Equifax Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
February 9, 2023

Key Takeaways

  • Q4 results: Reported revenue of $1.2 billion was down ~4% on an organic constant-currency basis, driven by a 41% drop in U.S. mortgage revenue despite outperforming market originations by 27 points.
  • Global non-mortgage revenue grew 12% in constant currency (10% organic), led by 17% growth at Workforce Solutions, 10% growth in USIS non-mortgage, and a 31% surge in Latin America.
  • EFX Cloud transformation delivered 70% of North American revenue on the new platform after a $175 million capex increase in 2022; capex is expected to decline significantly in 2023.
  • New product vitality index hit a record 14% in Q4 (13% for 2022), driving $650 million of NPI revenue and exceeding the 10% long-term goal to fuel non-mortgage expansion.
  • 2023 guidance calls for ~4% revenue growth (−8% mortgage, +8% non-mortgage), flat ~33.6% EBITDA margins, adjusted EPS of $7.20, and $200 million of combined OpEx and capex savings from a >10% workforce reduction.
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Earnings Conference Call
Equifax Q4 2022
00:00 / 00:00

There are 19 speakers on the call.

Operator

Greetings, and welcome to the Equifax 4th 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, Head of Equifax 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 Gamble, Chief Financial Officer. Today's call is being recorded.

Speaker 1

An archive of the recording will be available later today in the IR Calendar section of the News and Events tab at our IR website, www.investor. Equifax.com. During the call today, I'll be making reference to certain materials that can also be found in the Presentations section of the News and Events tab at our IR website. These materials are labeled Q4 2022 earnings conference call. Also, we will be making certain forward looking statements, including Q1 and full year 2023 guidance to help you understand Equifax and its business environment.

Speaker 1

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 may impact our business as set forth in filings with the SEC, including 2021 Form 10 ks and subsequent filings. We'll also be making certain non GAAP financial measures, including adjusted EPS attributable to Equifax and adjusted EBITDA, which will be adjusted for certain items that affect the comparability of our underlying operational performance. 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 of the Financial Info tab at our IR website. In the Q4, Equifax incurred a restructuring charge of $24,000,000 or $0.15 a share.

Speaker 1

This charge was for costs principally incurred Now, I'd like to turn it over to Mark on Slide 4.

Speaker 2

Thanks, Trevor, and good morning. Equifax delivered another very strong quarter to close out 2022 with continuing execution against our EFX 2025 strategic priorities. 4th quarter reported revenue of $1,200,000,000 was down about 4.5% and down 4% on an organic constant currency basis, both as expected Against an unprecedented mortgage market decline, but above the high end of our October guidance from broad based strength across Equifax and stronger NPI rollouts. 4th quarter adjusted Equifax EBITDA totaled $371,000,000 with an EBITDA margin of 31%. Adjusted EPS of $1.52 per share was at the upper end of our October guidance range of $1.45 to $1.55 per share, And John will provide more detail in a few minutes.

Speaker 2

Equifax U. S. Mortgage revenue was down 41% in the quarter, but outperformed the overall market by 27 Percentage points with estimated U. S. Mortgage originations down 68%.

Speaker 2

Our global non mortgage businesses, which represented about 84 Percent of total revenue in the 4th quarter were very strong with 12% constant currency and 10% organic constant currency revenue growth, Stronger than we expected when we provided guidance in October and at the top end of our 8% to 12% long term growth framework. This strong growth was driven again by outstanding performance at Workforce Solutions with 17% non mortgage revenue growth overall And 23% non mortgage revenue growth in Verifier. As I'll discuss more later, government continued very strong in Workforce Solutions with growth at over 40% And talent and I9 boarding delivered over 20% growth, but were impacted by slowing U. S. Hiring in November December.

Speaker 2

Delivering 20% growth in that vertical against a slowing hiring market was a very strong performance. 2nd, USIS non mortgage had an outstanding quarter delivering very strong double digit B2B non mortgage growth of 10% total and 19% online, which was much better than our expectations. And last, international delivered another strong quarter with 9% constant dollar and 8 organic constant dollar growth led by very strong performance in Latin America. We continue to make strong progress against the final chapter of our EFX Cloud Data and Technology Transformation in 2022. Currently, about 70% of North American revenue is delivered from the new Equifax Cloud.

Speaker 2

During 2022, we made a decision to increase capital spending by approximately $175,000,000 to a total of 625,000,000 To accelerate the completion of our North American cloud transformation, the progress made in 2022 will enable the substantial completion of North transformation and customer migrations this year, including decommissioning of applications in our major North America data centers. Capital spending will decline significantly in 2023 due to the strong progress at completing the cloud last year. 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 a competitive advantage to Equifax for years New product innovation is also executing at a very high level. Our new product vitality index of 14% in the quarter is a record And a 500 basis point improvement from the 9% vitality index last year and 400 basis points above our 10% long term new product vitality goal.

Speaker 2

Our focus on new solutions leveraging the new Equifax cloud is paying off. As a reminder, our vitality index is the Thank you very well, driving strong non mortgage growth across Equifax and record levels of new product revenue. In addition to accelerating long term revenue growth, Two critical goals of our EFX-twenty five strategic framework are significant and consistent EBITDA margin expansion And the lowering of the capital intensity of our business to drive our free cash flow. In 2023, we are executing a broad operational restructuring across Equifax, reflecting both the acceleration of our cloud transformation and a broader focus on operational process improvements. We will reduce our total workforce Over 23,500 employees and contractors by over 10% during 2023, as well as delivering cost reductions from the closure of major North American data centers as we complete the cloud and other broader spending controls.

Speaker 2

Total spending reductions from these actions in 2023 Are expected to be about $200,000,000 with about $120,000,000 reduction in expenses and an $80,000,000 reduction in CapEx. I'll cover our 2023 plan in more detail shortly, but first we'll provide more detail on our strong performance in the Q4. Turning to Slide 5. In the Q4, we Continued our strong non mortgage performance with revenue growth up 12% in constant currency led by EWS Verification Services non mortgage revenue, which was up 23% led by talent, which was up 19% and government up 43%. EWS I-nine and onboarding, which was up over 40%.

Speaker 2

USIS B2B online mortgage was up almost 20% and Latin America was up over 30%, All very strong performances. 4th quarter constant dollar non mortgage growth of 12% was at the top end of our 8% to 12% long term revenue framework Despite some slowdown in the U. S. Hiring activity impacting our Workforce Solutions talent vertical, Non mortgage revenue growth continues to be very strong across Equifax. Turning to Slide 6, Workforce Solutions delivered another outstanding quarter.

Speaker 2

Mortgage revenue outperformed the overall mortgage market as measured by originations by about 30% in the 4th quarter and 38% for the full year. And verify our non mortgage revenue was again very strong with organic growth of 23% in the quarter and 40% for the total year. During 2022, we signed 10 new agreements with U. S. Payroll processors, including 4 in the quarter that will be added to the TWN database during 2023.

Speaker 2

Recently, we also signed a substantial direct relationship that added over 2,000,000 new TWN records. These new partnerships along with continued growth in existing partner records and the new direct contributors through our Employer Services business Are delivering continuing strong growth in our Twin database with current records up 6000000 records sequentially Reaching 142,000,000 records 152,000,000 records with 114,000,000 unique and over 600,000,000 total current historical records from over 2,600,000 employers. Industry leading data security and operational processes as well as our ability to provide Substantial value to our direct contributors and revenue share to our payroll partners are delivering exceptional record growth for Workforce Solutions. The 114,000,000 unique individuals in Twin deliver high hit rates and represent almost 70% of the 165,000,000 U. S.

Speaker 2

Non farm payroll. Adding gig and pension records, we have the ability to almost double our twin records in the future, which is a big driver of EWS revenue and margins. As a reminder, about 50% of our records are contributed directly by individual employers with the remaining contributed through partnerships principally with payroll companies. Workforce Solutions also continues to lead Equifax in new products, delivering a vitality index over 2x our long term 10% vitality goal, which is a great proof point for the power of the Equifax cloud to drive innovation in new products. Workforce Solutions vitality index has expanded from low single digits a short 4 years ago to over 20% vitality in 2022.

Speaker 2

Workforce Solutions, as you know, was the first Equifax business to be substantially complete with their cloud transformation over a year ago, allowing the team to fully focus on innovation and NPIs leveraging their new cloud capabilities. The work number is also seeing accelerated expansion outside the In January, Workforce Solutions signed an agreement with a leading UK payroll technology partner obtaining Over 40% of UK Private Sector Employees. Workforce Solutions now has access to over 20,000,000 active and historical record in Australia, Canada and the UK in addition to over $40,000,000 active and historical alternative income records including pension data and tax returns. Turning to Slide 7, Workforce Solutions delivered revenue of $508,000,000 Down 4% in the 4th quarter. Revenue was slightly weaker than expected driven by slower growth in talent and on boarding from declines we saw in U.

Speaker 2

S. Hiring in November December. Verification Services revenue of 399,000,000 The overall market by a very strong 30 percentage points driven by strong twin record additions, penetration, pricing and new product revenue growth With the strong adoption of our new Mortgage 36 solution that was rolled out late last year. Verification Services non mortgage revenue, which now represents almost 70% of verifier revenue delivered strong 23% growth in the quarter. We saw continued very strong 43% growth in the government which is almost 45 percent of verifier non mortgage revenue, driven by strong growth in our Center for Medicare and Medicaid Services volumes.

Speaker 2

The EWS government vertical is benefiting from penetration, pricing, record growth and leveraging a strong new product portfolio, including our new insights data at the federal, state and local level. We expect to continue this strong growth in our government vertical in 2023 In a big $2,000,000,000 TAM. Talent Solutions delivered strong 19% growth in the quarter despite the impact of the weakening overall hiring, which is estimated to be down about 8% in the quarter. We outgrew this market decline by over 25 percentage points and delivered 19% growth, A very strong performance driven by continued penetration of our digital solutions and background screening, strong new product growth, Continued expansion of Twin Records and favorable pricing. In the Q1, we will launch new products in the talent space targeted at the staffing and hourly segments Designed to meet specific needs of background screeners in these high volume segments, which will drive talent growth.

Speaker 2

Employer services revenue of $110,000,000 was up 4.5% in the quarter due to strong growth in our I-nine, Onboarding and Healthy FX Businesses, which were up 17%. Our I-nine and Onboarding businesses remained strong at 20% growth, but were also negatively impacted by the declines in U. S. Hiring late in 2022. Our unemployment claims and employee retention credit were down 11%, driven by lower jobless claims and lower ERC transactions as the COVID federal tax program expires.

Speaker 2

Despite the slowdown in hiring, we have not seen a meaningful increase in UC transactions yet. Workforce Solutions adjusted EBITDA margins of 46.8 percent were lower than our October guidance, principally due to lower revenue growth in talent and onboarding Related to the slowdown in U. S. Hiring, we expect EWS margins to return to about 50% in the Q1 and will be above 50% for all of 2023. The strength of EWS and uniqueness and value of their twin income and employment data in employer services businesses were clear again in 2022.

Speaker 2

Rudy Ploeder and the EWS team delivered another outstanding quarter, outperforming the mortgage originations by 30 points and delivering Strong 17% non mortgage revenue growth. EWS is expected to deliver a strong 2023 and continue above market growth in the future. As shown on Slide 8, USIS revenue of $406,000,000 was down 6.5% and slightly better than our expectations. USIS mortgage revenue was down about 46% and was in line with our expectations against an unprecedented 54% decline in credit inquiries compared to the 50 plus percent in our October guidance 50 plus percent decline that we had in our October guidance. Revenue outperformance relative to credit inquiries was strong at 8%, driven by favorable New mortgage business penetration, new mortgage products and new mortgage pricing.

Speaker 2

Credit inquiry performance continues to be less negative than estimated Originations reflecting higher relative levels of mortgage shopping behavior that we've talked about before. At $67,000,000 mortgage revenue is now about 15% of total USIS revenue. B2B non mortgage revenue of 280,000,000 $288,000,000 which represents over 70% of total USI's revenue was up 10% with organic revenue growth of about 6.5%. This was a significant sequentially increase and much stronger than the levels we expected in October. Importantly, B2B non mortgage online revenue growth was Very strong at up 19% total and up over 13% organically, reflecting pricing and product rollouts as well as stronger volumes in banking as lenders continue to drive new originations.

Speaker 2

During the quarter, we saw strong double digit revenue growth in commercial, Identity and fraud and auto with banking at just under 10% growth. Financial Marketing Services, our B2B offline business had revenue of $72,000,000 that was down 9% and slightly above our expectations. As we discussed during the year, we expect FMS to return to growth in 2023 with revenue up low single digits in the Q1. USIS Consumer Solutions business had revenue of $50,000,000 in 4th quarter, up 8% from penetration and new product introductions. In 2023, we expect low single digit growth from our U.

Speaker 2

S. Consumer direct business. 35.3 percent in the quarter, up 120 basis points sequentially due to very strong double digit B2B online non mortgage revenue growth. EBITDA margins were down 400 basis points compared to prior year to declines in high margin mortgage revenue. International revenue, as shown on Slide 9, was $284,000,000 up a strong 9% in constant currency and 8% organically.

Speaker 2

We're seeing broad based execution for our international businesses with particular strength in Latin America NPI rollouts. Europe local currency revenue was up 3%, principally driven by 9% growth in our debt management business. We continue to see strong Debt placements from the UK government as we have over the past several quarters. Our UK and Spain CRA business revenue was about flat in the 4th quarter and below our principally due to lower new business penetration. Asia Pacific, which is our Australia business, delivered local currency revenue of 6%, driven by growth in our commercial, consumer, identity and fraud and HR identification businesses.

Speaker 2

Latin America local currency revenue was up a strong 31 driven by very strong double digit growth in Argentina, Uruguay, Paraguay and Central America from new product introductions and pricing actions. This is the 5th consecutive quarter of strong double digit growth for the Latin American team. Canada local currency revenue was up 7% and above our expectations. Growth in consumer, commercial, analytical solutions and identity and fraud revenue were partially offset by mortgage volume declines and lower direct Direct to consumer revenue. International adjusted EBITDA margins at 25.8% were down 100 basis points sequentially and below our expectations due to a greater mix of lower margin debt services revenue and higher costs principally from purchase data.

Speaker 2

Turning to Slide 10, 2022 was an outstanding year for new product innovation and central and as you know NPIs are central To our EFX 2025 growth strategy, we delivered over 100 new products for the 3rd year in a row and a record full year vitality index of over 13% And a 4th quarter vitality index of 14%. The 13% vitality index in 2022 was over up over 400 basis points above our strong 2021 results and over 300 basis points higher than our 10% long term growth framework goal for new products and our vitality. New product revenue in 2022 was $650,000,000 up over 50% from about $420,000,000 in 2021. In 2022, over 90% of new product revenue was from non mortgage products. Leveraging our new Equifax cloud capabilities to drive new product rollouts.

Speaker 2

We expect to deliver vitality index in 2023 at levels similar to the 13% We delivered in 2022, which is well above our 10% long term NPI vitality index goal. And this equates to over $700,000,000 of revenue in 20 3 from new products introduced in the past 3 years. New products leveraging our differentiated data, our new eFX cloud capabilities and single data fabric are Central to our long term growth framework and are driving Equifax top line growth and margins. Turning to Slide 11, 2022 was also a strong year for bolt on acquisitions as we continue to focus on our strategic M and A priorities and growing our non mortgage revenue. Since 2021, we've completed 13 acquisitions that are delivering $450,000,000 of principally non mortgage revenue run rate Run rate revenue.

Speaker 2

Our 8% to 12% long term growth framework includes 1 to 2 points of annual revenue growth from strategic bolt on M and A Aligned around our 3 strategic priorities. Number 1, expanding and strengthening workforce solutions, our fastest growing and most profitable business. Number 2, building out our identity and fraud capabilities and number 3, adding unique data assets. We expect these strategic acquisitions Deliver growth synergies in 2023 2024 as we complete their technology and product integrations. Last week, we announced the acquisition of the Food Industry Credit leading provider of credit information for the Canadian food industry with over 90% commercial data coverage.

Speaker 2

This acquisition expands our commercial product offerings in Canada. We also continue to work closely with the Board of Directors of Bovis to services the 2nd largest credit bureau in Brazil on the proposed acquisition we announced in December. When completed, the BBS acquisition will add $160,000,000 of run rate revenue in the fast growing Brazilian market. The transaction is subject to Boavista shareholder approval and other customary closing conditions. To To the extent we're able to finalize terms with the Boavista Board, we expect the transaction to close in mid-twenty 23.

Speaker 2

Turning to 2023 guidance on Slide 12. We ended the year with significant momentum in the underlying growth of our businesses and in of our EFX 2025 strategic priorities. However, we also enter 2023 with a continuing decline in the mortgage market And broader economic uncertainty impacting our underlying markets. Our assumption for U. S.

Speaker 2

Mortgage market originations There is a further decline of 30% in 2023, which is more than 30% below the lowest level of originations in the past 10 years. For perspective, MBA is currently forecasting 2023 origination units down about 22% versus our 30% assumption minus 30% assumption. Fannie and Freddie do not forecast units, but are forecasting origination dollar volumes down 30% 25% respectively. In our planning, we've assumed the bulk of the mortgage declines in the first half with 1st quarter origination is down about 55%. 2nd, late in 2022, we saw hiring freezes and headcount impact our background screening volume in November December and we expect these conditions to continue in 2023 with hiring down over 10% impacting our Talent Solutions and I9 employee onboarding businesses.

Speaker 2

Even with these market impacts or market declines, we expect both business to grow over 10%. Finally, in our planning, we're expecting to see weakening in our key markets in the U. S, Canada, U. K. And Canada in 2023.

Speaker 2

We're assuming slowing growth in the U. S. As we move through the year, although at this point we've not assumed a U. S. Recession.

Speaker 2

Similarly, we are expecting to see economic slowdowns in Australia and Canada with perhaps a more significant slowdown in the UK. The slow growth in these markets compares to the 2% to 2.5% underlying economic growth we assume in our long term growth model. As we enter 2023, we have strong underlying growth across our businesses with execution of our EFX 2025 Growth Strategies. Despite the significant decline in the U. S.

Speaker 2

Mortgage market and slower economic growth across our major markets, we expect to deliver revenue growth at the midpoint of 4% in 2023. Total mortgage revenue should decline about 8%, over 20 points better than the 30% reduction in mortgage originations And non mortgage revenue should grow over 8%, which is within our long term growth framework despite the slower economic growth in our major markets. We expect Workforce Solutions to deliver revenue growth of about 6% in 2023. This reflects a mortgage revenue decline of about 8% or over 20 points stronger And the expected 30% decline in mortgage originations. EWS non mortgage verticals are expected to grow about 13%, Overcoming the expected 10% plus decline in U.

Speaker 2

S. Hiring and about 15% decline in our ERC businesses as that COVID program winds down. Twin record growth, strong new product rollouts and continued strong growth in both pricing and penetration will continue to drive Workforce Solutions outperformance. We expect USIS to deliver revenue growth of about 2% this year. Mortgage revenue is expected to decline about 7%, More than 20 percent 20 points stronger than the expected 30% decline in mortgage originations.

Speaker 2

In 2023, USIS will begin to benefit from their new mortgage credit file that was rolled out late last year that includes telecommunications, pay TV and utilities attributes Help streamline the mortgage underwriting process and support loans with the secondary mortgage market. Equifax is the 1st and only in the industry to provide these insights, which will be made available to Equifax customers in the Q1 and can help create greater home opportunities for consumers across the U. S. We're also seeing the impact of pricing increases from 1 of our largest mortgage vendors that we pass on to customers at levels to maintain consistent margins. Non mortgage revenue is expected to grow about 5% despite the slowing growth.

Speaker 2

Non mortgage revenue growth of about 5% will be driven by strong Identity and Fraud Banking and Auto Growth and Financial Marketing Services expect to return to growth in 2023 after a disappointing 2022. International had a very strong 2022 with revenue up 12% in constant dollars, but we saw some weakening end markets late in the year, particularly in debt services. We expect international growth of 5% in constant currency in 2023. This is below our long term growth framework for international of 7% to 9 Principally due to the expected weakening economic conditions in our major markets of the UK, Canada, Australia and also a decline in debt services off a very strong 2022. As we discussed last year, debt services revenue in 2022 was somewhat of a catch up year as the UK government collections were put on hold We continue to expect international to operate within their 7% to 9% growth framework over the mid and long term.

Speaker 2

NPIs will again be very strong, which is inconsistent with last year's 13% vitality index, well above our 10% long term vitality goal, and this will be led by workforce solutions in Latin America. As USIS and Canada complete their Cloud transformation, we expect their NPI rollouts to accelerate as we exit 2023. As we complete our North American cloud transformation in 2023, We will pivot to leveraging our differentiated data assets and new cloud infrastructure to drive new product rollouts and top line growth. Workforce Solutions will accelerate its focus on leveraging their new cloud capabilities and USIS and Canada will complete their consumer credit alternative data and IFS transformations this year. These are big milestones in completing the cloud that we've been building towards for almost 5 years.

Speaker 2

We're on track to deliver the cost and capital spending reductions The cloud transformation that are central to our long term growth framework. As I referenced earlier and as shown on Slide 13, our Accelerated cloud transformation cost reductions and broader cost restructuring will deliver $200,000,000 of cost and CapEx savings in 2023 that will expand our margins and free cash flow in the future. During 2023, we plan to reduce our total workforce of about 23,500 employees and Contractors by over 10%. As we complete our North American cloud transformation in 2023, we expect to close about 15 data centers, consolidate development centers and continue to reduce our software application footprint and will closely manage it mid discretionary spending including professional services. We expect these actions to deliver $200,000,000 in spending reductions in 2023, representing $120,000,000 costs and expense reductions or about $0.75 per share $80,000,000 in capital spending reductions.

Speaker 2

The savings in the first quarter are limited We'll reduce our spending by over $250,000,000 The lower cost and capital spending accelerates as we move through 2023 from cloud transformation cost benefits and other costs and restructuring actions planned throughout the year. As shown on Slide 14, adjusted EBITDA margins and adjusted EPS improved significantly as we move through 2023. In the Q1, revenue is expected to be down 6% due to the about 55% reduction in mortgage originations. EBITDA margins and adjusted EPS are at their lowest levels in 2023 in the Q1, principally due to the higher incremental margins from declining mortgage revenue And the timing of the recognition of the majority of our annual equity incentive plan expense in the quarter. Normalizing for this timing compared to the Q4, Q1 EBITDA margins are slightly below 4th quarter margins of 31%.

Speaker 2

As revenue growth improved throughout 2023 and cloud and broader cost reductions accelerate, EBITDA margins and adjusted EPS improved sequentially with EBITDA margins expected to exceed 36% And adjusted EPS exceeding $2 per share in the 4th quarter. For the full year, EBITDA will be up 4% or $70,000,000 in line with revenue growth with margins flat to the 33.6% we delivered last year. Adjusted EPS is expected to be about $7.20 per share, down about 5% from 2022, principally reflecting higher depreciation and amortization of about $50,000,000 as North American cloud system implementations principally completes also from higher interest and other expense of about 60,000,000 and a higher tax rate. Capital spending will decline by $65,000,000 to about $545,000,000 in the year or about 10% of revenue as we move closer to completing our cloud transportation. We expect CapEx to decline again in 2024.

Speaker 2

We have a clear line of sight to executing these proactive actions that will expand our margins and drive our free cash flow. In addition to cost benefits, completing our North American Cloud Information will enable significant commercial benefits to drive market share and revenue growth, including our always on capabilities, better data quality, Faster data delivery and faster new product innovation. And we're beginning to see meaningful commercial benefits from our new Equifax Cloud Technology Transformation. And now I'd like to turn it over to John to provide more detail on our 2023 assumptions and guidance And also provide our guidance for the Q1. Our 2023 guidance builds on our strong 2022 non mortgage growth from new products, record growth, Pricing and Acquisition Synergies.

Speaker 2

John? Thanks, Mark. Before we discuss 2023, I'll share a

Speaker 3

little more detail on 4Q 2022. As Mark referenced earlier, Equifax EBITDA margins came in slightly lower than expected in the 4th quarter at 31%, principally driven by lower than expected margins in Workforce Solutions as Mark discussed and also in international. Capital spending in the Q4 was $156,000,000 As we maintained investments to accelerate completion of North American cloud transformation, capital spending will decline in 1Q 2022 to $23,000,000 to about $150,000,000 and then sequentially further in each quarter of 2023 as we complete Significant U. S. And Canadian customer migrations.

Speaker 3

Total capital spending in 2023 is expected to be about $545,000,000 CapEx as a percent of revenue will continue to decline in 2024 and thereafter as we progress toward reaching 7% of revenue or below. Moving on to 2023 guidance, Mark provided an overview of our planning assumptions of a 30% reduction in mortgage originations in 2023. As shown on Slide 15, at these levels and again using credit inquiries as a proxy for the mortgage market, in 2023, the U. S. Mortgage market will be substantially below any level we have seen in the past 10 years.

Speaker 3

1Q 'twenty three is expected to see the mortgage market down about 55% year to year. Sequentially, as we move through 2023, we're planning on a more normal pattern of mortgage activity with mortgage originations increasing sequentially On the order of 15% in 2Q 'twenty three from 1Q 'twenty three, 3Q 'twenty three being about flat with the 2nd quarter and normal sequential decline in the 4th quarter versus 3Q 'twenty three. We expect with these sequential patterns, U. S. Mortgage originations would be up slightly in the second half of 'twenty three versus the first half of 'twenty three And the Q4 of 'twenty three would be up slightly year to year.

Speaker 3

And at least the first half of twenty twenty three, we are expecting USIS to benefit from mortgage shopping behavior with better performance than originations. Slide 16 provides a revenue walk The drivers of the 4% revenue growth to the midpoint of our 2023 revenue guidance of $5,325,000,000 The 30% decline in the U. S. Mortgage market is negatively impacting 2023 total revenue growth by about 7 percentage points. The mortgage revenue outperformance relative to the mortgage market is expected to offset about 5 points of the negative 7 percentage points impact of the mortgage market on overall revenue growth.

Speaker 3

As a result, the expected 8% decline in Equifax mortgage revenue Has a negative about 2 percentage point impact on overall revenue growth. Non mortgage organic growth is expected to exceed 7% On a constant currency basis and is driving about 5% of the growth in overall Equifax revenue. As Mark referenced earlier, The growth is broad based across all 3 BUs and is within our long term framework of 7% to 10% Despite the economic uncertainty across our major markets in the U. S, Australia, Canada and the U. K.

Speaker 3

The acquisitions completed in Slide 17 provides an adjusted EPS walk detailing the drivers of the expected 5% decline to the midpoint of our Our 2022 EBITDA margins of about 33.6 percent would deliver 5.5% growth in adjusted EPS. EBITDA margins in 2023 are expected to be about flat from the 33.6% we delivered in 2022. In 2023, the cost actions We are taking are expected to deliver about $120,000,000 of expense reductions. These cost benefits are being principally offset by several factors. First, in 2022 variable compensation including incentive and sales comp were at very low levels due to the substantial impact Of the weak mortgage market on our performance.

Speaker 3

In 2023, our planning assumes we return to targeted levels of performance and therefore these compensation drivers. Royalties and costs for data and third party scores are increasing as we continue to add new partners and broaden data sources. Also in 2023, we are also still incurring a level of redundant system costs as we continue to operate legacy North American systems prior to their decommissioning later in 2023. As we look beyond 2023, the impact of variable compensation moving to target and the cost of redundant systems in North America are behind us and therefore the benefits of our cost actions as well as accelerating High variable profit revenue growth are expected to drive significant improvement in EBITDA margins. Depreciation and amortization is expected Increased by just over $50,000,000 in 2023, which will negatively impact adjusted EPS by about 4%.

Speaker 3

D and A is increasing in 2023 as we accelerate putting cloud native systems in production. The combined increase in interest expense, Net other expense and tax expense in 2023 is expected to negatively impact adjusted EPS by just over 6 percentage points. The increase in interest expense reflects the impact of higher interest rates and also the increased debt from our 2022 acquisitions. Our estimated tax rate of about 26% is up about 150 basis points from 2022 due to a higher mix of non U. S.

Speaker 3

Revenue and lower tax benefits as we reduce capital and development spending. Slide 18 provides the specifics of our 2022 full year guidance that Mark discussed in detail. The slide includes additional detail on expected BU EBITDA margins as well as guidance on specific P and L line items. EWS EBITDA margins in 2023 to 52% are expected to be up From the 51.3 percent delivered in 2022, given the strong non mortgage revenue growth from new products, penetration And pricing and the benefits of the cost actions Mark discussed earlier. USIS EBITDA margins at over 35% are It's expected to be down from the 36.8 percent delivered in 2022.

Speaker 3

USIS is also benefiting from cost actions. However, revenue growth at 2%, Again, due to the impact of the U. S. Mortgage market decline is resulting in the year to year margin decline. International EBITDA Margins 27% are expected to expand versus the 25.7% delivered in 2022, driven principally by pricing and the 2023 cost actions.

Speaker 3

Corporate expense excluding depreciation and amortization is increasing in 2023 relative to 2022 due to the increases in incentive and equity compensation From the lower levels incurred in 2022 that I referenced earlier, corporate functions such as finance, legal, HR and others are reducing costs in 2023 consistent with our cost actions. We believe that our guidance is centered at the midpoint of both our revenue and adjusted EPS guidance ranges. Slide 19 provides our guidance for 1Q 'twenty three. As Mark discussed earlier, 1Q 'twenty three is expected to have the largest Quarter of 2022, despite the strong expected non mortgage constant currency growth of about 9%, We will see a decline in 1Q 'twenty three revenue about 6% at the midpoint of our guidance. 1Q 'twenty three EBITDA margins are expected to be about 29 Sam, down about 200 basis points sequentially.

Speaker 3

Overall, BU EBITDA margins in total are up sequentially from 4Q 2022, Driven by Workforce Solutions delivering about 50% EBITDA margins in the quarter, which offsets declines at USIS and International. The decline in EBITDA margins in 1Q 'twenty three sequentially from 4Q 2022 is driven by higher corporate expense, Specifically, the higher incentive and equity compensation costs referenced earlier. The bulk of the expense related to our equity plans occurs in the Q1 and is reflected in corporate. Excluding the impact from the sequential increase in equity compensation expense, EBITDA margins are approaching flat sequentially at just under 31%. Corporate expenses will decrease meaningfully sequentially in 2Q 'twenty three as the equity compensation was principally reflected in the Q1.

Speaker 3

Revenue increases sequentially in 1Q 'twenty three relative to 4Q 2022. We're not seeing the expected increase in EBITDA margin sequentially in the Q1, driven by the same factors impacting all of 2023 that I referenced earlier and the fact that there is limited first quarter benefit related to our 2023 cost actions. In the Q2 of 2023, we will see both the benefit of reduced corporate expense and increased benefits from our 2023 cost actions supporting growth Business unit performance in the Q1 are expected to be as described below. Workforce Solutions revenue growth is expected to be down about 8.5 year to year due to the about 55% decline in the mortgage market. Non mortgage revenue will continue to deliver double digit growth.

Speaker 3

EBITDA margins are expected to be about 50%, up over 300 basis points sequentially, driven by sequential revenue growth from new product and pricing actions. Workforce Solutions will represent just under 50 percent of Equifax revenue in the quarter. USIS revenue is expected to be down about 5.5% year to year, Again, driven by the about 55% decline in the U. S. Mortgage market.

Speaker 3

USIS credit inquiries are expected Somewhat outperform the overall mortgage market due to consumer shopping. The mortgage decline is partially offset by growth in non mortgage expected to be up mid single digits. EBITDA margins are expected to be about 32%, down sequentially due to negative mix from growth in core mortgage and higher overall mortgage royalties, as well as the normalization of incentive costs that I referenced earlier. USIS is also incurring incremental costs from customer migrations to Data Fabric that are occurring principally in the first half of twenty twenty three. International revenue is expected to be up about 5% in constant currency.

Speaker 3

The weakness relative to the strong 4Q 2022 growth of about 9% is principally a decline in the UK Debt Management Business As we are now comparing to the very strong 2022 revenue driven by catch up in our UK government business in 2022 as the UK government suspended collections during the pandemic. EBITDA margins are expected to be about 22%, down sequentially due to seasonally lower revenue in Canada and UK CRA And normalization of incentive costs as well as higher data costs. We're expecting adjusted EPS in the Q1 of 'twenty 3 to be about $1.30 to $1.40 per share. Looking forward, we remain focused on delivering our mid term goal of $7,000,000,000 of revenue with 39 percent EBITDA margins. Market conditions are significantly different than when we first discussed in November of 2021, our goal of achieving these results in 2025.

Speaker 3

The U. S. Mortgage market is expected in 2023 to be down over 35% from the normal 2015 to 2019 average levels We had discussed as expected to deliver $7,000,000,000 of revenue in 2025. Our core organic revenue has grown over 300 basis points faster than we discussed with you in November 21. However, recovery in the mortgage market of on the order of 2 thirds of the lost volume is still likely needed to achieve our $7,000,000,000 goal in 2025.

Speaker 3

We're focused on driving above market growth, including through accretive acquisitions and delivering the cost and expense improvements Committed as part of our data and technology cloud transformation and needed to achieve 39 percent EBITDA margins. We'll continue to discuss with you our progress toward our $7,000,000,000 and 39% EBITDA margin goals as the mortgage and overall markets evolve in 2023 and forward. Now, I'd like to turn it back over to Mark.

Speaker 2

Thanks, John. Wrapping up on Slide 20, Equifax delivered another strong and broad quarter with above market growth in 2022 more than offsetting the significant 55% decline in the U. S. Mortgage market originations. We delivered our 8th consecutive quarter of strong above market double digit core revenue growth and strong double digit 12% non mortgage growth, Reflecting the power of the EFX business model and our execution against our EFX 2025 strategic priorities.

Speaker 2

At the business unit level, First, Workforce Solutions had another outstanding year powering our results delivering 14% revenue growth and strong organic non mortgage growth of 24%. Twin current records reached 152,000,000 up 12% and total records surpassed 600,000,000 Workforce also delivered a vitality index of over 20% from innovative new products and solutions leveraging their cloud capabilities, while further penetrating the high growth talent and government verticals. USIS had a very strong finish to 2022 with 4th quarter non mortgage Growth of 10% total and 7% organic driven by online non mortgage growth of 19% total and 13% organic. The USIS team remains competitive and is winning in the marketplace. International delivered 12% local currency growth, their 2nd consecutive And our 2022 vitality index of 13% was a record as we delivered over 100 new products for the 3rd consecutive year in a row.

Speaker 2

And since 2021, we completed 13 strategic bolt on acquisitions to strengthen Equifax and Identity and Fraud that we expect to deliver over $450,000,000 of principally run rate revenue going forward. And 6th, we made significant progress in 2022 executing against our eFX Cloud Data and Technology Transformation With about 70% of North American revenue being delivered from the new Equifax cloud and we're laser focused on completing our North American migration in 2023 to become the only cloud native data analytics company. We're in the early days of leveraging our new cloud capabilities, but remain confident that it will differentiate us Our strong progress on the cloud Allowed us to accelerate cost savings and launch a proactive restructuring across Equifax that will deliver $200,000,000 of cost savings in 2023 It will expand our margins to 36% as we exit 2023 and position us for an uncertain economic environment. As we look to 2023, we're committed to completing our North American data and technology transformation, while delivering continued above market revenue growth And the substantial and consistent EBITDA margin growth and a reduction in capital intensity, there's a key benefit of our data and technology cloud transformation. As mentioned earlier, the cost actions were taken in 2023 reducing our spending by $200,000,000 this year and over $250,000,000 in 2024 We'll expand our margins and position us for a more uncertain economic environment.

Speaker 2

I'm energized about our strong above market in 2022, but even more energized about the future of the new Equifax in 2023 beyond. We're convinced that our new EFX cloud based technology, Differentiated data assets that are now in our single data fabric and our market leading businesses will deliver higher growth, Expanded margins and free cash flow in the future. And with that, operator, let me open it up to questions.

Operator

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

Speaker 4

Thank you. Good morning. Mark, you said you've assumed a weakening economy But I guess my question is more the weakness that you've assumed, The magnitude of what you're seeing already today versus what you're assuming gets worse, if that makes sense?

Speaker 2

Yes. So I think there's a couple levels there. Manav, as you know, we've been living through a mortgage market recession here in the United States for the last 9 months and that's going Continue. And it's really unprecedented. So I think you and our investors understand that pretty clearly.

Speaker 2

It's really a massive impact on our business and what's positive is our non mortgage businesses are performing exceptionally well. We had talked about where we've seen the impact of hiring declines in late in the year. We expect that to continue, Being down about 10% in 2023 and that impacts our talent business and also our onboarding and online business. So that's certainly in our outlook. And then we did factor in what we would characterize as an uncertain or slowing economic environment really More in the second half of twenty twenty three.

Speaker 2

It's hard to forecast where the economy is going to do, but it certainly feels like at these higher interest rates and higher inflation and You've got the impact of mortgage and now in the hiring space that we're going to see slowdowns as we go through 2023.

Speaker 4

Got it. Just to clarify on that, I guess, can you talk about what you assume more on the, call it, card and auto side, because those things Still fine today, but Thomas is uni. And then, John, just for you on free cash flow, like, can you just walk us through what the working capital moves this year was and how we should think What free cash flow will be in 2023?

Speaker 2

Yes. So on your first half of your question, John could take the second. You're correct, Manav. In a lot of verticals, We haven't seen that economic impact yet. We're expecting to see that as we go through 2023.

Speaker 2

So that's a part of our guide and a part of our outlook In verticals like cards, like P loans, like auto, we've seen some limited economic impacts there. But as you point out, cards, for example, are still operating quite well. But given where interest rates have Ben and where they're going and where the Fed is signaling they're going to take them and the challenge of Taming inflation, we think it was prudent to include in our outlook for 2023, a softening You know of the economy as we go through the year.

Speaker 3

As you look around outside the U. S, right, we saw weakening in the UK that's already occurred, started to happen in the 4th quarter And we saw relatively weaker performance in some of the other markets around the world as well. So to free cash flow, so as we look through 2023, Manav, And we're also expecting to bring down capital spending. So we expect to see very nice growth in free cash flow as we move through 2023 sequentially as we go through the quarters. In terms of working capital, as we've discussed in prior calls, as we were going through a significant billing system migration, we did see some increase In our accounts receivable, the bulk of that is now completed.

Speaker 3

We've completed all of North America and there's just a there's a little bit more to go as we go through And some of our international operations, our internal metrics are showing a nice improvement in terms of our operational performance And those systems in terms of what we're seeing in terms of collections activity. And so although we haven't really seen it yet in the numbers you would have seen in the Q4, We're expecting to start to see some benefit as we move through 2023 in terms of AR, which would affect overall working capital. So Net net, I think free cash flow we're expecting to see obviously expanding margins, improving profitability, lower CapEx And then improvements as we move through the year and working capital in general.

Operator

Got it. Thank you. Our next question comes from the line of Andrew Steinerman with JPMorgan.

Speaker 5

Hi. John, I just want to make sure I understand the $120,000,000 of OpEx Reduction on Slide 13. Is this $120,000,000 for $23,000,000 could be realized in year? Or is that a run rate by the end of the year? And then I have a follow-up question.

Speaker 2

So that's realized in year. That's correct. As John pointed out, those will be executed principally the actions of the contractors and Attrition in some Equifax FTEs will be executed in the Q1. So the benefits will accelerate as we go through second, 3rd and 4th. And then as we said, we get a benefit positive benefit in 2024 from the full year impact of that.

Speaker 5

Okay. And then on the $120,000,000 of expense savings, OpEx savings, is this really an acceleration Of the original plan or does this add to total target cost savings of the cloud transformation?

Speaker 2

Yes, it's a combo of the 2. We try to be clear about that, Andrew, in our comments. Because of the extra efforts and Additional work we did in 2022, it's allowed us to accelerate the cloud savings that we've talked to you about for multiple years. So a big piece of the $120,000,000 is the cloud savings, but there is a meaningful increment to that of just a broader restructuring of the company to improve our efficiencies, and how we operate the company. Some of that from the investments of the cloud that are outside of technology just allow us to Operate more effectively.

Speaker 2

So it's a combo with a 2.

Speaker 5

Thank you.

Operator

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

Speaker 6

Great. Good morning, guys. Thanks for taking the questions. I want to dig into the talent solutions Keith, it definitely seems like there was some softness there compared to what you guys were expecting. And I know You kind of mentioned that your hiring was a headwind and became more challenging.

Speaker 6

But I guess was the softer result in that Sub segment of EWS, was that purely a kind of quantity and kind of hiring volume headwind? Or did you see any clients like Trading down to kind of less expensive products or doing anything else in kind of that area that might have caused some pressure?

Speaker 2

No. Our analysis of it is it's all Q and when we talk to our customers, meaning there's just less background screens happening. I think we were Watching this as we went through the Q4, I think all of us saw companies as we went through the tail end of the year and they've accelerated in the Q1 here Announcing layoffs, announcing hiring freezes, that all is going to impact the hiring market. It's a bit bifurcated. I think we all know that the hiring at the, call it, the hourly wage Area is still very strong, so that really wasn't impacted.

Speaker 2

This is more white collar impact where companies are just tightening their belt And being more cautious around hiring. So we haven't seen any impact from our new product rollouts, The penetration that we have and just as a reminder, this is a $2,000,000,000 TAM for us as talent. And we have A lot of penetration opportunities, meaning we're continuing to work into bring new solutions and convert our customers From their manual work to digital and that's what really allows us to outgrow a declining market, which we expect to continue to do in 2023. And then as we also mentioned, that same hiring impact where companies are tightening their belts around adding new resources Impacted our onboarding or and our I-nine business in the latter parts of the year, we expect it to impact in 20 As we said in the comments earlier, we expect both of those businesses to grow double digit even with those market declines because of the New product capabilities, the new penetration opportunities that we have and of course our normal pricing that we rolled out on a oneone on January 1.

Speaker 6

Got it. That's helpful. And then I guess just my kind of follow-up was on pricing. I know Last quarter, you guys mentioned that pricing would be a tailwind in 'twenty three to margins. And I know The 1Q guide kind of implies a couple of 100 basis points of pressure on EBITDA margins.

Speaker 6

I get some of that seasonality, but Is some of this that compared to what you guys saw in 4Q that just volumes in mortgage and some of the other areas Are just facing pressure that's offsetting some of those price effects that That went into a place on oneone or did you got temper any of those?

Speaker 2

Yes, I'll let John jump in. No change in what we told you we were going to do in October in price and what we We did. Obviously, what's happened is the mortgage market. First off, we have a very challenging comp in the Q1 and the Q2 versus last year. A year ago, the mortgage market was super strong.

Speaker 2

So you start with that and that was as expected, although as we talked about, we've reduced our mortgage outlook For 2023 from what we thought in October. So that puts pressure on the quarter and on the year from a margin standpoint. There's some small pressure from the lower growth in talent and onboarding in I9 because of the Tightening belts around hiring taking place, but the bulk of the Q1 impact is what John described Really from a cost standpoint, in 2022, our incentive compensation was well below target Because of the decline in the mortgage market, as John said, we expect 2023 to be paying at target. So that's a higher expense to us that flows through the year. And then we typically have in the Q1 when we make our retention equity grants to our team, an equity expense that takes place.

Speaker 2

And I don't know what else would you add, John?

Speaker 3

Just in terms of price and product, you can see the benefit of price and product in the Q4 obviously in USIS, very strong performance in online. We saw volume in banking, But we had very strong performance in auto and in banking and lending and card. So and some of that was product and some of that was price. And you're certainly seeing it in the Q1 in EWS, right. As Mark mentioned, pricing increases go in in January and we're seeing the benefit of both product and price in EWS with their margins expanding in the Q1.

Speaker 3

So no difference and you're seeing it in the performance of the business.

Speaker 2

I think John, you also said in your comments that if you look at Q1 versus Q4 And isolate around these expense items around incentive and equity, our margins are basically flat, Which means we're absorbing a weaker mortgage market than the Q4 and still getting the benefits of operating leverage Pricing everything else to kind of offset that, ex the cost items that we had that we talked about.

Operator

Our next question comes from the line of Kevin

Speaker 7

Think about kind of purchase versus refinance. And as you get into 'twenty four, I know 'twenty three is hard enough, but Do you expect a little bit more recovery in refinance off of 'twenty two or just any ways to think about kind of that base level

Speaker 2

I'll let John jump in. As you might imagine, refi is virtually gone, right? Right. The refi really disappeared from the mortgage market. I don't know, 6 months ago as rates started increasing.

Speaker 2

We don't anticipate refi coming back until there's a change in interest rates, meaning that there's some interest rate decline. What's really very unusual and we've never seen before is the meaningful decline in purchase volume at this level. I think as John pointed out, Our outlook for 2023 as mortgage inquiries 30% below the 10 year average and that's really 10 year average includes purchase and refi. So you've got purchase down dramatically. So at some point, purchase volume should improve.

Speaker 2

There's no question, if it's 30% below a 10 year average. Now, we're assuming that doesn't happen in the second half. Should it improve in 2024? I think it's part of it's tied to what's happening in the economy. Are we Stabilized around inflation and interest rates, have the interest rate increases flattened out and consumers that are thinking about a home can Have some confidence around where the economy is going.

Speaker 2

That should help purchase volume. But at some point, Whether it's in 2024, 2025, the mortgage market should move up on the purchase side as the economy stabilizes to get back to that, Call it 10 year average. It's never had this kind of an impact. Of course, we've never seen interest rate increases at this pace ever before. John?

Speaker 3

I think you covered it quite well, yes.

Speaker 7

Okay. Great. And then just real quick, As you think about kind of you mentioned the gig in pension workers a couple of times. Is that aggregation process similar to the traditional Kind of record aggregation or is it how does that process occur? And is it at the same price point or is it Kind of less profitable.

Speaker 2

Yes. No, they're very attractive records. We want them all. First, let me just Make the point, we've got a long runway in traditional non farm payroll. And I think as you saw 12% growth last year in Twin Records was very, very strong.

Speaker 2

We signed, I think, 10 new partners that will come online in 2023. I think we said before That in our existing partners, think about payroll partners, there's meaningful records that we still haven't brought on board with them and there's a lot of incentive Duet. So that's kind of the base records. And over the last couple of years, we've scaled up resources that are going after pension records. I think it was in the Q3 last year, we signed our 1st pension partner to bring pension records into our data set and we've got a pipeline of those and process wise that's quite Similar, if you think about pension records, they're probably in 3 different places.

Speaker 2

It's more than that, but three principal places. One is There are companies that are much like payroll processors that process defined benefit pensions for legacy companies that have those. So Going to those companies and developing those partnerships is strategy number 1. Number 2 is Large legacy companies process their own pension payroll, lots of them. So we're already collecting their employee payroll.

Speaker 2

So going in and collecting their pension Payroll is a part of that strategy. So we know how to do that. It's just a matter of executing it. And then the third is in federal, state and local governments. Many of them have their own pension processing operations, so going to collect those records.

Speaker 2

So that's where we're going on the pension side. And then on the gig side, there's a lot of different strategies, individual companies, as you might imagine, going to get that and other entities that will have those gig records. And As we've talked before, it's 114,000,000 uniques that we have. There's about 220,000,000 working Americans Between non farm payroll, gig and pension, so over the long term, we've got the ability to double The scale of our records going forward. So that's a big lever for growth from workforce.

Speaker 2

I think as you know, the day we add a new record, We're able to monetize it instantly because we're already getting inquiries for the record we don't have, right. With our 50 plus percent hit rates as we add that 51st, 50 And set of data records, we're able to monetize instantly. So it's a very powerful part of the Revenue engine and margin engine for Workforce Solutions, which is why we have such a dedicated team focusing on it. And if you think about The scale of our records, if you go back 4 years ago versus the 114,000,000 uniques, we had something like 70,000,000 And 300,000 companies, we ended last year with 2,600,000 companies contributing their data to us. So the cloud is allowed us to really scale that And there's a long runway for future growth.

Speaker 8

Thank you.

Operator

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

Speaker 9

Hey, guys. On EWS margin, just kind of playing devil's advocate here. I want to understand a little bit better what's Biggest risk factors for margins to drop below your guidance 52%. Is it just mortgage market down more than 30%? Is it Feals overachieving their targets again in maybe 7 verticals.

Speaker 9

Just want to understand it a little better.

Speaker 2

John this was on EWS margins and the question was we've said that we expect them to be 50% plus in 2023. What are the risks of that?

Speaker 3

Yes. Look, the driver what's let me talk about what's driving the margins to be at those levels, right. And it is heavily driven by what Mark talked about in terms of The record growth and therefore the outperformance relative to mortgage and the very, very strong non mortgage growth. And then the cost actions that they're taking in order to not only Maintain but enhance their margins as they go through the year, right. So EWS has been executing extremely well.

Speaker 3

Obviously, if the mortgage market was to be substantially weaker, That's very high revenue and high margin it's very high margin revenue. That would be a risk. To the extent that there is risk to revenue in general, obviously that can be a risk to margins. But Overall, we think we've taken a very reasonable view in terms of what 2023 looks like for EWS. Their execution has been very strong.

Speaker 3

Their record growth has been very good. They've already executed their pricing actions. Their performance in new product has been outstanding as Mark said, growing at twice the rate of our 10% goal for vitality index. So we feel like we've given a very balanced view of EWS as we look into 2020.

Speaker 2

Maybe just add to that, John. I think John mentioned, we rolled out our pricing Actions late in the year and effective oneone. So we know what those are. So that's kind of baked in. So that gives you a lot of confidence as I mentioned earlier and John did We already know some meaningful record additions that we've signed agreements for that will come in, in 2023.

Speaker 2

That's revenue and margin. We've got new products in workforce that were rolled out in 2022 that get full year benefit in 2020 And we know our pipeline of new products we're expecting to roll out in the Q1 and Q2 from workforce going forward. So we think there's a we have a lot to give us confidence in our outlook there. And I think as John pointed out to me the factor would be If the economy is worse than we factored into this or if the mortgage market is significantly worse than we factored into this outlook, that would put pressure on that and then We would take actions to respond to it.

Speaker 9

Got it. Super helpful. And then just on both of this, I think that would be a really nice addition And I was wondering if you could give us a little bit more colors on how you're thinking about their data asset and their strategy. On the merger on the acquisition call, you mentioned Buavista is very strong regionally. Is there a strategy to expand them Kind of more towards nationally, would appreciate any colors you can share with us.

Speaker 2

Yes, sure. So first, we're working to try to finish the acquisition. Yes. We've been negotiating since December with the Board of Boa Vista. We're pleased with the progress and we want to conclude that.

Speaker 2

So that's kind of priority number 1. But everything we talked about in December, we're still quite energized about. 1st and foremost, we would bring all of the Equifax Capabilities to Boa Vista, whether it's our new cloud technology, our products from around the globe, our big platforms like Ignite and Interconnect, We'd really bring their capabilities up substantially versus what they have today as a standalone number Credit Bureau in the market. So that is a real positive. And the underlying business is Performing exceptionally well.

Speaker 2

They've got strong double digit growth. It's a big market in Brazil that's expanding. There's A lot of alternative data available there that we would want to focus on. We just see a bunch of potential. As we pointed out, they have some unique data Outside of the normal banking data that's unique to Boavista, which is another element that we like about it.

Speaker 2

So we're focused Completing our negotiations, so we can try to move forward in closing it.

Speaker 10

Thanks.

Operator

Thank you. Our next questions come from the line of Andrew Jeffrey with Truist. Please proceed with your question. Hi, good morning. Appreciate you taking the question and all the detail as usual guys.

Operator

Mark, one of the things that happened obviously that drove your mortgage growth before the sort of collapse of the overall market was Greater digital engagement, and I think you talked to mortgage shopping a little bit today too. Has Given that mortgage volumes are down so much, purchase and refi, do you think there's anything Structurally changed in the market such that your customers either want to engage more digitally with you or less digitally. So I guess what I'm asking is when mortgage recovers, is that lever, which was such a nice driver for you when volumes were booming, is that Still there? Is it do you get more leverage, less leverage, about the same? Can we think about that structurally if anything has changed?

Speaker 2

It's a great question and we believe that it's more leverage or more opportunity to really drive our digital solutions. And If you think about a mortgage originator that clearly is under significant financial pressure now because of the reduce the reductions in volumes, They're looking to improve their productivity. And the only way to improve your productivity is through instant decisioning. And the goal that they always have and the leading players in the space Are working to really shorten the timeframe between application and closing. As you know, it's a very long timeframe and that timeframe has Cost involved in it, it also has risk involved in it around the consumer changing.

Speaker 2

It has risk involved in it and the consumer deciding I'm not going to buy the home, meaning you've spent a bunch Bob's on it. And you've heard us talk before the average mortgage originator spending $5,000 of expense In a mortgage application, if they can shorten the time and take labor out of it by using instant data, that's a positive. So We expect our conversations around using our instant data, particularly around TWN, to accelerate In this environment, meaning we're going to become more embedded and more instant, which has been a trend, as you know, over the last couple 3 years even in a stronger mortgage environment. Some of that over the in 2020 2021 was challenged By the just the pace of the volume they had, they didn't have time to really focus on changing their processes, now they do. It's clearly a focus of ours and we think a positive going forward that instant is going to drive speed And drive productivity.

Speaker 2

And that doesn't only apply to mortgage, that applies to really all our verticals. Think about government, think about talent. If we're able, they're under Cost pressure today. And those verticals, whether you're a background screener or a government agency, improving your productivity and improving the Speed of the service you deliver is very, very valuable to them. And the way to do that is To use instant data from Equifax like our TWN data, our income and employment data.

Operator

That's very helpful. Thanks. I appreciate it. Thank you. Our next question comes from the line of Andrew Nicholas With William Blair, please proceed with your question.

Speaker 11

Hi, good morning. Thanks for taking my questions. I wanted to first touch on A comment you made about a win for EWS and verification services within the U. K, I believe. I wanted to ask, I think you said 40% of the private sector employee base, if I heard correctly, if you could clarify that.

Speaker 11

And then Just curious, is that an exclusive relationship? And how important could that relationship be to getting a foothold or the pole position in the U. K. Market, Especially given a competitor of yours ambitions to build a similar business there.

Speaker 2

Yes, I think we've been quite clear that over the last Couple of years as we completed the cloud, we are looking for new international markets to take workforce solutions into. As we talked on the call earlier, we've In building out businesses in Australia and Canada and then most recently a year ago really in the Q1, we launched our U. K. Business Using our new cloud capabilities and started to go into the market and talk to both individual contributors and payroll processors Around adding data records. So we've made some positive traction over the last, I guess, 4 years in Australia and 4 years in Canada and over the last 12 months in the UK, we're looking to continue to grow and expand our capabilities there.

Speaker 2

We had I don't know the number, but we've had a handful of agreements signed in the UK and we also signed an agreement with an entity that has Tax data that is a proxy for income and employment. So that's been a positive addition in the UK that gives us a lot of coverage. So we can start rolling out solutions there. In Australia, we've got a had an agreement with a pension administrator that brought that kind of data in, which is And it also has the equivalent of W-two type data in it that's quite accretive also. So it's Clearly part of our strategy to continue to build out and invest into an international footprint for workforce.

Speaker 11

Great. Thank you. And then for my follow-up, I just wanted to ask a question on margins. It looks like you're expecting 30% Plus tight margins exiting the year. Is there any reason not to believe that's a good starting point for 2024?

Speaker 11

And I know you're not going to give Guidance for that year, but mostly asking about if there are kind of cost saving actions that you expect to still be Under way that late in the year or if that 4th quarter number is a decent run rate to Think about kind of a stable base for out years. Thank you.

Speaker 3

Yes. So I think as we talked about in the presentation, we're expecting in the 4th to get to 36 percent EBITDA margins driven by some recovery in revenue, but also really significantly by the acceleration of the cost actions. And the cost actions have a continuing benefit in 2024. So we're expecting additional benefit from the cost actions as we go into 2024 And we're also expecting to get additional cost benefits as we continue to complete the cloud transformation beyond North America. And we'll start to see some of those benefits occur in 2024.

Speaker 3

So we think we still have tailwinds on the cost side That will benefit our margins as we get into 2024 and then obviously as we get closer to 2024 we can start talking about revenue. But there certainly are cost tailwinds that continue Out of 23 and into 24.

Speaker 11

Thank you.

Operator

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

Speaker 12

Hi, thank you for taking my questions. Hey, Mark, I want to ask you a little bit about the main functional areas for headcount reduction. And What I'm trying to focus on is NPI has been the driver and driving particularly non mortgage growth. And how do you make Sure that you're going to not harm kind of the goose that's laying the golden eggs in terms of the ramp of revenue that we should Over the next several years by reducing your headcount by 10%? And then I have a follow-up.

Speaker 2

Yes. We're obviously quite thoughtful about that. As you might imagine, we want to make sure we're quite strategic about where we're doing it. Remember the bulk of the actions are really related to the cloud transformation and accelerating those. So you've got a lot happening in technology And the bulk of the actions are also in contractors.

Speaker 2

We hired a bunch of contractors to do the cloud work and we're taking actions now when we complete that and Commissioned the legacy infrastructure to take those out. The rest of the actions, I would characterize as kind of normal focus and Thoughtful focus around where do we have opportunities to be more efficient and more productive, while protecting our focus on growth And growth includes our new products.

Speaker 3

The only thing I'd add is as transformation completes, the effort necessary to launch new products comes down substantially, It's one of the real benefits from cloud transformation that we've been talking about substantially. And as data is on fabric and everything's running through Ignite and interconnect, Then the level of investment necessary to launch those new products really starts to become something that we can do faster and cheaper. So as Mark said, we do a very good job of making sure we understand who's working on what. So as we reduce resource, we take it out of specifically transformation. But also as we go forward, we expect to get a lot of leverage in product launches in terms of being able to launch them faster and cheaper because they're on the transform cloud infrastructure.

Speaker 12

Okay. Thank you. And then

Speaker 3

And we've seen that in EWS by the way. It isn't something that we haven't seen. It's already happened in EWS. I think it's

Speaker 2

a great point just to add on that. I think we mentioned on the call today that EWS new product rollouts are kind of 2x our long term goal north of 20% last year. And as you know, they were in the cloud a year ago, 18 months ago. And it's really shown what we envisioned happening that the ability To bring more new solutions to market more quickly and more productively, as John pointed out, and efficiently, would happen when you're cloud native. And That's part of what we expect to happen as we go through 2023 and we expect to continue in 2024, meaning We're going to have additional cloud benefits, as John pointed out, in 2024 and then we get the full year run rate impact of our actions in 2023.

Speaker 12

Got it. Got it. And then

Speaker 13

just as a follow-up, I

Speaker 12

want to ask a little bit more about the competitive environment on the work number. We you have a Competitor in the market that's talking about signing more contracts with mortgage processors and the vast majority of those Are being putting them at the top of the waterfall. I'm just trying to square what they're talking about and some of the growth that they're trying they're communicating to the Analyst community with kind of the market position and what you're seeing. I mean, are you seeing increased threats to your market position and the volumes that are coming through?

Speaker 2

We're not. I clarify with them if you want to try to understand better the top of waterfall comment. We don't know where that is How that happens, we haven't seen them as a competitive threat in the marketplace. I think as you know, our record additions are quite substantial. We added in the quarter more records, more unique records than they have.

Speaker 2

So we've clearly got an ability to Attract new partnerships and individual relationships given the scale of the company. And then on the commercial side, our integrations Are so deep and so substantial, we haven't seen an impact from a revenue standpoint. As you See the numbers are super strong in Workforce Solutions across all of our verticals including mortgage. Their outperformance is exceptionally strong and hasn't slowed down.

Speaker 3

And just please remember, our historical record base is incredibly valuable to our customers, certainly in talent, certainly in government, increasingly in mortgage. We talked about Mortgage 36 in the conference call and that's a place where we have tremendous strength in general and verification services And in even stronger position in historical records.

Speaker 12

Got it. Thank you.

Operator

Thank you. Our next question comes from the line of Toni Kaplan with Morgan Stanley. Please proceed with your questions.

Speaker 10

Thanks so much. First, I was hoping you could talk a little bit about the bearishness within the mortgage forecast, the 30% inquiries decline, I think would imply that originations are even lower than that. And I think just I know sometimes the 3rd party forecasts are a little bit optimistic, but I just felt like there was a pretty big delta there. And so If you could just go into maybe why your mortgage forecast is so bearish? Thanks.

Speaker 2

Yes. First off, it's very difficult to forecast and I think we've shown over the last year that it's a hard thing to do. We've been pretty good about forecasting inside of a quarter, meaning out for a couple of months because the trends are pretty clear on what we're Seeing on a daily and weekly basis, but as you get out a couple of quarters in this uncertain environment, it's much more challenging. And John, correct me if I'm wrong, I believe for the last year, We've had our outlooks, south of the other forecasts like MBA and stuff Consistently, so that's not a new approach for us. And Tony, as you know, we have real visibility to originations that are actually happening On a near term basis, which is what we try to factor into our forecast and you could call it bearish or conservative or In our case, we tried to put it the most realistic outlook in place.

Speaker 2

That's what we put out there.

Speaker 3

Just a reminder, EWS which is the bulk of the mortgage business right, their transactions tend to look a lot more like originations right. USIS does have that shopping behavior, which is better. But EWS, no, it's really much closer to originations. It's a much better proxy. And so also as we talked about, I mean, what we did is we looked at run rates and then it just assumed kind of normal seasonality.

Speaker 3

I think what you're hearing from some of the 3rd party forecasters is an expectation of some type of substantial recovery in the mortgage market That could occur. And if it does, we'll benefit. Okay. But right now, what we're assuming is we're going to see a market that looks a little more normal in terms of its seasonality versus this year. And we're going to wait to see that recovery before we start saying it's going to happen.

Speaker 10

Terrific. And wanted to ask a little bit more broadly on Consumer spending, when you think about year to what are you seeing, I guess, in year to date trends and How are you expecting that to play out throughout the course of the year? Thanks.

Speaker 2

Yes, Tony, it's really not a lot of change From the consumer, from October, meaning they're still strong. They're working like unemployment being so low and employment being so high and All the open jobs, that's a good thing for the consumer. They've clearly we've seen they spent down some of their COVID pandemic savings, but there's still Positive savings from where they were in 2019. So that element is quite positive. Obviously, at the low end, inflation is still pressuring The subprime consumer and we've seen some uptick in delinquencies there, but broadly, we would characterize the consumer as being Quite strong.

Speaker 2

Now when we look out for 2023 here in February, that's where we talked about And we factored into our outlook a more uncertain economy, which should impact the consumer, call it, in the second half, Perhaps in the way we're thinking about it, with these continued rising interest rates and every day you see another company Announcing layoffs or hiring freezes and that's going to have to have an impact at some point And that's part of our outlook. On the B2B side, I think we talked at length about What we're seeing in the hiring space that we've already I just talked about, but that's impacting our businesses In background screening and talent and then in I9 and onboarding, we still expect to grow over 10% in those Two businesses because of pricing and product and penetration, but the actual volume we expect to be down on a year over year basis. So that's going to have an impact.

Speaker 10

Perfect. Thanks so much.

Operator

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

Speaker 14

Hey, guys. Good morning. Maybe for John, is there any way to quantify what the delta is On the compensation side, where you're going from below plan last year to at plan this year, is there any way to just quantify what that What that represents as a year over year change?

Speaker 2

I think in the quarter you talked about in the Q1, if you exclude that and the equity impact, margins are basically flat.

Speaker 3

It's just really the equity impact. We're pretty close to flat. So we didn't so we tend to try to list things in order of importance. So what you can take from the listing we gave is it's fairly substantial. No, we haven't quantified our the total incentive and sales incentive difference year on year.

Speaker 3

But we're saving the $120,000,000 savings is obviously quite substantial and the most substantial area we're offsetting Is that change in overall sales compensation and incentive compensation as well as equity compensation. So it's The biggest factor. Also, we are seeing increases in royalty costs. It's both in mortgage. We talked about one of our mortgage vendors increasing prices.

Speaker 3

We do get some benefit from that. And on the revenue side as a pass through, but it also significantly increases our expenses. And then also as we continue to substantially grow in Workforce Solutions, our partners, which we had an outstanding year growing 10 new exclusive partners, 4 in the 4th quarter. We do see royalties go up, but EWS is able to outgrow that and drive their margins So anyway, those are the biggest things that were offsetting with the 100 that are offsetting the $120,000,000 of cost savings.

Speaker 14

Got it. You actually anticipated my follow-up question. Just you mentioned this higher royalty and data costs to you. Is that Kind of just a catch up, do you feel like or is this more of the new normal going forward that these costs are going to be higher structurally higher going forward for you guys? So

Speaker 3

the specific comment around mortgage, I think that was probably there was a large increase from a vendor and everyone knows that. So that was a one time effect or we'll see what happens in the future. On EWS, we've seen an increase in their royalties over time as they continue to grow partner records And that's just part of the business model. And we think they can deliver 50% plus margins even as that grows. So it's just it's a cost that we have to incur in the business, but it's Extremely beneficial cost because the variable margin on the revenue that those records generate continues to be high, but those costs are increasing.

Speaker 3

The other cost I didn't mention, right, that we're offsetting is we are continuing to see duplicate costs because we're continuing to run the major U. S. Systems in credit And the major Canadian systems and credit through the middle of this year or into the Q3. And so that duplicate cost is something we're still incurring and that's also something that's partially I think the cost savings we're generating.

Operator

Got it. Okay. Thank you very

Speaker 14

much guys. I appreciate the color.

Operator

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

Operator

Looking at Slide 13, with the $250,000,000 total spending reduction for 2024, How much of that is a CapEx reduction versus OpEx? And then of those two numbers, Particularly the OpEx reduction, how much will flow through to earnings versus being offset by additional expenses?

Speaker 3

So in terms of the split of capital and expense, we didn't give specifics, but it's probably reasonable just to use the same split that you have in 2023. And I think I'm going to have to ask you to wait to 2024 before we talk about we give talk about 2024 guidance. But what we did talk about right is there substantial expense savings That we expect to see not just from this, but also from continuing to execute on our transformation. And we do expect our margins to grow, right. So we're going to get margin enhancement Through revenue growth because it's obviously we have obviously high very high variable margins as the mortgage market even just normalizes at these levels, our revenue growth starts to accelerate And then also we'll get cost savings.

Speaker 3

So how you decide to decide what goes where is up to you, but we do expect to see margin enhancement with a better revenue growth environment Any more stable mortgage market.

Operator

Got it. And just as a quick follow-up, if you could quantify the EWS price increase at beginning of this year.

Speaker 2

Yes. I think we don't for competitive reasons and commercial reasons, we don't talk about any price increases. I think we've been clear that we have More pricing leverage in EWS than our other businesses. We've also been clear that we Generally, do our price increases effective oneone and roll them out in the fall or Q4 to our customers. And so Price for EWS, USIs International, we got real clarity because it's in the marketplace and already negotiated with our customers.

Speaker 2

So that Gives us a lot of confidence in that element of our margin and revenue levers for the year.

Operator

Understood. Thank you. Thank you. Our next questions come from the line of Ashish Sabadra

Speaker 15

This is Joe Mazzoni filling up for Ashish. Thanks for taking the question. Maybe just building more on this new Equifax theme and in terms of the kind of restructuring efforts, could these tech Layoffs benefit the company in terms of hiring engineering talent. Your comments suggest that kind of the white collar Layoffs are really concentrated in that type of kind of high growth, high-tech area. And maybe that pedagogy of investor session could actually help you In source tech talent, any color there would be appreciated.

Speaker 15

Thanks.

Speaker 2

Yes. I'm not sure I understand the question. Could you just clarify that About tech is an important function for Equifax for sure. As you know, we're a data analytics technology company. It's actually our Largest number of employees and by far the largest number of contractors.

Speaker 2

Most of the Cost savings have always been planned and that's what we're executing in 2023 come from completing the cloud And then, exiting the plan, the contractors that we're working on that are principally contractors and exiting those out. Go ahead.

Speaker 3

Were you asking if the tech layoffs by some other large tech companies may benefit us in hiring?

Speaker 15

Correct. Yes. So if you could in source those jobs that might have been done by contractors.

Speaker 2

Yes. We're always looking to improve our talent and Great. I think we've got a very strong technology team today, but for sure, maybe I'll answer the question a little bit differently. If you asked the question a year ago about what's it like to Hire tech talent, a year ago, 18 months ago, 24 months ago, it was very hard. Today, when we're hiring tech talent, which we do all the time with In the environment as you described, where a lot of tech companies are pulling back, that is a positive for Equifax.

Speaker 2

We're able to get Great talent, and it's just shorter timeframes between opening a job and finding great

Speaker 15

Great, very helpful. And then maybe just building a little bit on that question, but in a different lens. Layoffs are broadening out across different industries that are non tech in nature. Is any of that baked in To the unemployment claims assumptions in 'twenty three and maybe due to the lag effect of severance, could there be a potential upside in the back half of the year as these Unemployment claims could pick up.

Speaker 2

I think you've seen before at Equifax, if you follow it closely that in a Rising unemployment environment like in 2020, we get substantial upside from our unemployment claims business. Today, we don't have that really baked in, in 2023 because we just haven't seen that yet. But if it comes forward, that will certainly be a positive.

Speaker 15

Great color. Thanks again.

Operator

Thank you. Our next questions come from the line of George Tong with Goldman Sachs. Please proceed with your questions.

Speaker 16

Hi, thanks. Good morning. You provided assumptions for industry mortgage volumes for 2023. Can you discuss your Patience for card and auto origination volumes for this year as well?

Speaker 2

Yes. We haven't In the past, George, as you know, we've in the past, we've been very transparent around mortgages because of the Volatility, if you will, in that space and the impact it's had in Equifax.

Speaker 3

I think what we have talked about is we were seeing We saw a nice growth in card in the Q4 in terms of volumes, not just our revenue was very good in banking, but also we saw a nice growth in banking and volumes in general. So that trend continues to be positive. Auto was kind of flattish, right. We think we performed well because of product pricing and some penetration gains. So we think we did very well in online auto.

Speaker 3

We didn't see substantial market growth in auto in terms of transactions in the Q4. So and as Mark said, as we go through next year, we've And

Speaker 16

related to the trends that you're seeing on the card side, can you discuss Growth trends you're seeing with credit card marketing and prequalification volumes?

Speaker 2

Yes, that was fairly Strong in 2022 and in the Q4, and we would expect that to continue at a fairly strong level in Certainly, the Q1, which we gave you guidance on, and I think in our broader guide for 2023, we expect Kind of a broad softening in the economy in the second half and that's factored into our outlook for the year. Just as

Speaker 3

a reminder, our Financial Marketing Services business was weak last year, right. And we talked about that throughout the year. And what we expect is we expect to see it kind of flatten out in 2020 3, part of it just because we're lapping a weak year and part of it because we think we're improving some of the product offerings we have. But So overall, for us, our Financial Marketing Services business was generally not strong in 2022, but we're expecting a little better performance and

Operator

Our next questions come from the line of Surinder Thind with Jefferies. Please proceed with your questions.

Speaker 8

Strength of kind of what you're seeing in like auto card, P loans. At this point in the economic cycle, both from Marketing spend perspective and as well as volumes, does that kind of surprise you at this point? And maybe how should we generally think about the cyclicality of the business? I mean, if the economy was to maybe fall into a recession late 2023, is that when we would maybe expect

Speaker 15

to see lenders pull back a

Speaker 8

bit more? Just trying to gauge if there's structurally anything different that we should be thinking about this time around?

Speaker 2

I think this is a different economic event than we've ever seen before, Right. You've got interest rates increasing rapidly. You've got inflation at a level that hasn't been in 40 years, But you also have people working. That usually doesn't tie together. Normally, you see unemployment increase as There's an economic event.

Speaker 2

And I think the real question is that I'm not an economist, but the real question is that Is there going to be this so called soft landing with interest rates and inflation? With the labor report from last Friday, it doesn't feel like that, Meaning there's going to be continued interest rate increases to try to tame inflation. But it's the variable on All the verticals you described in financial services, where financial services companies, I ran a credit card company for a decade, We're a credit card company or financial services company. It will start tightening up is when people aren't working. And when they're not working, they can't pay their bills or they slow down their payment of their bills.

Speaker 2

So that's the dichotomy that we have in 2022 and I call it the early parts of 2023 As you've got an economy that clearly is seeing pressure, you've got companies that are tightening their belts, which is impacting some of our B2B volume, But you got a consumer that's still fairly healthy. Their consumer confidence is down, but they're working, so they're still paying their bills. Our Assumption for 2023 is that doesn't continue, meaning there's some weakening of that in the second half is kind of how we laid it out. And then, Of course, on top of that, we're disproportionately impacted versus some of our peers by the massive mortgage market decline that we've had. We've been living in a mortgage recession for 6 plus months and we've got another 6 months until we get the First half strength of 2023 behind us.

Speaker 2

But last year, the mortgage market decline impacted us just the market impact of that was Close to $500,000,000 or over $500,000,000 So we've been living in an unusual economic environment and from our perspective quite positively Equifax has

Speaker 3

And just as a reminder, as you think about USIS, right, 2 of the areas that are performing extremely well that are driving a lot of our growth are commercial and identity and fraud, Right. So segments that are not necessarily embedded within the consumer, but where we think we have differentiated capabilities and benefits that should allow us to grow nicely In markets that may even weaken.

Speaker 8

Thank you. That was my question.

Operator

Thank you. Our next questions come from the line of Heather Balsky with Bank of America. Please proceed with your questions.

Speaker 17

Hi. Thank you for taking my question. I'd love to ask about the on workforce, the non mortgage verification side of things and And how you're thinking about those businesses into the year, especially given sort of the macro backdrop that you're layering into your guidance? And both on the talent and government side, how you see those businesses shaking out?

Speaker 2

Yes. I think we talked about that and John can jump in, but we expect those businesses to still perform very well. Remember the underlying levers that verification has, it starts with records. So our 12% increase in records last year benefits 2023 and then we've got

Speaker 3

10 new

Speaker 2

processors that we're going to be adding records in 20 During this year in 2023, so records are positive in all the different verticals that we sell into, whether it's government talent, auto, Cards, P loans, the non mortgage verticals in verification, we've got price increases in the marketplace. We're rolling out new products in every one of those verticals that really benefit growth going forward. So that's a positive. And then just underlying penetration, remember in every one of those non mortgage verticals for verification, we have Fairly low penetration in cards. In auto, there's a lot of penetration opportunity.

Speaker 2

P loans is pretty high. Like mortgage, we do a lot. We have a we cover a lot of the ground in P loans. But then you go into talent and government, there's just a lot of market penetration opportunities. So then the flip side of that is the underlying market for those, what's happening to the economic impacts in there.

Speaker 2

And the one place that we've highlighted Is talent and around verification where there is some reduction in hiring, But we said that we expect that business to still be up over 10% for 2023. Government is also a vertical that if there is an economic event, there's going to be more people going for social services, Which will be a positive for that vertical. We expect that to grow positively through 2023. Yes.

Speaker 3

Just as a reminder and Mark already mentioned that we're expecting total non mortgage for EWS next year about 13%. So still very, very good. And that even reflects weakness that we're going to see in ERC, right. ERC was very strong and that would be end of that program, that pandemic based program, You'll see a significant reduction there, which is non mortgage and we'll still grow 13% through that.

Speaker 17

Great. Thank you. And on In terms of your sort of overall non mortgage business, so you talked about the fact that you're assuming a weakening economy in the back half. Can you just help us, I know you don't necessarily guide the individual quarters, but how to think about the cadence from 1Q to 2Q And then into the back half, and just sort of what's baked into your outlook?

Speaker 2

That's tricky to do without getting into the quarters. I think we've given you an outlook for the year and an outlook for the Q1 and then which we don't typically do, we also Gave you some visibility around what we expect margins to do because of the unusual, the acceleration of the cloud cost savings and the broader restructuring of the company that Kind of 30% to 36% EBITDA margins gives you a lot of visibility around the profitability side. What else would you add, John?

Speaker 3

I think it's about all we can add, right? Yes. I mean we gave fairly good visibility on how we expect margins to substantially enhance Through the year going from about 30 ish right to 36 by the end of the year. And we said we'll start seeing those cost savings Really kick in, in the Q2. So beyond that, not much more to say.

Speaker 17

Thank you.

Operator

Our next question has come from the line of Faiza Alwy with Deutsche Bank. Please proceed with your questions.

Speaker 18

Yes. Hi. Thank you. First, just wanted to follow-up on the USIS B2B Online growth that looks like it accelerated in 4Q. I'm curious how you expect that business to trend In 'twenty three, like, was there something specific that drove the acceleration or was it just a matter of And maybe if you can comment on what type of pricing benefit you expect to see in that business in 2023?

Speaker 3

Yes. So, what we what Mark mentioned is that the way the planning was built as we assumed about a 5% non mortgage growth And overall, you were referring to acceleration in online, right? This I'm referring to overall non mortgage growth of about 5%, Which is a little lower than it was in the Q4, but still very, very strong. And I think the decline from the Q4 is principally driven by the fact that we've assumed that we're going to see Weakening economic conditions as we move through the year, right. And I think what we're doing is just reflecting that in the 2023 guidance we provided.

Speaker 3

So We think at 5% growth with a U. S. Economy that weakens through the year, we think is a very nice outcome And it shows very good performance and continued good performance across banking, across auto, across other verticals and then also a return to Some level of growth, not high, but some level of growth in our Financial Marketing Services business.

Speaker 18

Okay. I guess, is the cycle price increase that you mentioned, is that primarily in mortgage? Or is that you think going to positively impact The B2B online business is non mortgage business as well.

Speaker 2

Yes, we take price up generally in all our products every year varying amounts You know, dependent upon our market position and our commercial position and etcetera.

Speaker 3

Yes. Mortgage has a very defined Price change on January 1, it's pretty much industry wide, right. So across other verticals, generally speaking, price increases do happen early in the year, but that isn't always the case, right. So they tend to be more distributed throughout the year. So it isn't as unified an event outside of mortgage.

Speaker 3

But Yes, we do expect to continue to get price. We certainly had a price benefit in the Q4 and we expect to continue to have price benefits as we move through 2023.

Speaker 18

Got it. Thank

Operator

you. Thank you. Our next question has come from the line of Andy Graubler with BNP Paribas.

Speaker 13

You've noted that it's going to come back in 'twenty three relative to 'twenty two. Where would that stand 1st is 'twenty one. In other words, was just 'twenty two kind of artificially are unusually low and we're going back to a more normal level now?

Speaker 2

Yes, I think that's the right way to think about it. In 2022, we set out a plan for the year. At this time last year, Where we didn't anticipate a mortgage market change or interest rates going up or inflation where it was and we missed that plan and the way our compensation Structures are aligned as you might imagine are tied to the performance against our plan for the year and we underperformed that. So our Compensation was substantially down in 2022. In 2023, we're assuming we get back to target levels, which would be more like 2021.

Speaker 3

'twenty one was a very good year, right? So our comp was strong in 'twenty one because 'twenty one was a strong year overall.

Speaker 13

Yes, yes. And just to kind of follow-up on the costs and so forth. You had cost saving plans from the cloud transformation Baked into expectations anyway. And now you've talked about the $120,000,000 of savings next year. What is the increment versus Your previous expectations within the 120?

Speaker 2

Yes. You said 120 next year. It's actually this year, which I think you meant is 2023. Yes. And we didn't break that out for you, but the $120,000,000 is a combination of accelerating Some of the cloud cost savings that we had planned.

Speaker 2

So I think we said in the call earlier, no change in what we expected to deliver from the cloud savings. We're We also said we expect additional cloud cost savings in 2024 and likely some in 2025. And then on top of that in 2023, inside the $120,000,000 is at a broader restructuring And efficiencies across the company that deliver additional cost savings that are incremental to our long term Cloud savings that we talked about for the last couple of years.

Speaker 13

I suppose that's the question in terms of your incremental savings on that longer term plan. How much is baked into this year's guide?

Speaker 2

Yes. We haven't broken that out as a part of our conversation this morning. We really just Highlighted that obviously it's a sizable number. It's going to have a very positive impact on the company and it's there's an incremental piece To the accelerated cloud savings.

Speaker 12

Okay.

Speaker 13

Thank you. And if I may, just one more, just From an EWS perspective, when you're having discussions with clients and data providers, now that there is a Fairly determined competitor in play. Are those conversations changing at all?

Speaker 2

They're not. We still have Very effective ability to add new relationships. I think we talked about adding 10 It will come online this year during 2023 and we have the scale of Workforce Solutions, the scale of their The scale of our security and capabilities and the longevity we've had in the business. So we've been in this business for over a decade. And then the ability to deliver rev share immediately at scale for those records from a partner It gives us a lot of power to continue to grow our record base and there's a long runway in front of us of records that we'll be adding to the Twin dataset.

Speaker 13

Okay. Thank you very much.

Operator

Thank you. There are no further questions at this time. I would now like to hand the call back over to Trevor Burns for any closing comments.

Speaker 1

Thanks for everybody's time today. And if you have any questions, you can reach out to me and Sam. We'll be around and have a great day.

Operator

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

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