Mark W. Begor
Chief Executive Officer at Equifax
Thanks, Dorian, and good morning.
We had a very strong third quarter and first nine months of 2021, a continuation of our strong outperformance last year with record revenue in the quarter of $1.223 billion, which was up over 14% with core non-mortgage market and non-UC ERC claims revenue growth of 20%.
We are executing extremely well against the critical priorities of our EFX2023 strategy, as we highlighted on Slide 4. Our focus on leveraging the new Equifax cloud for innovation, new products and growth is clearly driving our strong financial results.
Our revenue growth has accelerated from 3% in 2019 as we were recovering from the 2017 cyber event and investing heavily in our EFX cloud transformation to 17% last year. We are on track to deliver 19% core growth this year at the midpoint of our revised 2021 guidance.
More importantly, our core growth, which excludes the impact of the mortgage market, unemployment claims and ERC-related revenues is expected to accelerate to 21% this year, a powerful figure that reflects the strength of our underlying business model and EFX2023 growth strategy. Not only is our core growth accelerating above historical levels during 2021 in challenging COVID markets and more recently, in a declining mortgage market, we are also expanding EFX beyond our traditional credit deal routes to a more diverse data analytics and technology company with our investments in the Equifax cloud, new data assets and NPIs, along with reinvesting our outperformance in bolt-on M&A in areas such as talent, government and ID and fraud.
We are quickly pivoting from building the Equifax cloud to leveraging it for innovation, new products that will position the new Equifax for stronger and more diversified growth in the future. Our EFX2023 growth strategy remains our compass for the future and drives all of our top and bottom line growth initiatives, as we move towards 2022 and beyond.
Turning to Slide 5, Equifax had a very strong quarter. Revenue at $1.22 billion was up 14.5% with organic constant currency growth of a strong 12%. The almost 15% topline growth was off a strong 19% growth last year in a much stronger mortgage market.
This was our seventh consecutive quarter of double-digit revenue growth. More importantly, our core growth was up a strong 20%. Our U.S. B2B businesses of Workforce Solutions and USIS, which together represent almost 75% of Equifax revenue, again drove our growth, delivering 17% revenue growth despite the 21% decline in the U.S. mortgage market in the quarter.
Non-mortgage revenue was up over 30%. And organic non-mortgage revenue was up 24%, strengthening sequentially from the 16% and 20% we saw in the first two quarters of the year. Third quarter Equifax adjusted EBITDA totaled $404 million, up slightly from third quarter last year with margins of 33%.
As expected, margins were down versus 2020 due to the inclusion of cloud technology transformation costs of $45 million in our adjusted results in the quarter, which were excluded last year. And redundant cloud transformation systems cost of $15 million.
These costs related to cloud tech transformation negatively impacted EBITDA margins by almost 500 basis points. Adjusted EPS of $1.85 a share was down slightly from last year. Adjusting for the cloud transformation costs of $45 million or $0.27 a share, adjusted EPS would have been up a strong 11%.
We continue to make significant progress executing the EFX cloud data and technology transformation. In the quarter, we completed 4,000 B2B customer migrations, for a total of 15,400 migrations completed so far this year.
In September alone, USIS completed over 900 customer migrations. Since the beginning of the transformation, we've completed almost 97,000 B2B migrations, 3.5 million consumer migrations, and 1 million data contributor migrations. We remain on track and confident in our plan.
We continue to expect the North American transformation to be principally complete in early 2022, with the remaining customer migrations broadly completing by the end of next year. International transformation will follow, being principally completed by the end of 2023, with some customer migrations continuing into 2024.
We're still in the early days of leveraging the cloud, but remain confident that will differentiate us commercially, expand our NPI capabilities, accelerate our topline and expand our margins and the growth in cost savings in 2022 and beyond.
Our NPI performance also continues to accelerate. In the quarter, we released 30 new products and we still expect our Vitality Index to accelerate from 5% last year to over 8% in 2021.
Given our very strong third quarter performance, we are increasing our full year revenue guidance by approximately 320 basis points or $131 million, at the midpoint of a range between $4.9 billion to $4.921 billion, up 19% from last year, and increasing our full year adjusted EPS guidance by $0.22 per share to a midpoint of $7.57 per share, which adjusting for technology transformation cost implies a 23% growth in EPS.
This includes our expectation that the U.S. mortgage market as measured by credit inquiries will decline just over 7% this year, with the bulk of the return to normalization in the second half, which we expect to be down around 20%
Roughly two-thirds of the 320 basis point increase in our revenue growth framework to 19% is from organic business performance, with the balance from the acquisition of Appriss, Health e(fx) and Teletrack, which we expect to add about $45 million to revenue in the fourth quarter.
In the third quarter, Equifax core revenue growth, the green sections of the bars on Slide 6, grew a very strong 20%, a third consecutive quarter of core growth at or above 20%. Non-mortgage growth in EWS and USIS and growth in International drove about 900 basis points to core revenue growth, excluding acquisitions and FX, with mortgage outperformance primarily in Workforce Solutions driving about 800 basis points of organic core growth in the quarter.
As we move through '22 and '23, we expect to continue to see strong and balanced core growth, reflecting the benefits of the new EFX Cloud, accelerated NPIs, continued strong non-mortgage growth, both from organic growth and acquisitions, as well as continued strong outperformance from Workforce Solutions.
Turning to Slide 7, Workforce Solutions had another exceptional quarter, delivering revenue of $508 million, which was up 35%. This is the first quarter Workforce Solutions has delivered over $0.5 billion of revenue in a single quarter, a big milestone. This was against a very strong 57% growth last year. Adjusted EBITDA margins were up -- were 54%.
Non-mortgage revenue at Workforce Solutions was up over 48% with organic non-mortgage revenue up 41%. The strength of Workforce Solutions and uniqueness of their twin income and employment data set was clear again in the third quarter.
Workforce's Verification Services revenue of $403 million was up a strong 34%. Verification Services mortgage revenue grew 22% in the quarter despite the 21% decline in the mortgage market with the EWS outperformance driven by increased records, penetration and new products.
Importantly, Verification Services non-mortgage revenue was up 55% in the quarter, consistent with the very strong growth we saw last quarter. Our government vertical, which provides solutions to federal and state governments in support of assistance programs, including food and rental support, grew over 20% in the quarter. Government remains one of our largest non-mortgage segments with attractive growth potential in the future and represents about one-third of non-mortgage verification revenue.
Our new SSA contract went live this quarter at relatively low start-up volumes, and we expect to see it ramp as we move through 2022. We expect new products, the addition of Appriss and expanded federal and state social services to fuel growth in our government vertical in the future.
Talent Solutions, which provides income employment verifications as well as other information for the hiring and onboarding processes through our EWS data hub, had another outstanding quarter from customer expansion and NPIs growing over 100%. Talent Solutions now represents almost 30% of non-mortgage verification revenue.
As you know, over 75 million people change jobs in the U.S. annually with the vast majority having some level of screening as a part of the hiring process. The addition of Appriss Insights and our new partnership with the National Student Clearinghouse will fuel growth and new products in this important vertical.
The non-mortgage consumer lending business, principally in banking and auto, showed strong growth as well of about 90% in the quarter, both from deepening penetration with lenders and from some recovery in these markets, although auto has been impacted by inventory shortages.
Employer Services revenue of $105 million was up $30 million in the quarter. This is an important growth engine for Workforce Solutions that also delivers records. Combined, our unemployment claims and employee retention credit businesses had revenue of about $65 million, up about $14 million from last year.
Substantial declines in the UC revenue in the quarter were more than offset by ERC, which grew substantially -- sequentially, as we support the businesses in obtaining federal employee retention credit payments.
Employer Services non-UC and ERC businesses had revenue of about $40 million, up 60%, with organic growth of about 35%. Our I-9, business driven by our new I-9 Anywhere product continue to show very strong growth, up about 80%. Our, I-9 business is now almost half of Employer Services non-UC and ERC revenue.
Reflecting the growth in I-9 and the return to growth of Workforce Analytics, we expect Employer Services non-UC and ERC businesses, to deliver total growth of about 40% and organic growth of about 25% in the year.
Reflecting the uniqueness between data, strong verify our revenue and operating leverage resulted an adjusted Workforce Solutions EBITDA margins of 54.3%. The decline versus last year is driven -- protect, driven by investments in the tech transformation, as well as redundant systems cost, and as well as significant investments in Data Onboarding, Sales and Marketing to continue to drive Workforce Solutions growth. Rudy Floater and the Workforce Solutions team delivered another outstanding quarter and are positioned to deliver a very strong 2021, 2022 and beyond.
Turning now to USIS, their revenue of $380 million was up slightly from last year. Total USIS mortgage revenue of $148 million was down 17%, while mortgage credit inquiries were down 21%, slightly better than the down 23% we expected in July. USIS out-performance versus the overall market was driven by growth in marketing and debt monitoring products.
Importantly, non-mortgage revenue of $240 million grew almost 8% -- sorry, 16% with organic growth of over 9%. Year-to-date, non-mortgage revenue was up a strong 17%, and organic non-mortgage revenue growth is over 10%.
Banking, insurance, commercial and direct-to-consumer, were all up over 10% in the quarter. Fraud was up almost 10% organically and up over 75% in total with the inclusion of our Kount acquisition.
Auto was up mid-single digits, despite supply pressures and telco was down just over 5%. Financial Marketing Services revenue, which is broadly speaking our off-line or batch business, was $55 million in the quarter and up about 20%.
The strong performance was driven by marketing-related which was up over 20%, and ID and fraud revenue, which grew over 15%. In 2021, marketing-related revenue is expected to represent about 40% of FMS revenue, identity and fraud above 20% and risk decisioning about 35%. The USIS sales team delivered record wins up over 20% versus last year and 40% sequentially in the quarter. The new deal pipeline in USIS remains very strong.
During the quarter, USIS acquired Teletrack, a U.S. leader in alternative credit data. Teletrack is being consolidated with DataX, our specialty finance credit reporting agency that we acquired in 2018, to expand our capabilities in the fast-growing alternative data space, serving unbanked and underbanked U.S. consumers.
The USIS adjusted EBITDA margins were 40% in the quarter, flat sequentially with second quarter. Similar to second quarter, the decline in margins in the quarter versus last year was due to both costs related to cloud transformation, which include the cost of redundant systems and inclusion of our adjusted results of the technology transformation costs which are being excluded in 2020 and the expansion of our investments in sales and marketing, as well as new products to leverage both the strengthening U.S. market and accelerate new product introductions to drive revenue growth in '22 and beyond.
Turning to International. The revenue of $245 million was up 10% on a local currency basis and up 100 basis points sequentially. This was the fourth consecutive quarter of growth in our global markets following the COVID pandemic impacts. Asia Pacific, which is principally our Australia business, performed well in the quarter with revenue of $89 million, up about 7% in local currency.
Australia delivered this growth despite the extended COVID lockdowns in many portions of that country. Australia consumer revenue continued to recover, up 3% versus last year and about flat sequentially. Our Commercial businesses combined online and off-line revenue was up 8% in the quarter. Fraud and identity was up 13%, following 22% growth in the first half.
European revenues of $68 million were up 9% in local currency in the quarter and flat sequentially. Our European credit reporting business was up about 5% with continued growth in both the U.K. and Spain. Our European debt management business revenue increased by about 21% in local currency, off the lows we saw last year during the COVID recession.
Canada delivered revenue of $44 million in the quarter, up over 8% in local currency despite a weakening Canadian mortgage market that was down 15%. Canada experienced strong growth in fintech while supply issues continue to impact our auto business.
Latin American revenues of $45 million grew 16% in the quarter in local currency, which was the third consecutive quarter of growth coming out of COVID. We continue to see the benefit in LatAm of the strong new product introductions introduced over the past three years.
International adjusted EBITDA margins at 26.7% were down slightly from 27.3% in the second quarter. The sequential decline was driven by incremental technology costs in Australia and Canada, as they accelerate their cloud transformation programs.
The decline in the quarter was principally due to costs related to the cloud transformation, both the cost of redundant systems and inclusion in our adjusted results of the technology transformation costs, which we excluded last year.
Margins were negatively impacted the quarter by -- also negatively impacted the quarter by our increased investments in sales and marketing and new products. Global Consumer Solutions revenue of $82 million was down 6% on a reported basis, and 7% on a local currency basis in the quarter, slightly above our expectations. We saw growth of about 2% in our Global Consumer Direct business, which sells directly to consumers through equifax.com and represents a little over half of GCS revenue.
The decline in GCS revenue in the quarter was again driven by our U.S. lead gen partner business. We expect the GCS partner business and GCS business overall to return to growth in the fourth quarter. GCS adjusted EBITDA margins of 23.4% were up sequentially, reflecting lower operating costs. The decline versus last year was principally driven by revenue declines.
Turning now to Slide 8. Workforce Solutions continues to power Equifax as clearly our strongest, fastest-growing and most valuable business with strong 35% growth in the quarter, up 57% growth a year ago. Core revenue growth was 42%, driven by the uniqueness of the twin income and employment data, scale of the twin database and consistent execution by Rudy and his team.
EWS's ability to consistently and substantially outgrow their underlying markets is driven by three factors. First, growing the work number database. At the end of the third quarter, TWN reached 125 million active records, an increase of 12% or 13 million records from a year ago and included 97 million unique records.
At 97 million uniques, we now have over 60% of non-farm payroll, which makes our TWN data set more valuable to our customers, with higher hit rates. We are now receiving records every pay period from 1.9 million companies up from 1 million when we started the year and 27,000 contributors a short two years ago.
The exclusive agreement with a major payroll processor that we announced on our February call went live in the third quarter and contributed to this growth. Our strong momentum continues, as we signed another large payroll processor last week on an exclusive basis that will come online in the coming months.
We also expect to add further payroll processors in the coming months. As a reminder, almost 60% of our records are contributed directly by employers to which EWS provides comprehensive Employer Services like UC claims, W-2 Management, I-9, WOTC, ERC, HSA and other HR and Compliance Solutions.
Our acquisitions of HIREtech, i2verify and Health e(fx) this year strengthened our ability to deliver these unique HR services, particularly through relationships with payroll processors and HR software companies. These partnerships have been built, up over the past decade by the Workforce Solutions team. The remaining 40% of our records are contributed through partnerships with payroll providers and HR software companies, most of which are exclusive.
We still have substantial room to grow our income and employment database. And expect to continue to add new data contributors, as well as reach agreements with several additional payroll processors in the fourth quarter, to add their records on an exclusive basis to TWN in 2022.
Beyond the over 50 million non-farm payroll records not yet in the TWN database, we're focused on data records from the 40 million to 50 million gig workers and around 30 million pension recipients in the U.S. marketplace to further broaden the TWN database. We have plenty of room to grow TWN.
Second, increasing our average revenue transactions -- average revenue per transaction through new products and pricing, our existing products to value, recognizing the depth of information TWN allows us to deliver to customers.
Workforce Solutions' new product pipeline is rapidly expanding as our teams leverage the power of our new Equifax cloud capabilities. And third, by increasing our penetration in the markets we serve and expanding into new markets. For example, we continue to increase our penetration in the mortgage market. At the end of 2020, Workforce Solutions received an inquiry in almost 60% of completed mortgages, up from 55% in 2019.
This 500 basis point increase is a big step forward, but we still have plenty of runways to expand the customers using TWN mortgage. We're also seeing substantial growth in TWN in other credit markets, including card and auto as these verticals take advantage of the unique lift from TWN income and employment data in the 16% hit rates with our database.
Growing system-to-system integrations is another key lever in driving both increased penetration and increasing the number of pulls per transaction. During the quarter, about 75% of TWN mortgage transactions were fulfilled system-to-system, up over 2x from 32% in 2019. And again, we still have plenty of growth potential here.
Workforce Solutions is performing exceptionally well with attractive above market and above Equifax growth rates and margins that we expect to continue in the future.
Slide 9 highlights the core growth performance of our U.S. B2B mortgage businesses, Workforce Solutions and USIS. Our combined U.S. B2B businesses delivered 3% revenue growth in mortgage in the third quarter, outperforming the mortgage market by 24 basis points with the market down 21%. This strong performance -- outperformance was again driven by Workforce Solutions with core mortgage growth of 43%, enabled by the multiple drivers that I just discussed.
Slide 10 provides an update on new product innovation, leveraging the Equifax cloud and our differentiated data, a key driver of our current and future growth. In the quarter, we delivered 30 new products with 150 new products in the market so far this year, which is up 18% from the 96 we delivered in the same time frame last year. We continue to expect our 2021 Vitality Index defined as a percent of revenue delivered from NPIs launched in the past three years to be over 8%.
In the third quarter, we launched significant new products. We expect to continue to drive growth in '22 and beyond. The SSA Payroll Exchange that went live as EWS product that supports verifications of SSI and SSDI social services delivering critical income and employment status based on program requirements. One View with DataX is a new integrated consumer credit report that redefines how we deliver display and provide insights to our customers. It also sets the stage for integrating nontraditional credit data in a single view solution for our customers.
Alternative data from DataX, Teletrack, NC+, rental payments and other sources are a critical priority for Equifax, and we expect to continue to drive NPIs in this space in the future. Digital Identity Trust 2.0 product provides businesses with a comprehensive passive identity verification services that delivers a trust/do not trust recommendation across both physical and digital identity vectors. This product will leverage Kount data by year-end.
MarketMix Premier Solution enables the ability for FIs to access market share and size of liquidity across geographics. This provides quick identification of targeted growth markets to deploy spend across branch sales and marketing efforts.
And lastly, the new Equifax Affordability product in Australia uses bank transaction data and sophisticated categorization to provide an Affordability view to customers, while removing friction for the consumer. We're clearly focused on leveraging our new Equifax cloud capabilities to drive our NPI rollouts and new product revenue in '21 and beyond. Growing NPI is central to our EFX2023 growth strategy.
As detailed on Slide 11 and 2021, we reinvest our strong outperformance in strategic and accretive bolt-on acquisitions that strengthen our position in existing growth markets and allow us to enter new markets with new capabilities. Our 2021 acquisitions add $300 million plus synergies to our run rate revenue. We are focused on executing acquisitions that are accretive to our long-term revenue growth and margins and deliver attractive shareholder returns.
Our priorities for M&A are clear and aligned around, number one, expanding our differentiated data, which is at the core Equifax. We have scale and unique data sets that we want to expand and leverage with new data elements to drive enhanced decisioning for our customers. All of our acquisitions deliver new and differentiated data, and more data drive better decisions.
Second, expanding and widening our largest and fastest-growing business, Workforce Solutions, is a priority for our M&A. The Appriss Insights, HIREtech, Health e(fx) and IQ Verify acquisitions strengthen Workforce and position EWS for future outperformance.
And last, broadening our ID and fraud capabilities in the fast-growing digital and e-commerce space is another M&A priority. Kount strongly advanced our capabilities in this fast-growing space.
We closed the Appriss acquisition on October 1st and are focused on integration, new solutions and growth. Appriss Insights and our new partnership with the National Student Clearinghouse are a big step forward in our strategy to build out an, EWS data hub centered off our almost 500 million historical TWN data records, to address the fast-growing talent and government markets.
As detailed on Slide 12, combining our scale TWN data with Appriss Insights criminal and health care credentialing and sections data, along with other partner data assets, including the exclusive partnership for college and university data, we entered into in the third quarter with the National Student Clearinghouse, allows Workforce Solutions to deliver the most complete, realtime 360-degree view of the prospective employee or applicant, for government benefits available in the market.
The Talent Solutions and Government verticals offer large and growing markets for our Workforce Solutions business through the EWS Data Hub. We estimate an addressable market of $5 billion in the U.S. hiring space and onboarding process with around 75 million new employees, onboarded annually in the U.S.
Workforce Solutions government vertical is focused on delivering data and solutions to support federal and state benefit programs as well as law enforcement agencies. This is a substantial and growing sector that we estimate to have an addressable market of about $2 billion.
Appriss Insights strongly accelerates our ability to penetrate these large and fast growing TWNs. Insights is anticipated to generate 150 million of run rate revenue during 2021 and to grow on a standalone basis at over 15% annually.
We also anticipate building towards approximately $75 million in revenue synergies by 2025, leveraging the EFX Cloud to integrate Appriss Insight's rich people-based risk intelligence data in the AWS data hub to form a new multi-data solutions and through cross-selling efforts. Acquiring Appriss Insights and partnering with the National Student Clearinghouse provide strong pillars for Workforce Solutions growth and fast-growing markets going forward.
Slide 13 highlights our focus on adding alternative data to our database focused on the 60 million un or underbanked population in the United States. According to our Federal Reserve study, 6% of U.S. adults do not have a checking, savings or money market account, although two-fifth use some form of alternative financial service. Moreover, 16% of adults have a bank account, but also use an alternative financial service product generally, at much higher costs.
Providing services that help bring these underserved populations into the financial mainstream is core to our purpose of helping people live their financial best. And is an important priority for our customers.
Our acquisition of Teletrack in September, which we are combining with our DataX business, creates a leading U.S. specialty consumer reporting agency with data on more than 80 million, in file unbanked and underbanked and credit rebuilding consumers.
Our national consumer telecom and utilities exchange partnership is another unique data set focused on this space that has more than 420 million records and 250 million consumers, helping our customers to expand underwriting to no hit or thin file customers.
We are focused on expanding our unique alternative data from sources, including specialty finance companies, alternative lenders, telco companies, cable and satellite TV providers, municipalities and utilities to drive growth in the fast-growing alternative data markets. And we'll continue to look for opportunities to strengthen our alternative databases through partnerships and M&A.
And now, I'd like to turn it over to John to discuss our outlook for the rest of the year, our increase in guidance for 2021 as well as our -- share our early read on 2022 assumptions and our financial framework for 2022.
