Equifax Q3 2023 Earnings Report

Equifax EPS Results

• Actual EPS: $1.76
• Consensus EPS: $1.78
• Beat/Miss: Missed by -$0.02
• One Year Ago EPS: $1.73

Equifax Revenue Results

• Actual Revenue: $1.32 billion
• Expected Revenue: $1.33 billion
• Beat/Miss: Missed by -$10.01 million
• YoY Revenue Growth: +6.00%

Equifax Announcement Details

• Quarter: Q3 2023
• Date: 10/19/2023
• Time: After Market Closes
• Conference Call Date: Thursday, October 19, 2023
• Conference Call Time: 8:30AM ET

Equifax (NYSE:EFX) Inc. (NYSE: EFX) is a global data, analytics and technology company that provides information solutions to businesses, government agencies and consumers. Its services help organizations assess credit risk, prevent fraud, verify identities, market products and make informed decisions about lending, employment and other transactions.

The company’s offerings include consumer and commercial credit reports, credit scores, fraud-prevention and identity-management tools, income and employment verification services, mortgage and housing data, and workforce-management solutions. Equifax also provides analytics and decision-support technology designed to help financial institutions, employers, insurers, telecommunications companies and other organizations manage risk and improve customer interactions.

Equifax traces its origins to 1899, when it was established as the Retail Credit Company, and adopted the Equifax name in 1979. Headquartered in Atlanta, Georgia, the company serves customers and consumers across North America, Latin America, Europe and the Asia-Pacific region. Mark W. Begor has served as Equifax’s chief executive officer since 2018.

Equifax Q3 2023 Earnings Call Transcript

Key Takeaways

• In Q3 US mortgage volumes fell about 29% as mortgage rates approached 7.5–8%, cutting revenue by $22M, missing guidance by $34M, and weighing on adjusted EPS by around $0.10.
• Equifax posted Q3 revenue of $1.32B (up 6% reported, 3.5% organic) and adjusted EPS of $1.76 (+2%), underpinned by strong non-mortgage constant-currency growth of 11% (7% organic).
• Record new product momentum drove a 15% vitality index in Q3—well above the long-term goal—with 85% of new product revenue from non-mortgage solutions on the eFX Cloud.
• The company is executing $210M of 2023 spending reductions—including $120M of opex savings—and expects $65M of incremental run-rate savings in 2024, while advancing cloud migrations with USIS and Canadian platforms to complete in H1 2024.
• For Q4 Equifax targets revenue growth of 10% (7% organic) to $1.307–1.327B, adj EPS of $1.72–1.82 (+17%), and ~34% EBITDA margin, assuming ongoing mortgage volume declines and a $13M FX headwind.

Presentation

[Operator]

Hello, and welcome to the Equifax Q3 2023 earnings conference call. If anyone should require operator assistance, please press star zero on your telephone keypad. A question-and-answer session will follow the formal presentation. You may ask a question at any time by pressing star one on your telephone keypad. We ask that you please limit yourselves to one question and one follow-up. 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. Trevor, please go ahead.

[Trevor Burns, SVP and Head of Corporate Investor Relations at Equifax]

Thanks, and good morning. Welcome to today's conference call. I'm Trevor Burns. With me today are Mark Begor, Chief Executive Officer, and John Gamble, Chief Financial Officer. Today's call is being recorded, and our copy of the recording will be available later today in the IR Calendar section of the News and Events tab at our IR website, investor.equifax.com. During the call today, we'll be making reference to certain materials that can also be found in the Presentation section of the News and Events tab at our IR website. These materials are labeled Q3 2023 Earnings Conference Call. Also, we'll be making certain forward-looking statements, including Q4 and full year 2023 guidance, to help you understand Equifax and its business environment. These statements involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from our expectations.

[Trevor Burns, SVP and Head of Corporate Investor Relations at Equifax]

Certain risk factors that may impact our business are set forth in filings with the SEC, including our 2022 Form 10-K and subsequent filings. We will also be referring to certain non-GAAP financial measures, including adjusted EPS attributable to Equifax and adjusted EBITDA, which will be adjusted for certain items that affect the comparability of our underlying operational performance. Recently, Equifax reached an agreement with the U.K. Financial Conduct Authority in relation to the 2017 cybersecurity incident. In connection with the agreement, Equifax has taken a charge in the Q3 of $14 million, which is excluded from Q3 adjusted EBITDA and adjusted EPS. These non-GAAP financial measures are detailed in reconciliation tables, which are included in our earnings release and can be found in the Financial Results section of the Financial Info tab at our IR website.

[Trevor Burns, SVP and Head of Corporate Investor Relations at Equifax]

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

[Mark Begor, CEO at Equifax]

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 Q3 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 Q3.

[Mark Begor, CEO at Equifax]

Overall, Equifax revenue of $1.32 billion was $34 million below the midpoint of the guidance we provided 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 market and FX impact, revenue in the Q3 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, were on the order of 650 basis points weaker than we expected in our July guidance.

[Mark Begor, CEO at Equifax]

Mortgage rates increased substantially during the quarter, with a 100 basis point increase in the 10-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. 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.

[Mark Begor, CEO at Equifax]

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 Q2. 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 basis points sequentially. International organic non-mortgage revenue growth at 3.3% was slightly weaker than our expectations, principally due to lower revenue in our U.K. 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.

[Mark Begor, CEO at Equifax]

As I referenced earlier, despite the much lower than expected mortgage revenue in the Q3, 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 basis points 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 dollar cloud and broader spending reduction programs, which allowed us to grow margins sequentially in the quarter despite the lower mortgage revenue.

[Mark Begor, CEO at Equifax]

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 H1 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.

[Mark Begor, CEO at Equifax]

As we look to the Q4, 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 Q4 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.

[Mark Begor, CEO at Equifax]

However, excluding BVS, this framework is about $70 million below the implied Q4 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 the 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 Q4, driving a reduction in overall mortgage volumes of about 18 percentage points versus the guidance implied for the Q4 in our July framework. This negatively impacts mortgage revenue in the Q4 by about $47 million.

[Mark Begor, CEO at Equifax]

At these levels, U.S. mortgage activity will be down an unprecedented more than 50% from 2015-2029 averages, which we consider to be normal mortgage market levels. We expect FX to negatively impact revenue in the Q4 versus our July guidance by $13 million. The net impact of the $70 million dollar reduction in revenue is driving the reduction in EPS and EBITDA margin from our original Q4 goals of $2 a share and 36%, respectively. The H2 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.

[Mark Begor, CEO at Equifax]

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.

[Mark Begor, CEO at Equifax]

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 Q2 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 and 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.

[Mark Begor, CEO at Equifax]

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.

[Mark Begor, CEO at Equifax]

Strong, 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 Q3 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.

[Mark Begor, CEO at Equifax]

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 Q4 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.

[Mark Begor, CEO at Equifax]

Increasingly, more of our new products are incorporating both current and historical records, with about 50% of our Q3 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 Q3 last year, which of course, was a very tough comp. Verification services non-mortgage revenue, which represents just under 70% of verification revenue, delivered 11% growth versus last year in the quarter. This was also against a very challenging 72% non-mortgage growth comp last year.

[Mark Begor, CEO at Equifax]

In government, we saw continued very strong growth, with revenue up 23% compared to over 90% revenue growth last year in the Q3. 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 Q2 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.

[Mark Begor, CEO at Equifax]

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.

[Mark Begor, CEO at Equifax]

We expect to see accelerating sequential growth in our government vertical in the Q4, 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 Q3 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 than the about 10% decline that the BLS reported in the Q3 through August.

[Mark Begor, CEO at Equifax]

We outperformed the hiring market by about 20 percentage points in the quarter as we delivered new digital solutions in 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 I-9 and onboarding businesses, despite the negative impact of U.S. hiring, as well as growth in our ACA business. In the Q4, we expect overall employer services revenue to decline slightly, as growth in I-9 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 in a single unified customer experience.

[Mark Begor, CEO at Equifax]

PeopleHQ will help companies of all sizes access EWS employer services, including income verification, I-9, and ACA from our new self-service portal. Since the launch of PeopleHQ in the Q1, 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 Q2 from the mortgage market decline. The EWS team continued to perform very well, despite the macro headwinds from mortgage and US 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.

[Mark Begor, CEO at Equifax]

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 6% 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 strong double-digit growth in count from very good new business and NPI performance.

[Mark Begor, CEO at Equifax]

Financial Marketing Services, our B2B offline business, had revenue of $51 million that was down just under 1%. In marketing, declines in prescreen marketing revenue in the quarter that were consistent with declines in the H1, more than offset nice revenue growth from our IXI consumer wealth data business. In prescreen, 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, up 12% from very good performances in both our consumer direct and our indirect channels.

[Mark Begor, CEO at Equifax]

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 the 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 Q3, USIS onboarded a new large FI customer to our new cloud platform, which we expect to deliver share gains moving forward. Turning to slide 8.

[Mark Begor, CEO at Equifax]

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 U.K 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 U.K. debt management business. We expect Europe to deliver almost 10% growth in the Q4 from continued strength in the CRA business and a return to growth in our debt management business as we lap difficult comps from last year.

[Mark Begor, CEO at Equifax]

Latin America local currency revenue, including Brazil, was up a very strong 21%, topping off a very strong 34% growth in the Q3 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 Q4. 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 her international team.

[Mark Begor, CEO at Equifax]

Turning to slide 9, in the Q3, 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, an improvement of about 800 basis points sequentially. As we look to the Q4, we expect non-mortgage revenue growth to be about 13%, with organic growth of about 9% above the levels we delivered in the Q3. 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 EFX Cloud are central to our EFX 2025 growth strategy.

[Mark Begor, CEO at Equifax]

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. In the Q3, 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 100 basis points higher than H1, 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.

[Mark Begor, CEO at Equifax]

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 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 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 Q3, for the period after our acquisition closed on August 7, EFX Brazil delivered revenue of $23 million and was accretive to adjusted EPS by $0.02 per share.

[Mark Begor, CEO at Equifax]

Going forward, Brazil will be included in our Latin American region for reporting. As a reminder, we expect Brazil to deliver approximately $160 million in run rate revenue to Equifax and to be accretive to adjusted EPS in its first year. Now I'd like to turn it over to John to provide more detail on our Q4 and full year guidance. John?

[John Gamble, CFO at Equifax]

Thanks, Mark. Turning to slide 12. As Mark mentioned, Q3 mortgage market credit inquiries were down about 29%, weaker than the down 23% in our July guidance. EWS mortgage outperformance was about 22% from records and price, product, and mix, and consistent with the Q2. For the Q4, we are assuming the weakening trend in mortgage market volume, estimated based on the change in our credit inquiries we have seen in October, continues, as well as further normal seasonal declines in November and December. On this basis, we expect mortgage credit inquiries to be down about 22% in the Q4, which is an 18 percentage point reduction from our July framework for the Q4.

[John Gamble, CFO at Equifax]

For perspective, to the extent the mortgage market continues at the levels we've assumed for 4Q23, which is more than 50% below pre-pandemic averages, 2024 mortgage market credit inquiry volumes would be down approaching 15% versus 2023. Slide 13 provides the details of our guidance for 4Q23. In Q4 2023, we expect total Equifax revenue to be between $1.307 billion and $1.327 billion, with revenue up 10% at the midpoint. Non-mortgage constant currency revenue growth should strengthen to 13%. Mortgage revenue in the Q4 is expected to be below 15% of Equifax revenue. Business unit performance in the Q4 is expected to be as described below. Workforce Solutions revenue growth is expected to be up about 8%, which is lower than the implied Q4 framework we outlined in July.

[John Gamble, CFO at Equifax]

The bulk of the $47 million mortgage market impact on revenue that Mark referenced impacts EWS. As we discussed in July, USIS benefits from greater mortgage revenue in the early application phases, which should continue into the Q4. EWS non-mortgage revenue will return to strong over 15% growth year-over-year in the Q4. However, this strong growth is below our framework from July. Government growth should be above the 23% we saw in the Q3, but is below our framework from July, as state benefit redeterminations are occurring at a slower pace than we anticipated. Talent growth should be above the 6% we saw this quarter as well, but will also be below our July framework as overall hiring has decelerated from the levels we were seeing in July, with BLS now down 10%, with white-collar verticals down significantly more.

[John Gamble, CFO at Equifax]

Employer services revenue will be below our Q4 framework from July for both I-9 and onboarding that should continue to deliver year-to-year growth, but at levels below our July framework from weaker overall hiring and ERC, with the IRS announcement that they would pause on new ERC claims. Adjusted EBITDA margins for EWS are expected to be about 50.5%. USIS revenue is expected to be up about 4% year-to-year, despite the increased mortgage headwinds. Non-mortgage year-to-year revenue growth of 4% should be down from the about 8.5% growth we saw this quarter as we lap Q4 2022 pricing actions. This is somewhat stronger than we expected in our July framework, driven by continued good growth in commercial, consumer solutions, auto, and across our account ID products.

[John Gamble, CFO at Equifax]

Adjusted EBITDA margins are expected to be about 35%, up sequentially, principally due to revenue growth and cost actions. International revenue is expected to be up about 20% in constant currency due to the addition of BVS and as we lap headwinds in our UK debt management business. Revenue is expected to be up about 6.5% in organic constant currency. This is somewhat stronger than our July framework. EBITDA margins are expected to be about 30%, reflecting revenue growth and strong cost management, including the benefit of planned cost reduction actions. We expect Brazil to deliver revenue of about $38 million in the Q4.

[John Gamble, CFO at Equifax]

Equifax Q4 2023 adjusted EBITDA margins are expected to be about 34% at the midpoint of our guidance, an increase sequentially of almost 100 basis points, and adjusted EPS in Q4 2023 is expected to be $1.72-$1.82 per share, up 17% versus Q4 2022 at the midpoint. Both adjusted EPS and adjusted EBITDA margin are below the $2 per share and 36% targets that we set as goals as we entered 2023, principally due to the assumed further decline in mortgage market volumes and associated reduction of high margin mortgage revenue that Mark discussed. Slide 14 provides the specifics of our 2023 full year guidance. 2023 revenue and adjusted EPS are being reduced consistent with our Q3 2023 results and our Q4 2023 guidance.

[John Gamble, CFO at Equifax]

We expect 2023 non-mortgage constant currency revenue growth to be strong at about 9% and organic revenue growth of about 7%. Total capital spending for 2023, including the addition of Brazil, which was not previously included in our guidance, is expected to be about $580 million. Capital spending in the Q3 was about $145 million. We did see the expected decline in spending sequentially. However, the reduction was slightly less than the expected, principally due to higher spending related to customer migrations. We expect capital spending in the Q4 to decline sequentially by about $15 million as we continue to progress U.S. and Canadian migrations to Data Fabric. We remain focused on reducing CapEx as a percentage of revenue to about 7% by the end of 2025.

[John Gamble, CFO at Equifax]

We remain focused on executing our long-term model, delivering 8%-12% revenue growth with 50+ basis points of margin expansion annually on average over a cycle. Although the unprecedented decline in the U.S. mortgage market in 2022 and 2023 pushes out our prior midterm goal of $7 billion in revenue and 39% EBITDA margins to beyond 2025, it does not change our focus on expanding our margins toward our 39% goal as we drive revenue higher. We will continue to focus on delivering strong non-mortgage growth at or above our long-term revenue growth framework, outperforming our underlying markets, including the mortgage market, and executing our cloud transformation, including delivering ongoing cost improvements.

[John Gamble, CFO at Equifax]

As mentioned earlier, to the extent the mortgage market continues at the levels we have assumed for Q4 2023, 2024 mortgage market inquiry volumes would be down approaching 15% versus 2023. Now I'd like to turn it back over to Mark.

[Mark Begor, CEO at Equifax]

Thanks, John. Wrapping up, Equifax delivered on its earnings guidance in the Q3 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 to strong 11% non-mortgage growth, and USIS delivered a strong over 8% non-mortgage quarter. We expect our strong Q3 constant dollar non-mortgage revenue of 11% to accelerate in the Q4 to about 13%, including EWS above 15% and international, including BVS, at about 20%.

[Mark Begor, CEO at Equifax]

The breadth and depth of our non-mortgage businesses, which account for about 81% of Equifax revenue in the Q3, 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, first, continuing above market non-mortgage growth inside our 8%-12% long-term framework and outperforming the underlying mortgage market.

[Mark Begor, CEO at Equifax]

Second, substantially completing our cloud transformation in 2024, with revenue from our new cloud platforms approaching 90% by the end of the year, which will be a big milestone to allow our team to pivot to fully focus on innovation and growth. Third, as we complete our cloud investments, we expect CapEx to move towards our long-term goal of 7% of revenue in 2025, and our CapEx spend to pivot from maintenance and cloud investments to innovation and new products. Aligned with our cloud technology completion, we will continue to execute against the cloud and broader spending reduction program we announced in February, which we expect to deliver $65 million of 2023 carryover next year, with additional cost savings next year as we complete the cloud.

[Mark Begor, CEO at Equifax]

Fifth, our 14% vitality performance in the second half of this year gives us strong momentum as we move towards 2024. We will continue our focus on new product innovation using our single data fabric, cloud capabilities, and AI to bring new models and scores to the market, including a focus on bringing EWS and USIS assets much closer together with a long-term annual vitality goal of 10%. 6th, we'll focus on adding new EWS records to further strengthen the TWN data set, including the acquisition of traditional W-2, pension, and 1099 records. Last, we'll continue to look for financially attractive bolt-on M&A aligned with our strategic priorities around differentiated data, strengthening EWS, and identity and fraud.

[Mark Begor, CEO at Equifax]

Despite the challenges of an unprecedented decline in the U.S. mortgage market, Equifax demonstrated in 2022 and 2023 that we can grow revenue as we outperform our underlying markets over the last two years from above market non-mortgage growth, outperforming the mortgage market, vertical penetration, new product innovation, adding new records to TWN, and pricing. We are committed to delivering on our long-term framework of 8%-12% revenue growth and 50 basis points of annual margin expansion, as well as our medium-term goal of 39% EBITDA margins. When the mortgage market recovers, we are poised to generate accelerated above-market growth and margin expansion from investments we have made in our cloud technology, new products, TWN record additions, and expanding our unique data assets.

[Mark Begor, CEO at Equifax]

We enter 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 are convinced that our new Equifax Cloud-based technology, differentiated data assets in our new single data fabric, and market-leading businesses will deliver higher growth, expanded margins, and free cash flow in the future. With that, operator, let me open it up for questions.

[Operator]

Thank you. We'll now be conducting a question-and-answer session. As a reminder, we ask you ask one question, one follow-up, then return to the queue. If you'd like to be placed in the question queue, please press star one on your telephone keypad. You may press star two if you'd like to remove your question from the queue. One moment please, while we pull for questions. As a reminder, please ask one question and one follow-up. Our first question is coming from Manav Patnaik from Barclays. Your line is now live.

[Manav Patnaik, Managing Director and Senior Equity Analyst at Barclays]

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

[Mark Begor, CEO at Equifax]

Yeah, we, Manav, we believe that we have, you know, multiple levers in both mortgage and non-mortgage. I'll focus on mortgage because that's your question, to continue to outperform the underlying market, and you've seen us do that over an extended period of time. You know, I will talk about USIS and EWS if you want, because that's mortgage. You know, in USIS, they obviously have the ability to deliver price, and we expect, you know, price to be a part of the levers for 2024. There's new product rollouts inside of USIS. For example, you recall earlier this year, we rolled out our new mortgage credit report that includes those NC Plus attributes. That's gonna be a positive for us to outperform the underlying market.

[Mark Begor, CEO at Equifax]

Then if you go to EWS, you've got the same two levers there, plus more obviously. Price is an opportunity as we have you know more records, and we can deliver more value to the mortgage customers. We've got a big focus in more leverage in EWS around new products. You've seen us roll out new solutions like a year ago, Mortgage 36, with 36 months worth of history. So new products will be a continued lever for us in the mortgage space. And of course, records, growing records, double-digit in the quarter, the new payroll processors that we're adding in the Q4 and next year that we signed up during the quarter.

[Mark Begor, CEO at Equifax]

Of course, our pipeline of new records, those drive higher hit rates in the EWS mortgage business, which we expect that to continue going forward. Then the last for EWS, quite uniquely, is ability to drive penetration, meaning more usage of the income and employment data inside the mortgage process. And as we've talked before, you know, we don't have every customer doesn't use our solution. Some still use, you know, manual verifications, and we're driving them to using our verified solution. So yeah, we've got you know confidence about our ability. I wouldn't characterize that we have new levers, but we've got a lot of focus around them.

[Mark Begor, CEO at Equifax]

And I think when you think about EWS and USIS, and we mentioned it earlier in our prepared comments, you know, as USIS completes the cloud, and of course, EWS is already there, you know, we think the ability to have each business bring new products to market will continue. But the ability to bring solutions that combine the two businesses' data assets for mortgage and non-mortgage, with USIS getting into the cloud is another gear for us in the future.

[Manav Patnaik, Managing Director and Senior Equity Analyst at Barclays]

... Okay, got it. And then just on the margin front, you know, the 34% for the Q4, is that a right run rate to think about as you head through the year? You know, I know you have a lot of, you know, obviously, mortgage headwinds and then cost savings coming in to offset that. And if you could just remind us, you know, versus the 39% target that you had, you know, how much of that is going to be a, you know, the, a mortgage shortfall in terms of getting to that 39%?

[Mark Begor, CEO at Equifax]

I think first on the 39, we tried to be clear. Our goal hasn't changed. As you know, for a couple of years, we carried a goal of 2025 for 39% against $7 billion of revenue. Clearly, that $7 billion is going to be pushed out with the mortgage market decline, and we wanted to be, you know, transparent today that, you know, we view that as being post-2025. But our focus on 39 hasn't changed. We have a path to 39, you know, in the future. It's going to be beyond 2025, and then post-39, we still see between operating leverage in the businesses, the you know, strong margins in EWS, the ability to grow 50 basis points per year post that 39.

[John Gamble, CFO at Equifax]

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 will get 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'll 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, Q1 margins for us tend to be lower, right?

[John Gamble, CFO at Equifax]

Because significant amount of equity and variable compensation expense hits in the Q1, as opposed to being spread throughout the year because of the structure of our plan. So just as a reminder, Q1 margins tend to move down.

[Operator]

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

[Andrew Steinerman, Managing Director and Senior Equity Research Analyst at JPMorgan]

Hi. Two quickies. Well, actually, we'll see if they're quick. The first one is, for the Q3, 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, Q4 to Q2? I'm also assuming that it might be higher in total now because you talked about additional state penetration.

[Mark Begor, CEO at Equifax]

I think the first question, John, it was 19%-

[John Gamble, CFO at Equifax]

Nineteen percent.

[Mark Begor, CEO at Equifax]

In the Q3. That'll be lower in the Q4, for obvious reasons. Yeah, on the % of revenue, Andrew, from mortgage. On the government one, you know, maybe just a couple of comments on government and, and I'll get to redeterminations and John can jump in. Yeah, we've got a lot of positive levers in government. I hope you saw Andrew and noted that, those two large contracts, which we alluded to in July, meaning that we talked about some visibility that we had of, new contracts, the $1.2 billion and the $190 million USDA contracts, you know, give us some visibility and momentum in our government vertical, not only in the Q4, but also for 2024.

[Mark Begor, CEO at Equifax]

Those contracts, as well as others, also give us the ability to continue our expansion at the state level. You know, as you know, our government vertical inside of EWS is call it roughly $500 million run rate business, but in a $4 billion TAM. You know, so there's a lot of opportunity to add new states and new agencies at the state levels. You might imagine we have a deal pipeline of customers or agencies that we're working on adding, you know, at the state level, which is a part of our visibility for Q4 and into 2024, you know, for the government vertical. And in particular, the CMS contract is and the USDA contract, actually, are both helpful, you know, in the addition, you know, of more state-level relationships.

[Mark Begor, CEO at Equifax]

On redeterminations, it's clearly been a very challenging forecasting about when will states actually activate those redeterminations. We saw a strong volume of that in the Q3. We expect that to continue in the fourth. And then, as you point out, in first and second next year, there'll be continued redeterminations because of the timeline is to really complete those, I believe, at the end of the Q2. So you know, we work closely on those, but it has been a bit more challenging to forecast those. Anything you add, John?

[John Gamble, CFO at Equifax]

Not 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 Q3 and the Q4. 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 Q2. But as we said, end of Q3 and certainly in the Q4, a little lower growth than the level we'd expected.

[Andrew Steinerman, Managing Director and Senior Equity Research Analyst at JPMorgan]

Perfect. Thank you.

[Operator]

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

[Kelsey Zhu, Lead Information Services Research Analyst at Autonomous Research]

Hey, good morning. Thanks for taking my question. I think on the talent vertical, you talked about 20 percentage point outperformance, if I heard that correctly. I was wondering, you know, between the different factors, that are driving that 20 percentage outperformance, what is the biggest factor? And how durable is this 20 percentage point outperformance over the next few quarters?

[Mark Begor, CEO at Equifax]

Yeah, the 20% we were pleased with, you know, the market, the business was up 6%, the talent vertical. And, you know, 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, you know, 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. You know, in talent, we've got the ability to, you know, 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.

[Mark Begor, CEO at Equifax]

You know, that's a big multibillion-dollar TAM. You know, in a business, it'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 are 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, you know, quite durable, along with price. Product's another big one. You've seen us roll out, you know, almost every quarter, a couple of new products from EWS in 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.

[Mark Begor, CEO at Equifax]

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, 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.

[Kelsey Zhu, Lead Information Services Research Analyst at Autonomous Research]

Got it. That's super helpful. Thanks so much. My second question is on mortgage. I was wondering if you can talk a little bit about the spread between kind of the inquiries trend versus origination, and how you calculate the mortgage outperformance for EWS?

[Mark Begor, CEO at Equifax]

Yeah, I'll start and let John jump in. We've been consistent. Really, there's been a phenomenon that's a major change, a meaningful change in the mortgage market over the last, call it 12-18 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?

[Mark Begor, CEO at Equifax]

Well, 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. You know, with these high interest rates, consumers will be more deliberate around their shopping behavior. And that's why there's a positive, if you will, for USIS in inquiries or credit pulls in this environment where EWS, typically in the back end of the mortgage process, really around closed loans.

[John Gamble, CFO at Equifax]

Yeah, just broadly, right? We're finding it difficult to get good market data when and that we can correlate across applications and other measures, including originations. So as you know, for USIS, right, we determine our outperformance based on our own internal volume data, and we share that internal volume data, obviously, with you every quarter, right? And then going forward, what we're gonna do is we're gonna provide outperformance for EWS, also based on our internal volume data, which are actuals, which we can actually measure. And as we've been talking to you about for quite some time, right, our outperformance is driven by record growth, which is more specific to TWN, but then also product, price, and mix.

[John Gamble, CFO at Equifax]

As we said in the script, those are things we can measure together, understand the difference between our volume and our overall revenue, and that's our outperformance. And I think going forward, we'll use that measure because it's all based on internal data that we can validate each quarter. And again, what we're, our internal volume data is transaction volume data. It's the transactions that are related directly to mortgage application approvals. Doesn't really include things around batches or monitoring, so that the data stays pure. And we feel like that's a much better measure of the level of outperformance driven by record growth, product, pricing, and mix, that we can deliver each quarter, and we'll continue to share that with you.

[Mark Begor, CEO at Equifax]

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, 5-6-month lag. So between that 5-6-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, you know, we have a lot of data around, mortgage originations.

[Kelsey Zhu, Lead Information Services Research Analyst at Autonomous Research]

Got it. Thanks so much.

[Operator]

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

[Andrew Jeffrey, Equity Research Analyst at Truist Securities]

Hi, good morning. Appreciate you taking the question this morning. Mark, I mean, I get there are a lot of moving pieces here, outside of mortgage, especially. I'm thinking about EWS, verifier government, a little bit weaker maybe than you thought, and then you enumerated the reasons. I guess my question overall is: Do you think that EWS non-verifier or, sorry, non-mortgage verifier business has perhaps gotten a little more difficult to forecast as you do more business with the government and all these different programs, appreciating the new contract wins? And do you think you're going to take that into account when you start to think about guiding for 2024?

[Mark Begor, CEO at Equifax]

Yeah, for sure. There's no question. Look, it's a big business. It's dealing in multiple verticals. In some regards, these, like, talent and government are. I would still characterize them as fairly new verticals for us at scale. You know, it 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 aside, which we talked about a bunch. But, you know, the hiring market is, you know, obviously under some pressure, particularly in white-collar in the U.S., and we've tried to forecast that. And, you know, we're going to try to be more conservative or more balanced, whatever word you want to use, around, you know, that vertical. You know, same with government. You know, there's a lot of moving parts there.

[Mark Begor, CEO at Equifax]

I would say the most complex for us, or the one we've been challenged by, is the redeterminations. You know, outside of that, we have pretty clear visibility about adding new customers, adding new clients, new product rollouts, you know, pricing actions in government. You know, that is, is pretty, pretty dialed in. And I think the other, you know, if you think about 2023, both of those businesses had really, really, really strong 2022s. You know, so we're comping off, you know, very strong years, which is great because we're driving more penetration, more product, more price. And we've had to, you know, look forward to where we're going to take those businesses. And, you know, while we've been, you know, off a little bit, you know, we're really pleased with the growth of those businesses.

[Mark Begor, CEO at Equifax]

You know, those are. They both delivered strong growth in the quarter. You know, you've seen accelerated growth in non-mortgage and EWS from Q2. We expect that non-mortgage verifier growth to accelerate again in Q4, you know, which gives us, you know, really positive momentum going into 2024. But, you know, short answer to your question about are we going to be more balanced around how we forecast there? For sure.

[Andrew Jeffrey, Equity Research Analyst at Truist Securities]

Okay. Yeah, I think the market will welcome that. And then if I could just ask the obligatory competitive question in EWS. There were a couple of pieces of business that you characterized as manual and low margin; they kind of let go last quarter. Can you just sort of reiterate your thinking, especially in mortgage verifier, in terms of the competitiveness of your solution?

[Mark Begor, CEO at Equifax]

Yeah, 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. That got, I think, somewhat misconstrued or in the marketplace. We're not seeing an impact from competition in our mortgage business or any other businesses. You know, we tried to be clear about that in July, and I'll be clear again today. You were well aware of what, you know, 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. You know, we added four in the quarter. We added, I think, 27 in the last couple ofears. You know, we're growing our records.

[Mark Begor, CEO at Equifax]

You know, that's really, I think, a proof point of the strength of our ability to, you know, deliver solutions to our partners and execute for them. They want to be partnered with Equifax. I think that's a really important metric for us going forward.

[Operator]

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

[Kyle Peterson, Equity Research Analyst at Needham & Company]

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

[Mark Begor, CEO at Equifax]

Yeah, you know, maybe at the kind of the macro level, about a year ago, we talked about, and we continue to talk about, subprime, really got tightened up. So that happened over the last, call it three, four, or five quarters. That's starting to bottom out because we're comping off, you know, really sharp declines from last year as we go into Q4. But, you know, subprime is clearly pulled back. You know, a combination of concern around that consumer base, you know, being more challenged, not from unemployment, but really from inflation. And we talked earlier that we've seen some delinquencies increase there.

[Mark Begor, CEO at Equifax]

You know, as an old card guy from my prior life, you know, when delinquencies go up, you typically will pull back on originations or be more deliberate around originations, meaning you want to make sure you're finding the consumers that can really afford that financial product. You know, prime is still fairly strong. You know, the consumers are working. You know, they've had some wage growth while they've been impacted by inflation. You know, we haven't seen much impact there. Would you add anything, John?

[John Gamble, CFO at Equifax]

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

[Kyle Peterson, Equity Research Analyst at Needham & Company]

Got it. That's really helpful. And then, you know, just follow up. I know you guys have talked a bit about, you know, some of the previous spending reductions and kind of the benefits that'll be in the 2024 numbers based on the actions taken this year. Just wanted to see, are there any other, you know, spending plans or things you guys are looking at? You know, if you guys are -- if we're going to be in kind of a lower for longer kind of mortgage inquiry market. Just want to see, are there any more levers you guys can push, you know, on the cost side of things if volumes don't come back next year?

[Mark Begor, CEO at Equifax]

Yeah, I think as John mentioned, and we did earlier, you know, we had the 65 of carryover from our $275 million program this year. You know, 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 February 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 costs today, you know, 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.

[Mark Begor, CEO at Equifax]

So that'll 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, you know, we're gonna keep our belt tight in 2024. We're gonna want to continue to invest in the right places, but I'd characterize that as we're gonna be balanced around it, you know, given the environment.

[Operator]

Thank you. Next question today is coming from Simon Clinch from Redburn Atlantic. Your line is now live.

[Simon Clinch, Managing Director in Financials Research at Redburn Atlantic]

Hi, thanks for taking my question. I mean, a lot of my question's been asked already, but maybe we could zero in again on EWS Mortgage. I just want to go back to the way you're measuring the outperformance this time and, you know, the implied decline in origination volumes this quarter that you've seen versus what the sort of industry forecasts have been for Q3, and there's quite a wide gap.

[Simon Clinch, Managing Director in Financials Research at Redburn Atlantic]

I just wanted to make sure that, yeah, 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, you know, any sort of color you can give around that sort of divergence would be useful.

[Mark Begor, CEO at Equifax]

Yeah. We try to forecast what the originations are. As mentioned earlier, we know what actual originations are on, like, a 5-6-month lag. Between that timeframe, you know, we try to forecast. You know, if you're referring to, like, MBA and some of the other forecasts, if you look back over the last, you know, two years, three years, four years, five years, they're consistently wrong. It's a hard thing to forecast, and we just try to use our best data on it. And then, we also factor in our current run rates, you know, on originations. You know, so that's the way that we're forecasting to try to get more current because, you know, MBA is done on a survey basis. I think they survey, like, half of the mortgage originators in order to get that data.

[Mark Begor, CEO at Equifax]

Ours is actual originations on a lag, and then our current forecasts based on what we're seeing in current timeframe.

[John Gamble, CFO at Equifax]

And again, going forward, what we're gonna try to make sure we do is we're gonna make sure we're providing you with actual data, right? So I mean, we'll, 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, right? 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's 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.

[Simon Clinch, Managing Director in Financials Research at Redburn Atlantic]

Great. Thanks. And just as a follow-up, I mean, if we want to talk about or think about a, you know, a tougher mortgage market for longer, you know, so current levels, does that in any way change the, I guess, the, either pricing power, the competitive dynamics, for EWS and Mortgage, going through a period like that, a prolonged period like that? Just wondering if you could help us think about, the puts and takes in that regard.

[Mark Begor, CEO at Equifax]

We don't think so. You know, the power of instant data, 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, you know, on the consumer. We deliver it instantly. You know, in this environment of more shopping, you know, a mortgage originator that's investing in a consumer, they want to make sure that they close that loan, you know, as they get down the path of you know, 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 gonna drive higher hit rates.

[Mark Begor, CEO at Equifax]

That happens, you know, really because we're getting the inquiries from our customers for all their applicants. And then we still believe that we have a pricing power going forward because the uniqueness of our data set, the alternative for our customer is to do it, the mortgage customer, is to do the verification manually, you know, which is very challenging. You know, meaning getting a company on the phone, you know, to verify the income is very hard to do and takes time, and that's labor and also time. So speed and productivity is and accuracy is the value we deliver.

[Operator]

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

[Shlomo Rosenbaum, Managing Director in Business Services sector at Stifel]

Hi, good morning. Thank you for taking my questions. Hey, Mark, just my first question, I just want to talk a little bit more about, like, how we should be thinking about the future, about with some of the items that you were talking about. You know, 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, you know, there's a lot of parts of the spectrum where there's open jobs, but 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.

[Mark Begor, CEO at Equifax]

Yeah, you know, go forward, you got to kind of talk timeframes. When you think out the next couple of quarters, you know, it doesn't feel to us or to me like there's gonna be a lot of change, meaning it's a fairly, outside of the mortgage market, obviously, let's leave that aside. That's obviously super challenging and really unprecedented, what's happening with interest rates. But when you have people working in very low unemployment rates, generally, they're able to pay their bills. When they pay their bills, delinquencies stay generally low, and then you have the ability, the our customers, you know, have confidence and continue to extend credit, you know, through loans and other solutions, you know, to those consumers. You know, subprime has been challenged for a year, you know, that's generally subprime is with the fintechs.

[Mark Begor, CEO at Equifax]

Most of the big banks don't do subprime business. You know, that's been challenged for a year, and we're actually, as I mentioned earlier, starting to comp against fairly low levels. I would expect subprime to stay high, you know, as we go through 2024, because those consumers are really more challenged, not around being unemployed, but around inflation, you know, is still pressuring them. But the big metric that I always think about, and you should, too, in my view, is unemployment. You know, so back to your question about 2024, give me your forecast for unemployment next year. You know, is it gonna go up, down, or sideways?

[Mark Begor, CEO at Equifax]

You know, if you think unemployment's gonna spike or go up, which I don't think it will in this environment, with 10 million open jobs and only 5 million people looking right now, you know, that's a pretty good environment to go into 2024, you know, in kind of the core elements of our business outside of mortgage.

[Shlomo Rosenbaum, Managing Director in Business Services sector at Stifel]

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, once they get done by June of next year, is this something that the government's gonna be doing annually, or is this kind of a big one-time bang, and then we're gonna end up with, you know, tough comps on that after, after we're done with it?

[Mark Begor, CEO at Equifax]

Yeah, remember that the redeterminations were suspended during COVID. You know, so they didn't happen over the last couple of years. Once President Biden lifted the COVID pandemic rule or requirement, you know, these redeterminations went back into place. So it's really the completion of the annual verifications are happening in this twelve-month timeframe, in Q3, Q4, and Q1 and Q2 next year. post-Q2, they'll have the requirement to do the annual redeterminations that are a requirement of the programs. So there may be some element of comp that you know, from a timing standpoint, but we don't expect it to be meaningful.

[John Gamble, CFO at Equifax]

And these redeterminations apply across multiple government-subsidized programs.

[Mark Begor, CEO at Equifax]

Right.

[John Gamble, CFO at Equifax]

Not just Medicaid, Medicare. So it's more broad, and we participate in many of those.

[Operator]

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

[Jeffrey Meuler, Senior Research Analyst in Information and Education Solutions at Robert W. Baird]

Yeah. Thank you. Sorry to keep pulling you back to this, but just given that it's a new metric you're gonna 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 calc on 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 in 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'd account for shares-

[Mark Begor, CEO at Equifax]

First off, we don't see any share shifts, Jeff. If there were, they would be in the outperformance.

[Jeffrey Meuler, Senior Research Analyst in Information and Education Solutions at Robert W. Baird]

Okay.

[Mark Begor, CEO at Equifax]

And remember, we still have a grounding in originations. As I mentioned, you know, you have to forecast originations. And, you know, there's MBA, which a lot of you look at, and we look at it, too, is really, diverge from what we're seeing in originations. And remember, we see originations on two sides of our business. We see it in, in the, credit business in USIS, and we see it in EWS, and then we get actual originations on a 5- to 6-month lag, when they actually get posted to the credit file after the mortgage is closed. So we have, you know, really meaningful data. I think we were trying to highlight that the, divergence we're seeing from some of those, industry forecasts, have just become larger, in recent times.

[Mark Begor, CEO at Equifax]

My view, this is my personal view, because of the rapid change in rates. You know, I think rates went up overnight or the last 48 hours by 50 basis points. You know, that's not in a forecast that MBA did, you know, a month ago, but we can see what's happening this afternoon.

[John Gamble, CFO at Equifax]

And so what we'll disclose every quarter, again, is the outperformance with records, product, price, and mix, right? And then over time, obviously, you're asking, and we're comparing that against our volume, obviously, right? 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, right? 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? It...

[Mark Begor, CEO at Equifax]

15, 20 years.

[John Gamble, CFO at Equifax]

As long as I can remember, right?

[Mark Begor, CEO at Equifax]

Yeah.

[John Gamble, CFO at Equifax]

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.

[Jeffrey Meuler, Senior Research Analyst in Information and Education Solutions at Robert W. Baird]

Understood. It's just, it uses share shifts, not the dynamics. I wanted to make sure I understood it. And then just, can you just give us what the assumption is in the guidance for Q4 mortgage origination unit volumes? And can you comment on the number of TWN pulls per closed mortgage? It took a step up, I think, to, like, 2.5 in the pandemic. Has that been stable since? Is it still going up? Has it come down at all?

[Mark Begor, CEO at Equifax]

... Yeah. So in terms of, again, we're not forecasting mortgage originations, right? 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 Q4, and that's the basis we'd ask you to consider, right? That we're going to see, I think, credit inquiries down 22%, which is about 18 percentage points worse than what we expected back in July. And so we think, we think that's an indication of the direction of the market, and that's the basis on which we're calculating our volumes for USIS. We have a, we have a similar metric we use internally with EWS on their own volumes, right? And that's the basis on which we generated our, our forecast.

[Mark Begor, CEO at Equifax]

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, right? As Mark said, we can't measure originations at the end of the Q4, in the Q4. It's something that we want to have visibility to for quite some time following.

[Operator]

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

[Andrew Nicholas, Equity Research Analyst at William Blair]

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 on the Q2, and you're holding that here today, post close. Just kind of curious if you could bridge the performance there over the past, you know, nine months with how that end market's doing, how the business is doing. Just kind of an update as it's now under your official ownership.

[Mark Begor, CEO at Equifax]

Yeah, we're only, I don't know, 60 days in of, of having it under, under the ownership, but, you know, pleased to have it in. You know, the market from our perspective is, is growing, you know, kind of high single digit. That's why we like the market down there, in Brazil. You know, we're very active in, driving the integration of getting our new products and solutions there. We're going to move them to the Equifax Cloud, you know, over the next number of quarters, to get them on our new cloud environment.

[Mark Begor, CEO at Equifax]

We're going to bring down our large platforms like InterConnect, which they don't really have a version of that, as well as Ignite, our analytics platform, which will, you know, really drive some strong competitiveness with Serasa and Experian in the marketplace. You know, the business performance, I would say, is probably lagging a bit that market performance primarily through the integration. You know, this is a - it was a complex integration for a small, publicly traded company to go through the process. It was a long process to go through. Gosh, it was almost 7-8 months of the process to do the take private.

[Mark Begor, CEO at Equifax]

But we're energized, you know, around the future of the business and, you know, focused on, you know, getting this integration complete and getting the new solutions in to help them drive their top line.

[Andrew Nicholas, Equity Research Analyst at William Blair]

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 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 for that gap to narrow or widen in a prolonged weak environment? Just kind of thinking about the different levels- levers, excuse me.

[Mark Begor, CEO at Equifax]

I think I'll jump in, and John can dive in behind me. You know, first, on the last half of your question, we would expect the inquiries to be stronger than originations in this high mortgage rate environment. You call it weaker, but, you know, if you're a consumer and, you know, in many cases, stretching to get a mortgage for a home that you want to buy because prices are still very high, you do a lot of shopping around when there's a high interest rate environment. I don't think that's going to change next year. I think we're still going to see, you know, that environment, which certainly will benefit USIS with more credit pulls, you know, in that shopping environment. Do you want to add, John, on the-

[John Gamble, CFO at Equifax]

Sure.

[Mark Begor, CEO at Equifax]

On the forecast?

[John Gamble, CFO at Equifax]

To the first question, yeah, the down 15% was a statement specifically about to the extent the run rate we're talking about in the Q4 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-

[Mark Begor, CEO at Equifax]

From originations.

[John Gamble, CFO at Equifax]

No, for mortgage credit inquiries.

[Mark Begor, CEO at Equifax]

Yeah.

[John Gamble, CFO at Equifax]

-to be down 15%.

[Mark Begor, CEO at Equifax]

Yeah.

[John Gamble, CFO at Equifax]

Yeah.

[Mark Begor, CEO at Equifax]

And then, against that, and we'll give guidance in February, but against that down 15, you know, we would have our levers in both businesses around price, product, penetration, to deliver the outperformance against that market.

[John Gamble, CFO at Equifax]

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

[Craig Huber, Founder at Huber Research Partners]

Hi, good morning. First question, can you quantify for us the revenue performance in the U.S. for credit cards and autos, and what the outlook is there for the Q4?

[Mark Begor, CEO at Equifax]

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

[John Gamble, CFO at Equifax]

We do not, right. What we indicated is we thought that FI performed well in the quarter, that auto performed well in the quarter. We had very good performance in commercial, and we had really nice performance in Kount, identity, and fraud business. So, auto and FI were two of the strong performers that showed very good growth in the quarter for us. But we don't actually disclose the specific revenue levels.

[Mark Begor, CEO at Equifax]

I would say we don't expect real change in the Q4 from that Q3 run rate.

[John Gamble, CFO at Equifax]

No, we're expecting-

[Mark Begor, CEO at Equifax]

Businesses.

[John Gamble, CFO at Equifax]

Yeah, we're expecting Q4 to continue to be good in those businesses generally.

[Craig Huber, Founder at Huber Research Partners]

... 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 for the much higher rates out there. Obviously, the 10-year rate is approaching, you know, 5% here. This has been at that level for many, many years. But you're not seeing an impact from much higher rates anywhere else in your business?

[Mark Begor, CEO at Equifax]

We haven't. But again, let me just be a little more deliberate. You know, for example, like in subprime auto, you know, there's been some pressure there from originations because they're more deliberate around that subprime consumer being challenged, and then that subprime consumer at that higher interest rate, you know, even in parts, you know, is sometimes challenged to qualify, you know, for that. But broadly, no. You know, when you think subprime is a small portion of the financial services industry, you know, most of it is near and prime, and higher interest rates have not impacted, you know, auto originations, you know, or card originations in the near prime and prime space like they have in mortgage.

[Mark Begor, CEO at Equifax]

You know, mortgage is just a big-ticket item that, you know, has had a massive impact on the rates over such a short time frame.

[Craig Huber, Founder at Huber Research Partners]

Great. Thank you.

[Operator]

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

[Faiza Alwy, Managing Director of US Company Research at Deutsche Bank]

Yes. Hi, thank you. So I wanted to ask about mortgage again and really inquiries. So I know that the MBA forecast, you know, 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 Q3 applications were down 29%, which is in line with your inquiry decline. So I would have thought that, you know, 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, you know, really, what's going on with the inquiry drive after applications.

[John Gamble, CFO at Equifax]

Yeah. So, I think to our earlier commentary, right? I think what we're finding is there's lots of pieces of market estimates that are being disclosed by various third parties that I think in this current environment estimates are difficult to make, and admittedly, they're difficult to correlate, right? So that's why, honestly, we've shifted to trying to use our own internal actual volume data so that we can try to track it over time. We'll certainly have a perspective as we look back historically and we look at our volume data on inquiries relative to actual applications and actual originations as they occur, and we'll be happy to talk about that.

[John Gamble, CFO at Equifax]

But trying to do it real time right now, I think, is just very difficult given the movements in the environment, and that's why we think it's better for us and better for you, quite honestly, if what we talk to you about is our actual volume data and then the things that are driving our performance to be better than our actual volume data.

[Faiza Alwy, Managing Director of US Company Research at Deutsche Bank]

Okay, understood. And then maybe just give us some perspective again on this inquiry question, sort of where we were, you know, maybe pre-pandemic and what happened during the pandemic in terms of number of inquiries per, whether it's application or per origination. Sort of how far ahead are we? Was it, you know, 3 or 4 inquiries back in 2019? Did that fall down? Are we at 7 or 8 now? Just some perspective on how much higher inquiries are now would be helpful.

[Mark Begor, CEO at Equifax]

In versus what time frame? You know, they've grown over the last 3, 4, 5 years, really, because of consumer behavior as well as, you know, more. The majority of mortgage applications happen online today, which is a phenomenon that's very different from what it was 5 years ago, which drives, you know, more credit pulls. Over the last year, they're fairly consistent, meaning it hasn't changed in the last year, but they're clearly up from 5, 4 years ago, even 3 years ago.

[John Gamble, CFO at Equifax]

I know you know this, right? But we disclose—we provide every quarter what the actual inquiry numbers look like. Sorry, what the actual movements and inquiries were, so you can see how that's trending over time.

[Faiza Alwy, Managing Director of US Company Research at Deutsche Bank]

Okay, understood. Thank you.

[Operator]

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

[Toni Kaplan, Executive Director and Equity Research Lead Analyst at Morgan Stanley]

Thanks for taking my question. Historically, pricing wasn't really a big contributor to growth for the bureaus overall, but it seems like it's more of a driver in recent years for you and, and especially now. You know, obviously, Work Number has been an area you've been able to increase price. I think you've also talked about introducing new products at higher price points in other parts of the business, too. So I guess when we think about, like, a 7%-10% normalized organic growth rate for Equifax, how much of that should come from price increases? And maybe help us out with regard to, like, the segments as well.

[Mark Begor, CEO at Equifax]

Sure. You know, 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, you know, 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.

[Mark Begor, CEO at Equifax]

So with regards to the 7-10 organic, which is the subset of our 8-12, you know, if you go back to our investor day from a couple of years ago, there's charts on each business where we talk about, you know, the levers to deliver that 7-10. And as a reminder, the 7-10 is really driven, you know, 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 7-10. You know, you've got a few points over the long term of market, I think GDP. You've got a few points of price.

[Mark Begor, CEO at Equifax]

You've got a few points, you know, each of these are kind of a couple, 2-3 points, a couple points of product driving that top line. And then you've got penetration, new verticals that we, we move into, and that's, you know, kind of how you walk up. And then in EWS, uniquely, we get a couple of points from records. You know, so, so 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, when we add a new record to the dataset, we monetize it, so that drives the revenue growth.

[Mark Begor, CEO at Equifax]

You know, I wouldn't characterize price as being disproportionate, you know, versus the other levers that we have, and it's been fairly consistent, you know, over the time I've been here, about how we've executed it.

[John Gamble, CFO at Equifax]

And then, we'll, we'll publish a supplemental deck here in the next couple hours, and then in that deck, for each of the business units, we'll provide a walk kind of for the long-term model that gives you price and depending on the business unit records, et cetera, that can provide perspectives on how we expect to be able to drive benefits for the drivers between the drivers of our revenue growth on a long-term basis. So hopefully that'll help as well.

[Toni Kaplan, Executive Director and Equity Research Lead Analyst at Morgan Stanley]

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

[Mark Begor, CEO at Equifax]

It's probably up slightly from a year ago, but it's up meaningfully from three, four, five years ago. You know, it's and it's really, it. You may recall, Tony, and we talked about it, as we've moved EWS to the cloud, call it, you know, 18 months ago, almost, it really opened up the window for them, number one, to deliver new products, and number two, a lot of those new products are using trended or historical data, which was more challenging to do pre-cloud. So in, and you've seen EWS's Vitality Index, which kind of pre-cloud was in the 3%-5% range, something like that, probably at the low end. And now, as we talked about earlier this morning, is north of 20.

[Mark Begor, CEO at Equifax]

All those products either are data combinations or predominantly are trended historical data. If you think about it, just quite sc- it's common sense, you know, Mark's income today is very valuable as a data element, but Mark's income over the last 36 months is even more valuable if it's going up. It's a very important indicator if it was going down, and then, if it's stable, it's an important indicator. So that's the value that we're able to deliver, you know, in that, massive, historical data set we have. And, you know, we would expect that 50% to move up, but it's, probably up 20 points in the last 3 or 4 years.

[John Gamble, CFO at Equifax]

It's up certainly significantly, right?

[Mark Begor, CEO at Equifax]

Yeah.

[John Gamble, CFO at Equifax]

I think if you just look at it by line of business, mortgage has grown substantially, as Mark talked about, because of Mortgage 36 and the use of trended data across mortgage very broadly now, and that's moved up toward 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, right? 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.

[Operator]

Thank you. Next question is coming from Ashish Sabadra from RBC Capital Markets. Your line is now live.

[Ashish Sabadra, Managing Director and Senior Equity Analyst at RBC Capital Markets]

Thanks for taking my question. I just wanted to drill down further on Tony's question on pricing. In particular, 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.

[Mark Begor, CEO at Equifax]

Yeah, I don't know if you follow FICO or you've talked to the FICO team, but I would expect that they're going to do a price increase in 2024. You should talk to them, and if they do, you know, we're obviously the conduit, along with you and Experian, to deliver that to the marketplace. You know, and that's something that we would execute on.

[Ashish Sabadra, Managing Director and Senior Equity Analyst at RBC Capital Markets]

That, 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.

[John Gamble, CFO at Equifax]

Yeah, so, so we'll give you that detail when we give guidance, obviously, for 2024, but in the Q4, it's similar to, to what it was in the third.

[Operator]

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

[Seth Weber, Senior Equity Research Analyst at Wells Fargo]

Hi, good morning. I just wanted to follow up on Boa Vista for a second. The footnote on slide 4 seems to suggest the margins were higher, excluding Boa Vista, but I thought at the time of the acquisition, EBITDA margins for that asset were running, you know, like in the high 30% range. So were there some kind of, like, one-time costs there that impacted the results, or is there something...? I'm just trying to. I'm just looking at the footnote on slide 4. Thanks.

[John Gamble, CFO at Equifax]

Yep, fair enough. The EBITDA margin was slightly below for Boa Vista. It was below the Equifax average margin.

[Mark Begor, CEO at Equifax]

... 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 yeah, for what you saw in the footnote, the BVS margins were below the Equifax margins for the Q3. Now, as a reminder, you know, we've owned them for about six weeks, right? So we'll see what happens as we move through the Q4 and then into 2024.

[Seth Weber, Senior Equity Research Analyst at Wells Fargo]

No, that's fair. Thanks. I just thought it—I thought at the acquisition, the margins were high 30s. That was the frame of the spirit of the question. But and then just another follow-up. Sorry if I missed this, but are there any more details on this, the new $1.2 billion contract? When that starts, you know, how that rolls in, is that, you know, ratable over the term of the contract, or just how we should start thinking about filtering that into our forecasts? Thanks.

[Mark Begor, CEO at Equifax]

Yeah, remember, that's an extension of an existing contract. You know, so we've had a contract for 5+ years and maybe longer, you know, with CMS. It's certainly larger, and it'll roll in, you know, both at the federal and then at the state level, as we go through Q4 in 2024 and 2025 and beyond.

[John Gamble, CFO at Equifax]

And again, it's an outstanding, as Mark said, largest contract we've ever signed, right? Just as you take a look at over the next five years, it doesn't mean you're gonna will generate all the revenue up to the maximum amount of the contract, right? So what it does is gives us the opportunity to work with states and obviously with the federal government, to drive increasing revenue, under the auspices of the agreement, which is extremely positive, but it is certainly in no way a guarantee of revenue at that level.

[Seth Weber, Senior Equity Research Analyst at Wells Fargo]

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

[Operator]

Thank you. Next question is coming from George Tong from Goldman Sachs. Your line is now live.

[George Tong, Senior Equity Research Analyst at Goldman Sachs]

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 insourcing activity outside of the mortgage vertical?

[Mark Begor, CEO at Equifax]

So, George, I'm not sure what you mean by insourcing, or I think you used the terms we provided evidence. Are you referring to our comments in July about the manual work we were doing for customers that was where we did not have records?

[George Tong, Senior Equity Research Analyst at Goldman Sachs]

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-

[Mark Begor, CEO at Equifax]

Yeah, and that was the discussion we had back in July, and it was around where we were doing the manual efforts for our customers in a very small operation in Iowa, where we did not have the records. And we talked about the fact that was moving a house. We haven't seen any evidence of mortgage originators shifting, you know, from using our instant solution to doing it themselves. So that has not been a dialogue from Equifax.

[George Tong, Senior Equity Research Analyst at Goldman Sachs]

Got it. Assuming that the same holds true outside of the mortgage vertical?

[Mark Begor, CEO at Equifax]

Yeah, for sure. You know, that, that's how we're growing our business, you know, because they're using more of our solutions. We deliver productivity, and we deliver speed and accuracy. You know, so that's fundamental. We see no trends in any of the verticals of, you know, where they're going back to manual. What you're seeing in the business, that's how we're delivering the double-digit growth in the quarter and the double-digit growth we expect in the Q4 of, you know. And one of the levers is more conversions of existing manual effort, to using our instant solution.

[George Tong, Senior Equity Research Analyst at Goldman Sachs]

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

[Mark Begor, CEO at Equifax]

Yes. Do you want to talk about talent or exclude talent from that too?

[George Tong, Senior Equity Research Analyst at Goldman Sachs]

Focus on verifications.

[Mark Begor, CEO at Equifax]

Well, okay. So you're talking about, like, in... And you want to leave mortgage out and focus on card and P loans and auto, or do you want to talk mortgage, too? I'm just trying to figure out which part of verification you want to cover.

[George Tong, Senior Equity Research Analyst at Goldman Sachs]

Yeah, non-mortgage, non-government.

[Mark Begor, CEO at Equifax]

Non-mortgage, non-government.

[John Gamble, CFO at Equifax]

Talent.

[Mark Begor, CEO at Equifax]

Yeah. What's that?

[John Gamble, CFO at Equifax]

Sub talent, I guess.

[Mark Begor, CEO at Equifax]

Yeah. So we, we haven't seen sensitivity to our customers around pricing in any of those verticals, because of the value that it delivers. Now, you gotta, you gotta be obviously clear that we're balanced around pricing, but the customers are using our solution because of the productivity and, accuracy, and then the instant, you know, access to the information, as well as the scale of the data set. You know, we didn't talk about much on the call about our ability to continue to add records. You know, and we're approaching 70% of non-farm payroll and, over 50% of kind of working Americans, including 1099, and income-producing Americans, including pension. You know, that data set's super valuable in all those verification, markets.

[Mark Begor, CEO at Equifax]

As you know, we also have a big focus on adding new products, which is exhibited by the Vitality Index, which a lot of that vitality, actually, most of that vitality is in verification, really delivering new solutions that help our customers, you know, expedite or complete the transactions, you know, using our instant data.

[John Gamble, CFO at Equifax]

So in talent, I know we've said this many times, right? No one likes price increases. But for example, in talent, one of the things we do in other segments is 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-

[Mark Begor, CEO at Equifax]

... the broader sweat, I'm sorry, broader suite of our entire group of products that support talent solutions, like our education solutions, like, and other solutions, and we're launching now products that support healthcare directly. We have staffing products. We have other products that allow people to get better pricing from Equifax while helping us drive volume through the system. So again, we just like—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 they want at price points that are effective for them.

[Trevor Burns, SVP and Head of Corporate Investor Relations at Equifax]

Got it. Thank you.

[Operator]

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

[Heather Balsky, Equity Research Analyst at Bank of America]

Hi, thank you for taking my question. I wanted to touch on the cloud migration. So, first part, it sounds like it's lagging a little bit from what you said last quarter. I'm curious if you can help us kind of understand, you know, what's going on with that transition and where, I guess, the headwinds have been. And then, you know, with regards to your plans with the transition, when do you think we could start seeing the benefits of that on the USIS side? Thanks.

[Mark Begor, CEO at Equifax]

Yeah, 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, you know, we're clearly, you know, a few months behind, but we can see the finish line, you know, in completing it. As we said earlier, we're migrating, you know, large customers as we speak in the Q4. Those will continue in the Q1, and, you know, we'd expect to be complete, you know, with USIS as well as many of our international platforms, you know, in the early parts or first half of 2024. And that's a big pivot point, as you point out.

[Mark Begor, CEO at Equifax]

You know, when are we gonna 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, you know, we talked earlier about EWS's ability to drive new product rollouts at a very rapid pace, well above our 10% goal at the 20%+. 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.

[Mark Begor, CEO at Equifax]

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, you know, faster data transmission, and then obviously leveraging our differentiated data, we do expect in USIS to get some share gains. And that really 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.

[Mark Begor, CEO at Equifax]

So we would expect more of those to come forward as we complete the cloud in 2024 and then, you know, really between share gains and new product rollouts, you know, that to help drive USIS's growth rates in 2024 and 2025 and beyond.

[Heather Balsky, Equity Research Analyst at Bank of America]

Thanks, Mark. Can I ask a follow-up? Just when you talk about share gains, how should we think about it? Are you taking business from other credit bureaus?

[Mark Begor, CEO at Equifax]

Sure.

[Heather Balsky, Equity Research Analyst at Bank of America]

or is it expanding the wallet and benefiting that way?

[Mark Begor, CEO at Equifax]

No, when we talk about share gains, it's what you would think a share gain is. It's where we're moving from secondary to primary or tertiary to secondary, because of the cloud. And, you know, having the most advanced technology, we think is an advantage. That's one of the reasons we embarked on this, is, you know, at our gut, we believe to be a great data analytics company after a great technology company. And when you overlay the digital macro of our customers doing the vast, vast majority of their transactions with their consumers online, you know, you have to deliver 99 to stability. You can't do that in a legacy environment. You can only do with cloud, and you have to have faster data transmission.

[Mark Begor, CEO at Equifax]

So we think that's gonna advantage Equifax going forward, and then you lay on top of it, the ability to roll out new solutions more quickly and more of them. That's gonna be advantage to Equifax. You become a more important partner that'll drive us up from, you know, those secondary positions that could be 20 or 30% of the volume, to the primary positions, which could be 60, 70, 80%. You know, that's really what we have in front of us, from the cloud investment, and we would expect those benefits to roll to USIS. And one last point that we mentioned is getting USIS cloud-native will also allow us to do more between EWS and USIS. You know, that was hard pre-cloud and two legacy environments with different data sets that are in different data environments.

[Mark Begor, CEO at Equifax]

You know, as you know, we went to a single data fabric and having them both in the cloud, you know, that's gonna be another gear for us going forward, to have data combination solutions, you know, 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, you know, with the income and employment data, that's really only Equifax.

[Operator]

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

[Trevor Burns, SVP and Head of Corporate Investor Relations at Equifax]

Yeah, 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]

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 today.

Participants

Executives

• Trevor Burns, SVP and Head of Corporate Investor Relations
• Mark Begor, CEO
• John Gamble, CFO

Analysts

• Manav Patnaik, Managing Director and Senior Equity Analyst at Barclays
• Andrew Steinerman, Managing Director and Senior Equity Research Analyst at JPMorgan
• Kelsey Zhu, Lead Information Services Research Analyst at Autonomous Research
• Andrew Jeffrey, Equity Research Analyst at Truist Securities
• Kyle Peterson, Equity Research Analyst at Needham & Company
• Simon Clinch, Managing Director in Financials Research at Redburn Atlantic
• Shlomo Rosenbaum, Managing Director in Business Services sector at Stifel
• Jeffrey Meuler, Senior Research Analyst in Information and Education Solutions at Robert W. Baird
• Andrew Nicholas, Equity Research Analyst at William Blair
• Craig Huber, Founder at Huber Research Partners
• Faiza Alwy, Managing Director of US Company Research at Deutsche Bank
• Toni Kaplan, Executive Director and Equity Research Lead Analyst at Morgan Stanley
• Ashish Sabadra, Managing Director and Senior Equity Analyst at RBC Capital Markets
• Seth Weber, Senior Equity Research Analyst at Wells Fargo
• George Tong, Senior Equity Research Analyst at Goldman Sachs
• Heather Balsky, Equity Research Analyst at Bank of America