaningful impact on our revenue, but they are definitely out there and they are doing more than they were a year ago. So that clearly also has an impact, particularly probably in mortgage.

A - Mark Begor:

And again, we also commented Manav that we see ourselves over indexing to white collar employers in our customer base, and those are more impacted from both hiring freezes, you know as well as layoffs and blue collar side.

Operator:

Thank you. The next question is coming from Kevin McVeigh of Credit Suisse, please go ahead.

Mark Begor:

Yes, I think there's a lot of factors Kevin in the mortgage space. Clearly higher rates – you know I think the uncertainty around rates is as much as that consumers that are thinking about purchasing a home. Rates go up towards that 7%. They pull back and wait to see what's happening. Where will rates stabilize is an activity that we're definitely seeing. There's an element of – and you've read about this, you see it, as if the shortage of housing stock. You mean there isn't a lot of inventory out there for people to make home purchases. Those that own homes are doing – are not upgrading, you know meaning, going buying a larger home or moving in a different neighborhood in town, because of the low rate they're currently sitting on in their mortgage and some uncertainty about where rates are going. So we believe that there's some element of rate stabilization that consumers will increase their activity from that. I don't think we're thinking about rate reductions. You know that'll happen sometime in the future, whether it's a year from now or in ‘25 or ‘26 you know going forward. But as a reminder, we've never seen purchase volume declines at this level, that from historical levels we're well below 40% of below historic levels, excluding kind of a refi boom that we had in ’20 and ‘21 and ’22. You know that just has never happened before, so it's our view that at some point we’ll return to normal historical levels, you know whether that's in a year from now, as people get more comfortable operating in a 6%, 7% mortgage interest rate environment where it’s into ’26. There’ll be return to normalization over time is our expectation. What would you add John?

Mark Begor:

Then at some point on the other side it is high inflationary environment where the feds had to raise interest rates. There'll be a time – I'm not an economist, but at some point in the future, the feds going to reduce interest rates to boost economic activity. It's just the cycle that we typically have and there'll be another refi window whether that's in ’25, ’26, ‘27 but we'll be well positioned for that, and it’s been a very high incremental margins on mortgage revenue declines or mortgage revenue growth. We’ll see the other side of that at some point in the future at Equifax.

Operator:

Thank you. The next question is coming from Kelsey Zhu of Autonomous Research. Please go ahead.

Mark Begor:

Yes, there's a bunch of factors driving government which is the good news for us. You know it's a very important, fast growing segment of Workforce Solutions. It's one where we have a very, very strong market position given the scale of our data set to 630 million you know historical records and our active records. You point out one of the levers you know on the re-determination, we saw some of that activity pick up in May and June and we expect that to continue in third quarter and fourth quarter and much of that to be a 2023 event which is positive. We're also seeing more ACA volume. We're getting more penetration at the state level. Remember this business, which is approaching $500 million is in a TAM that's close to $3 billion and each state and each agency at the state level are separate organizations and we have a commercial team that's headquartered at many of the state capitals that's working to bring our solutions to convert current manual activity around verifications for whether it's unemployment claims or childcare support, food support, all the other social services to convert them from manual to using our automated solution. So that's a big lever for growth is we add more states and more agencies, so that we have a pipeline. We have visibility around those relationships. Another lever is we're constantly renegotiating those individual contracts that we have. And again remember, 50 states. Think about maybe six or eight agencies in each state that we have relationships with a portion of them. The ones that we have, those contracts come up and we worked – increase price for the additional value that we're delivering. And then the other lever we have is at the federal level. We have federal programs with some of the big organizations. You mentioned one security administration, those are also growth programs for us at the government level.

Mark Begor:

Yes, so we participate in all employees. We're making the point that we with our current customer base, again customers being background screeners. The customers that we have tend to over index to white collar jobs, which is why we're seeing more of an impact right now. But we have a lot of blue collar jobs coming through and employment verification work that we do. The new solution on hourly has only been in the marketplace for 30 days, so it's very new but we've seen very positive traction. We think it's not only going to drive penetration, with our existing customers, but it's also going to allow them to drive growth and their business. Meaning they can go out and pick up more volume or share in those kind of employees doing verification work. We also talked about some of the other solutions we have outside of just employment history. We've seen very positive growth in our education solution, where we have an instant solution around verifying education backgrounds which is used in a lot of white collar job. That's a newer solution for us that we've been in the marketplace for call it a year, but we're growing a lot of usage and share with that, so that's a positive for the Talent business. And then the last one is you know, we have our insights business that we acquired a couple years ago that has the incarceration data and that's another one where we're bringing new products to market and new solutions. So for talent, you've got the ability to drive penetration. That business is a north of $400 million at run rate in a $4 billion TAM, so there's a lot of penetration growth opportunity there. A lot of our new product focuses around Talent. You talked about the solution for the hourly work force that we rolled out about a month ago and then we rolled out one a couple weeks ago. It provides more flexibility about which employers our customers want to focus on foreign employee, you know that's another solution that should drive growth. So new products are a big focus of ours in the Talent vertical.

Operator:

Thank you. The you the next question is coming from Kyle Peterson of Needham & Company. Please go ahead.

Mark Begor:

It's pretty broad based. I think you look at them like we do. You see less of them, but in the first half of the year you saw companies left and right announcing either layoffs or hiring freezes. I think it was Ford a couple of weeks ago announced another white color reduction, if a company is reducing people and making those kind of announcements, they also typically have a hiring freeze in place. So there's less inbound, new hires coming in. So that clearly is not – it didn't just happen in late in the quarter, it's been happening for quite some time as we've kind of nine months into that hiring reduction that has had an impact on, is that we've been able to outgrow through pricing in 2023, through new products, through penetration, in adding new customers in the background screening space, but it's clearly had an impact, and we expected it to continue to be an impact in the second half and we've laid that into our framework.

Mark Begor:

I think as you know we're going to have a $65 million of run rate benefit next year, because a lot of the actions from the broader cost and cloud program that we have in 2023 are in the second half, so that'll be a benefit. And we've talked previously that we still expect to get further cloud efficiencies in ‘24 and ‘25 as we complete the cloud. We're at 70% now. We still got that remaining 30% of Equifax to complete over the next couple of years, and as we complete that cloud we expect to see further efficiencies that will benefit our margins and in margin rate in ‘24 and ’25, including the carry over benefit of the cloud actions that we're taking you know in broader restructuring in 2023.

Mark Begor:

And maybe one other point, I wouldn't think about the actions is being aligned with a revenue decline, that's not how we operate our business. The program we announced in February you expected. We talked about it last year that we would be reducing our costs as we complete the cloud. This is something we've been talking about for years. And as we said in February, in April, and again today, we're just seeing broader opportunities to improve our efficiencies as we get further into the cloud. The real backbone of these cost efficiencies and margin expansions are what we've talked about for the last three or four years and it's really driven by our ability to get closer to completion of our cloud investment.

Operator:

Thank you. The next question is coming from Andrew Jeffrey of Truist Securities. Please go ahead.

Mark Begor:

Yes, you've got to kind of break some pieces apart there. Mortgage obviously has had a huge impact on our business. It's been – we've never seen a mortgage decline like this to be 40% below – well over 40%. I think it's 45% below historic levels in the second half. It’s just never happened before, that's going to recover right. It's just a matter of when will it return to call it norm, that minus 45 and that'll be a very positive thing for Equifax, and whether it's ’24, ‘25 or ’26, the mortgage market is not going to stay at this level. People are going to buy houses, people keep moving and then add on it at some point. When rates start coming down again from these higher levels which should happen, there'll be a refi element, so that's kind of mortgage. We're very pleased, and I hope most of our investors are of our ability to continue to drive the 80% of Equifax it's not mortgage quite strongly in what you characterize as a uncertain economic environment, the diversity of our businesses. If you look at Equifax 10 years ago being primarily a credit bureau and now you – we're talking on this call predominantly around our talent vertical and government vertical that didn't exist 10 years ago. And talent you know still performing even with a macro impact and government super strong just because of the power of the unique solutions that we have. So I think that's the kind of the underlying strength of Equifax, is our non-mortgage businesses are super strong and lay on top of that, the new product initiative, it's not an initiative, it's really how we operate. We're a product led organization leveraging our differentiated data and our cloud capabilities. You know the 14% vitality in the quality, that's great momentum for the second half in ’24 and ’25, meaning that we're seeing we can leverage our differentiated data assets, our product led culture and capabilities and cloud and put new solutions in market. And those new solutions are higher price points that are going to expand our margins going forward. So that's a real positive. And then the underlying macros, I think the diversity of Equifax plays into that. So is there going to be a soft landing? My personal view is there is. I think we're kind of already feeling it and seeing it with inflation down to 3%. That's going to head towards where the fed wants it and unemployment is so low, people are still working. That's a pretty good economic environment for all businesses, but importantly ours going forward. And then you lay on top of it the completion of the cloud from a kind of timing standpoint over the next year and change. And the cost benefits that you’re seeing this year and margin benefits this year that carry into 2024, those are quite powerful in our ability to expand our free cash generation. And have – as we get into ’24. ‘25 and ’26, have significant excess free cash flow to return to shareholders at the right time.

Operator:

Thank you. The next question is coming from Jeff Meuler of Baird. Please go ahead.

Mark Begor:

Correct. Yes, that's where we've seen it Jeff. In part of it was that customers came to us and were looking for lower pricing on the manual efforts that we do for them. I think you know we have an operation in Iowa where we do that. We opted not to chase price down because it's a low margin solution now for us, but an attractive one, and some of them moved that in-house and it was you know meaningful. Its 300 basis points of the mortgage out performance in the quarter. But no, it's isolated to that manual effort we were doing four customers. We've just seen less activity there and it's logical when you think about a mortgage originator that just has more people doing less mortgages, they can do some of that themselves. But we haven't seen the impact on the instant verification side, which is where as you know, where all our revenue and margin is.

Jeff Meuler:

And can you give us any sense of how much revenue you generate from doing the manual verification?

Jeff Meuler:

Got it. And then Mark you answered the Verifier competition question a bit differently today or at least I've perceived your answer a little bit differently today. And John, you just kind of alluded to, hey, some of the competition is manual and that's low margin. But you can see the credit file inquiries, so you can triangulate share for verifier mortgage. If you look at the non-exclusive records that you have, have there been any recent share changes for digital verifications. Thank you.

Jeff Meuler:

Got it. Thank you.

Craig Huber:

Great, thank you. You obviously mentioned a 14% vitality index. Can you give us a flavor of some of the areas of the new products that you're most excited about here is you kind of think out. What's working really well? Where do you think is the biggest opportunity to growth revenues?

Craig Huber:

You can give top two or three.

Craig Huber:

My final question, as you sort of look out beyond this weak sluggish environment here into ‘24 into 2025, a lot of your business to recover very nicely next year and in the year after. So what areas are you most excited about when getting to a better economic backdrop.

Craig Huber:

Great. Thank you.

Andrew Nicholas :

Hi! Good morning. Thanks for taking my questions. First question I wanted to ask is, just maybe a point of clarification. I hear the acceleration commentary and what makes you confident in that through the back after the year. Just wanted to make sure I understand it. Is there any change to kind of your economic assumptions for the second half as well? So you're still baking in some level of [inaudible] down on the outside? Okay.

Andrew Nicholas :

Got it. And then for my follow-up, a different topic entirely. Mark, you spend a decent bit of time on artificial intelligence and how Equifax is well positioned to leverage it going forward. I'm just wondering if you could speak to kind of the cost side of that equation. How expensive is it to leverage the cloud and Google Vertex in an environment where I think chips are expensive and there's some shortages there. Just wondering how you think about cost and whether or not that's a meaningful consideration when you go down the AI path, the large language model path.

Andrew Nicholas :

Makes sense. Certainly having everything on the same Data Fabric is helpful to that too.

Operator:

Thank you. The next question is coming from Shlomo Rosenbaum of Stifel. Please go ahead.

Mark Begor:

Yes, and that one we are going to be obviously focused on maintaining our strong customer relationships. I don't know what Truework’s revenue is. Maybe it's $15 million or something or $20 million. It's a fairly small player. It doesn't have really any scale differentiated data assets. We've got at the end of the quarter 161 million records. I don't even know what their record count is, but we certainly watch them. We just don’t feel that they are having a meaningful impact on our business, but we certainly are keeping an eye on them.

Shlomo Rosenbaum :

Okay, great. And then hey John, also I have a question for you. I'm just trying to understand the lowering of the EPS guidance. Like the midpoint is $0.22. Even if I assume that $40 million of lower revenue coming from mortgage is above 90% contribution, I mean that would be like all of that reduction, but there's also other stuff that's doing better on USIS and government talent and you also increased by $10 million the cost savings program. It just seems to me like the midpoint of the guidance and the EPS was lower to a lot more than it needed to be. Can you comment on that?

Shlomo Rosenbaum :

Thank you.

Heather Balsky :

Hi! Thank you for taking my question. I know there's been a fair number of questions already on the acceleration in non-mortgage EWS revenue. So I just wanted to kind of follow-up here, because I think we're backing into something in a healthy double digit range for the fourth quarter. And you've outlined the drivers, but I guess where do you expect to see the most meaningful acceleration in your business. It sounds like the macro isn’t changing. So just trying to understand how you go from how you did this quarter to double digit growth in the fourth.

Mark Begor:

And then outside of EWS, I think as we talked earlier, both USIS and international were above our expectations in the quarter and we expect them to perform well in the second half also.

John Gamble:

So again, adjusting for the impact of manual, we're at about 20 we're at about 20 last quarter. So yes, we'll have another impact. We’ll have more impact as we go through the rest of this year in terms of the lower levels of manual revenue, which again very low margin right so.

John Gamble:

And fairly low revenue. So we'll see an impact from that if we go through the rest of this year, but we continue to expect to see nice out performance in the mortgage market.

Operator:

Thank you. The next question is coming from Toni Kaplan of Morgan Stanley. Please go ahead.

Mark Begor:

We have a solution that does much of that Toni. We just see it, that there's a ton of friction for the customer, whether it's a mortgage originator, an auto lender, and a lot of friction for the consumer. And remember, if you think about our data set, the 161 million records that we have today or 120 million SSNs, you know that's against 160 million non-form payroll. So in non-form there's 40 million people not in our data set that are out getting mortgages and doing other products. And then when you add pension and the self-employed individuals, there's another call it close to $100 million in total. So the solution that was announced, it’s actually been in the market – I think Experian had that in the marketplace for quite some time. I'm not sure what kind of traction they're getting with it, but we just find that if there's an instant record available, it's always going to trump any of these friction filled processing, where the consumer has to put their user id and password in. In this example, the consumer would have to give there, in my case Equifax HR user id and password in order to get to my payroll records, in my sit, in my case, and most consumers that are employed in W-2 non-form payroll would have to provide those credentials if you will in order to get to that. That's against our company policy and every company policy. So there's just a ton of friction and then it's just the consumers required to do it. Where I believe there is value in some of these alternative solutions and as we talked earlier on the call, we have a manual verification team where we do manual for our customers. There’s another version of what you're talking about, is in the records that we don't have. So think about the, call it $40 million non-form payroll, the $30 million to $40 million self-employed, the $20 million to $30 million pensioners. Those records, if they are not doing a solution with Equifax like our manual or our conventional solution or something like we described, it's being done manually by the company, whether it's a mortgage originator, auto lender, you pick your solution. So it's replacing that manual to really drive speed. That's where there's value in it, but just - it's very very hard to get a lot of penetration with these solutions because of the significant friction for the consumer. And my view and what we see in the market place is it won't replace instant records.

Mark Begor:

I think you're nailing at Toni about the two elements. And so on the first one you talk about really new product rollouts. The ability to roll out new products, and remember when you think about the 14 for Equifax, remember there's a bifurcation of where the different businesses are. USIS is well below the 14, because they haven't completed the cloud yet. EWS is well above 14, because they completed the cloud and are really driving those new products, and international is slightly south of the 10 or the 14. So as the businesses complete the cloud, particularly USIS and international, we would expect them to move towards the 10%, which is going to be a good thing, it's going to drive new solution there. So that's clearly one of the benefit to the cloud is the ability to leverage those scale differentiated data assets to bring more new solutions to market, and allow us to deliver long term that 10% vitality goal. Your second point is an excellent one also, and in my view it's going to be more impactful in USIS and international. Although EWS is getting real benefits of being in a cloud environment and how they're able to operate their business. The always on stability is clearly a benefit for them. The bigger benefit for Workforce is the ability to scale their data assets. There's no way they could have doubled in the last five years their twin data records without the cloud, period. It just is no way and we've gone – I think in 2018 we had something like 300,000 employers contributing to the data set, last quarter was 2.8 million. It wouldn't have happened without the cloud. So that that's another benefit of the ability to manage data that's more Workforce oriented. On the benefits of always on and faster data transmission, we believe that that's going to result in market share games. And particularly in USIS and international, where their credit file business is typically a customer will have a primary and secondary as you know. And we would expect by being always on, we're going to be a more valuable partner and allow us to move where we're tertiary or secondary into those secondary and primary positions. And I mentioned in my comments that we have deal pipelines in USIS where customers are talking to us about moving our market position, because of our investment in the cloud. Now, when will that show up in USIS revenue? Likely in ‘24 and ‘25 and ‘26 as they get you know post cloud completion and the same thing should happen in international markets where you've got that same dynamic of a customer using us and one of the other guys. We're going to be a more valuable partner being always on.

Operator:

Thank you. The next question is coming from Ashish Sabadra of RBC Capital Markets. Please go ahead.

Mark Begor:

Yes, truly carry over the pricing comment was really for both businesses. EWS did their normal one-one price increase that's just carrying through. But so no incremental price increase, we have no intention to do that. We basically focus on doing annual price increase in all our businesses. As you may remember back in January or February in the earnings call, we talked about a larger price increase in USIS related to one of our partners who has a credit score and everyone knows who I'm talking about, its FICO, who put through a price increase in both Equifax and Experian deliver that price increase to the marketplace when they increase the price of their credit score. So that holds through in mortgage is what we're talking about, a fairly sizable pricing crease that we mark up to maintain our margins and there's no change in that, that's just rolling through the year.

Q – Ashish Sabadra :

Yes, that's very helpful color. And then maybe just on the background screener side, have you seen any change in their use of the waterfall model or any change in the market dynamics there? Thanks.

Q – Ashish Sabadra :

That's helpful. Thank you.

Seth Weber :

Hey! Good morning guys. Mark, you mentioned the resumption of student loans that's expected to pinch credit scores, maybe weigh on consumer balance sheets. Can you just talk about how you're thinking about the timing of that rolling through? If there was a lag effect and any dynamics between prime and subprime categories? Thanks.

Seth Weber :

Got it, thank you. And then maybe just a quick follow-up for John. I think the – just looking at your margin guidance for the year, the international segment, I think the guide for the full year implies the fourth quarter is north of 30%. Is that the right way to think about it? And is there something going on there that creates this kind of hockey stick move in the back half the year, in the fourth quarter. Thanks.

John Gamble:

No, we are expecting to see nice improvement in international margins. I think the number you're quoting might be a little lofty. But we are expecting to see nice improvement in international margins and it's driven by the fact that they are driving revenue improvements. They generally get stronger revenue in the fourth quarter. We are expecting that to continue and they are doing a really nice job as Mark said on cost on cost management. So those are the drivers.

Operator:

Thank you. The next question is coming from George Tong of Goldman Sachs. Please go ahead.

Mark Begor:

George, are you talking about like in auto or background screening or government, what?

Mark Begor:

Maybe quite simply is we're not. We are not seeing any impact of kind of in sourcing if you will income or employment verifications in non-mortgage. And the mortgage piece is really quite specifically around the manual operation that we have in Iowa. We saw some pressures around us reducing – requests from customers for us to reduce our pricing which would impact our margins, which are thinner if you will there than they are instant verifications, because they have capacity to do the manual verifications in house and we decided to let those move in house, but not on the instant side and not in the non-mortgage.

Mark Begor:

As George, we've been talking about it for, I don't know four, five quarters. As rates were coming up, we're just seeing consumers spent more time shopping around for mortgages, and as you know, every time they click on mortgage originator website, that mortgage originator will generally before they spend much time responding they have to understand who that consumer is so they pull a credit file to see whether they are going to qualify. So that is clearly a change in behavior than call it the low interest rate environment we had in 1920 and ‘21 and the early parts of ’22, where consumers were really just taking the first mortgage they clicked on, because it was lower than their existing mortgage and a refi or met their expectations. They are just more shopping in this higher interest rate environment, which does benefit USIS. And as you know George, the EWS is generally – there's multiple pulls by EWS. There is more polls on the credit file side. But EWS is generally in the closed mortgages where they see their activity when they get further into the pipeline versus that early shopping behavior. And this is just really a prequel that the mortgage originator is doing to see whether – you know how much effort they're going to put into it and really how can they respond to that consumer about what they might qualify for.

Operator:

Thank you. At this time I'd like to turn the floor back over to Mr. Burns for closing comments.

Operator:

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or logoff the webcast at this time and enjoy the rest of your day.

Operator:

Hello, and welcome to the Equifax Q1 2023 Earnings Conference Call and Webcast. [Operator Instructions]. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Trevor Burns, Senior Vice President, Head of Corporate Investor Relations. Please go ahead, Trevor.

Mark Begor:

Thanks, Trevor, and good morning. Equifax delivered another strong quarter with 10% constant currency non-mortgage revenue growth as we executed well against our Equifax 2025 strategic priorities and the $200 million spending plan we announced in February. Before I cover our strong results for the quarter, I want to provide a brief overview of what we're seeing in the U.S. economy and U.S. consumer. We continue to navigate a higher interest rate environment that has severely impacted the U.S. mortgage market. Mortgage originations were down 56% in 2022, and we expect them to be down about 32% this year. In the second half, we expect mortgage inquiries to be approaching an unprecedented 40% below 2015 to 2019 levels. The combined market impact in 2022 and 2023 is expected to reduce Equifax revenue by over $900 million, but the breadth and depth of the Equifax business model and fast growing non-mortgage businesses allowed Equifax to deliver 20% non-mortgage constant dollar growth last year, and 4% total growth last year, and an expectation to deliver 8% non-mortgage and 4% total growth in 2023 at the mid-point of our guidance, more than offsetting the large negative impact from the unprecedented mortgage market decline. Broadly, consumers are still strong with unemployment at historically low levels and with modest increases in delinquencies. We're seeing some credit card and personal loan delinquency increases in subprime and more broadly DQs are now back to pre-pandemic levels, although they remain significantly below the levels we saw in 2009 and 2010. Auto loan delinquency rates for subprime consumers are above pre-pandemic levels as well as above the levels we saw in 2009 and 2010. And as you know, delinquencies generally are manageable when people are working. While we have seen limited pockets of DQ increases, we continue to watch this important metric as we move through the rest of the year. Historically, as DQs increase, our customers will begin to reduce marketing and tighten originations. Gross hiring year-to-date through February was down about 6% slightly better than the trends we saw in the fourth quarter, and inflation remains at elevated levels, but has begun to moderate slightly given Fed actions but with inflation still well above Fed targets, we expect further rate increases. And we believe there has been some credit tightening at some customers with more impact in FinTech from both expectations of a slowing economy in the second half and capital issues impacting certain banks. And as you recall, our guidance assumed a slowdown in the second half. While we are operating in an uncertain and challenging economic environment, Equifax continues to deliver. The breadth and depth of Equifax's broad-based business model is allowing us to weather this, the unprecedented mortgage market decline and deliver revenue growth and margin expansion. Turning to Slide 4. Equifax had another strong quarter with non-mortgage constant dollar revenue growth up 10%. First quarter reported revenue of $1.302 billion was down 4.5% and down 4.3% on an organic constant currency basis and above our expectations against an unprecedented 58% mortgage market decline in the quarter. Revenue was above the high-end of our February guidance from broad-based strength and execution across Equifax and continued strong new product rollouts. First quarter adjusted EBITDA totaled $380 million with adjusted EBITDA margins of 29.2% both in line with our expectations. Adjusting for the incremental stock-based compensation expense incurred in the quarter adjusted EBITDA margins would've been approximately 31%, which is the baseline of which we expect to grow to 36% in the fourth quarter from revenue growth and our $120 million cost savings plan. As a reminder, the bulk of the spending reduction benefit the second half and we have $50 million of carryover benefit in 2024 from our actions this year. Adjusted EPS of $1.43 per share was above our February guidance range of $1.30 or $1.40 per share from stronger than expected revenue growth. Our Equifax non-mortgage businesses, which represented about 80% of total revenue in the quarter, were strong with 10% constant currency and 8% organic constant currency revenue growth, with the 10% growth solidly inside our 8% to 12% long-term growth framework. All BUs delivered stronger than expected non-mortgage growth, which is positive momentum for the rest of the year. Estimated U.S. mortgage market originations, which MBA forecasted to be down about 58% in the quarter were slightly weaker than the down 55% in our February framework. Total U.S. mortgage revenue was down about 33% or 25 points better than the market with both total revenue and our mortgage outperformance stronger than we outlined in February. The stronger outperformance was driven by better U.S. credit inquiries from higher than expected consumer shopping and positive mix in workforce solutions driven by significant growth from our new mortgage 36 trended product. We continue to make significant progress driving completion of the Equifax data and technology transformation. At the end of the quarter, over 70% of Equifax is being delivered from the new Equifax Cloud, which will expand to 80% by year-end as we substantially complete the North America customer migrations to the Equifax Cloud. Our new Equifax Cloud infrastructure is delivering always on capabilities and faster new product innovation with integrated datasets, faster data delivery, better data quality, and industry-leading enterprise level security. We continue to be convinced that our Equifax Cloud and Single Data Fabric will provide a competitive advantage to Equifax for years to come. New product innovation leveraging the capabilities delivered by the Equifax Cloud is also executing at a very high-level. Our new product Vitality Index of 13% in the quarter is at record levels and 300 basis points above our 10% long-term vitality goal. And as you recall, in February, we reached the definitive agreement to acquire Boa Vista Serviços, the second largest credit bureau in Brazil. When completed, the BVS acquisition will add $160 million of run rate revenue in the fast growing Brazilian market. The transaction is subject to Boa Vista shareholder approval and other customary closings conditions, and we expect the transaction to close in the third quarter. As we outlined in February, we're executing a broad operational restructuring across Equifax, reflecting both the acceleration of our cloud transformation benefits and a broader focus on operational improvements aided by our new cloud capabilities. The plan will reduce our total workforce of over 23,500 employees and contractors by over 10% during 2023, as well as delivering cost reductions from the closure of major North American data centers and other broader spending controls. Total spending reductions from these 2023 actions are expected to be about $200 million with about $120 million reduction in expense or about $0.75 per share and $80 million reduction in capital spending. And we're tracking well to the plans we laid out in February, and we remain committed to meeting these cost improvement targets. In 2024, the run rate benefit of these actions will reduce spending by an incremental $50 million to over $250 million. And we're maintaining our 2023 full-year revenue guidance of $5.275 billion to $5.375 billion, and adjusted EPS guidance of $7.05 per share to $7.35 per share. Our guidance continues to assume a weakening U.S. and global economy in the second half. Given the slightly weaker U.S. mortgage market that we saw principally in March, we are now assuming U.S. mortgage market inquiries for 2023 to be down about 32% or 200 basis points weaker than we discussed in February. Given our strong and broad-based performance in the first quarter, our ability to continue to outperform underlying markets and execution on our plan 2023 spending reductions, we are reaffirming our 2023 guidance in a continued challenging mortgage market and expected slowing economy in the second half. We also continue to expect to deliver adjusted EBITDA margins of over 36% in the fourth quarter, which is a very important stepping off point for 2024. John will provide more detail on the overall mortgage market and our second quarter and full-year guidance shortly. Turning to Slide 5. In the first quarter, we continued our strong non-mortgage revenue performance delivering 10% constant dollar and 8% organic constant currency revenue growth. All three business units delivered strong non-mortgage revenue growth in the quarter with workforce up 11%, international up 10% in constant currency, and USIS up 8%. This broad-based non-mortgage growth across the business units will be increasingly supported by completion of the Equifax Cloud and continued NPI growth across the businesses. First quarter constant dollar non-mortgage growth of 10% was well within our 8% to 12% long-term revenue framework despite some slowdown in U.S. hiring activity that impacted EWS' Talent Solutions and I-9 businesses, as well as the comparison off a very strong 25% non-mortgage constant dollar revenue growth in first quarter last year. Turning to Slide 6. Workforce Solutions delivered another very strong quarter with non-mortgage revenue growth up 11% and total revenue down 8% as expected from the 58% mortgage market decline. EWS had another strong quarter of record additions with an incremental 4 million records added to the TWN database ending the quarter with 156 million current records, up 15% and 117 million unique records, which was up 12%. This is a very positive sign, has historically the first quarter has lower net record growth as large retail and logistics companies reduce elevated holiday season staffing in the first quarter. And as a reminder, unique records represent individuals on the TWN database and current records represent current active jobs in the database. And in our case, we have almost 50 million individuals having more than one job in our dataset. 117 million unique individuals on TWN deliver high hit rates, including self-employed or 1099 employees and defined benefit pensioners we now cover just over 50% of the 220 million people in the U.S. with employment and income records that are relevant to TWN database and our customers. As I referenced last quarter, we're also beginning to onboard pension records with records from one major pension administrator and discussions with many more. And through our cloud tech transformation, we're executing -- expanding our capabilities to ingest unique 1099 based self-employment records. And as a reminder, about 50% of our records are contributed directly by individual employers from our employer services business relationships. The remaining are contributed through partnerships principally with payroll companies. And during the quarter, we signed agreements with three new payroll processors that will deliver records during the balance of 2023. And the TWN U.S. database now has 618 million total current and historical records from over 2.7 million employers. Increasingly, more of our new products are incorporated current and historical records with about 50% of first quarter verification services revenue coming from products that include historical or trended records. Mortgage revenue was down 38% in the quarter, which was in line with our February guidance, but outperformed the overall mortgage market by 20 points when compared to the 58% decline in originations. These are very strong results when compared to EWS' 52% outperformance in the first quarter last year. In addition to strong record growth and the positive impact from price actions in the quarter, we also saw strong NPI performance driven by the adoption of our new mortgage 36 solution, which is a 36-month trended product. During the quarter, over 50% of TWN mortgage inquiries were for products including trended or historical information and all at higher price points. Turning to Slide 7. Workforce delivered revenue of $596 million, down 8% and in line with our expectations. Verification Services revenue of $456 million was down 11%, driven by the decline in mortgage revenue that I just referenced. Verification Services non-mortgage revenue, which now represents about two-thirds of Verifier revenue delivered strong 16% growth in the quarter. We saw continued very strong growth in the government vertical, which is about 45% of Verifier non-mortgage revenue, with revenue up 33% driven by strong growth with CMS at the state level, new products, and record additions. We expect this strong growth in our government vertical to continue throughout the year. Talent Solutions delivered strong 10% growth in the quarter despite the 6% decline in the overall hiring market. Talent Solutions volumes have remained consistent since the middle of the fourth quarter despite the declining hiring market. We outgrew the market decline by over 15 percentage points delivering 10% growth a very strong performance driven by continued penetration of our digital solutions and background screening, strong new product growth, continued expansion of TWN records and favorable pricing. In the quarter, we launched new products targeted to staffing and hourly segments, designed to meet specific needs of background screeners and end market employers in these very high volume market segments. We're also seeing continued penetration of our new educational background solutions. We expect these new products to continue to drive talent growth throughout 2023. Consumer lending was down 1% in the quarter due to lower auto volumes with financial institutions and P loan declines with FinTech lenders. Employer Services revenue of $141 million was up 4% from growth in our I-9 and onboarding businesses despite the negative impact in U.S. hiring offset by a 9% decline in UC or unemployment claims driven by lower jobless claims. Despite the slowdown in hiring, we've not seen an increase in UC transactions yet. And as a reminder, first quarter Employer Services revenues are seasonally higher than other quarters due to higher Affordable Care Act and W2 volumes. Last month, Workforce Solutions launched the PeopleHQ portal, a new cloud native solution that brings together multiple best-in-class employer compliance services in a single unified online experience. PeopleHQ serves employers of all sizes and supports the total employee journey with enhance and connected people first experience leveraging the full suite of EWS Employer Solutions, powered by the Equifax Cloud and leveraging industry-leading security measures the PeopleHQ portal will have several EWS services including the work number verification service I-9 HQ, including I-9 Anywhere and I-9 Inspect and ACA HQ with best-in-class Affordable Care Act capabilities that help employers meet the needs of their employees while also reducing risk for penalties. PeopleHQ is another example of how EWS is leveraging our new cloud native capabilities to deliver new solutions to the market that will drive employer revenue and continued direct record growth. Workforce Solutions adjusted EBITDA margins of 50.4% were up 370 basis points from the fourth quarter and in line with our February guidance and as expected above 50% due to first quarter record growth, new product introductions and pricing actions, more than offsetting the macro effect of lower volumes in mortgage and Talent Solutions, as well as the negative mix from seasonally higher Employer Services revenues. The strength of EWS and uniqueness and value of their TWN income and employment data in Employer Services businesses were clear again in the quarter. Rudy and the EWS team delivered another strong quarter outperforming the mortgage and hiring markets and continued strong record growth that will drive revenue and margins in the future. Turning to Slide 8. USIS revenue of $422 million was down about 2.5% and much better than our expectations due to stronger mortgage and non-mortgage performance. USIS mortgage revenue was down 25% and was better than our expectations. Although estimated mortgage originations were 300 basis points weaker than our expectation at down an estimated 58%, USIS credit inquiries were stronger than we expected at down 44%. Credit inquiry performance continues to outperform originations, reflecting higher relative levels of consumer mortgage shopping behavior in this higher interest rate environment. Revenue outperformance relative to credit inquiries was strong at 19%, driven principally by pricing actions and was also strong versus a net estimated originations at 33%. At $105 million, our mortgage revenue was about 25% of total USIS revenue in the quarter. Total non-mortgage revenue of $317 million was up 8% in the quarter with organic growth of about 4%. The 8% growth was stronger than the mid-single-digit growth that we expected in our February guidance. B2B non-mortgage revenue of $261 million, which represented over 60% of total USIS revenue was up 8% with organic revenue growth of about 3%. B2B non-mortgage online revenue growth was up 9% total and up over 3% organically. And during the quarter, online revenue had very strong double-digit growth in commercial, auto, identity and fraud, and insurance. And banking was up slightly in the quarter with growth at large financial institutions, although at slower pace than in the fourth quarter more than offset by declines in -- with smaller financial institutions and FinTechs. Commercial was up over 20% with continued strong growth from our differentiated commercial credit data, including financial, telco, utility, and industry trade lines and our new OneScore for commercial that we launched in the first quarter. Commercial is an increasing area of strength delivering above market growth in the risk segment and we should see continued strong performance as we complete their data and cloud transformation later this year. Financial Marketing Services our B2B offline business returned to growth with revenue of $48 million was up 4%, and in line with our expectations. Revenue growth in offline fraud insights and IXI wealth products was partially offset by lower pre-screen marketing revenue. Pre-screen revenue from larger customers slowed growth in the quarter, but we saw a significant weakness from smaller FIs and FinTechs. And we have not seen an increase in risk-based portfolio reviews yet. USIS Consumer Solutions business had revenue of $56 million in first quarter, up 8% from very good performances in our consumer direct and indirect channels. USIS is winning in the marketplace with strong momentum from new solutions and differentiated data in key verticals of identity and fraud, commercial and auto. We're also in active dialogues with U.S. customers about the competitive benefits of the Equifax Cloud with always on stability, faster data transmission, and Equifax Cloud enabled new solutions. USIS is on offense as they finalize their cloud transformation and are pivoting to selling cloud enabled -- new cloud enabled solutions. USIS adjusted EBITDA margins were 32.6% in the quarter and in line with our expectations. EBITDA margins were down sequentially due to negative mix from seasonally sequential growth in mortgage solutions, which drives higher royalties and data costs, as well as the normalization of annual employee incentive costs. USIS is also incurring incremental costs from customer migrations to the new Equifax cloud that are accelerating as we move through 2023. We expect USIS adjusted EBITDA margins to be about 34% in the second quarter up sequentially reflecting revenue growth and the accelerating benefit of our 2023 spending reduction plan. Last month we announced Todd Horvath joined Equifax as our USIS President. Todd has a proven track record of leading enterprise teams and financial services to drive growth and strong commercial relationship. And he brings more than 20 years of financial services management experience, a commitment to driving product and operational excellence and strong expertise in enterprise and cloud technologies to his role as the USIS President. I'm energized to welcome Todd to the Equifax leadership team and believe that his experience in transformation, innovation, and customer experience will proven valuable to taking USIS to the next year. Turning to Slide 9. International revenue was $284 million in the quarter, up 9% in constant currency and 8% organically and much better than our expectations from new products and pricing actions. We're seeing a broad-based execution from Lisa and our international team. Europe local currency revenue was down 4%, but stronger than expected. The decline was due to the expected 20% decline in our debt management business in the UK. As we discussed last year, our UK debt management business was very strong in the first half of 2022, as the UK government made large catch-up debt placements following their COVID debt collection moratoriums. As a result, we expect to see declines in that business in the first half of 2022. However, we do expect to see consistent sequential growth in our debt management business as we move through 2023. In the quarter, we secured an expanded budget allocation from the UK government, which will deliver higher volumes of debt placements during the year, and we expect debt management to return to revenue growth later this year. Our UK and Spain CRA business revenue was up 7% in the quarter, a very good performance and stronger than we expected. This strong performance was principally due to strong growth from consumer decisioning and analytical solutions. Asia-Pacific delivered very strong local currency revenue growth of 11% in which Australia delivered high-single-digit growth in the quarter. We also saw a very strong growth in our India business up over 40%. Latin America local currency revenue was up a very strong 32% driven by very strong double-digit growth in Argentina, Uruguay, Paraguay, and Central America from new product introductions and pricing actions. This is the eighth consecutive quarter of strong double-digit growth for the Latin American team, which we expect to continue in 2023. Canada local currency revenue was up 8% and above our expectations. Growth in consumer and identity and fraud was offset partially by lower mortgage volumes in Canada. And international adjusted EBITDA margins at 23.5% were better than our expectations due to the stronger revenue growth and good execution against their 2023 cost reduction plans. Turning to Slide 10. New product introductions leveraging our differentiated data in the new Equifax Cloud are central to our EFX 2025 growth strategy. Building off the momentum from 2022 where we launched over 100 new products and delivered a record Vitality Index of over 13%. In the first quarter, we launched over 30 new products and delivered 13% Vitality again. Our first quarter Vitality Index was again led by very strong performance in Workforce Solutions and in Latin America. And in the quarter, over 80% of new product revenue came from non-mortgage products leveraging the new Equifax Cloud. Leveraging our new Equifax Cloud capabilities to drive new product rollouts, we expect to deliver Vitality Index in 2023 at about 13%, which is well above our 10% long-term Vitality Index goal. This equates to over $700 million of revenue from new products introduced in the past three years during 2023. New products leveraging our differentiated data, our new Equifax Cloud capabilities and Single Data Fabric are central to our long-term growth framework and are driving Equifax top-line growth and margins. On the right side of the slide, we've highlighted several new products introduced in the quarter. Leveraging our differentiated data, USIS launched OneScore, a new consumer credit scoring model that combines traditional Equifax credit history with telecommunications, payTV, and utility payment data on over 191 million consumers, as well as Equifax DataX and Teletrack specialty finance data on about 80 million consumers, including payment history from non-traditional banks and lenders, which will potentially increase credit scores by up to 25 points in the scorable population by more than 20%. These new solutions are testament to the power of the Equifax Cloud in driving innovation that can increase the visibility of consumers to help expand access to credit and create new mainstream financial opportunities for them. Now, I'd like to turn over to John to provide more detail on our second quarter guidance. We're up to a strong start in 2023, building off the momentum from a strong 2022 non-mortgage growth from new products, record growth and pricing. John?

Mark Begor:

Thanks, John. Wrapping up on Slide 15, Equifax delivered another strong and broad-based quarter with above market performance delivering strong 10% non-mortgage constant currency dollar revenue growth, reflecting the breadth and depth of the Equifax business model and our execution against our EFX 2025 strategic priorities. At the business unit level, Workforce Solutions had another strong quarter powering our results delivering 11% non-mortgage revenue growth with adjusted EBITDA margins of 50%. As I mentioned earlier, EWS signed three new payroll processors with -- and with our TWN current records reaching 156 million, up 4 million records sequentially and up 15% versus last year. Workforce delivered another very strong quarter with a Vitality Index over 20% from innovative new products and solutions leveraging the new EFX Cloud while further penetrating the high growth talent and government verticals. USIS continued their momentum from the fourth quarter with B2B non-mortgage growth of 8% total and 3% organic in the quarter, driven by online B2B non-mortgage growth of 9% total and 3% organic as they accelerate customer migrations to their new Equifax Cloud. International delivered strong 9% local currency growth with strong growth in LATAM, Australia, Canada, India, and our European credit businesses. And our first quarter, Vitality Index up 13% continues to be well above our 10% long-term NPI framework as we delivered over 30 new products leveraging the new Equifax Cloud in the quarter. And we made significant progress executing against our EFX Cloud data and technology transformation with over 70% of our revenue being delivered from the new Equifax Cloud and we're laser-focused on completing our North America migration this year to become the only cloud native data analytics company. And we're executing against our spending reduction plans that will deliver $200 million of savings in 2023, with run rate savings of over $250 million in 2024 that will expand our margins to 36% and EPS to over $2 per share as we exit the year, which positions us for an uncertain economic environment while reducing the capital intensity of our business. And as mentioned earlier, given our strong performance in the quarter, our ability to continue to outperform our underlying markets and deliver on our plan 2023 spending reductions, we've reaffirmed our 2023 guidance for revenue and adjusted EPS. We're entering the next chapter of the new Equifax as we pivot from building the Equifax Cloud over the past four years to leveraging our new cloud capabilities to drive our top and bottom line. We're energized by the early benefits of the Equifax Cloud. We're delivering on the cost benefits we outlined four years ago, and you're seeing our margins expand. The competitive benefits of being always on the faster data transmission and digital macro are positioning us for share gains. The power of a Single Data Fabric where all our data has moved from siloed environments to a single data environment is allowing us to deliver unique solutions like our new mortgage credit report leveraging NC Plus data, OneScore leveraging all our alternative -- all of our alternative data, and a wide array of trended solutions leveraging our historical data. NPIs leveraging our differentiated data and cloud capabilities are accelerating and well above our 10% long-term Vitality goal with over 13% Vitality last year and 13% in the first quarter. Even more encouraging is Workforce Solutions NPI results who completed most of their cloud work early last year and is delivering over 20% Vitality in 2023. This is exciting time for Equifax and I'm energized about our strong above market performance, but even more energized about the new Equifax in 2023 and beyond. We're convinced that our new Equifax cloud-based technology, differentiated data assets and our new Single Data Fabric and market-leading businesses will deliver higher growth, expanded margins, and higher free cash flow in the future. And with that operator, let me open it up for questions.

Manav Patnaik:

Thank you. Good morning. Mark, I was just hoping you could talk a little bit about what your regional bank exposure is and just broadly how you factored the credit tightening that we are hearing about into your guidance because it sounds like on a non-mortgage constant currency basis, you're actually raising the outlook a bit, which seems counter to those trends. So was just hoping you could help us parse those through.

Manav Patnaik:

Got it.

Manav Patnaik:

Got it. Okay. That's helpful. And then Mark, obviously, you've talked about your tech transformation a lot and you just mentioned the always on Single Data Fabric, et cetera, but with all the news around AI and ChatGPT and so forth in the media. I was just hoping you could talk about where you are with your capabilities there and the risks and opportunities you see.

Operator:

Thank you. Next question is coming from Kyle Peterson from Needham & Company. Your line is now live.

Mark Begor:

Well, I would say even though, as you know, our mid-size banks, there was no impact that we could see or measure really in the -- in March or really in April so far from deposit tightening, you know what we mentioned that we've seen some tightening in some areas, FinTechs, for example number one, because of delinquency concerns in subprime consumers, which I would characterize as unrelated to the deposit and balance sheet issues that some of those FinTechs have been having. And broadly we haven't seen that impact. It's really been more just risk management from tightening around certain credit ban because of concerns around consumer exposure. And again is that you heard my comments earlier, broadly the consumers still quite healthy and broadly delinquencies are still very manageable and low versus kind of historic levels which is allowing our customers to continue to originate. But back in February, and again, today, we still are looking at the second half as being what we characterize as some level of slowdown, and that's reflected in our guidance and how we think about our ability to deliver in the second half. And that's reflected in our reaffirmation of the full-year guidance, we think that strength of the broader businesses and remember, there's a lot of Equifax businesses that are outside of financial services. When you think about Workforce Solutions government, Talent Solutions, our employer business, many of our identity and fraud businesses in USIS are not in financial services. So there's a diversity element, of course, we have an international business is quite large that's all a part of Equifax.

Kyle Peterson:

Got it. That's really helpful color. And just as a follow-up on the Talent Solution side of the business, it seems like 1Q was at least a little better than 4Q on the revenue side of things. It seems like some of that is likely price, but just wanted to see if you guys, do you have any color? Was this predominantly pricing? Is there any seasonality? Because I guess it seems like some of the hiring data seems a little cautious from what we've seen. But just wanted to see if you could help us square the puts and takes of that sequential bump up in the Talent Solutions revenue.

Operator:

Thank you. Next question is coming from Andrew Steinerman from JP Morgan. Your line is now live.

John Gamble:

Yes. So I don't think we gave an organic number for the full-year, right? But what we are expecting to see as we talked about is nice strength and strengthening in our total non-mortgage growth as we go through the rest of the third quarter and fourth quarter.

John Gamble:

Sure. So I think what EWS is continuing to see very good performance in government. We expect to continue to see that, that move forward as we go through the rest of the year. They're also seeing really nice progress in new product. So we're expecting to see good acceleration in NPI across --

John Gamble:

Record additions as we go through the rest of the year, as well as they added three new payroll processors in the first quarter. And we expect to see accelerating growth in records as we go through the year. So I think all of those things will help us continue to drive higher performance in non-mortgage in EWS as we go through the rest of the year.

Andrew Jeffrey:

Hi, thanks, and good morning. Appreciate you taking the question. Mark, you mentioned trended data in EWS, which is pretty intriguing. Can you discuss a little bit kind of what the price differential is on some of those newer trended data products? And then sort of as a follow-up, can you also just refresh us on what percent of EWS inquiries go unfulfilled today either because you don't have the data or you don't have the records in the database, and how you think those trends move over time?

Operator:

Thank you. Next question is coming from Shlomo Rosenbaum from Stifel. Your line is now live.

John Gamble:

So again, what we talked about, I think in the quarter is we had very good growth in total. It was about 16% I think in Verifier and then 11% growth. We didn't give a specific organic number. Acquisitions weren't that substantial in EWS in the past year so that there's really not a significant impact from acquisitions. And really what we're expecting as we just talked about a minute ago to drive the growth as we go forward is really continued acceleration in growth in government and continued addition of records, benefits of new products, as well as additional pricing that should allow us to get, to drive back to total growth in the back half of the year that's above 10% as it was in the first quarter.

Mark Begor:

No. The contracts that we're signing are and will continue to be exclusive going forward. That's our plan and these work.

Andrew Nicholas:

Hi, good morning. Thanks for taking my questions. I wanted to start, it doesn't seem like from the deck there was any mention of the identity and fraud business in the quarter. Just wondering how -- how that's trending both in the first quarter and what your expectations are for progression as we move through the year there.

Andrew Nicholas:

Great. Thank you. And then for my follow-up, I wanted to ask about mortgage growth in EWS. It looks to me like the outperformance relative to inquiry volumes has been narrowing or at least narrowed in the quarter. I'm just wondering if there's anything to read into that, is that a lower kind of normal level of outperformance to expect through the rest of the year? Or if you could just kind of unpack the 38% mortgage decline relative to the 44% decline in increase in the first quarter that would be helpful. Thank you.

Mark Begor:

They were also off a tough comp from last year.

Mark Begor:

Very, very strong outperformance from some of the new products that were rolled out late in 2021 and into 2022. They had a very, very strong 2022 and we're pleased with their outperformance. We think it's very strong.

Operator:

Thank you. Next question is coming from Craig Huber from Huber Research. Your line is now live.

John Gamble:

So I think we indicated that auto performed well, right? And we also indicated, I believe that that FI or banking right was about flat, right? And our credit card business was inside of FI.

Craig Huber:

And my final question guys, your uses of free cash flows, your thoughts here changed. Do we expect anything different here than other than just potential debt paydown?

Craig Huber:

Sorry.

Craig Huber:

Sorry. Back on the first question for auto and credit card outlook for the second half of the year. Can you just touch on that a little bit further? Thank you very much.

Operator:

Thank you. Next question is coming from Kelsey Zhu from Autonomous Research. Your line is now live.

Mark Begor:

We don't. There's a number of solutions out there from FinTechs and as you know experience got a business there too. The scale of our dataset, our ability to continue growing that dataset and the fact we get verified records directly from the source meaning the company's payroll records and the depth of the record also as you probably know we get over 50 attributes in every payroll record that includes name, social, date of birth, job title, which is very important for our employer vertical. But then all kinds of details on the payroll, gross pay, net pay, deductions, stock compensation, incentive compensation, sales compensation, hours worked, et cetera. So the depth of our database, the fact that it's current every pay period, and the scale of it really gives us a very strong position. And then last, I think as you know, we have system to system integrations that we've built in all of our verticals where as a part of their workflows, our customer's workflows, they hit our database. So we're hit first. Where solutions like you described or some of the FinTechs play in is where there's not a verification available from Workforce Solutions, and you have to go to another source, which is typically manual. And that's why we have a partnership with Yodlee, where we do bank transaction data and there's other solutions like that. But you've seen continued super strong growth from workforce because of the uniqueness and scale and depth of the dataset.

Mark Begor:

Yes. That's a -- that business is a direct-to-consumer business that where we sell credit monitoring solutions and other solutions like that. It's really the business has rolled out some new products. It's leveraging our new cloud capabilities and just having better performance in some of the success rate of landing new consumers that want to use our credit monitoring solutions in the marketplace. So we're pleased with that performance and having it return to growth, you may recall that it struggled a year ago, two years ago. And as we got into the cloud and leveraged those capabilities and rolled out the new products, we've had some better performance, which we're pleased with.

Jeff Meuler:

Yes. Thank you. Good morning. So I guess I had a different take on the Verifier Talent. I guess that the revenue dollar stepped up sequentially, but when I look at the year-over-year, I guess revenue plus 10, gross hiring minus 6, I think that's an industry metric. And then records plus 15, mathematically that seems like the story. But you're calling out several other, I guess, structural growth drivers or factors. I know you've gotten asked a lot about one specific situation referenced by another public company, but just if you can help me on the other structural growth drivers or if there's any other offsets to them we need to consider. Thank you.

Jeff Meuler:

It is helpful. Thank you. And then I'm just a 36% plus and $2 as a launching off point. I just want to make sure I'm thinking through the seasonality correctly. I guess in future years there is still some seasonally lower margin or EPS in Q1, but from timing of equity grants and other factors, but it's nowhere near as pronounced as it was in 2023 because there was a one-time catch-up in 2023 that impacted Q1. Just want to make sure I have that right. Thank you.

John Gamble:

So -- so specific to equity, no, the impact each year is probably relatively similar, right? Because it's just the fact that the grants that are executed in the given year based on the structure of the programs now currently end up being -- the expense ends up being taken in the first quarter. As Mark mentioned, in terms of the impact on our margins going from fourth to first of 20 -- fourth of 2022 to first of 2023, we did obviously have an incremental impact as we normalize cash incentive compensation, and that's not something that we should see each year going forward, but the equity incentive compensation, yes, that's something you'll see each year.

Operator:

Thank you. Next question is coming from Heather Balsky from Bank of America. Your line is now live.

Mark Begor:

Yes, 100%. Just as a reminder, USIS is not complete with their cloud transformation, but they're in the final chapters. So we're going to complete that this year. We have a meaningful number of customers already on the USIS cloud, which is a big deal. And we are -- you are seeing an acceleration of new product rollouts in 2023 already from the USIS team, you may have seen our announcement, which I didn't talk about this morning of our -- we talked about in February of our new mortgage credit report, where we're adding our cell phone utility data to that, that's going to provide a meaningful lift in credit scores for consumers by the addition of that data. And we're the only ones that can do that. So that's going to be a very positive product for us in the mortgage space. I talked about this morning the new OneScore solution that combines our cell phone utility data, which is a very large data set for Equifax that only we have along with our Teletrack and DataX solutions on 80 million consumers in the U.S. So that's another new solution that will be additive to the credit file and differentiate USIS in the marketplace. So that's a brand new product that's out there. We also launched a new solution in our commercial business that's really driving that business growth. And that's one that's been in the marketplace, a little bit longer for a few months, but you're seeing very strong double-digit growth in our commercial business. And in that solution, we're combining our bank transaction data with -- along with our PayNet leasing trade line data, which driven -- which delivers very meaningful predictability lifts and performance lifts for our commercial customers. So big time, we have a -- you're already seeing it the early days of them rolling out their solutions. And I think you are seeing it in some of the revenue in the businesses. And that'll continue to show up as we complete the cloud in USIS later this year. The other lever that's going to be I think we've talked about is we expect to have competitive or market share gains from the stability meaning always on, as well as the data transmission benefits from the Equifax Cloud or USIS. So that's another lever, and we've been clear that we're in active dialogues with customers that are moving Equifax into preferred positions because of our investment in the cloud. And again, there's another USIS benefit. So those impacts on their revenue should show up as we move through 2023, but really kick in, in 2024 and 2025.