Equifax Q3 2022 Earnings Call Transcript

Quartr
Provided by Quartr
October 20, 2022

There are 20 speakers on the call.

Operator

And welcome to the Equifax Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the call over to Trevor Burns, Senior Vice President, Head of Corporate Investor Relations.

Operator

Thank you. You may begin.

Speaker 1

Thanks, and good morning. Welcome to today's conference call. I'm Trevor Burns. With me today are Mark Begore, Chief Executive Officer and John Campbell, Chief Financial Officer. Today's call is being recorded An archived recording will be available later today in the IR Calendar section of the News and Events tab at our IR website, www.investor.

Speaker 1

Equifax.com. During the call, we'll be making reference to certain materials that can Also, we'll be making certain forward looking statements, including Q4 and full year 2022 guidance to help you understand Equifax and its business environments, these statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from our expectations. Certain risk factors that may impact our business are set forth in filings with the SEC, including our 2021 Form 10 ks including adjusted EPS attributable to Equifax and adjusted EBITDA, which will be adjusted for certain items that affect the comparability of our underlying operational performance. These non GAAP measures are detailed in reconciliation tables, which are included with our earnings release and can be found in the Financial Results section Now I'd like to turn it over to Mark beginning on Slide 4.

Speaker 2

Thanks, Trevor. Equifax delivered another very solid quarter with continued execution against our eFX 2025 strategic priorities in a challenging economic environment. 3rd quarter revenue of $1,244,000,000 was up 2% or 4% in constant currency and was above the high end of our guidance driven by strong non mortgage revenue The strong revenue performance was well above our July framework and delivered despite a more negative FX environment Than we expected, which at 200 basis points or $29,000,000 was a $5,000,000 or about 50 basis point greater headwind for FX We are continuing to significantly outperform our underlying markets as we navigate the challenging economic environment and mortgage market decline. Our global non mortgage businesses, which now represent over 78% of total Equifax revenue were very strong With 20% total and 13% organic non mortgage constant currency dollar revenue growth, Stronger than we expected when we provided guidance in July and stronger than our 8% to 12% long term growth framework. We're now tracking to 20% non mortgage constant dollar growth in 2022, which is up about 100 basis points from our July guidance.

Speaker 2

The outperformance was again led by outstanding performance at Workforce Solutions that delivered 40% total and 20% organic non mortgage revenue growth. USIS B2B Non Mortgage grew 9% online and 5% total, which is about consistent with the Q2, but weaker than we expected. International delivered a record quarter, up a very strong 17% constant dollar growth and 15% organic constant dollar growth, well above our expectations. Equifax total mortgage revenue was down 30%, about as expected and outperformed the underlying market decline by over 10 points From pricing, new twin records, penetration, system to system integrations and new products. The U.

Speaker 2

S. Mortgage market as expected Weakened substantially in the 3rd quarter with originations estimated at down 50% in the quarter, which was about 9 points weaker than our July guidance. As a reminder, Workforce Solutions mortgage revenue is more closely tied to originations. USIS mortgage credit inquiries were down 41 in the quarter and better than our expectations from increased shopping activity despite the weaker than expected mortgage originations. We're continuing to see higher than normal levels of shopping, which continued throughout the quarter and tends to benefit USIS credit file pulls.

Speaker 2

Combined, the negative mortgage market impact on Equifax was about as expected as the more negative market impact from originations on EWS was by the less negative impact on USIS from increased shopping activity. We saw continued weakening of the mortgage market as we move through September into the 1st few weeks of October As mortgage rates continue to rise to their highest level since 2008, we now expect mortgage originations to decline over 60% in the 4th quarter versus our July framework 48% and USIS credit inquiries to decline over 50% versus our July guidance of 46%. John will talk about our updated mortgage framework in a minute. 3rd quarter adjusted EBITDA totaled $405,000,000 and was flat compared to last year. Adjusted EBITDA margins of 32.5% were slightly below our expectations for the quarter, principally due to higher sales and marketing expenses driven by our outperformance in non mortgage verticals.

Speaker 2

John will walk you through our margin performance in the Q3 and expectations for Q4 later in the presentation. We continue to make significant progress executing the EFX Cloud data and technology transformation. We're now approaching 70% of North America and 60% of total eFX revenue being delivered from the new eFX cloud. Our focus for the remainder of 2022 and 2023 is accelerating full customer migrations in North America to enable decommissioning of our applications and data centers. Our new eFX cloud infrastructure is delivering always on capabilities and faster new product innovation With integrated datasets, faster data delivery and industry leading enterprise level security, we're convinced that our EFX cloud and single data fabric will provide We're in the early days of leveraging our new EFX cloud infrastructure and single data fabric and are seeing acceleration of innovation Our new product vitality index of 14% in the quarter is a record and over 500 basis points improvement From our 9% vitality index last year and well above our 10% long term goal for vitality.

Speaker 2

As a reminder, our vitality index is a percentage of revenue derived from new products launched in the past 3 years. Our strong momentum on NPI rollouts leveraging the new eFX Cloud allowed us to raise our full year vitality index outlook for 2022 for the 2nd time this year from 11% to 13%, which is up 300 basis points from our long term framework and from the framework we started earlier this year. This strong NPI performance gives us momentum into 2023 as most new products reach commercial maturity in years 2 3. In Q3, we continued to execute our bolt on acquisition strategy completing 2 acquisitions, Law Logics, which will further strengthen Workforce Solutions Onboarding and i9 Solutions and Mitigator, which will strengthen count in our broaden our identity and fraud franchise. These are our 11th 12th bolt on acquisitions since January 2021 and aligned with our M and A strategy to strengthen workforce solutions, our largest and fast growing business, Add unique and differentiated data and expand in the fast growing identity and fraud market.

Speaker 2

Bolt on acquisitions that broaden and strengthen Equifax are levers for future growth and are central to our long term growth framework to add 100 to 200 basis points annually to our revenue growth from strategic bolt on M and A. Our guidance for 2022 revenue of just under $5,100,000,000 is essentially unchanged from the framework we provided in July. With 3rd quarter revenue 3rd quarter revenue was stronger than our July guidance by about $25,000,000 Our current guidance reflects a decline in 4th quarter from our prior view by about $25,000,000 from the weaker mortgage market and FX. The continued weakening in the U. S.

Speaker 2

Mortgage market Negatively impacting 4th quarter revenue by about $45,000,000 and negative FX is impacting revenue in the 4th quarter by about $15,000,000 Partially offsetting the $60,000,000 negative impact is stronger non mortgage revenue in Workforce Solutions International and the acquired revenue from Law Logics and Mitigator. The strong 20% constant dollar non mortgage growth in 2022 gives us great momentum as we look to 2023 and a bottoming of the mortgage market in the coming quarters. Our guidance for adjusted EPS of $7.54 share is down about $0.13 from the midpoint of our July guidance. As our Q3 adjusted EPS was about $0.08 per share stronger than our July guidance, this results in a reduction in the 4th quarter from our implied EPS of about $0.21 a share or about $33,000,000 in pretax income. The most significant drivers of this reduction in EPS Our first, the $45,000,000 reduction in higher margin 4th quarter mortgage revenue due to the weakening mortgage market, which more than drives this level of reduction in pre tax income and second, higher interest expense.

Speaker 2

These negative impacts were partially offset by Stronger non mortgage growth and the addition of acquisition related non mortgage revenue from Law Logics and Mitigator. And again, John will provide details on Q4 and full year guidance shortly. We were very pleased with our continued very strong constant dollar non mortgage revenue growth of 20% total and 13 organic, which is well above our 8% to 12% long term framework and our ability to outperform the underlying mortgage market as shown by our 3rd quarter results. Turning to Slide 5, a critical deliver of our strategic priorities is the continued expansion of our addressable market data sources and revenue. Equifax is much more than a credit bureau today and our addressable TAM has expanded 3x to over $45,000,000,000 Over the past several years, we've expanded into faster growing markets outside financial services and mortgage.

Speaker 2

These faster growing markets include identity and fraud, Talent Management, Government and Employer Services verticals. This has accelerated our growth outside of Financial Services and Mortgage And increase the resiliency and diversity of EFX by broadening our revenue streams, including markets that are expected to deliver future growth at levels above our traditional markets. As shown on the slide, since 2019, we've grown our total non mortgage business by over $1,100,000,000 a combined CAGR since 2019 of 12%, which is at the high end of our 8% to 12% long term growth framework. In 2022, we expect non mortgage revenue To represent over 75% of total Equifax revenue, in the 4th quarter, it will be well over 80%. Also since 2019, we've grown our non credit bureau based revenues by $1,500,000,000 or a very strong CAGR of about 30% to over half of Equifax total revenue.

Speaker 2

This is led by our $2,400,000,000 Workforce Solutions business, which is up 1 point $4,000,000,000 since 2019 at a very strong CAGR of about 35%, but also supported by strong double digit growth in identity and fraud from count And mitigator as well as strong growth in debt services. We've also completed 12 acquisitions since 2021 that are all in the non mortgage space and are delivering Strong double digit growth. Workforce solutions strong above market growth in verticals like Employer Solutions, Talent and Government, Our expansion into identity and fraud and our focus on new product investments coupled with our bolt on acquisitions focused on non mortgage priorities will continue to accelerate the growth of Non credit and non mortgage revenue streams at Equifax. Turning to Slide 6. In 3rd quarter, Equifax core revenue growth, the green section of the bars, Grew a very strong 16% reported and 19% in constant currency, which was consistent with our July guidance.

Speaker 2

Constant dollar core revenue organic revenue growth of 14% in the quarter was also substantially above the organic growth in our long term financial framework of 7% to 10%. Non mortgage constant dollar organic revenue growth of 13% drove 3 quarters of the organic constant dollar core growth in the quarter. Core mortgage outperformance predominantly in EWS drove the remainder of core organic constant dollar revenue growth. We continue to expect strong core revenue growth of 17% total and 19% in constant currency in 2022, Which again is well above our 8% to 12% long term growth framework and 300 basis points higher than the core growth for 2022 provided last November at our Investor Day. This strong constant currency growth is driven by stronger non mortgage revenue growth 20% total and 13% inorganic due to broad based performance across Workforce Solutions and Strength in International.

Speaker 2

As detailed on Slide 7, U. S. Mortgage revenue was down about 30% in the quarter. This compares to 3rd quarter mortgage originations Down 57% as estimated by mortgage industry third parties and USIS credit inquiries that declined 41%. As a reminder, in a rising rate environment, we believe consumers tend to rate shop more frequently creating a favorable variance between mortgage credit inquiries and originations It benefits USIS credit file pulls from shopping.

Speaker 2

In the Q3, we saw mortgage credit inquiries perform on the order of 16 points better than the change in the estimated mortgage originations. USIS revenue declined 35% in the quarter, about 6 points better And credit inquiries. However, twin income and employment is typically pulled later in the mortgage application process and at closing. As a result, EWS does not benefit as much from the upfront shopping trend that occurs in a rising rate environment as twin increase are more closely aligned with completed mortgage originations. Twin mortgage revenue declined 28% in the quarter.

Speaker 2

EWS core mortgage revenue growth that was up a strong 14% in the quarter and when adjusting for the 16 point negative spread Mortgage inquiries and originations was up a very strong 30% and consistent with prior quarters. Overall, Equifax mortgage revenue outperformed USIS credit inquiries by 11% or 11 points in the quarter and outperformed estimated mortgage originations by a Strong 27 points in the quarter. This reflects the strength of our U. S. Enterprise mortgage sales and operations team that bring the combined USIS and EWS Products and solutions to market in this challenging mortgage macro.

Speaker 2

Turning to Slide 8, Workforce Solutions delivered another standing quarter with 32% core revenue growth, driven by very strong non mortgage, non UC and ERC growth of 62%. As a reminder, non mortgage revenue is now about 70% of Workforce Solutions and a big Workforce Solutions driver for future growth from their fast growing talent and government Workforce Solutions above market, 32% core growth in the quarter continues to be driven by very strong performance on twin record additions, New products and pricing, system to system integrations and greater penetration. Their market outperformance Very strong, particularly in a period of declining market transaction volumes for mortgage. We expect to see continued very strong core growth in 4th quarter from Workforce solutions. Rudy Ploeder and the Workforce Solutions team continue outstanding execution across their key growth drivers detailed on the right hand side of the slide.

Speaker 2

Over the past 12 months, we've signed 10 new agreements with payroll processors in the U. S, including 3 new agreements in the 3rd quarter that will be added to the Twin database over the next several quarters. These new partnerships along with continued growth in our direct contributors through our employer services business are delivering Continued strong growth in the TWN database with current records up 16%, reaching 146,000,000 current records in the 3rd quarter. There are 111,000,000 unique individuals in Twin deliver very high hit rates and represent over 2 thirds of the 165,000,000 U. S.

Speaker 2

Non farm payroll. And as a reminder, about 50% of our twin records are contributed directly from individual employers that we have long relationships with. The remaining are contributed through partnerships principally with payroll companies. In addition to traditional W-two wage earners, we There are approximately 30,000,000 to 40,000,000 gig workers and 20,000,000 to 30,000,000 pensioners in the U. S.

Speaker 2

Who will also bring valuable income and employment insights Lenders, background screeners and government agencies. We recently signed an agreement with a payroll processor to gain access to their pensioner records And we have an active pipeline with other companies to acquire new pension records to the TWN database. We're in the very early innings of collecting records on the 50,000,000 to 70,000,000 gig in pensioner records, but expect to make significant progress as we move through 2023 and beyond. Twin record additions will continue to drive Workforce Solutions revenue going forward from higher hit rates and we have the ability to double our record in the future to the roughly 220,000,000 total W-two gig and pension recipients in the United States. This is incredibly powerful lever for future growth at Workforce Solutions and a key driver of their 13% to 15% Long term growth outlook.

Speaker 2

Turning to Slide 9 with some more detail on Workforce Solutions. They really had an exceptional quarter delivering revenue of 5 $59,000,000 Revenue was up a strong 9% with overall organic revenue growth of about flat overall, Despite the significant 28% decline in EWS mortgage revenue in the quarter, non mortgage revenue was up a very strong 40% is now 70% of Workforce Solutions. Verification Services revenue of $455,000,000 was up 13%, more than offsetting the 57 decline in estimated mortgage originations. Non mortgage verticals now represent over 60% of verifier revenue and delivered 72% total and 30% organic growth. The Insights business, which we acquired late last year continues to perform very well, Driven by strong performance in their largest verticals Risk Intelligence and Justice.

Speaker 2

Risk Intelligence helps background screeners analyze people's risks via background checks and continuous monitoring. Justice Intelligence helps channel partners assist law enforcement agencies in their investigations. Talent and Government Solutions, which now represent almost 40% of Verifier non mortgage, had outstanding quarters. Talent Solutions delivered 110% total and over 50% organic growth in the quarter from record growth pricing and strong new product rollouts. We also saw strong growth in the government vertical with revenue up 90% total and 44% organic, driven by strong penetration at the state level.

Speaker 2

The EWS government vertical is benefiting from penetration, pricing, record growth and leveraging a strong product portfolio, including Insights data at the federal, state and local level across the United States. The continued expansion of Workforce Solutions Data Hub through our new Total Verify solution is driving very strong growth in the fast growing 5,000,000,000 talent and 2,000,000,000 government markets. Our Total Verify solution is enabling our customers To access multi data solutions derived from an unparalleled set of differentiated information assets, spanning employment, income, Education, incarceration, health credentialing and identity. As of the Q3, EWS has over 580,000,000 Total records in the Twin database, both current and historic that provide both current and previous employment information on individuals, allowing us to increasingly provide an instant digital resume or employment verification on both current and historical job histories. The non mortgage EWS consumer lending business principally in card, auto and consumer finance and led by our U.

Speaker 2

S. Enterprise sales teams Also showed good growth with revenue up 18% in the quarter. Employer Services revenue of $104,000,000 was down 7% due to the expected decline in our unemployment claims and employee retention credit businesses. We expected total UC and ERC Revenue to be down about $0.20 in 2022, driven by the lower jobless KN claims and ERC transactions as the COVID federal tax program runs out. Employer services revenue, Excluding UC and ERC, it was up a strong 29% in the quarter, driven by broad based double digit growth in our I-nine and onboarding, healthy FX In our tax credit businesses, we are increasingly seeing the ability to deliver bundled packages of our differentiated employer services solutions to customers.

Speaker 2

In the Q3, we signed a large multiyear agreement to provide a broad suite of EWS solutions, including I-nine, W-four, tax services and other HR solutions to a large multinational company with annual guaranteed workforce solutions revenues approaching $20,000,000 with total annual revenue opportunities with the agreement of over $30,000,000 Workforce Solutions adjusted EBITDA margins of 29.5% were lower than our July guidance and the over 50% margins we from EWS on an ongoing basis. The main drivers of the lower than expected margin was negative mix due to lower mortgage revenue, Higher sales and marketing costs principally due to very strong non mortgage revenue growth and costs to add the new trend contributors I talked about earlier. The decline in EBITDA margins versus last year was driven by similar factors, including negative product margin mix as higher margin mortgage Declined as a percentage of revenue and was replaced with verifier non mortgage revenue and revenue from the most recent acquisitions, which at this point have lower margins than verifier overall. And second, increased marketing and sales expense from both investments to drive NPI and driven by our extremely strong non mortgage sales and record acquisition performance. And then last, as I mentioned, costs related to onboarding new Twin Contributors.

Speaker 2

We expect these same factors to impact margin sorry, EWS margins in 4th quarter as we see further declines in mortgage revenue with EWS EBITDA margins of about 48.5% in 4th quarter. As we look to 2023, we expect to see EWS margins return to above 50% as product and pricing initiatives expand profitability and we see additional savings from their cloud transformation. The strength of EWS and uniqueness and value of their twin income and employment Data in Employer Services businesses were clear again in the Q3. Rudy Ploeder and the AWS team delivered another above market quarter with 9% revenue growth and 32 percent core growth and are well positioned to deliver very strong 2022 and continue above market growth in the future. As shown on Slide 10, USIS revenue of about $397,000,000 was down 9% and slightly better than our expectations.

Speaker 2

USIS mortgage revenue was down about 35% and was also better than expected with a 41% decline in credit inquiries versus the 46% we had expected. At $97,000,000 mortgage revenue is now about 25 percent of total USIS revenue. B2B non mortgage revenue was $250,000,000 which represents over 60% of total USIS revenue and was up 5% with organic revenue growth of 3%. This was below the low end of the 6% to 7% growth we discussed in July. Importantly, B2B non mortgage Online revenue growth remains strong at 9% total and 6% organic, a sign that lenders continue to originate.

Speaker 2

During the quarter, we saw double digit growth in commercial and telco and solid single digit growth across financial services, auto and insurance, offset by a decline in our direct to consumer business. Kount, which provides unique identity and fraud solutions, continues to execute very well, Developing joint solutions leveraging both count and Equifax data with 2022 global revenue expected to exceed 20%. The recent acquisition of Mitigator will continue to strengthen our identity and fraud franchise and growth. The weakness relative to expectations in the quarter was again in Financial Marketing Services, our B2B offline business that had revenue of $51,000,000 down 8% and lower than our expectations. As we discussed in previous quarters, the principal driver of decline in FMS Services Was our fraud and data services vertical where we provide header data principally to providers of identity and fraud services and to a much lesser extent our Risk Management and Portfolio Review business, where we provide data and analytical services to financial institutions to evaluate the health of their existing portfolios in some cases portfolios they're acquiring.

Speaker 2

As we discussed in prior quarters, we expect the declines in these businesses to continue through Q4 with improvements in 2023 as we introduce new products leveraging unique and differentiated data assets available through the new Equifax single data fabric. We also saw a decline in batch marketing services where we provide data and decisioning principally to financial institutions for prescreeners as well as delivering our IXI data for marketing activities as some customers cut back on originations. We had seen high Single digit growth in marketing services in the first half, so this is the first signs of any pullback in marketing. For 4th quarter B2B non mortgage, we expect online to continue to be strong with growth rates above 3rd quarter from commercial execution As well as progress in pricing and new product rollouts that overcome a somewhat slower growth in financial services. We expect financial marketing services to continue to be weak, Down over 10% with declines across header, risk and marketing continuing in the Q4.

Speaker 2

Overall for B2B non mortgage, we expect 4th quarter organic revenue growth to be about The levels we saw in the Q3. USIS Consumer Solutions business had revenue of $50,000,000 down 1% in the quarter, but 2% sequentially. We expect 4th quarter revenue to grow again sequentially with positive growth rates in the 4th quarter. USIS adjusted EBITDA margins were 34.1% in the quarter and slightly below our expectations principally due to continued investments And sales resources focused on non mortgage growth. International revenue was shown on Slide 11 was up $288,000,000 up a very strong seventeen on a local currency basis and 15% on a non organic constant currency basis.

Speaker 2

We're seeing broad based execution from our international businesses. Europe local currency revenue was up 24%, principally driven by over 75% growth in our U. K. Debt management business. We've seen significant increases in debt placements from the UK government over the past several quarters.

Speaker 2

Our European CRA revenue accelerated in the 3rd quarter with revenue of 7% and above our expectations driven by broad based product execution across our B2B online products Identity and fraud slightly offset by lower consumer revenue. Asia Pacific, which is principally our Australia and New Zealand business, Delivered local currency revenue of 6%, driven by strong growth in our commercial and identity and fraud businesses and to a lesser extent growth in consumer. Latin America local currency revenue was up a strong 34%, driven by double digit growth in Chile, Argentina, Uruguay, Paraguay, Ecuador In Central America, the team's new product introductions over the past 3 years and pricing actions continue to drive strong growth across all product lines. This is the 3rd consecutive quarter of double digit growth for Latin America. Canada local currency revenue was up 12% and above our expectations.

Speaker 2

We saw growth in commercial, analytics solutions, decisioning and identity and fraud revenue, which was partially offset by some one time revenue in the quarter from mortgage volume declines. Consumer revenue also returned to growth during the quarter. We expect mid single digit revenue growth from Canada in the 4th quarter. International adjusted EBITDA margins at 26.8 percent were down 200 basis points down 210 basis points sequentially and above our expectations given strong revenue growth. EBITDA margins were up slightly versus last year, but up about 150 basis points adjusting for the loss of equity income from the Russian joint venture that we sold.

Speaker 2

As shown on Slide 12, we had a very strong new product quarter with vitality index 14%, which is our highest vitality index ever and it was over 500 basis points above last year's results and 400 basis points above our 10% Long term growth framework for Vitality. We've delivered about 80 new products so far in 2022, leveraging our new eFX cloud capabilities. We now expect to deliver a vitality index of 13% in 2022, up 200 basis points from our previous guide of 11%, equates to over $650,000,000 of new product revenue in the year. The growth in our 2022 vitality index is principally coming from Workforce Solutions, which is encouraging as they are further along in completing their cloud transformation. It's positive to see the strong NPI results In the early innings of the Equifax cloud, new products leveraging our differentiated data, our new Equifax cloud capabilities and single data fabric are central Our long term growth framework and driving future Equifax top line growth.

Speaker 2

This week at the Annual Mortgage Bankers Association Conference, we will showcase A new offering that delivers telecommunications, pay TV and utilities attributes alongside the traditional mortgage credit report To help streamline the mortgage underwriting process, delivering telco, pay TV and utilities attributes to mortgage lenders alongside the traditional credit reports as they complete their 1st mortgage applications. This new offering leveraging the Equifax cloud will provide powerful new insights They help to automate, save time and resources and streamline the 1st mortgage process for every applicant, creating more opportunity for consumers to secure a loan. And Equifax is the 1st and only in the industry to offer these unique insights to the mortgage industry. Turning to Slide 13, we outlined the 12 strategic bolt on acquisitions we completed since January 2021. We expect we'll deliver over 450,000,000 Principally non mortgage run rate revenue.

Speaker 2

As you know, our 8% to 12% long term growth framework includes 1% to 2% Annual revenue growth from strategic bolt on M and A aligned around our 3 strategic priorities. 1st, expanding and strengthening workforce solutions, our fastest growing and most profitable business 2nd, building out our identity fraud capabilities and third, adding unique data assets. And with that, I'll turn it over to John to provide more details on the mortgage market in our Q4 and full year 2022 guidance.

Speaker 3

Thanks, Mark. As Mark mentioned and is shown on Slide 14, our guidance reflects an expectation that the decline in the U. S. Mortgage market will steepen in the 4th quarter With mortgage originations declining over 60% and mortgage credit inquiries declining over 50%. This is a significant reduction from our expectations in July And as Mark referenced earlier, this expectation of a further weakening of the mortgage market negatively impacts 4Q revenue by almost $45,000,000 3Q mortgage revenue was 21.9 percent of total Equifax revenues compared to 29.5% 24.7 percent in 1Q 'twenty two and 2Q 'twenty two respectively.

Speaker 3

In 4Q, we expect mortgage revenue to be about 16% of total Equifax The rapidly changing and unprecedented macro environment makes forecasting the impacts on the U. S. Mortgage market incredibly challenging. We will continue to be transparent with you about changes in the mortgage market and the impacts on our business. EBITDA margins of 32.5% were slightly below the level of at or below 33% we discussed in our July guidance.

Speaker 3

Mark discussed the main drivers in HBU, partially offsetting these items were lower corporate and corporate technology Slide 15 provides our guidance for 4Q 'twenty two. We expect revenue in the range of $1,165,000,000 to 1 point $85,000,000,000 reflecting revenue down about 6.3% year to year at the midpoint of our guidance or down about 3.7% on a constant currency basis. 4Q 2022 EBITDA margins are expected to be about 31.5%. We're expecting adjusted EPS in 4Q20 2 to be $1.45 to $1.55 per share compared to 4Q 'twenty one adjusted EPS of $1.84 per share. As Mark shared earlier, the decline in our 4Q 2022 guidance as compared to implied levels we shared in July It's driven by the significant reduction in our expectations for the U.

Speaker 3

S. Mortgage market in the Q4. 4Q 2022 revenue in Our current guidance relative to our implied view in July is down about $25,000,000 Mark covered this earlier as a $45,000,000 decline from the weakening U. S. Mortgage And $15,000,000 decline driven by FX are partially offset by revenue from the acquisitions of Law Logics and Mitigator and stronger non mortgage revenue growth.

Speaker 3

4Q 2022 adjusted EPS and our current guidance relative to our implied view in July is down about $0.21 per share or about $33,000,000 in pre tax income. This decline is driven by the impact of the decline in the U. S. Mortgage market on revenue of $45,000,000 which given high variable margins drives a pre tax income decline that The total variance level. Strong core revenue growth both from the acquisitions of Law Logics and Mitigator as well as stronger organic growth are delivering improvements in pre tax income.

Speaker 3

However, these improvements are being offset by the higher marketing sales and G and A expense that we referenced earlier And higher interest and other expenses. Reflecting the above, our expectations for the BUs in the 4th quarter are as follows. EWS revenue is expected to have an about 3% or greater decline. Continued strong non mortgage organic revenue growth is expected to offset bulk of the impact on EWS mortgage revenue of the expected over 60% decline in mortgage originations. EWS EBITDA margins are expected to be about 48.5 percent in the quarter.

Speaker 3

USIS revenue is expected to have an about 7.5% or greater reflecting the greater than 50% assumed decline in the U. S. Mortgage and credit inquiries. B2B non mortgage revenue growth is expected International continues to deliver a strong year and is expected to deliver constant currency revenue growth of up 8.5%, down from the 3rd quarter as we lap growth from our U. K.

Speaker 3

Debt management business. International EBITDA margins are expected to be up decline in the U. S. Mortgage market and the significant impact of FX. Looking at revenue, at the mid Point of our guidance of $1,175,000,000 revenue is down about $78,000,000 FX is negative about $35,000,000 or 2.6 percent year to year.

Speaker 3

So on a constant currency basis, revenue is down about $43,000,000 The impact of the decline in the U. S. Mortgage market using originations declines for EWS And credit inquiries declines for USIS is negative about $185,000,000 or almost 15 points. Excluding these factors, effectively constant dollar revenue growth excluding the impact of the U. S.

Speaker 3

Mortgage market, revenues up over $140,000,000 reflecting Predominantly the very strong non mortgage growth principally in EWS and International and also in U. S. B2B Online And strong outperformance in mortgage relative to the overall market predominantly in EWS. Looking at adjusted EPS at the midpoint of our guidance of 1.50 Adjusted EPS is down about $0.34 a share. Below operating income items principally higher interest expense and the loss of equity income from our Russia JV As well as the impact of FX explained just over half of the decline in adjusted EPS.

Speaker 3

The remainder of the decline is principally driven by the reduction Currency revenue of about $43,000,000 Slide 16 provides the specifics on our 2022 full year guidance. We expect revenue of approximately $5,100,000,000 and adjusted EPS is expected to be $7.49 to $7.59 per share. For the full year of 2022, we expect capital expenditures to be over $550,000,000 Capital expenditures are above the levels we expected in July as maintained capital spending at first half twenty twenty two levels in the third quarter to continue the pace of migration of major exchanges to our cloud infrastructure. We expect to bring down capital spending in 2023 consistent with the completion of the migration of the major North American exchanges. We believe both our Q4 and full year guidance is centered at the midpoint of the revenue and adjusted EPS ranges we provide.

Speaker 3

As you consider the Q1 of 2023, we wanted to provide some general perspective on our current thinking on the U. S. Mortgage market for the quarter. Using our current view of mortgage credit inquiries in the Q4 as a base, we currently expect mortgage credit inquiries to be down about 50% year to year in the first As we move through 2023, the year to year compares get substantially easier, particularly in the second half. Now, I'd like to turn it back over to Mark.

Speaker 2

Thanks, John. Turning to Slide 17. We have some very unique macros in our industry and eVX growth levers driving our performance in 2023 and beyond. The acceleration of the digital macro across every industry is expanding the use of identity data signals and solutions to drive better decisions across new and existing verticals. Equifax is well positioned to take advantage of the accelerating digital macro through our eFX Cloud investments and our recent acquisitions of Insights, Count and Mitigator.

Speaker 2

Although we've been impacted by the significant declines in the U. S. Mortgage market, we believe we have unique levers at Equifax to deliver strong future growth, Count and mitigator identity and fraud growth, our new eFX cloud driving competitive NPIs top line and of course cost savings in 2023 and beyond. NPI is leveraging the EFX Cloud and our expanded resources and focus on new products and bolt on M and A to broaden and strengthen Equifax. These attractive Market macros along with the broad efx growth levers and our strong core outperformance strong core and non mortgage outperformance in the past few years Gives us confidence in our ability to deliver above market growth in the future.

Speaker 2

In the event we do see further economic weakness driven by slowing consumer demand, we believe Equifax Well positioned for continued growth. As we shared with you in July, turning to slide 18, the new Equifax is a much different and more diverse business than we were in the last recession. We are more resilient and better positioned for stronger revenue and earnings growth in challenging economic environments. During the 'eight, 'nine global financial crisis, Equifax performed very well and exhibited the resiliency you would expect from a data analytics businesses. In 2,009, we saw only a 6% decline in total revenue.

Speaker 2

Importantly, EWS grew throughout the global financial crisis and showed substantial growth of 17% in 2,009. We believe that Equifax business mix Today is much better positioned for a potential economic event than in 2,009. 1st, strong EWS growth has increased their relative size in Equifax from from 16% of revenue in 2,009 to almost 50% today with margins over 50% and over 15 Percentage points higher than the Equifax average. EWS is benefiting from strong growth levers that are not directly tied to economic activity, including record growth, Penetration in new and fast growing verticals like talent and government, system to system integrations, deploying new higher value products, as well as measured price actions taking advantage of the scale of the Twin database. 2nd, completion of the Equifax cloud will deliver cost savings in 20 and beyond that we expect will drive about half of our targeted 500 basis point margin expansion from 2022 to 2025.

Speaker 2

The cloud migration cost savings are independent of any economic event and driven solely by our execution. And then last, we're leveraging the new Equifax cloud to accelerate new product rollouts with a goal of 13% vitality in 2022, which is over $650,000,000 of annual incremental revenue from Equifax. As a reminder, NPIs rolled out in 2021 2022 will drive top line growth in We're countercyclical and we'll grow in a recession. This is a big change and a strong position compared to Equifax in the 'eight, 'nine Global Financial Crisis, where only about 37% of our businesses were either recession resilient or countercyclical. The meaningful revenue growth in Workforce Solutions, U.

Speaker 2

S. Mortgage and Identity and Fraud since 2,009 as well as cloud Transformation cost savings position Equifax very well if there is an economic event or recession in 2023 beyond. Wrapping up on Slide 19, Equifax delivered another strong and broad based quarter driven by 13% organic and 20% Total non mortgage constant current constant dollar growth that more than offset the 41% decline in the mortgage market, reflecting the broad based strength of Equifax in this challenging economic environment. This is our 7th consecutive quarter of double digit core growth In our 6th consecutive quarter of double digit non mortgage growth. Against the declining mortgage market, Equifax is resilient on offense and investing for future growth.

Speaker 2

Against the unprecedented 37% mortgage market decline in 2022, we expect to deliver constant currency revenue growth of over 5% due to the breadth and strength of our underlying businesses. More importantly, our core revenue growth of 17% And non mortgage constant currency growth of 20% are both well above our 8% to 12% long term framework and reflect the strength of the underlying Equifax business model. This strong momentum positions us well in 2023 beyond. EWS continues to deliver above market growth and is our largest, fastest growing and highest margin business. Workforce Solutions above market revenue growth over the past 3 years is powering Equifax growth as they approach 50% of our revenue.

Speaker 2

And new products leveraging the new Equifax cloud are also driving growth. Our 13% vitality from NPIs in 2022 We'll drive growth in 2023 and beyond. And we're in the early days of leveraging the new Equifax cloud to drive innovation, new products and expect to deliver strong vitality in the future. Our 12 bolt on acquisitions since January 21 Have expanded our capabilities and are delivering strong top line growth and will deliver synergies in 2023 and beyond. And then lastly, we're in the final chapters of completing our new Equifax cloud data and technology transformation that will deliver top line growth and cost benefits in 'twenty three and beyond as we complete the cloud and leverage our new cloud capabilities in single data fabric.

Speaker 2

Even in this uncertain economic environment, Equifax continues to be on offense and reinvesting in the new Equifax cloud, new products, data and analytics and bolt on M and A to drive future growth. We continue to be confident in our long term growth framework of 8% to 12% total revenue growth and 7% to 10% organic revenue growth with ongoing margin expansion of margins of 50 basis points per year. We also remain focused on delivering on our 2025 goal of $7,000,000,000 in revenue 39% EBITDA margins that we set at our Investor Day a year ago. Our ability to deliver non mortgage growth of 20% in 2022 It is well above our long term growth framework gives us confidence in the future. We remain energized about our performance in 2022 in a challenging mortgage macro And even more energized about the future of the new Equifax, a faster growing, higher margin, cloud native data analytics company.

Speaker 2

And with that, operator, let me open it up for questions.

Operator

Thank you. We will now be conducting a question and answer Our first question comes from the line of Manav Patnaik with Barclays. Please proceed with your questions.

Speaker 4

Thank you. Mark, I was hoping just on Slide 17, where you gave us some of kind of the leverage, the 20 I think I was hoping you would touch on some of the macro trends you're seeing in the card and auto verticals. Just some perspective on Where we are today in those categories relative to pre COVID or history and some of The trends you're seeing there, whether they're decelerating or staying the same or any color around those would be helpful?

Speaker 2

Yes, we talked a bunch, Manav, good morning about mortgage. So we're happy to talk more questions on that. Maybe if step back kind of where we are with the consumer and our customers. The consumer continues to be exceptionally strong. Their credit scores are still up From 2019, they're working.

Speaker 2

We haven't seen real changes in delinquencies except at the subprime level. There's some small changes, But even there, delinquencies are lower than they were in 2019. So you've got consumers that have had wage growth. Employment is low. So it's a very good environment for the consumer, which really impacts the verticals you talked about.

Speaker 2

And then our customers are still very strong. There's no question about that. When you think about the last economic event we had in the global financial crisis, You had both traditional financial institutions banks and fintechs that really had balance sheet problems. That's not the environment we have today. It's similar to our dialogue that we had in July and back in April.

Speaker 2

We see a strong consumer continuing Through the Q4 and into 2023 and the same thing with our customers. So with regards to kind of activity around originations in some of those verticals, Not a lot of change. There's still some challenges in auto around supply chain and availability. I think there's expectations that's going to get better in the coming quarters, but it's still hard to find a car, particularly at certain models that you want to get, Which is resulting in auto being down some from a year ago, but again, kind of at our expectation. No real change in cards.

Speaker 2

I think we mentioned in our comments that we've seen a little bit of weakening in some marketing, but I wouldn't call that a trend. Broadly, our customers are still focused on originations. Card volume is very, very strong. Card originations is very, very strong. And again, you go back to you've got consumers that are very strong.

Speaker 2

I think everyone is watching very closely both us and our customers. When will there be a change in delinquencies? And as you know, my history, I ran a card business for a decade at G Capital and that was what I watched. And The minute you see delinquencies start to move, you think about changing your originations going forward. We just haven't seen that yet with Employment being so high and unemployment being so low.

Speaker 3

If you just look at non mortgage online, organic growth rates in the Q3, right? We saw telco was up double digit, FI, insurance and auto were up mid to high single digits. So again, very strong.

Speaker 4

Got it. And then just on the workforce solutions, 2 thirds Of non farm payroll data now in your database, it sounds like you've I think been closing that gap maybe faster than we had expected. Just some thoughts with that, if it's the same case versus your internal expectations. But the question is, how much of that is really locked in Exclusive per se, like just so that competition is in the wire here?

Speaker 2

Yes. I think Manav, I'll make a couple of points on that. We're increasingly looking beyond non farm payroll, as you know, adding in the gig economy as well as the pensioners. And When we think about our 146,000,000 records and 111,000,000 uniques or individuals in our data set, There's about 200 plus 1,000,000, 210,000,000, 220,000,000 total working Americans and pensioners. So there's a long runway for us between W2, Traditional employees, self employed and remember self employed, we think about gig workers of being Uber drivers, DoorDash, etcetera.

Speaker 2

But Think about self employed doctors, self employed lawyers, self employed accountants, self employed contractors. It's a large population and that pension Base is quite large. And we mentioned in our comments earlier that we've been starting to add pension records and gig records and we signed an agreement with a Company that does pension payroll, if you will, for various companies where we're going to do the income and employment verification for them. We have the ability to double our data set over a lot of years going forward. And I think as you know, we've talked to you before that We've got a 13% to 15% long term growth rate for Workforce Solutions that sits inside of Equifax's 8% to 12% growth rate.

Speaker 2

And we've got 3 to 4 points of that from record growth in the 13 to 15. So there's no question we've had above expectation Record growth over the last it's not new, it wasn't last quarter. It's really been for 3 or 4 years. A lot of that has From many of the payroll processors that you go back 3 or 4 years ago, we're not contributing our records and now they are. And as well as continued growth from our core records, which are from individual companies.

Speaker 2

So with regards to the competitive position we have, we feel very good about it. The agreements that we've signed are on an exclusive basis since in 2022 and since I've been here. It's the right relationship between our partners and Equifax. They want it and we want it. And when we about half of our records coming from individual companies, those are from long term relationships where we're providing those Broad suite of services, whether it's I-nine, W-two management, unemployment claims, work opportunity tax credit, HCA benefits, all those solutions to companies, we also do income and employment verification for them as a part of that Relationship for free.

Speaker 2

So that's a very sticky relationship from our perspective. And you probably heard in my comments earlier that Workforce Solutions is really doing a much better job going to market with the full suite of employer solutions we have. And we signed a contract with a large multinational that's going to once it's implemented, it will be $20,000,000 a year Of Equifax revenue, we're providing all those employer solution services to that multinational. Of course, we're also doing their income employment verification. So We're quite energized about our progress of adding new records to the data set.

Speaker 2

I think as you point out, it's certainly been above the long term framework. And broadly, it's been quite positive for us. And maybe a last point that you're well aware of, As you know, the day we add the records, we're already able to monetize them because we're getting inquiries from our customers either through system to system integrations or Through their access to our website for all of their applicants. So the day we add another record, it's monetized either in a mortgage application, A credit card application, a personal loan, an auto loan, in a background screen or in a government social services. So we've got various Verticals that are looking for more records.

Speaker 2

And we already have them in our order book. We just can't fulfill them until we Grow the data set. So it's a very powerful growth lever for Workforce Solutions.

Speaker 4

Got it. Thank you.

Operator

Thank you. Our next question comes from the line of Ashish Sabadra with RBC Capital Markets. Please proceed with your questions.

Speaker 5

Thanks for taking my question. One of the questions we are getting is more around if we use The Q4 EPS and annualized debt, it implies for next year a significant decline in earnings. I understand there are some puts and takes here. Obviously, there was a discussion around cloud benefits coming in 2023. I was wondering if you could help us parse what are some of the headwinds, puts and takes in the quarter, which may not exist going into 2023?

Speaker 5

And what are the tailwinds as we think about 2023?

Speaker 2

Thanks. Yes. I'll start and then John can jump in. Obviously, you want to start with revenue. We expect to have attractive non mortgage growth next year.

Speaker 2

We're clearly going to have John talked about it, They grow over challenge in the first half of next year, meaning that the mortgage market will be down versus Q1 and Q2 of 2022 based Where current trends look, we don't have an outlook yet, but there was a strong mortgage market in the Q1 and it started declining in the second and more rapidly in the third. That's clearly going to be a part of our outlook going forward. You also have our new product rollouts will be a positive for us. That Vitality Index being above 10% gives us momentum next year to drive the top line with those new solutions. And as I commented earlier, The new products we're rolling out this year, the 80 products we've rolled out so far, most of those aren't really in the revenue in a meaningful way in 2022.

Speaker 2

They really mature in 2023 2024. Last point I would make is that we've made a number of acquisitions in the last 25 months or 20 months actually. And those acquisitions are obviously in our run rate revenue, but the synergies that we expect to get typically Kick in, in years 23. So meaning in 2022 and 2023, we're going to get benefits from acquisition growth that we have going forward. John, maybe you add to that and maybe talk a little bit about some of the margin stuff?

Speaker 3

Absolutely. And so as Mark already really covered, right, so non mortgage revenue growth, Both from NPI, but also from new product and also very importantly from pricing, right. We'll absolutely benefit as we go into next year. Generally speaking, I think most people know A lot of new products in mortgage and other verticals that we serve actually tend to get launched at year end and pricing actions tend to happen at year end. We tend to get a nice benefit as you move from Q4 to Q1 every year and it's done very consistently.

Speaker 3

We also expect to have, as Mark mentioned, Improved cost position as we move into next year as we continue to migrate more and more of our major systems to the cloud, we start to be able to decommission more systems. We're starting to see savings as we move through 2023. That's certainly a benefit. Some of the marketing and sales incremental costs we talked about this quarter that would affect us next quarter Really driven by the fact that we're performing so very strongly this year, right, that we're paying compensation appropriately at very high levels into those organizations because they're substantially outperforming. Obviously, when you get into a new plan year, those things all reset.

Speaker 3

So we think there's certainly cost opportunities that will help margin, But also for us with the fact that we're driving very strong non mortgage growth, with new products and pricing, And obviously that flows through at extremely high margins is real benefit to us as we go into next year. So again, we're not providing guidance yet as we didn't in this call, but we have a lot of levers that can help

Speaker 2

Maybe the last one. Maybe just the last one is that we commented that there's some Unusuals are things that are going to work out in Workforce Solutions margins in the 3rd Q4 from the mix Mortgage and some additional costs associated with our sales and marketing that we made the comment that we clearly expect workforce to be back at 50 plus Margins in 2023, which will be obviously a positive deal.

Speaker 5

Very helpful color. And maybe just a quick follow-up on EWS. The expectation for revenues to be down 3%, it's a significant moderation from 9% growth. Obviously, mortgage is a headwind there and maybe some of the acquisitions are anniversarying. But I was wondering if you could help parse what How we should think about the organic Verifier non mortgage growth as we head into Q4 and next year?

Speaker 5

Thanks. Sure.

Speaker 3

I think we talked about it. We talked about organic revenue growth for EWS and we said it was about 20%. Negatively impacting that It is almost 15 points from reductions in UC and ERC. So if you exclude UC and ERC, we're seeing organic growth Across Workforce Solutions of approaching 35%, which we

Speaker 2

think is a very good number. Very strong in the Q3, right? And well above their 13% to 15% long term growth rate.

Speaker 3

And so even and as we look into next quarter, when we compare the 20% that they delivered this quarter, we expect to have very strong performance again next quarter also In non mortgage. So again, we think EWS non mortgage revenue growth has been really outstanding and continues to grow.

Speaker 5

Thank you. Thanks for the

Operator

color. Thank you. Our next questions come from the line of Andrew

Speaker 6

Let's put aside core when I ask these mortgage questions. So I think we know mortgage as a percentage of total 3rd quarter revenues. That's 22%, the inverse of the 78% on the Q1. Just please verify that. And the second thing, I want to make sure that we have Non mortgage organic revenue growth, and I think that's 13%.

Speaker 6

I think that's what you gave on Slide 4. And if you could just make a comment about Q4, what's implied in terms of non mortgage organic revenue growth?

Speaker 3

Yes. So I believe both of the numbers you quoted were in the presentation. So yes, I think they're correct. And in terms of non mortgage growth, right, we're expecting non mortgage growth to continue to be strong, right. Mark talked about the fact that For the full year, we're continuing to expect 20%, and we're expecting a strong Q4, not quite probably as strong as the Q3, so slightly somewhat below the Q3, but still a very strong number and we're expecting to see the strength that you've been seeing all year continue.

Speaker 6

Okay.

Operator

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

Speaker 7

Just wanted to follow-up on the margin a little bit. Maybe if you guys could run us Through some of the puts and takes in the 4Q step down, is really most or all of that Just mortgage and lower volumes kind of running through and the full quarter's impact of that or there's no like other cost inflation or anything you guys are seeing

Speaker 2

No cost really inflationary impact. It's really the mix of the loss of that mortgage revenue is just such high margin. And then I think we also talked about some costs from sales and marketing and onboarding some twin contributors, but the majority of it is the margin mix from mortgage.

Speaker 3

Absolutely. The step down in 4Q from 3Q is really driven by lower revenue in general because of but it's driven by lower because mortgage is lower And obviously mortgage has a very high variable margin. So that's the driver.

Speaker 7

Got it. That's helpful. And then just a quick follow-up on international. Obviously, the constant currency trends have looked really good for you guys. I know FX is kind of a problem for You guys and a lot of companies, but a little surprising to us that, I guess, with all the recessionary fears and such, Are you guys seeing any slowdown or caution, especially in parts of Europe and such With your clients or has at least through October so far, have those trends still held up and been pretty stable and healthy?

Speaker 2

Yes. As you know, Europe for us is primarily UK, but also Spain is where we participate. And while inflation is a challenge, they're still working, right? And so we really haven't seen any meaningful change What's happening with our customers, everyone is worried about inflation, but when you've got people working, they're generally going to pay their bills. They're also going to spend money and They operate and as you saw from our comments, our UK business, which is most of Europe, had a very good quarter.

Speaker 2

I think it was up 7%. So, no, we haven't seen it yet even with all the inflation fears.

Speaker 7

Got it. It's helpful. Thanks guys.

Operator

Our next questions come from the line of Kelsey Xu with Autonomous Research. Please proceed with your questions.

Speaker 8

Hey, Mark. Hey, John. For EWS, for this quarter, when I look at non mortgage verifier revenue, it Seems to be down a little bit sequentially. Can you just help us understand a little bit in terms of what's going on there? Is it The customer lending keys, is it calendar, government or other verticals?

Speaker 3

Yes. So EWS non mortgage In verifier, but broadly, right, was very strong, right. So again, the growth rates we're talking about are extremely high. We think government and talent continue to perform very, very well. What we if you're just looking at growth rates, obviously, as you move through the year, comps get tougher because we grew very strongly in 2021.

Speaker 3

But overall, as we take a look at Talent Solutions, I think we grade the growth rates. Yes, they're slightly lower, but it's also driven by comps. Government very strong. I think we saw very good performance in kind of commercial in the non mortgage finance segment, which again was very strong. We feel very good about the trajectory and the trend and continuing very strong non mortgage growth rates there.

Speaker 8

Got you. And just a quick follow-up on EWS margin. With the current mortgage environment, I'm trying to figure out what sort of like a new normal for EWS margins. Should we basically be thinking about That's in line with what we've seen this quarter or even Q4, so kind of in the 49% range?

Speaker 2

No, we said in our comments and hopefully you heard it that we clearly expect margins at the AWS to return to that 50 Percent plus level in 2023. We view this mortgage mix as being a challenge in the 3rd Q4. That will definitely impact their margins as well as some of the Additional costs in sales and marketing and twin contributor on boarding in the 3rd Q4. I think we talked about 9 or is it 9 or 10 additions of new contributors, 10 additions of new payroll processors, they're adding records. There's generally some incremental costs when those get added and our non mortgage growth is so high, we're having some additional sales and marketing costs in EWS.

Speaker 2

But To be clear, we expect EWS margins over the long term to be at that 50% plus rate versus where they are this quarter and next

Speaker 9

John, just a question for you on overall consolidated EBITDA margin progress. I think you touched on Some of the potential tailwinds next year. But given the challenges, especially early in the year with mortgage And thinking about margins being flattish, maybe up a little, and that's my number, not yours. And then a bit of an improvement in 'twenty four, it just seems like a heavy lift get to 39% by 25%, is there a step function that we need to be thinking about? I'm just trying to understand that.

Speaker 2

John, you should jump in. But remember, a big piece of that path to 39 is the cloud transformation completion. And We get the meaningful impact on cost takeout and we telegraphed before and every quarter we talk about it that Roughly half of that lift from our margins last year to the 39% is from cloud execution and that's in our So we know how to do it. It's not economic related. We're going to whether the economy is up, down or sideways, we're going to complete the cloud and that Plugs in.

Speaker 2

You've got Workforce Solutions growing faster than the rest of Equifax with their 50% Plus EBITDA margins, that accretes in margin between now 2025. You've also got our new product rollouts, our non mortgage Growth that we expect to deliver is also going to deliver margin expansion over that timeframe.

Speaker 3

Yes. As we get to 2025 and the framework even we laid out that last November, right, we indicated we expect The markets that we're in to be somewhat normal. So we're expecting kind of a normal non mortgage market and we're expecting the mortgage market itself To move back toward more normal levels, right. So a big part of in addition to the cost takeout related to tech transformation, which Mark already referenced, A big part of the mortgage increase is related to that revenue growth. And clearly, we do need in order to deliver those levels, we do need to see some recovery in the mortgage market And moving having it move back toward more normal and then obviously some normal non mortgage markets.

Speaker 3

And given the fact that we're performing so well in non mortgage growth, It gives us comfort that we have a path there to that $7,000,000,000 but we do need to see some recovery in some of the markets we're serving, particularly mortgage.

Speaker 9

Okay. No, I get that. That's helpful. Thank you. And then, Mark, your comments in USIS about mortgage shopping Being a tailwind, I appreciate that.

Speaker 9

I just wonder as rates really have blown out here in the 10 years, The yield is up again today remarkably. How long can that persist? Does there just come a point where rates And accordingly, housing affordability reaches a level where you're just not going to see that kind of behavior. And is that something you're contemplating as you think about The ultimate 23 guidance you offer us?

Speaker 2

It's not. It's just our view is and what we've seen and we continue to see it is that at these higher rates, Consumers just spend more time shopping around and when they do that shopping, USIS benefits from that credit pull that happens in the shopping process and We do not expect that to change. I think your question maybe is a little bit different around at these high rates, are people going to still buy houses? And at these high rates, are people still going to do some level of refis, which there's some, it's obviously down a bunch, but it's more cash out refis to access The multi $1,000,000,000,000 of untapped home equity in the U. S.

Speaker 2

And as you know, the mortgage market doesn't disappear. It certainly declined further and more rapidly than we've expected. As you know, we've been Revised our mortgage guidance 3 times this year because we didn't we couldn't forecast where the Fed was going to take these rates and I don't think anybody can Except higher from where they are now. We're actually getting better at forecasting out a couple of months, meaning inside the quarter. But as you get out past the quarter looking out with what's happening with the volatility of where rates are going, it's more challenging.

Speaker 2

We'll certainly take all of these factors in place when we put out our 2023 guide in February And you have a clearer view hopefully then of what the mortgage market is going to look like. But there's no question the mortgage market is going to bottom at some point. And It doesn't go obviously to 0. There's going to be an area where people still move and even at this interest rates and it's happened before In the U. S, people still buy homes.

Speaker 2

So meaning they buy homes and get mortgages. So there's that level of floor. I think we're all struggling with where it is. And we'll have a better view in a few months of what that looks like for 2023. And as John talked earlier, 1st and second quarter, we're going to have Tougher comps against a very strong mortgage market in Q1 this year.

Speaker 2

But as we get to 3rd 4th, we'll start Comping more towards what should be the floor until we get past whatever economic event we're in here.

Speaker 9

Appreciate it. Thank you.

Operator

Thank you. Our next questions come from the line of Kevin McVeigh with Credit Suisse. Please proceed with your questions.

Speaker 10

Great. Thanks so much. Hey, obviously, a lot of uncertainty on mortgage. But With the inquiry guidance in Q1, is there any way to think about what percentage of revenue mortgage could be in the Q1? And then Any way to think about how you think that will progress over the course of 2023 just as a percentage of revenue more broadly?

Speaker 2

Yes. I think as I Kevin, as we talked a few minutes ago With Andrew, we're not doing any guidance on anything on 23 right now. We're focused on the Q4 and We'll certainly give that guidance as when we get to likely our February Q4 earnings discussion.

Speaker 10

Okay. And then Mark, you talked within the EWS, obviously, kind of the relative outperformance is kind of record penetration system to systems, direct And pricing, is there any way to ring fence the contribution across each one of those? Like is it primarily the records growth that drives it? Or just Is this so we get a sense of across those 5 buckets or is it kind of evenly distributed?

Speaker 2

Yes, I wouldn't say even, but they're all important. There's not one that's disproportionate. Look, record additions are very attractive and very unique for the Workforce Solutions business because it drives revenue day 2 after you add the records. And as you 16% record growth in the quarter and we've driven records up double digit for the last number of years. That's Certainly a positive.

Speaker 2

We take prices up every year. So that's something we'll do in January with all the verticals in workforce and across Equifax. New products, we talked about Workforce Solutions is indexing kind of north of our 14% in the quarter and our 13% guide for the year of new product introductions, that's very attractive for workforce. And we've talked in prior meetings about Continuing to drive system to system integrations and penetration is a big opportunity in workforce. If you think about the credit file, it's very highly penetrated in All financial services verticals workforce is not even in mortgage.

Speaker 2

There's still 40 odd percent of mortgages that we don't that are still done with paper pay stubs. We only do roughly 1 in 10 roughly Background screens. In government, you got a $2,000,000,000 TAM and we've got a $300,000,000 roughly business there. So there's a lot of government Penetration opportunity. So you can see each of them are attractive and very valuable, which is why we have a lot of confidence in Workforce Solutions 13% to 15% long term growth rate.

Speaker 9

Great. Thank you.

Operator

Thank you. Our next questions come from the line of Shlomo Rosenbaum with Stifel. Please proceed with your questions.

Speaker 11

Hi, good morning. Thank you for taking my questions. Hey, Mark, can you talk a little bit about the NPIs and whether there's been any kind of change in Strategically about how you approach that. We're seeing is much higher NPI, like 14%, but we're seeing the numbers of new products, Obviously, much lower than we saw last year. Is there some kind of strategy that you have in terms of less shots on goal, but more higher percentage shots of goal?

Speaker 11

Or just Does that just vary year per year and we really can't look that much into the numbers of NPI like we used to?

Speaker 2

No, numbers are important. Obviously, I think just maybe spooling back to kind of 2 years ago when we really ramped up our new product seeing we brought in a Chief Product Officer. We've got more of a cadence around it. We did that intentionally in advance of our single data fabric and in advance Of our cloud capabilities because we were convinced that the cloud, which again we still have to complete, we're well down the road and A single data fabric will allow us to bring things to market we couldn't do before. Use the example of the product we rolled out this week at the Mortgage Bankers Association Taking our telco utility cell phone data and embedding it in the credit file, that's a very sophisticated product.

Speaker 2

It's drive higher hit rates, higher approval rates, higher originations for our customers. And it's something that only Equifax can deliver. So that The data solution is a big part of our new product capabilities. The second area is really leaning more into our trended data, our historical data. Workforce Solutions now gets, what, 40% of revenue from historical records?

Speaker 2

Almost 50. Almost 50 now. So you think about how they've changed that in the last couple of years through their new product capabilities and think about A mortgage solution that shows historical income data on a consumer back a year, 2 years, 3 years, 4 years that helps in the underwriting process. We sell that at a higher price point. Think about in the talent vertical, a history of job employment that's And required.

Speaker 2

As you know, we have 5, I think, 60,000,000 total records now, in the Twin database, and that's Well over 5.5 jobs on the average American, so that multi data as well as historical solution. I think the other thing that's quite encouraging, I mentioned in my comments earlier is that workforce solutions that's further down the road in the cloud Is delivering well north of the 14% vitality. They're one of the big drivers of that guide up for the year on new products. And That's what we wanted to see. That's what we expected to see.

Speaker 2

And I think the good news is we're seeing it, meaning as we get further into the cloud, we're able to deliver those new solutions to our Customers and I think as you know, new products are also very high. Obviously, they drive incremental revenue growth, but they're very high incremental margins. You're thinking 70%, 80% kind of incremental margins on new products. It's why we're driving the initiative, but it also makes us more valuable to our customers. We're bringing them solutions that helps them solve problems, and either drive their top line, their bottom line, or both In a very positive way.

Speaker 2

So it's a big focus of ours and it's going to it's one that's central to our long term Growth strategy, and you remember back in November, at our Investor Day, we talked a bunch about that being one of the factors Of increasing our long term growth rate to the 8% to 12% was our expectation and now you're seeing it of our ability to deliver That 10% vitality in our long term growth rate.

Speaker 3

And just a clarification, the almost 50% I quoted is a verifier revenue. Yes.

Speaker 11

Just to clarify then, I understand it's important. What I'm just trying to understand is the difference between the 14% And the amount of record of NPI that's coming in, that's kind of the block.

Speaker 3

Yes. You know, you used

Speaker 2

Sure. You used the term shots on goal or did you want to have more shots to go in or more shots on goal and we want both, right? So you have a bell curve with any new product The portfolio you put in place, you're going to have some products that are screaming winners that really hit the mark with our customers and some that are less Successful. And then there's also maturity cycle to them, as I mentioned. We'll roll out products in the second half of this year that I won't deliver any revenue in 2022, but they'll start maturing in 2023, 2024, 2025.

Speaker 2

That's really what you have from a cycle standpoint. So To answer your specific question, we're looking to have more and obviously having more that deliver larger revenue. And I think we're just getting better at that, primarily because we're really being quite deliberate around collaborating with our customers. Instead of creating a product we think the market wants, we're creating a product that we know a customer wants because we're collaborating with them. And then once it works with 1 customer or 2, Then we productize it to take it out to the rest of our customer base.

Speaker 3

Okay. That's helpful. Thank you.

Speaker 11

And then just one just for John. I thought that the ARDSO would improve sequentially this quarter because I thought that that system conversion would be behind you. Is that something that we should still be thinking about for the Q4? Or is there something just Is this level of ARDSO just by the mix of revenue more natural?

Speaker 3

No. So the conversion you're talking about, so part of transformation, as you said, we're moving financial systems to the cloud as well. And the major movement of financial systems including billing systems actually runs through October, right, a little bit in November. So some of the level of elevated DSOs we saw in the second quarter did continue into the Q3. It's related to those transact to that System migration and we expect to see substantial improvement as we move through the Q4.

Speaker 3

Great. Thank you.

Operator

Thank you. Our next questions come from the line of Craig Huber with Huber Research Partners. Please proceed with your question.

Speaker 12

Yes. Hi, good morning. My first question, your Aperis acquisition, can you maybe just tell us how the integration has been going here in the last year? And I'd be curious what the The pro form a organic year over year revenue growth was in the Q3 for the acquisition? And what was the Sorry, too.

Speaker 12

Do you have that?

Speaker 2

Yes. So the Apris Insights acquisition, as you know, is our incarceration data business. We're really pleased. We bought it really just a year ago. So it's 12 months in and the integration is progressing very positively.

Speaker 2

We talked about some of the joint solutions We're already bringing to market, putting their data into our TotalVerify data hub. And we've got new products in the pipeline, Both on enhancing their solutions with their data, but also combining their data with some of the other Data that's used either in the talent or in the government verticals to deliver a single poll with either Employment data plus the incarceration data or employment education and incarceration. So we've seen really positive opportunities there. As far as growth rates, it was growing Kind of mid teens when we bought it and it still is. We're very pleased with the growth of the business.

Speaker 12

My other question is you talked on this call and prior ones of the health of the U. S. Consumer being quite strong versus pre pandemic 2019 levels. I'm curious, are you saying that you with all the data you look at that it's not materially getting worse versus 3 6 months ago, the U. S.

Speaker 12

Consumer?

Speaker 2

Absolutely not. No, they're still strong. There really hasn't been a change in 2022 about around the consumer. As you know, employment has Unemployment has gone down and employment has gone up since the beginning of the year. So that's good for consumers.

Speaker 2

Wage growth is up, which is good for consumers and that helps their balance sheet. Obviously, inflation He's a bad guy and he's hurting lots of consumers. But even with inflation, consumers are still out there spending And traveling and doing all the things that they do in their lives. So the credit scores are up 15 points from 2019. That hasn't really They're in good shape.

Speaker 2

You really have to watch employment and unemployment. That's where things generally change with a consumer. Obviously, inflation is challenging, particularly for the kind of the lower income demographic, but the rest of the population It's doing okay.

Speaker 12

Great. Thanks a lot.

Operator

Thank you. Our next questions come from the line of Andrew Nicholas with William Blair. Please proceed with your questions.

Speaker 13

Thanks. Good morning. In the international business, how much of the recent strength would you attribute to share gains versus End market strength at the country level. And to what extent would you say the cloud transformation is already paying dividends In terms of growth and vitality index there?

Speaker 2

Yes. So I would add a couple of things to the list. I wouldn't call it Obviously, end market in 2022 is stronger than 2021 as they the international markets came out of the pandemic earlier this year. But the end markets aren't like in Latin America, the end markets are always strong just because the underlying growth there. But I wouldn't say there's been a change in the end markets.

Speaker 2

Our team is executing well. So there is some commercial strength there. New products are a big deal As far as bringing new solutions, new products to market, for example, we're bringing our account identity and fraud solutions to a lot of our international market. We're starting to get some traction there, which is helping our international platforms. Cloud isn't really a benefit to them yet.

Speaker 2

They're further behind the North America intentionally in cloud with the exception of Canada. So their cloud benefits are really going to be more in 2023 and really actually more in 2024 as they complete the cloud. What would you add to international, John?

Speaker 3

Just in debt management. Mean, they're growing very fast, right. I don't know if you'd call that share or not, right. But what it is, we have certain large customers that we have very high positions with that are growing very fast, Right. And principally the UK government.

Speaker 3

So that's driving a nice piece of growth obviously in the UK.

Speaker 13

That's helpful. Thank you. And then for my follow-up, John, maybe a question for you, just a quick cleanup item. Corporate expenses ticked down pretty significantly on a sequential basis. Could you speak to the driver there and How sustainable kind of that new level is?

Speaker 13

It's obviously ticked down quite a bit here a couple of quarters in a row. Just want to make sure I understand the dynamics driving that. Thank you.

Speaker 3

Yes. So if you're just doing sequential, 3rd versus second, right, the big drivers were corporate technology spend and also tech transformation spend. Some of that was just good cost management. Some of that is around tech transformation, and that can move between BUs and corporate. We saw some of that in the Q3 as Projects complete in corporate or teams move between corp and the BUs, you can see expenses come down in corporate.

Speaker 3

We had a little bit of that in the 3rd quarter. You also saw some good cost management and some sequential declines across corporate expenses in general. And we did see Some lower expenses specifically related to compensation and variable compensation broadly, because we took the year down. So, I'd say those were the big drivers. I think we expect to be at lower levels of expense than last year substantially, right, and What you've seen all this year, probably in the Q4 you're going to see some of those expenses tick back up again because we'd expect to see some more investment in technology and corporate technology.

Speaker 3

So some of the benefit we got in the Q3, we'll give back because we're spending more on transformation. So for example, Shlomo's question around financial system transformation, some of that's occurring in the Q4. So hope that helps.

Speaker 13

It does. Thank you very much.

Operator

Our next questions come from the line of Jeff Meuler with Baird. Please proceed with your questions.

Speaker 2

Yes. Thank you. Good morning. Mark, any additional perspective you can provide on what you're hearing from customers on The prescreen and marketing activity starting to pull back just given the health of the consumer at this point And bank balance sheet health. So we just love to kind of like square those two points.

Speaker 2

Yes. As I said earlier, Jeff, broadly the consumers Unchanged from Q2, and so our bank balance sheets are very strong. So there's no change there. So don't take whatever you heard earlier is Some message around that we're seeing big pullbacks. What I will tell you is every time I meet in the C suite or with CROs, We're all talking about because we all watch CNBC, we all watch what's happening with inflation, we all see what's happening with Interest rates of when will it have an effect on consumers and when will it have effect on the ability to pay in delinquencies.

Speaker 2

And Again, my view of someone who's been around financial services for multi decades, it all starts with employment. And that's the indicator that We watch, I watch and then after that is delinquencies. But we're seeing a still a strong job market. I think there's not quite 2, But there is 1.7 jobs open for anyone who's out of a job now, something like that. So it's still very vibrant.

Speaker 2

And We don't see indications of what I would call pullback, but everyone's watching it. It's clearly a conversation in every meeting. Got it. Appreciate the perspective. And then within Twin, 16% records growth is great, As you said, way above the long term framework to drive a really good growth model.

Speaker 2

But growth decelerated year over year, the comp doesn't look tougher. Sequential growth seemed just okay considering you're still onboarding partners and non farm payrolls are growing. So any perspective on that figure? And if you can confirm if there was any partner record attrition? Thanks.

Speaker 2

Yes. There's some levels it's very de minimis of what I would call churn inside of the records, but obviously they're generally growing when you're up 16%. So there's It's not something that we see. And there is obviously some changes in employment with some of our partners as you go through the year. There's a seasonality as you might imagine where there's Hiring in some industries think about retail, warehouse related to the holiday season That we see increased employment, which results in increased records for us, call it in the second half of the year and then a change in 1st half of the year when some of that comes some of that holiday hiring comes out of the system.

Speaker 2

But broadly, We are seeing, obviously, it's 16% strong record growth inside of the TwinSet.

Speaker 3

I'd say it's generally true that we're seeing it's It's been a very good year both in terms of signing new partners, but also direct contributors, right. So I think we feel like in terms of the execution of the team On building new contributors, it's really been an outstanding year.

Speaker 7

Yes, got it. Thank you.

Speaker 2

Thanks.

Operator

Thank you. Our next questions come from the line of David Togut with Evercore ISI. Please proceed with your questions.

Speaker 9

Thank you and good morning. Just bridging to some of the earlier questions on revenue, but focusing specifically on EWS. If we take your Q4 2022 revenue growth guide of down at least 3% And kind of think through your commentary on Q1 mortgage credit inquiries being down 50% or so year over year. How should we think about the starting point for EWS revenue in 2023?

Speaker 2

Yes. Again, we don't want to get into 2023 Guidance, we gave you our Q4 guidance. It's too early to talk about 2023. And I think we talked about, obviously, mortgage In for sure in the first half will be a challenge because of the strong mortgage market in the Q1 last year. But we in some of the previous questions talked a bunch about What are the positives, if you will?

Speaker 2

Having the non mortgage total growth of 2020 and organic growth of 13, That's momentum coming out of 2022 into 2023, that is obviously going to be important to us. We talked about the fact we do pricing actions typically on oneone. So that's going to be a positive for us in 2023. The new products that we talked about, the acquisition synergies and growth going into 2023, what else would you add, John? We've got a pretty good list.

Speaker 2

Yes.

Speaker 3

I think it's a pretty good list, right. So specific to EWS and specific to Verifier, records growth was obviously So far this year.

Speaker 2

About 16% records growth carries through till Absolutely. Next year. And I think we talked about 10 new partners Being signed up 3 in the quarter, those won't go online in the Q4. Those will be additions that will happen in 2023, that will drive records. And of course, we're out there working to add more records that will help EWS.

Speaker 9

Understood. Just as my follow-up, the 38% organic non mortgage growth at Workforce Solutions in Q4, Talent up 50% organic, government up 44% organic. How should we think about the runway for growth for both talent and government In 2023, are these types of growth rates sustainable or have they peaked?

Speaker 2

Yes. We're not giving growth rate Outlook for 2023, that's not the intention of this meeting yet. But when you think about those 2 verticals, I talked about it earlier, you think about talent as a $5,000,000,000 TAM, where We have a ton of penetration opportunity, right, because we're only doing 1 in 10 or 2 in 10 background screens. So that's an Opportunity there. And then in the government, very similar.

Speaker 2

Government, it's about a $2,000,000,000 TAM for that kind of verification Of income and employment in some cases, and we've got $300,000,000 business. So there's a lot of growth potential there and Add on top of it kind of the core workforce solutions growth levers outside of penetration of adding more records is going to drive hit rates in both businesses, whether it's For background screening or government social services, you add in our new products, pricing changes that we're going to do early in the year, System integrations drive revenue for us in both of those verticals. So those are the kind of growth levers the team is going to work on And is in flight on as well as the momentum that we have coming out of the year, which is quite strong.

Speaker 3

Over the longer term, We have a 13% to 15% long term growth rate. So obviously, the growth rates we're delivering today in those specific verticals are well above that. So we would expect over time, we're going to have very good performance in those verticals, but growth rates over time, we would expect in general in non mortgage are going to converge more down toward our long term model.

Speaker 9

Understood. Thank you.

Operator

Thank you. Our next question has come from the line of Toni Kaplan with Morgan Stanley, please proceed with your questions.

Speaker 14

Thanks very much. Just looking ahead, how should we be thinking about Your ability to pass on price increases in EWS versus prior years, if we do have an economic Slow down, like does that impact pricing? Do you temper what you're trying to push through? And just maybe if you could ground us on how should be thinking about like a normal pricing baseline for EWS for price increase.

Speaker 2

Yes. We don't see any Real change in not only EWS, but across Equifax about what we're going to do in price in 2023 and like it's already happening. So it's not going to we're already in flight talking to customers about what our plans are around price for 23 because most of the pricing goes into effect 1.1. Workforce, as you know, is a very unique solution that delivers Really unique value to our customers. So we have more pricing power there or flexibility, but we're always balanced about Price, whether it's a good or bad economic times, but I would say broadly, we don't think about pricing being different If there's an economic event and again, there's an economic event hasn't happened yet.

Speaker 2

Outside of the mortgage macro, The economy is quite good. Our non mortgage business is very strong. Our customers are strong. The consumers are strong. We're kind of doing what I would characterize as kind of a normal process in January.

Speaker 14

Great. And then you've talked for some time now about getting the gig and pensioner records. Have you been Having success in getting those and is there a different process for getting gig records versus W2 records? Are they harder to get because it's more Maybe fragmented outside of ride sharing, just how is the update on the process and how your success is and How different it is? Thanks.

Speaker 2

Yes. There's still a bunch of runway in W-two, which you heard and we're penetrating that, which is Most of our records today are W-two, so that 16% growth is primarily in that set and there's still another 40,000,000, 50,000,000 records to get there. And then if you go to gig, it is more dispersed and we've got a number of strategies underway to go after those records, which are Equally valuable and we've got some traction around pensioner records. As I mentioned, we've signed a big partner To bring some records in, we're also getting records directly from large kind of legacy companies that do their own pension or payroll processing or Pension or payment processing. So we're working on all those avenues and we've got dedicated teams on them and we're our expectation is to We'll continue to add records from all three areas as we move through the Q4 into 'twenty three and beyond.

Speaker 2

And What's energizing for us is the opportunity to still double the data set. With the 111,000,000 uniques and Call it 210,000,000 or thereabouts total employed or pension payment recipients in the United States. We got a long runway to add new records to the twin dataset. And again, I mentioned this a couple of times, I know it's not lost on you, Tony, that We're already getting inquiries on those, right? So we get inquiries on the half of the records we don't have.

Speaker 2

So it's just a matter of adding them to drive our revenue

Speaker 14

growth. Perfect. Thanks.

Operator

Thank you. Our next questions come from the line of Simon Klinch with Atlantic Equities, please proceed with your questions.

Speaker 15

Hi, everyone. I I was wondering if I could just go back to the verification services revenues. And something I've been sort of tracking has been some non mortgage revenues on a Per average record basis. And yes, since the pandemic, that's just been moving up steadily Pretty much every quarter since it's ticked down for the 3rd time. And I was wondering, is there anything in particular about in terms of that kind of structural opportunity on the revenue per Per record basis going forward, if we should it be capped out at any particular time or is there anything we should read into that?

Speaker 2

Yes. We've been growing revenue per record quite meaningfully. Again, the way you should think about it and the way it's the way we think about it is, as We get into new verticals like talent and government or even I would characterize Cards is a newer vertical, auto is under penetrated, all of those verticals, as we add those new revenue sources, The records become more valuable, right, because we're monetizing that same record multiple times when someone applies for a mortgage and then a credit card and then an auto loan or pealone and then they apply for new job or then they have to get government social services. You've got multiple avenues to monetize that record. So it's part of the power of the business.

Speaker 3

The only thing I'd add, and you know this Simon, right, is that the obviously the different verticals we have at very different price points and different product structures. So you can see mix changes in any given period when you're taking a look at transactions and records and revenue. But so just make sure you keep that in mind as you're running your analytics.

Speaker 15

Understood. Okay. Thank you. And just as a follow-up, We talked a lot about how the mortgage revenue declines are really impacting margins, very high incremental margin. I just wanted to just confirm again that Should mortgages ever rebound, should we just assume that it carries that kind of 80% incremental margin on the way up as well?

Speaker 15

Is there any reason not to assume that? And then longer term, is there any reason why the non mortgage revenues shouldn't carry the same kind of incremental margins as the mortgage business does today.

Speaker 3

So are you specifically talking about Verifier?

Speaker 5

Yes, sorry, Verifier.

Speaker 3

Okay. Yes. So variable margins or the contribution margins for mortgage obviously going in coming out should be very similar. Whether or not we reinvest some of the incremental profit generated would be a different discussion, right. But they certainly should be similar in terms of the contribution margin of both.

Speaker 3

Generally speaking, the margins across Verifier are similar. They can be somewhat different depending on the relative price point and The volumes relative to the price point, so you can see some higher cost, for different kind of to your earlier question. But broadly speaking, yes, the margins for the products across verification services are relatively similar.

Operator

Thank you. Our next question is coming from the line of Seth Weber with Wells Fargo. Please proceed with your questions.

Speaker 16

Hi, good morning guys. I just wanted to ask about the sequential improvement in USIS EBITDA margin that you guys are forecasting for the 4th Quarter, it looks like revenues are kind of flattish sequentially. Is that just some of the sales and marketing expenses Are going out or it doesn't seem like mix is really changing a lot. So just if there's any color on the 200 basis points of uptick 3Q to 4Q?

Speaker 3

Yes. So sequentially, generally we see a little bit of an uptick. Certainly, we definitely see an uptick in non mortgage revenue generally in USIS in the 4th quarter. So We'd expect to see some of that and it tends to draw very high variable margins. So and given that we expect to see a little more leverage on some of the OpEx.

Speaker 3

That's all.

Operator

Okay.

Speaker 16

I mean, I'm just trying to understand over the last prior to the Q2, the business was sort of high thirty Margin. So I'm just trying to think through if there was any reason why you wouldn't get back to that level relatively quickly next year. It sounds like you're moving back in that direction.

Speaker 2

So, quite relatively quickly. Obviously, the mortgage market decline is weighed on that.

Speaker 3

Very heavily, right. So obviously as we get into 2023, we'll give you a better view as to what we expect 2023 USIS margins to do.

Operator

Right. Okay. And then just

Speaker 16

a clarification, you guys talked about a couple of times you referenced M and A synergies expected over the next couple of years. Is that Revenue synergies or expense synergies or both or just how

Speaker 2

should we think about that? Both. Yes. When When we do these bolt on acquisitions, part of our strategy is to bring in unique data assets that we can combine with other Equifax data assets In order to drive new solutions to market and that generally takes time, we integrate the business, integrate Their data set into our single data fabric and that usually takes, call it, year and change, and then we can start bringing those to market and then those drive the top line and the bottom line.

Speaker 16

Got it. Okay. Thank you, guys. Appreciate it.

Operator

Thank you. Our next question is coming from the Faiza Aghawy with Deutsche Bank. Please proceed with your questions.

Speaker 17

Yes. Hi. Good morning. Thank you. I just wanted to talk about EWS margins again.

Speaker 17

And I'm curious when you first gave the margins earlier this year, I think you talked about 54%. And just want to understand, is the deceleration From that to where we are today entirely mortgage related? Or is there anything else in the underlying business That has impacted that change.

Speaker 3

The biggest driver in margin degradation by far is the impact Revenue and the very high variable margins we get for mortgage. So, that's the biggest driver, right? We have talked about some increased We talked about some marketing investments and things we're making this year to drive NPI, which have been very successful. But generally, overall, the biggest driver in the movement has Related to the reduction in revenue related to mortgage.

Speaker 17

Okay. Got it. And then just as we think about those margins, I appreciate I know you're not providing 'twenty three guidance, but I appreciate you giving us EWS margin Outlook of above 50%. I'm curious if you can give us just not numbers, but just Holistic thoughts around how we should think about the, I guess, the quarterly cadence, I mean, I'm thinking we should build through the course of the year. Is there anything you can say about 1Q margin, given that you did provide an outlook for mortgage inquiries for the Q1?

Speaker 2

Yes. We're not ready to talk about 2023 guidance. We did want to make you clear that Q1 is going to have a tough comparison Given the Q4 exit and the strength in the Q1 last year. And then on EWS, you said about 50%. We actually said over 50% just to be accurate.

Speaker 2

But, yes, we'll be ready to give 2023 guidance when we get into 2023.

Speaker 17

Perfect. Thank you.

Operator

Thank you. Our next question comes from the line of George Tong with Goldman Sachs.

Speaker 18

You mentioned that non mortgage growth in 4Q will be strong, but not as strong as 3Q. Can you discuss data points that you're seeing in the bank card and auto lending sectors that suggest an incremental moderation in strength in those categories?

Speaker 2

I don't know if you're listening, George, but we got that question from earlier that we're not seeing any change. The non mortgage growth rates that we're talking about are very, very high and we expect them Still be very strong in the Q4.

Speaker 3

And look, we did give a view of international in the 4th quarter. International was outstanding in the 3rd quarter, still going to be very strong in the 4th quarter, but its growth rate is somewhat lower and obviously international, their revenue It's virtually all non mortgage.

Speaker 18

Okay, got it. As you look at the mortgage category, Certainly, there was a significant amount of refinancing activity that was pulled forward into 2020 2021. To what extent does this pull forward structurally lower The medium term mortgage revenue growth outlook for Equifax.

Speaker 3

Obviously, we're seeing the impacts of that right now since refinances has dried up predominantly, right. So what's left It's just cash out refis and we're actually now starting to see substantial growth in HELOCs, right, replacing even some of the cash out refi. So So I think we're living through the obviously the impact of that dramatic reduction in refinance right now. We gave a view of 1st quarter mortgage, But again, in terms of giving a view as we go forward, which is kind of for us with 2023 would be mid term, it's just a little bit earlier. Unfortunately, you're just going to have to wait until so we get into the Q1 and for us to give our 2023 guidance.

Speaker 18

Well, it really wasn't a 2023 More like a medium term, longer term question since you've in the past given longer term guidance targets before?

Speaker 2

I don't know what you mean by medium term, longer term. Do we expect the mortgage market over the long term to return to a more normal level? Absolutely. No question about it. Is that what you mean?

Speaker 18

Well, medium term, so I guess over the next 2 to 3 years or 2 to 4 years.

Speaker 2

What's going to happen with the economy in the 1st year or 2 of that cycle? And then at the tail end that you said 2 to 4, You get out to 4 years. My expectation is you get back to a more normal level. But I don't know what's going to happen with the economy. I don't think you do either, George.

Speaker 18

Got it. Okay, helpful. Thank you.

Operator

Thank you. Our next questions come from the line of

Speaker 17

I wanted to just clarify well, I want Two questions. One, I wanted to clarify the benefit you see next year from the cloud transformation. You said half to 500 basis points. So is that a gross or net 250 basis point benefit flowing through? And also, does that include sort of rolling off some of the additional costs?

Speaker 17

Is that just savings? Or is that also rolling off The cost from the implementation. And then the other question, totally separate, but just on the Talent Solutions side, You talked about sort of the white space there. Just sort of what can get you further penetrated, in the background check industry? Thanks.

Speaker 3

So on transformation, that would the savings are related to all costs related to transformation both the lower COGS as well as the lower investment levels. And then also they're going to be more back end loaded than front end loaded, right, because you get the savings as all customers migrate and you can actually decommission systems. So we'll start getting savings in 2023 as we said and we feel good that's just going to happen, but the bigger savings happen as you get into 2024 and 2025. So you should think about that type of a cadence. What was your second question again, Heather?

Speaker 3

Sorry.

Speaker 17

Just on the cloud transformation, the 250 basis points, is that the flow through

Speaker 8

this year or into next year?

Speaker 2

No, I think as John said, we've said consistently not only in this call and prior calls, the $250,000,000 is really between $22,000,000 $25,000,000 and It's that path to 39 percent EBITDA margins in 2025. That's our goal. That happens over 2023, 2024 and 25, that's not a 2023 change.

Speaker 3

And I think and more of that would be back end loaded as I just said, right, because it happens as systems actually decommission. So we'll see some in 2023, yes, But you're going to see more of it in 2024 and 2025.

Speaker 8

Thank you very much.

Operator

Our next question comes from the line of Surinder Thind with Jefferies.

Speaker 19

I'd like to start a question regarding your long term framework. Can you maybe talk about is that intended to be like a rolling 3 year measurement period or Like a 5 year period. And then maybe when we think about something like EWS non mortgage, which continues to grow well above That framework, how often do you revisit the framework such as that and maybe some of the factors that underpin it? Like for example, at some point, whether it's 3 years, 5 years out, the W-two records within the Twin database will mature. So how do we think about some of those longer term drivers of the business?

Speaker 2

Yes. I think as you know, we put this in place a year ago, and I believe that was the first Change in Equifax's long term framework in like 5 or 6 years?

Speaker 7

At least, yes.

Speaker 2

So maybe longer. The old framework was 7 to 10. We moved to 8 to 12, 100 basis points on the low end and 200 on the high end. It was intended to be a long term framework and we could all talk about long term, but let's say 5 years plus, meaning We expect the company to grow in that range short of economic events. Those are Something you can't put in a long term framework, but 8% to 12% growth.

Speaker 2

For workforce in particular inside of the 8% to 12% and we talked about this already this morning, have an expectation of them growing 13 to 15. That's their long term framework inside of our 8 to 12, Meaning they're going to be highly accretive and grow faster than the rest of Equifax. That's something that we expect. As you point out, They've been outgrowing that 13 to 15, which sits inside of our 8 to 12, which is good news. In our eyes, that gives us confidence in the 13 to Over the long term and of course the 13 to 15 is made up of record additions.

Speaker 2

It's made up of new product rollouts. It's made up of penetration. And they've got uniquely a lot of penetration opportunities in all of their verticals because our income and employment data is still a fairly new data asset In the scheme of data assets, the credit file has been around for 70 years. Income unemployment data has been around in a digitized way only for 15. So we've got a lot of confidence in the 13 to 15 for workforce because of all of their growth levers, but also because they've been out Growing at 13 to 15 for the last 3 or 4 years.

Speaker 2

And your question, I think you also asked a question about when will we revisit this. It's Just it's actually not even 12 months old. Our Investor Day was I think on November 7 last year. So we're very confident and comfortable with What it is today after almost 12 months and at the right time if things change, we would look at it again. But We see no reason to change it and we still have a lot of confidence in it.

Speaker 19

That's helpful. And then maybe as a follow on, when we think about the contribution of new products revenues is measured by the fatality index. So is that intended

Speaker 2

to be

Speaker 19

all growth on top of the existing revenue base? Or is there some cannibalization of revenues that we need to consider or maybe the play between the 2, how should we think about the actual measurement of that and what it means from a modeling

Speaker 2

Yes. I think in our long term framework, John, we talked about new products In November last year, adding 1 to 2 points?

Speaker 3

Yes. You said vitality 10%.

Speaker 2

So Yes. And that's from 3 year, right? And that Translated into that was one of the drivers of us bringing up our long term growth rate from 7% to 10% to 8% to 12% was The increased new product rollouts is going to be a factor of that change in our long term growth rate. And then add to it, Workforce Solutions growing faster than the rest of Equifax. It approaching 50% of Equifax.

Speaker 2

That's accretive to that growth rate if they're growing 13% to 15%. And then the average for our long term is 8 to 12, that's accretive. And then we believe The cloud completion and cloud competitiveness also is a factor in that change from 7 to 10 to 8 to 12. I don't know if that's helpful.

Speaker 3

And our vitality in this is supposed to represent truly new products, right? I mean, certainly even new products can cannibalize an existing product, But they're not supposed to be tweaks, right? We don't tweak a product and call it a new product. It needs to be a product that's substantially different or Substantially new to Equifax.

Speaker 19

So this would be clients generally buying these on top of whatever existing products they're buying?

Speaker 2

Yes. There's clearly it'll replace some products, but they're generally, as John pointed out, unique additions. And use the example I shared this morning of the mortgage credit file that we've been delivering to the marketplace for 70 years in some fashion. We rolled out a new solution that's going to be our file plus this telco utility, cell phone data that's going to differentiate our mortgage credit file. That's a new product.

Speaker 2

Some customers will only buy the new product. Some will continue to buy just the credit file. That's really so there is there some cannibalization? Could be. But there's also should be, we expect share gain, Meaning our credit file is more valuable than our competitors' credit file because of the addition of that unique data to it.

Speaker 19

That's very helpful. Thank you.

Operator

Thank you. There are no further questions at this time. I would now like to turn the call back over to Trevor Burns

Speaker 1

Thank you.

Operator

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

Powered by Quartr
Earnings Conference Call
Equifax Q3 2022
00:00 / 00:00