Q2 2022 Equifax Inc Earnings Call

Speaker 2: Hello and welcome to the Equifax Q2 2022 earnings conference call. At this time, we'll participate in the listening only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Trevor Burns, Senior Vice President, Head of Corporate Invest Relations. Please go ahead, sir.

Speaker 3: Thanks and good morning. Welcome to today's conference call. I'm Trevor Burns with me today, our Mark Beegor, Chief Executive Officer, and John Campbell, Chief Financial Officer. Today's call is being recorded, and our cover-to-recording will be available later today in the IR calendar section of the News and Events tab at our higher website, www.investor.iqopax.com.

Speaker 3: During the call, we will be making reference to certain materials that can also be found in the presentation section of the News and Events tab at our IR website. These materials are labeled Q2 2022 Earnings Conference Call. Also we will be making reference to certain forward-looking statements, including third quarter and full year 2022 guidance, to help you understand Equifax and its business environment. These statements involve a number of risks.

Speaker 3: uncertainties and other factors that could cause actual results that differ materially from our expectations. Certain risk factors that may impact our business are separate than filings with the SEC including our 2021 form 10K and subsequent filings.

Speaker 3: We will also be referring to certain non-GAAP financial measures, including adjusted EPS to triple the 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 IRR website.

Speaker 4: Now I'd like to turn it over to Mark, beginning on slide four. Thanks, Trevor. Good morning. EchoFact delivered another solid quarter with record second quarter revenue of 1.32 billion, which was up 7% and at the middle of our April guidance, including the negative impact of 190 basis points for 23 million of FX. Concentre currency revenue growth was almost 9% at 8.5%.

Speaker 4: The just the DPS of $2.09 was above the top end of our April guidance range with US mortgage market overall about at the level of our April guidance. With US mortgage credit inquiries down 33% versus last year.

Speaker 4: As expected, the mortgage market decline increased as we moved through the quarter.

Speaker 4: In the first half of July , mortgage credit inquiries were down about 40% versus last year. In the last half of July , mortgage credit inquiries were down about 40% versus last year. In the last half of July , mortgage credit inquiries were down about 40%

Speaker 4: Core revenue growth in the quarter of 19% and core organic revenue growth of 16% in the quarter were very strong, consistent with our expectations which allowed us to deliver the 8.5% constant currency growth against a 33% U.S. mortgage market decline.

Speaker 4: Importantly, non-mortgage, constant currency growth of 22% was very strong in the quarter and well above our eight to 12% long-term framework. And of course, this represents about 75% of Equifax revenue.

Speaker 4: Workforce Solutions Core Revenue Growth of 41% is outstanding in above our expectations. You are my way of welcoming KBW networks with 40%ternals for $10 a year. After becoming a network to the USA, outstanding and above our expectations.

Speaker 4: International delivered 11.5% constant currency growth, which was also above our expectations.

Speaker 4: And USIS B2B non-mortgage growth at 6% was up from first quarter but lower than we expected.

Speaker 4: B2B non-mortgage online was strong at 9%. However, our B2B offline business was much weaker than expected, declining 5% in the quarter. I'll cover this more fully shortly.

Speaker 4: Second quarter, adjusted EBITDA, told it 461 million up 7%, and adjusted EBITDA margins of 35% were about in line with their expectations for the quarter. And we'll be back with our expectations for the quarter. Thank you for your time.

Speaker 4: We continue to make strong progress during quarter on our EFX cloud data and technology transformation.

Speaker 4: Year date we've migrated approximately 14,500 customers to the cloud in the US and since the start of the transformation we now have migrated about 70% of our US customers.

Speaker 4: So far in 2022, we've also migrated approximately 13,000 international customers and decommissioned for US data centers.

Speaker 4: Leveraging our new EFX cloud infrastructure, we continue to invest in new product resources and accelerate new product innovations.

Speaker 4: So far in 2022, we've released over 50 new products continuing momentum from 2021 where we launched a record 151 new products.

Speaker 4: In the quarter, our vitality index, defined as revenue from new products introduced in the last three years was extremely strong and exceeded 13%.

Speaker 4: This is over a 400 basis point improvement from our 9% vitality last year and the highest level in over 10 years at Equifax.

Speaker 4: For 2022, we expect vitality of over 11%, which is 100 basis points above our 10% long-term vitality goal and 100 basis points above the framework when we started the year.

Speaker 4: This strong NPI performance will benefit our growth in the second half and in 2023 and beyond.

Speaker 4: We continue to invest our strong free cash flow and strategic bolt-on acquisitions with the acquisition of LawLogix that we announced earlier this morning, which will further strengthen our EWS Employer Solutions I-9 and Immigration Regulatory Service capabilities.

Speaker 4: This is our sixth acquisition in workforce solutions since January 2021, and aligned with our M&A strategy to strengthen workforce for the largest and fastest growing businesses.

Speaker 4: Bolton acquisitions that broaden and strengthen Equifax are a strong lever for future growth and are central to our long-term growth framework to add 100 to 200 basis points to our revenue growth annually from Strategic Bolton M&A.

Speaker 4: We are very pleased with our strong second quarter results, particularly our strong 22% non-mortgage constant currency growth.

Speaker 4: This is clearly an unprecedented economic environment with record inflation, strong Fed actions and the impact from higher interest rates on the mortgage market.

Speaker 4: Despite our strong first half performance, we felt it was prudent to adjust our 2022 guidance to reflect expectations for a further weakening of the US mortgage market in the second half beyond the framework we provided in April , as well as the significant negative impact of FX from the stronger dollar. From the stronger dollar. From the

Speaker 4: Importantly, our expectations for 2022 core revenue growth remains a very strong 17%.

Speaker 4: And our expectation for constant currency non-mortgage revenue growth remains of very strong 19 percent. Both unchange from our April guides.

Speaker 4: While our second quarter mortgage results were aligned with our April guidance, we felt there was enough uncertainty between future Fed actions.

Speaker 4: The impact on interest rates and mortgage activity to further adjust our second half mortgage outlook.

Speaker 4: Our updated expectations for mortgage are that credit inquiries will decline by over 46% in the second half, which is down about 600 basis points from our April framework, with mortgage originations declining 200 to 300 basis points beyond these levels.

Speaker 4: This compares to the Mortgage Bankers Association forecast for the second half of 2022 mortgage origination units of down 43.5% that was released last night.

Speaker 4: As you know, USIS mortgage revenue is tied more closely to credit inquiries, while Workforce Solutions revenue is tied more closely to mortgage originations.

Speaker 4: And for the second half of 2022, FX is a headwind of over 40 million, up from an impact of about 7 million in our April guidance from the stronger dollar.

Speaker 4: The change in the second half mortgage inquiries and FX impact results in our revised 2022 guidance for revenue at the midpoint of $5.1 billion, down $100 million from our April framework, but still up almost 4% versus last year, or 5% on a constant currency basis.

Speaker 4: This reduction in revenue is about two-thirds related to mortgage with the balance from FX.

Speaker 4: Our updated adjusted EPS guidance is to a midpoint of $7.68, down 47 cents from our April guidance, and up about 1% from 2021.

Speaker 4: As I said earlier, there's no change in our core organic revenue growth framework, which remains a very strong 15% for 2022 and 13% in the second half of 2022. And our non-mortgage growth framework, which remains up a strong 16% for the year and 12% in the second half as we comp off some strong double-digit results in the second half of 2021...

Speaker 4: in the second half of 2021.

Speaker 4: In the second half of 2022, non-mortgage is about 80% of Equifax revenue consistent with 2019 and up from 68% last year.

Speaker 4: Turning to slide five in the second quarter, Equifax core revenue growth, the green section of the bars, grew a very strong 19%, which was in line with our expectations and substantially above our long-term financial framework of 8 to 12.

Speaker 4: Core organic revenue growth of 16% in the quarter was also substantially above the long-term framework of 7% to 10%.

Speaker 4: for organic growth.

Speaker 4: Non-mortgage organic growth in EWS, International, and USIS drove about 12 points of core organic revenue growth in the quarter.

Speaker 4: Core mortgage outperformance of 13% predominantly in workforce solutions drove the remaining 4% of second quarter core organic revenue growth. Both were very strong performances.

Speaker 4: With our strong 19% core growth in the quarter and accelerating NPI rollouts, we continue to expect 2022

Speaker 4: Core revenue growth of 17%.

Speaker 4: This is driven by broad-based strong performance across work-force solutions, as well as strength in USIS non-mortargety B2B online, and International, which is supported by our accelerated new product introductions.

Speaker 4: As detailed on slide 6, US core mortgage revenue growth in the quarter was up a strong 13%, and is driven by Workforce Solutions core mortgage revenue growth of 20% and 2% in USIS.

Speaker 4: Second quarter mortgage revenue was down only 19%, despite the 33% decline in the overall US mortgage market is measured by our credit inquiries, and an MBA June estimated decline in mortgage originations about 37%.

Speaker 4: Workforce Solutions Core Mortgage Growth of 20% continues to be driven by very strong performance on twin record additions, new products in pricing, system to system integrations, and continued penetration.

Speaker 4: Their 20 points of market outperformance is very strong, particularly in a period of declining market transaction volumes.

Speaker 4: We expect to see continued very strong core mortgage growth from EWS approaching this level in the second half.

Speaker 4: As a reminder, we estimate the US mortgage market as the change in USIS credit inquiries.

Speaker 4: In a rising interest rate environment, we believe consumers tend to rate shop more frequently, thus creating a favorable variance between mortgage credit inquiries and originations.

Speaker 4: This trend benefits USIS credit file polls.

Speaker 4: In the second quarter, we saw mortgage credit increase perform on the order of four points better than the estimated change in the mortgage origination units estimated by MBA.

Speaker 4: However, twin income employment is typically pulled later in the mortgage application process and at closing.

Speaker 4: As a result, EWS does not benefit as much from the upfront rate-shopping trend that occurs in a rising interest rate environment as twin inquiries are more closely correlated to mortgage originations.

Speaker 4: Turning to slide seven in 2022, we expect non-mortgage revenues to be 77% of total Equifax revenues, which is up a very strong 900 basis points from the 68% of total Equifax revenues that we saw in 2021. Given the above market growth and fast growing workforce solutions verticals, such as talent, government, and card, further penetration, identity, and fraud accelerated by our 2021 acquisition of COUNN, and accelerated NPI's with a vitality index expected to be 11% in 2021.

Speaker 4: in the last six quarters. And their 10th quarter of double-digit revenue growth driven by outstanding non-mortgage growth of over 50%. Community

Speaker 4: As a reminder, non-mortgage revenue is over 65% of workforce solutions.

Speaker 4: and a big EWS growth driver for the future.

Speaker 4: Rudy Plotter and the Workforce Solutions team continue outstanding execution across their key growth drivers detailed on the right hand side of the slide.

Speaker 4: As I referenced earlier, we signed a definitive agreement to acquire law logics last night, the next in a string of bolt-on acquisitions that strengthen workforce solutions employer services vertical and adds twin records.

Speaker 4: Over the past two years, we've completed six bolt-on acquisitions supporting workforce solutions growth, including APRA since rights last fall and law logics this morning.

Speaker 4: Turning to slide nine, Workforce Solutions' very strong performance is driven by the team's consistent execution across their key growth levers that will drive their long-term growth of 13 to 15 percent.

Speaker 4: including first growing the work number database.

Speaker 4: Since late last year, we've signed four new exclusive agreements with large payroll processors that we started to board in the second quarter and expect to have all of them contributing records by the end of the third quarter.

Speaker 4: We ended the quarter with 144 million total current records, which is up a very strong 22% from last year and up 6% sequentially.

Speaker 4: These 144 million total records represent 110 million unique individuals, representing two-thirds of the over 160 million W-2 employees included in US non-farm payroll.

Speaker 4: In addition to traditional W2 wage earners, we estimate there are approximately 30 to 40 million gig workers and 20 to 30 million pensioners in the US who will also bring valuable insights to lenders, backgrounds, screeners, and government agencies.

Speaker 4: We're in the very early innings of collecting records on these 50 to 70 million non-W2 wage earners, but expect to make significant progress as we move through 22 and 2023. As we move through 22 and 2023.

Speaker 4: We have the ability to double our twin database with the total potential market for income and employment information on about 220 million individuals versus the 110 million we have today. This is the 110 million we have today.

Speaker 4: As a reminder, over 50% of our records are contributed directly by individual employers. The remaining are contributed through partnerships principally with payroll companies.

Speaker 4: The vast majority of our partnerships with payroll companies are exclusive, including all the relationships we've signed in the past four plus years.

Speaker 4: Second, workforce is increasing penetration in their key non-mortgage verticals of mortgage talent, government consumer finance.

Speaker 4: with all four verticals having significant opportunity for continued expansion by new products leveraging our expanding twin active and historical data assets.

Speaker 4: Our talent and government businesses have seen average organic growth of over 50% since last year and over 20% cagars since 2017.

Speaker 4: Our strength in talent in government is driven by the depth and coverage of our twin database with over 570 million total records, both current and historic, that provide both current and previous employment information on individuals, allowing us to increasingly provide an instant digital resume or employment verification on both current and historical job histories.

Speaker 4: The expanding depth of our twin database and expansion of the Workforce Solutions Talent Data Hub, as well as the increasing ease of integrations as Workforce leverages the API capabilities through our new Google Cloud, is also providing the ability to continue to increase penetration in key verticals.

Speaker 4: Fourth, workforce is expanding their system system integrations. Currently more than 75% of our mortgage transactions are system to system integrations.

Speaker 4: as Web Access, which is up over 2X versus Web Access, which is up over 2X from 2019.

Speaker 4: As you know, we get about a 20% lift in mortgage polls when we convert our customers from web to system integrations. The system is system integrations. The system is system integrations.

Speaker 4: In talent solutions, system-to-system now represents more than 85% transactions. While in government, we have more opportunity with about 65% of transactions on a system-system basis. 5% conditions each position so that the acceptance rate Deuts in stands!

Speaker 4: As a reminder, close to 100% of credit files are delivered system-system for originations. Stay safe, please.

Speaker 4: From our perspective, it's only a matter of time for Twin to approach these levels of system system integrations with customers, which of course will drive our revenue.

Speaker 4: As workforce continues to deliver greater value to customers through deepening the database and extending real-time system to system integrations and accelerating its launch of higher value vertical specific new products, average revenue per transaction will continue to grow significantly, both through higher value and price new products and annual price increases.

Speaker 4: As I said earlier, Rudy and the EWS team have a long runway for growth, leveraging multiple levers in 2022 and beyond.

Speaker 4: We have a lot of confidence in workforce's ability to deliver on their 13 to 15 percent long-term framework.

Speaker 4: As a reminder, over the past three years, they've delivered 34% CAGR, which of course is well above their 13-15% long-term growth framework.

Speaker 4: Turning to slide 10, Workforce Solutions had another exceptional quarter, delivering $609 million of revenue, their second revenue quarter above $600 million.

Speaker 4: Revenue growth was up a very strong 21%, with organic revenue growth of 11%, despite the significant decline in the US mortgage market.

Speaker 4: Non-mortgage revenue is now over 65% of workforce solutions with organic growth of 30%.

Speaker 4: Verification's services revenue of 505 million up 28% was over 500 million for the second quarter in a row, again despite the decline in the mortgage market.

Speaker 4: Non-mortgage verticals now represent almost 60% of verifier revenue and delivered 90% and 53% total and 53% organic growth.

Speaker 4: Aprasin sites which we acquired late last year delivered strong 15% growth in the quarter.

Speaker 4: Growth was strong in their key verticals of risk and justice intelligence. From 38 people, Newport We have currently questions.

Speaker 4: Risk intelligence helps background screeners analyze people's risks via background checks and continuous monitoring. And justice intelligence helps channel partners assist law enforcement agencies in their investigations.

Speaker 4: Increased customer penetration, white space expansion, and strong hiring volumes are driving growth.

Speaker 4: And their NPI pipeline also remains strong. We're very positive about the future growth and potential of our insights business. And the potential of our insights business.

Speaker 4: Talent and Government Solutions, which now represents 40% of workforce solutions and almost 80% of Verifier non-mortgage respectively, both had outstanding quarters. Talent Solutions delivered 134% total and 73% organic growth in the quarter on record growth and strong new product revenue.

Speaker 4: We also saw strong growth in the government vertical with revenue up 100% total and 50% organic, with significant new wins at the state level and continued growth of our large SSA contract.

Speaker 4: The continued expansion of Workforce Solutions Data Hub and the fast-growing 5 billion talent and 2 billion government TAMs is driving strong double-digit organic revenue growth in both verticals leveraging Workforce Solutions over 570 million current and historical records for new products.

Speaker 4: The integration of unique app or insights national student clearinghouse and other talent related data assets strengthens our ability to deliver to these new solutions, leveraging the EWS data hub and drive outsize growth in the future.

Speaker 4: The non-mortgage consumer lending business, principally in banking and auto, also shows strong growth, up 18% in the quarter, and debt management grew over 70% in the quarter.

Speaker 4: Employer services revenue of $105 million was down 3% due to the expected decline in our unemployment claims in employer retention credit businesses.

Speaker 4: We expect total U.C. and ERC revenue to be down over 25% during 2022, driven by lower jobless claims and lower ERC transactions.

Speaker 4: as well as the COVID federal tax credit program as the COVID federal tax program runs out.

Speaker 4: Employer services revenue, excluding UC and ERC, was up a strong 42 percent in the quarter, driven by strong base double-digit growth in our I-9 and onboarding, healthy FX in our tax credit businesses.

Speaker 4: Workforce solutions at the Justin EBITDA margin remain strong at 53.4%. In the quarter, we increase spending relative to our April expectations on both technology and marketing principally for new products.

Speaker 4: The strength of workforce solutions and uniqueness and value of their twin income and employment data in employer services businesses was clear again in the second quarter. Rudy and the EWS team delivered another outstanding quarter with 21% revenue growth and 41% core growth, well above their 13 to 15% long-term framework. And we're well positioned to deliver a very strong 22 and continue above market growth in the future.

Speaker 4: Turning out a slide 11, USIS revenue of 421 million was down 7.5% compared to last year in slightly below our expectations.

Speaker 4: The decline was driven by the reduction in USIS mortgage revenue, which at 113 million is about 25% of total USIS revenue, when it was down 29% in the quarter, about 4% of the point better than the overall mortgage market credit increase that declined 33%.

Speaker 4: Importantly, USIS delivered their six consecutive quarter growth in B2B non-mortgage revenue of $259 million, which represents over 60% of total USIS revenue. It was up 6% with that organic revenue growth of 4%. It was up 6% with that organic revenue growth of 4%.

Speaker 4: This was at the low end of the 6 to 7% growth we discussed in April due to lower than expected FMS for financial marketing services revenue.

Speaker 4: Importantly, B2B non-mortgage online revenue growth was strong at 9% with 7% organic growth.

Speaker 4: During the quarter, we saw double digit growth and insurance, financial services, commercial, as well as count, our identity and fraud business.

Speaker 4: We also saw growth in direct to consumer with auto about flat in the quarter on favorable pricing offset by lower volumes given the continued auto supply chain issues.

Speaker 4: Count, which provides unique identity and fraud solution, continues to perform very well.

Speaker 4: Our core new product growth continues to be strong and the team continues to execute on the development of joint solutions leveraging both Count and Equifax data, including combining Count's market-leading Omniscore AI capabilities and digital identity data with Equifax's physical identity into a single score to enhance fraud protection.

Speaker 4: Financial marketing services our B2B offline business had revenue of 55 million down 5% year over year. And although better than the first quarter was lower than our expectations. It was lower than our expectations.

Speaker 4: FMS is principally comprised of three lines of business, including first, fraud and data services, in which we provide header data principally to providers of identity and fraud services, which is the line of businesses driving the weakness in our B2B offline.

Speaker 4: Fraud and data services historically represents over 20% of our offline revenue, but it's declined substantially in the first half.

Speaker 4: We saw this decline in the first quarter as customers either decreased frequency of refresh data or shifted to use of their own internal data. This decline continued in the second quarter. The revenue was about 10% of B2B offline in the first half.

Speaker 4: We expect revenue with this level to continue through 2022 as the team focuses on bringing new solutions to market later this year.

Speaker 4: Marketing Services, which represents over half of the offline revenue in the first half, performed very well, growing up but got consistent with our non-mortgage B2B online organic growth. 8.

Speaker 4: This is the business in which we provide data in decision principally to financial institutions for pre-screens as well as providing our IXI data for marketing activities.

Speaker 4: And third, risk management or portfolio review represents about a third of B2B offline revenue. This is the line of business in which we provide data and analytics services to financial institutions to evaluate the health of their existing portfolios or in some cases portfolios they are acquiring.

Speaker 4: This business is often somewhat counter cyclical as customers perform more risk analytics during weak economic periods.

Speaker 4: This business was down slightly in the first half and slightly weaker than expected. We expect this business to be down slightly for the remainder of the year.

Speaker 4: Overall, for our financial marketing services and B2B offline for the remainder of 2022, we expect to see declines in line with the second quarter as the weakness in the fraud in data services is partially offset by continued good growth in marketing services.

Speaker 4: As we look to 2023, the completion of the Equifax new cloud data fabric will enable enhanced product offerings in B2B offline, combining US credit file, data X, teletrack, count, ID and fraud and NCTUE data. We believe this will drive growth across all three of our B2B offline of businesses we get to 2023.

Speaker 4: For B2B non-mortgage in total, we expect to see continued strong online growth consistent with the first half. However, declines in financial marketing services are expected to result in second half total B2B non-mortgage growth at or slightly below the bottom end of our long-term framework of 68% revenue growth.

Speaker 4: USIS Consumer Solutions Business, the USD to see business from GCS that we combined with the USIS and the fourth quarter last year had revenue of $43.49 million.

Speaker 4: up 3% in the quarter and about flat versus last year.

Speaker 4: We expect second half growth rates to improve the team leverages the cloud to roll out NPI's.

Speaker 4: The USIS sales team had a strong quarter with a number of key wins resulting in a healthy win rate, and their new deal pipeline remains very strong with the overall pipe slightly higher than the first quarter.

Speaker 4: And USIS adjusted EBITDA margins were 38.2% in the quarter, 110 basis points lower than the first quarter, but better than our expectations. ESA program commended.

Speaker 4: The decline relative to the first quarter is principally driven by lower revenue from the decline in mortgage.

Speaker 4: Turning out to international as shown on slide 12, the revenue was 286 million up a strong 11.5% of the local currency basis. Turning out to international as shown on slide 12, the local currency basis.

Speaker 4: We're seeing broad-based execution for our international businesses.

Speaker 4: Your local currency revenue was up 16%, principally driven by strength in our UK debt management business. Your local currency revenue was up 16%, and your local currency revenue was up 16%, or vested its Twitch social media business.

Speaker 4: We've seen significant increases in debt placements from the UK government over the past several quarters that we expect to continue.

Speaker 4: Our European CRA businesses was about flat in the quarter and below our expectations driven by declines and consumer, direct and commercial, principally offset by strong growth and identity and fraud.? Education Education Education Education Education Education Education Education Education Education Education Education Education Education Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region Region you

Speaker 4: As a patient with specific local currency revenue was 6% driven by strong growth in our Australia consumer business, HR services and identity and fraud. smart i

Speaker 4: Latin America and local currency revenue was up 28% driven by strong double digit growth in Chile, Argentina, Uruguay, Mexico, and Central America.

Speaker 4: The team's strong new product introductions over the past three years of pricing actions continue to drive strong growth across the region.

Speaker 4: This is the 6th consecutive quarter of growth for Latin America.

Speaker 4: Canada local currency revenue was up 2% in below our expectations.

Speaker 4: We saw growth in commercial and analytic solutions, which were partially offset by consumer services, mortgage-related products, and online businesses due to interest rate increases.

Speaker 4: International Adjusted EBITDA margins at 24.7%. We're down 200 basis points from last year. Do primarily to the elimination of equity income or our Russia joint venture.

Speaker 4: As shown on slide 13, we had another very strong new product order with our ITALITY index over 13%, which is up 400 basis points above our full year 2021 by Kality Gold.

Speaker 4: In 300 basis points above our 10% long-term framework goal in our highest vitality performance ever.

Speaker 4: Building on the record 151 new products last year, we've delivered over 50 new products leveraging the new EFX cloud so far in 2022 with broad-based execution across all of our business units.

Speaker 4: We've detailed some of the more significant new products on this slide.

Speaker 4: Leveraging our new EFX cloud capabilities to drive new product rollouts, we expect to deliver a vitality index of over 11 percent this year, which equates to over 550 million of new product revenue in 2022.

Speaker 4: We believe our strong NPI revenue generation is an important early indicator of the benefits of the new Equifax Cloud. New products leveraging our differentiated data and new EFX Cloud capabilities are central to our long-term growth framework in driving future Equifax top-line growth.

Speaker 4: At detailed on slide 14, reinvesting our strong cash flow in a creative and strategic bolt-on M&A is central to our EFX 2023 growth strategy and long-term framework.

Speaker 4: We expect to add one to two percent of revenue growth annually from strategic bolt on M&A, including law logics that we announced this morning.

Speaker 4: We've completed 11 acquisitions since January 2021, aligned with our strategy to add bolt-on M&A around three strategic priorities. Number one, expanding and strengthening workforce solutions are fastest growing and most profitable business. Number two, adding unique data assets and number three, building out and expanding our ID and fraud business. Number two, adding unique data assets and number three, building out and expanding and expanding.

Speaker 4: Slide 15 provides detail on our latest acquisition of LawLogix, which further strengthens our workforce solutions, employer solutions capabilities, and provides I-9 management and immigration case management solutions.

Speaker 4: focused on removing friction during the employee onboarding experience.

Speaker 4: LawLogic's suite of products supplements employer services capabilities by building upon investments made to help clients enable automation, deepen employee insights, and increase efficiency.

Speaker 4: Our i9 Anywhere product has seen very strong 45% growth over the past few years.

Speaker 4: A law-logic acquisition is aligned with our M&A priority of expanding and strengthening our strongest and that the fastest growing business workforce solutions. We look at the fastest growing business workforce solutions.

Speaker 4: With that, I'll turn it over to John to provide some more details on the mortgage market in our third quarter in full year 2022 guidance.

Speaker 4: Thanks, Mark. As Mark mentioned and as shown on slide 16, our guidance now reflects an expectation that the U.S. mortgage market credit inquiries will decline over 46 percent in the second half of 2022, a continued decline from the down 40 percent level we're seeing in early July . Our assumptions reflect mortgage originations two to three hundred basis points weaker than those levels with the work number inquiries more closely linked to mortgage originations.

Speaker 4: The reduction in US mortgage credit increase of over 46% in the second half is off the second half 2021 reduction over 20%. This level of US mortgage credit increase in the second half is over 30% lower than the second half average levels we saw over the 2015 to 2019 period.

Speaker 4: 1Q mortgage revenue was 29.5% of total Equifax revenues and 2Q mortgage revenue was 24.7% of total Equifax revenues. In 3Q we expect mortgage revenue to be $2.5 million.

Speaker 4: to make up just over 21% of total eco-facts revenues and about 23.5% in the full year of 2022.

Speaker 4: As we have shared in prior quarters, slide 17 provides a view of both the number of home mortgages that would have a rate.

Speaker 4: Benefit from refinancing on the left and a view of the levels of home purchases on the right.

Speaker 4: The left side of the slide provides a perspective on the number of home mortgages for which your refinancing would provide a rate benefit, the in the money population of mortgages.

Speaker 4: The end-of-money population as of mid-July is about 1.9 million homes and below the 3.3 million we saw in April . At the current level, mortgage refi activity is heavily driven by cash out refi's that are often executed with no rate benefit or a rate increase. For perspective, most recent available black-night data for May 2022, about 95% of refinancing were cash out.

Speaker 4: As shown on the right side of slide 17, the pace of existing home purchases continues at high levels, but we're down about 7% in May and 14% in June from the levels we saw in 2021. From the levels we saw in 2021. From the levels we saw in 2021.

Speaker 4: We believe our assumptions for US Mortgage Market credit increase over the last six months of 2022 reflect the trends just discussed. The 46.5% year to year decline in mortgage credit increase reflects a continued sequential weakening of the mortgage market with third quarter increase down over 25%

Speaker 4: From the second quarter and fourth quarter down a further over 15% from these much reduced quarter levels. From the third quarter levels.

Speaker 4: The rapidly changing and unprecedented macro environment makes forecasting the impacts on the US mortgage market incredibly challenging. We will continue to be transparent with you about changes in the mortgage market and the impacts on our business.

Speaker 4: Slide 18 provides a walk detailing the drivers of the 5.2 percent constant currency and 3.6 percent total revenue growth to the midpoint of our 2022 revenue guidance of $5.1 billion.

Speaker 4: The revenue decline from the midpoint of our April guidance of $5.2 billion is driven by about two-thirds by the decline in the mortgage revenue reflecting the expectation of a weaker U.S. mortgage market with a remainder due to a greater negative impact from FX.

Speaker 4: The over 37% decline in the US mortgage market is negatively impacting 2022 growth by about 12%, about 150 basis points more negative than the levels we discussed in April . When combined with the expected declines in the workforce solutions, unemployment claims and the RC businesses that we discussed with you in April , total headwinds into 2022 revenue growth are about 13 percentage points.

Speaker 4: As Mark discussed earlier, core revenue growth is expected to be 17% and core organic revenue growth to be above almost 15%, consistent with our April guidance.

Speaker 4: Both well above our long-term growth framework and reflecting outstanding growth and execution on new products.

Speaker 4: Non-mortgage organic revenue growth is driving 11% of the core organic revenue growth. The largest contributor continues to be work for solutions with strong organic growth and talent solutions, government, and employee boarding solutions, including I-9. International and USIS non-mortgage are also expected to drive core growth.

Speaker 4: Slide 19 provides an adjusted EPS walk detailing the drivers of the expected 0.4% growth to the midpoint of our 2022 adjusted EPS guidance of $7.68 per share. The growth in revenue and expansion in EBITDA margins by about 25 basis points strives growth in EPS of about 8%.

Speaker 4: Higher depreciation and interest expense and the negative impact of weaker FX are principally offsetting this growth and adjusted EPS.

Speaker 4: The reduction of 47 cents or about $75 million in pre-tax income from the midpoint of the guidance we provided in April is at a high level driven by the following.

Speaker 4: A higher interest expense of about $13 million and weakening FX impacting income by over $8 million negatively impacted pre-tax income by over $21 million.

Speaker 4: The remaining about $54 million in lower pre-tax income is driven by the reduction in mortgage revenue with high variable margins.

Speaker 4: Some other factors impacting overall 2022 EBITDA margins in our July guidance relative to April guidance include an increased spending on product technology and related marketing to continue to drive NPI. International stronger than expected revenue growth includes strong growth in debt management, which has somewhat lower margins and therefore puts margin pressure on international and lower overall variable compensation benefits margins.

Speaker 4: As I just referenced, we are continuing our investments in new product development and related marketing and sales. And our data and technology cloud transformation, as these are the levers driving are over 10% new product vitality index and improved cost structure in 2023 and beyond.

Speaker 4: We will continue to tightly manage spend outside these critical growth areas.

Speaker 4: Slide 20 provides the specifics on our 2022 Full-Year Guidance, which I also just discussed. At a BU level, our updated view of US Mortgage Impacted both EWS and USIS.

Speaker 4: EWS has expected to deliver revenue growth of around 15% as strong non-mortgage growth expected to be over 40% as partially offset by the impact of the weaker mortgage market. EWS EBITDA margins are expected to approach 53%, slightly lower than 2021. USIS revenue is expected to be down 8.5% reflecting the greater than 37% assumed decline in the US mortgage market. EWS EBITDA margins are expected to be down 8.5%

Speaker 4: B2B non-mortgage revenue is expected to be slightly below or at the low end of our long-term framework for USIS of 6 to 8%, reflecting the decline in B2B offline discussed earlier. USIS EBITDA margins are expected to be about 37%, reflecting the impact of the weaker mortgage market.

Speaker 4: International continues to deliver a strong year and is expected to deliver constant currency revenue growth of about 10%. International EBITDA margins are expected to be about 27%. International EBITDA margins are negatively impacted by product mix as our debt management business, which is growing strongly in 2022 with some at lower margins than our credit business. International EBITDA margins are expected to be about 27%. International EBITDA margins are negatively impacted by product mix as our debt management business. International EBITDA margins are expected to be about 27%. International EBITDA margins are expected to be about 27%. International EBITDA margins are expected to be about 27%. International EBITDA margins are expected to be about 27%.

Speaker 4: For the full year of 2022, we expect capitals expenditures to be in excess of $500 million.

Speaker 4: Slide 21 provides our guidance for 3 Q2 022. We expect revenue in the range of $1.21 to $1.23 billion, reflecting revenue of about flat year to year at the midpoint of our guidance, or up just under 2% on a constant currency basis.

Speaker 4: Similar to full year 2022, in the third quarter we are overcoming significant revenue growth headwinds of about 17% from both the decline in the US mortgage market, which is impacting revenue growth by 15%, and the normalization of the unemployment claims in ERC businesses.

Speaker 4: Core organic revenue growth on a constant currency basis of 15% and about 4% revenue benefit from acquisitions are allowing us to overcome these headwinds and deliver constant currency growth on a quarter. And deliver constant currency growth on a quarter.

Speaker 4: 3 Q2 022 EBITDA margins are expected to be flat to slightly down year to year. The flat EBITDA margins reflect the flat year to year revenue as well as execution of the plan cost reductions related to transformation, the benefit of which is being principally offset by year to year cost increases and the delutive effect on near term margins of the 21 and 2022 acquisitions.

Speaker 4: This impact on margins will be eliminated with time as the acquisition synergies drive these margins higher.

Speaker 4: We're expecting adjusted EPS in 3 Q2 022 of $1.62 $1.70 per share compared to 3 Q2 1 adjusted EPS with already 5 per share.

Speaker 4: The decline in adjusted EPS in 3 Q2 022 year to year is driven by an over 15% per share negative impact on adjusted EPS of items below operating income. Specifically, interest expense, lost other income principally from our Russia JV, and a lower tax rate in 3Q21 related to specific discrete items.

Speaker 4: adjusting for these items and the negative impact of FX as well as the increased appreciation we are incurring related to tech transformation.

Speaker 4: Adjusted EPS at the midpoint of our guidance would be about flat to 3Q21 and consistent with flat revenue. We believe both our third quarter and full year 2022 guidance are centered at the midpoint of the revenue and adjusted EPS ranges we provided. Now I'd like to turn it back over to Mark.

Speaker 4: of our guidance would be about flat to 3Q21 and consistent with flat revenue. We believe both our third quarter and full year 2022 guidance are centered at the midpoint of the revenue and adjusted EPS ranges we provided. Now I'd like to turn it back over to Mark. Thanks, John .

Speaker 4: Produced July 2022, the new Equifax is a much different business today than we were in the last recession.

Speaker 4: We're more resilient and better positioned for stronger revenue and earnings growth. We're more resilient and better positioned for stronger earnings growth.

Speaker 4: During the 2008 to 2009 global financial crisis, Equifax performed very well and exhibited the resiliency you would expect from a data analytics business.

Speaker 4: In 2009, we saw only a 6% decline in total revenue. Importantly, workforce solutions revenue grew throughout the period and showed substantial growth of 17% in 2009 from twin record additions and their other growth levers, which drove higher verification rates and strong unemployment revenue growth from the growing unemployment levels in 2019.

Speaker 4: We believe that Equifax Business Mix is much better positioned for a potential economic event in the future than we were in 2009.

Speaker 4: Strong Workforce Solutions growth has increased their relative size in Equifax from 16% of revenue in 2009 to almost 50% today, with margins above 50%, about 20 percentage points higher than the Equifax average.

Speaker 4: EWS has benefited from strong growth levers that are not directly tied to economic activity, including record growth, penetration into new, fast growing verticals like talent and government, system to system integrations, deploying new and higher value products, as well as the measured price actions, taking advantage of the scale of the twin database.

Speaker 4: Second, completion of the FFX cloud will deliver cost savings in 2023 and beyond, you expect will drive about half of our targeted 500 basis point margin expansion from 2022 to 2025. The cloud migration cost savings are independent of any economic event and driven by our execution. And third, we are leveraging the cloud to accelerate new product development with a goal of 11% vitality index in 2022, which is over $500 million of annual incremental revenue, new product revenue for Equifax.

Speaker 4: As a reminder, new products rolled out in 21 and 22 will drive top run and growth in 2023 and beyond as they mature in the marketplace.

Speaker 4: To estimate the impact of our session that we have on Equifax, we've assigned our lines of businesses into three categories.

Speaker 4: To estimate the impact of our session that would have an Equifax, we've assigned our lines of businesses into three categories. First, Recession Growth or Recession Resistant.

Speaker 4: These businesses have drivers that are not directly aligned with economic activity and recession, and we expect them to grow during a recession. The best examples of this are workforce solutions.

Speaker 4: US mortgage identity and fraud and our government lines of businesses that we expect will continue to grow during an economic event from the uniqueness of the data, including twin or from low interest rate environments that impact our mortgage business.

Speaker 4: Second is our counter-cyclical businesses that typically perform better during recession, and the best examples is our unemployment claims management business where it expects significant growth and workforce solutions from growing unemployment in the US.

Speaker 4: or some of our account management solutions.

Speaker 4: And third recession impacted. These are businesses that are directly impacted by economic activity and contract intercession. They include auto cards, P-Ons, where both consumer activity declines or render activity is contracted for risk containment reasons. We expect these business lines to be flat to negative revenue growth and recession.

Speaker 4: Today we believe almost 60% of our global businesses recession resilient or counter-cyclical. This is a big change in a strong position compared to Equifax in the 2008 global financial crisis where only about 40% of our businesses were either recession resistant or counter-cyclical. The meaningful revenue growth in workforce solutions, US mortgage identity and frauds in 2009, as well as the cloud transformation cost savings, position Equifax very well, if there is an economic event or recession in 2023 or beyond.

Speaker 4: As highlighted slide 23, we remain laser focused on our executing our EFX 2023 gross strategy to leverage the new EFX cloud for innovation and new products. Thanks for joining us now, so, interesting lead, with this little important link to exploring our units of leverage the newsletter for innovation and new products. cyc????? 200 200 200 200 200 200 200 200 re 500 200 200 200 200 200 200 200 200 2 200 puede compare white or white ???????ably thinner new effects clout for innovation and new products. tr 500 200 and new products.

Speaker 4: EFX 2023 is the foundation of our new 8-12% long-term growth framework.

Speaker 4: We continue to make significant progress executing the EFX cloud data and technology transformation. We're now approaching 60% of total revenue being delivered from the new EFX cloud.

Speaker 4: And we've completed over 139,000 B2B migrations and over 10 million consumer migrations.

Speaker 4: Our international transformation is also progressing and we continue to expect to principally complete the transition by geographic region as we move through 2023 and into 2024.

Speaker 4: We're in the early days of leveraging our new FAFIX cloud capabilities and are confident that it will differentiate us commercially expanding our NPI capabilities, accelerating our top-line growth, and expand our margins from the growth and cost savings in 2022 and beyond. We remain confident our plan to become the only cloud-native data analytics company.

Speaker 4: Wrapping up on slide 24, Equifax delivered another strong and broad-based quarter with 7% overall growth, 19% core growth, and 13% vitality index.

Speaker 4: More than offsetting a 33% decline in the mortgage market.

Speaker 4: Against the declining mortgage market, Equifax is resilient, unoffence and investing for future growth.

Speaker 4: Our updated 2022 revenue and adjusted EPS guidance reflects the impact of the expected accelerated decline in the U.S. mortgage market to a decline of over 46 percent in the second half of 2020-22, resulting in a mortgage market decline of over 30 percent for the year, 37 percent for the year. Against this unprecedented mortgage market decline, Equifax will deliver constant currency revenue over 5 percent and deliver growth and adjusted EPS.

Speaker 4: More importantly, our core revenue growth of 17% and non-mortgage growth of 16% are both well above our 8-12% long-term framework and reflect the strength of the underlying Equifax business model today and in the future.

Speaker 4: EWS continues to deliver above market growth and is our largest, fastest growing, and highest margin business.

Speaker 4: Workforce Solutions above market 34% revenue CAGR over the last three years is powering Equifax growth as they approach 50% of our revenue.

Speaker 4: New products leveraging the new Equifax cloud are also driving growth. Our 11% vitality from NPIs in 2022 will drive growth in 2023 and beyond.

Speaker 4: And we're in the early days of leveraging the new Equifax Cloud to drive innovation new products.

Speaker 4: Our 11 bolt-on acquisitions in January 2021 have expanded our capabilities and are delivering strong top line growth and will deliver synergies in 2023 and beyond.

Speaker 4: And then last, we're in the final chapters of completing our four-year, 1.5 billion transformation to the cloud that will deliver top-line growth and cost benefits in 2023 and beyond.

Speaker 4: Even in these uncertain economic environment, Equifax continues to be in office and reinvesting in the new Equifax Cloud, new products, data analytics, and both on M&A to drive future growth.

Speaker 4: We continue to be confident in our long-term framework of 8 to 12 percent revenue growth. Our goal is $7 billion of revenue by 2025.

Speaker 4: Our ability to expand our margins 500 basis points between 2022 and 2025 and 50 basis points per year of margin expansion longer term.

Speaker 4: We remain energized about our performance in 2022 in a challenging mortgage market macro, and even more energized about the future of the new Equifax, a faster growing, higher margin, cloud-native data analytics company. And with that operator, let me open it up for questions. And with that operator, let me open it up for questions.

Speaker 2: Thank you and now be conducting your question and answer session. If you'd like to be placed into question Q, please press star one on your telephone keypad.

Speaker 2: We ask you please ask one question and one follow up then return to the queue. Once again that's star one to be placed in the question queue. One moment please what we pull for questions. Our first question today is coming from an output and I have from Barclays Online is now live. Thank you good morning. I just wanted to touch on the strength of non mortgage work for soon.

Speaker 5: solutions businesses and kind of the sustainability of that business? And maybe if you could just comment specifically on the talent solution side, just given all the announcements you're starting to see on hiring freezes or layoffs etc. Do you anticipate any slowdown there?

Speaker 4: Yeah, so it's a great question, Manav. As you know, we're investing heavily in the non- one of our priorities is to invest heavily in workforce broadly because it's our fastest growing business. And as you point out, the non-mortgage businesses in workforce are really outperforming the underlying market and delivering substantial growth. And I'll touch on talent first, as you pointed out, a big TAM of $5 billion. And our play there is to help digitize the background screeners using our data.

Speaker 4: is we continue to expand our historical data, we can deliver real solutions there. And we haven't seen any impact, you know, from the hiring market. As you know, unemployment is still very low, there's still, you know, more jobs open and there are people looking for them. And even if that, you know, starts to slow down in the future, there's just so much penetration opportunity for us to really work to help digitize, you know, the background screening environment, and we'll help with our core work history.

Speaker 4: You know, we have 570 million total records, so we have a digital resume on the average American worker that totals five jobs for each individual. So there's just a lot of data and growth opportunity there. And then we're also, as you know, adding data assets to go beyond just that work history and talent. You know, whether it's education, medical credentialing data that we acquired with appress insights, of course, the incarceration data that's used in virtually every background screen.

Speaker 4: and we have a stated strategy to look for more either partnerships or uh... mna you know really strengthen the talent up so you know i don't expect them to grow at the rate they have been you know over the last couple of years which is very very strong but you know certainly there'll be a big growth driver uh... you know going forward you know with double digit growth uh... in the future government as you know is another big uh... non-mortgage vertical for work for solutions that's around uh... social services the two billion dollar uh... two trillion dollar

Speaker 4: Government TAM is a big one. We have a lot of penetration opportunities there. Social services are only expanding, and it's really the same thing. We're able to deliver an instant decision to that government agency, either the federal, state, or local level. And we've just seen a lot of traction. They have the same labor issues, meaning they're looking for productivity in their centers where people come in to apply for social services. And we can deliver productivity with the instant decisioning. And of course, we've had other people that are just working on social issues in the structured environment. And we want to make sure that no Brittian just doesn'tOSS the block more physical way to do thing.

Speaker 4: It also delivers that social service to that individual very quickly. And same thing, the ability now to not only have that income and employment information that's used in really every social services needs or income based, but also adding to it the incarceration data that we have that's used in virtually all social service processes. Beyond talent and government, just touching quickly on kind of non-mortgage financial services, those are.

Speaker 4: you know newer verticals for workforce, you know, with the data, whether it's in the card space where we're starting to get penetration to have the income and employment data supplement the credit data in a card origination. Of course auto, we've seen nice growth in subprime and moving into near prime and of course it's used in p-lones and then just jumping outside of verifications and you employ your services, it was you know we've been making acquisitions, we've done five acquisitions.

Speaker 4: a more challenging economic environment. We expect more outsourcing by HR managers of those activities that we can perform more efficiently. So we see growth opportunities for that business, which is why we're investing in technology and the built on M&A like law logics. And of course, as you know, as we expand our capabilities and reach there with individual companies, we get more records. And of course, underlying the growth of workforce and of course, non-mortage is record growth, which was up a strong 22% in the quarter.

Speaker 4: You know, we still have a long runway to, you know, essentially double the size of our database when you include gig and pension income recipients. So there's a lot of opportunity there. So lots of levers for non-morgage in workforce solutions.

Speaker 5: Thank you. That's helpful. And then maybe just to follow up, in terms of the M&A pipeline, a lot of these tuck-ins, I guess it makes sense. But just give in, maybe just some comments around what valuations in the private market look like, and your appetite and capacity for maybe larger deals than these tuck-ins.

Speaker 4: Yeah, I think as you know, we've tried to be very disciplined about our approach to M&A. We're very, I use the term bolt on. You can describe how big bolt on is. Obviously, Aparis was a larger acquisition. Count was a larger acquisition last year, but we see a lot of opportunity to deliver very high return bolt on M&A that are highly accreted to our cost capital. So it's a, you start with our kind of capital allocation. We see big opportunities to invest in a core back of facts and we're doing that.

Speaker 4: are very disciplined financially and looking for businesses that are growing faster than Equifax on the top line, that are accretive to our margins, and obviously deliver high returns. So those are the kind of emanate that we're doing. We've got a pipeline going forward of deals that we continue to look at that will really add value in the three areas that I talked about during my prepared comments of strengthening workforce, adding differentiated data, and strengthening identity and fraud. And as you know, as we go into 23, 24, 25.

Speaker 4: to shareholders and we've been very clear that when that time comes, you know, that'll be a part of our capital allocation strategy as our free cash flow accelerates as we get into 23, 24, 25.

Speaker 2: Thank you. Our next question is coming from Andrew Steinerman from GAP More in your line. Is now live. Hi John , it's Andrew. I wanted to check if that 24.7% mortgage revenue figure gave on the call was for total revenues in the second quarter. And then also my second question is again, on a total company basis, what was Epifaxis second quarter, organic, constant currency, non mortgage revenue growth year-of-year?

Speaker 6: So 24.7% was on total aquifact revenue.

Speaker 6: And then I don't believe we gave an organic revenue growth for the entire company non-mortage. So. Right, but you gave all the segments. Can't you total it out for us?

Speaker 4: We can certainly follow up with you, Andrew. Trevor or Sam can come back here on that.

Speaker 2: Thank you very much.

Speaker 7: Thank you. Next question is coming from Kevin McVey from Credit Suisse. Your line is now live. Alright.

Speaker 6: Thank you.

Speaker 8: I know it's hard to kind of project, but any sense of kind of the nearer term outlook for mortgage 22 to 23? And the reason I ask is obviously it seems like unprecedented declines, but we're in a much stronger macro environment than we were back in the GFC. Is there any way to frame, do you think you see continued refi, kind of cash outs?

Speaker 8: more near-term on the purchase side just as you think about mortgage within kind of the context or for for from kinda feels like bottomer here cigarette grandfather four segundo segunda represent him fl four three four three four three four four four four three four four four four four six three four five four six four four four four four four four four four four four four four four what four four four four four four four four four four four four four four five four four four four four four four four you

Speaker 4: Yeah, I think bottoming is probably in the second half, you know, based on our forecast, Kevin, as you know, but it's very hard to really predict what's going to happen, you know, with the economy given the inflation rates that we haven't seen in really our lifetimes and what the Fed is going to do to respond to it. You know, I would make a couple of comments on mortgage, which you know, you know, look, the mortgage market doesn't disappear, right? You know, there's a core mortgage market that in any economic environment stays there, meaning people move and buy houses.

Speaker 4: people upgraded by houses that you know on the purchase market and if you know you know there's a there's more people still looking for houses in the United States today than there are houses you know so there's still quite a bit of demand on the purchase side so you know we expect there to be is there isn't any economic environment it continued uh... you know purchase market and John gave some views about how we think about that in the second half as you point out in the re-fi side you know cat the interest rate re-fies you know we're gonna you know be lower or less of those you know in the second half you know given where interest rates are

Speaker 4: because there aren't that many opportunities for homeowners to do an interest rate refi. But there's a ton of untapped equity in homes in the United States. Over the past 24-plus months, home price appreciation is up almost 30%. And there's about $27 trillion of untapped home equity. And we've seen in economic environments in the past that homeowners will tap into that equity. If you think about a 5.5% fixed rate mortgage.

Speaker 4: in order to re-fi into that on to uh... access your home equity which consumers are doing our homeowners are doing uh... we expect that to continue and if you think about five and a half percent interest rate on fix rate mortgage that's a heck of a lot less than an auto loan a student loan or a credit card uh... and that's what you'll see consumers do so there'll be a level of cash out refi's you know going forward and i i i i know you get that i think that the alluding part is what's gonna happen

Speaker 4: you know how far is the fed gonna have to go to slow down and fake inflation with it 9.1% that's a harder part for us to you know forecast you know we did talk about in our prepared comments that we remain confident and obviously the long-term future of aquifax you know our goal is 7 billion by 2025 hasn't changed our goal to expand our margins to 39% by 2025 hasn't changed and you know we're still investing in the future of aquifax you know as we speak you know we're making investments that'll benefit 23 24 25

Speaker 4: you know, based on, you know, our strong performance, particularly in non-mortgage, which is exceptionally strong.

Speaker 8: And actually, I just want to follow up because it seems like you're still comfortable with those 2025 targets. You know, it's probably more you a little bit lighter. Where's Ben County the offset? Is it with any WS or other parts of the business that continue to give you the confidence to push towards those 2025 targets?

Speaker 4: Yes, it's certainly, I think as you know, we raised our non-mortgage or core guidance twice this year, once in February and once in April . That gives us confidence. It should give you confidence. And if you look at our non-mortgage performance and our core growth performance, which includes how we're performing beyond the mortgage market, those are strong numbers and those give us confidence in our ability. And then if you add to it...

Speaker 4: you know, during that 23 to 24 timeframe, you know, in the next, you know, 12 months, we're going to be completing substantially, you know, the US cloud migration. So we'll be cloud native and we can take full advantage of that. We'll finish international as, you know, we get through 2023 and into 24. That's another lift for workforce solutions. The other thing that should give you confidence and gives us confidence is the M&A that we've done over the last 18 months. You know, we've done 11 acquisitions now with LawLogix.

Speaker 4: Those are in our run rate revenue or will be. And of course the synergies from those acquisitions that we had in our acquisition cases really kick in in 23, 24, 25. They really get integrated into our businesses. And then the last point I'd make to give us confidence is NPIs. The vitality index that we're delivering is you know our long-term frame on vitality is 10. We were 13 in the quarter, you know we're...

Speaker 4: expecting to be a you know north of eleven for the year those are big numbers you know when you talk about having uh... you know five hundred and fifty million of eleven new in twenty twenty two from new products and remember new products we introduce in twenty twenty two really benefit twenty three twenty twenty four twenty five you know they mature as we get into those years so there's a lot of levers that uh... give us confidence around the future of aquapacks

Speaker 7: Your next question is coming from Tony Kaplan from Morgan Stanley . Your line is now live. Your line is now live.

Speaker 9: Thanks so much. First, I wanted to ask about the mortgage performance. Last quarter, you talked about the mortgage performance.

Speaker 9: EWS outperforming the mortgage market by about 30 points in the year. And for the quarter, last quarter is about 27 points above the market. This quarter looks a little bit more like you outperform by 20 points according to slide 10. So are you still expecting the 30 or is something changed to bring that down a little bit? And what are sort of the drivers that lead to that outperforming delta? But why would it jump around, I guess?

Speaker 6: So I think last quarter what we indicated we were up 27 and we thought for the full year we could deliver something south of 30. But I think the 20 points is very strong. What drives the outperformance in general is the new products, the price actions, the record editions, and all of those activities that Workforce Solutions is executing extremely well, actually executing faster than plan. The record editions as Mark already covered were well faster than plan as we are up to 144 million records. They are all volume dependent.

Speaker 6: We get into circumstances where we see the current year volumes decline substantially. It makes it more difficult to outperform the prior year market because of the lower volumes. So that's all it really is in terms of the drivers that will allow them to outperform the market over the long term. They're actually outperforming the expectations we had when we started the year. So we feel very good about how they're performing. We think given the much lower level of mortgage inquiries we're talking about, of mortgage originations we're talking about in the second half. We're talking about in the second half.

Speaker 6: If they're able to outperform it about 20 or just I think we just said somewhat under 20 that that will be very very strong and inconsistent with the execution against product price records system integrations that we've been talking about.

Speaker 9: Great. In the guidance, it seems like the main delta on the revenue side is really mortgage. You're expecting essentially the non-mortgage expectations outside of FX, you know, largely unchanged versus your guidance last quarter. Just if we look forward, if there is a recession or a tougher environment that comes up, just maybe talk about some of the expense levers that you can pull and...

Speaker 9: how you think about when to pull the trigger on that versus continued investment in the business because obviously you have a lot of really strong growth opportunities that you want to capitalize on. So, you know, maybe just how are you thinking about downturn playbook and when you would pull the trigger.

Speaker 4: Yeah, it's a great question, Tony. This is Mark. First off, we don't see that in the second half. You may have a different point of view, but we don't see that in the second half. But to be clear, we think about it a lot, obviously. And we do have levers. First off, we think we're going to outperform the way we did in the past. If there is an economic event, we had a page in there that we talked about it in the investor deck. And we talked to you about it before. The difference in the business and levers by continuing to add records at workforce solutions and so many other levers in workforce and particularly our identity.

Speaker 4: well and we want to keep driving that. So investing in things like new products, investing in completing the cloud transformation which of course that will take a lot of our cost out as we get into 22, I'm sorry 23, 24, 25 we get significant margin expansion or cost reductions as we complete the cloud and decommission a lot of our data centers. That's kind of a natural recession hedge for us as we execute the cloud transformation.

Speaker 4: But we've got other cost levers that we could or would pull, and we'll be ready to do that if there is an economic event. But at the same time, we have a lot of confidence in how we would perform in an economic event because of the dramatically changing nature of Equifax. Would you add anything, John ? No, I just think outside of the investments, Mark's already talked about in MPI, and transformation's kind of the product technology, and then marketing, product marketing investments we're making. We certainly are looking at all the other expenses, and we're just going to manage those very tightly.

Speaker 5: the financial marketing services business. I was just wanted to drill down further on the fraud and identity piece and see you talked about new product innovations there which could react to rate growth maybe next year. So I was just wondering if you could provide some more color on that friend or maybe also talk about the pipeline for new deals particularly on the offline side and how should we think about those momentum going into the back half but also in 23 and beyond. Thanks.

Speaker 4: Yeah, so we've talked about we're obviously doing some work to get some new products positioned in the second half of this year to bring the FMS portfolio review business back into a different position. That's clearly a place that we're investing in. I think part of your question was also around broader identity and fraud, which is a different business for us. That's really under the count business, which we're very pleased with. That's a business that...

Speaker 4: It performed exceptionally well in the quarter and the half. We see big potential in just a massive TAM around the broader identity and fraud. And of course, as you know, we bought Count 18 months ago, and we're still integrating that inside of Equifax and rolling out new solutions. And that's an area that we're investing in new products for both the e-commerce space, but also for our traditional financial customers, and also looking for inorganic or M&A to continue to expand. That's one of our three priorities.

Speaker 5: And that will happen as data fabric completes for USIS. That's very helpful color. And then going back to slide nine and drilling down further on the questions that were asked on the talent and government side, the penetration there is pretty low on talent, just 20% on government, it's 20. You talked about some new statements there, but just can you talk about, again, the pipeline both on the talent and government side and how do you drive better penetration in both of those markets? Thanks.

Speaker 4: Yeah, these are, I still call them newer verticals for us in workforce solutions, both talent and government. They're big tams, you know, talents of $5 billion data tam for us, governments about a $2 billion. You know, we've got big teams in workforce solutions focused on that. Is we made, as you know, some M&A additions to strengthen our capabilities there, we wanna do more. You know, that's an area where we wanna expand any of your M&A partnerships, M&A being like average insights, where we got the incarceration and medical credentialing data. It's really helping us.

Speaker 4: And in both government and talent, the partnership we have with Nestor's doing Clearing House where we're bringing education data. And we'd like you to do more partnerships or more M&A there. The other really lever for us in talent and government is new products, is really bringing new solutions together, combining data elements we have in workforce. And of course, if the heart of our growth in both of those verticals is our twin dataset, we're all with our 144 million active records of 110 billion.

Speaker 4: Active individuals in our data set, which is a huge coverage now. And as you know, when we add records, our hit rates go up. Because remember in our system to system integrations, whether it's talent or government or other verticals, they're hitting our database for every applicant or individual that they're trying to process. Whether it's a mortgage or a background screen or a social service like red support or unemployment claims. We grow our records, you know, that grows the business.

Speaker 4: And then leveraging our historical data, we just got so much historical data of the 570 billion total records, which equates to about five and a half jobs for the average American. That's a very valuable, instant decisioning data set for the talent space. So the combination of new products continue to grow out our twin record database and continuing to do M&A and having our dedicated teams of growing customers. There's still a lot of customers that don't use our data in government.

Speaker 4: Social services and in talent. So that's another opportunity. So we're pretty energized about the growth potentials and those two verticals.

Speaker 7: Thank you. Our next question is coming from Kyle Peterson from Needham & Company. Your line is now live. Sorry to und stimulated a little bit.

Speaker 10: Great, good morning guys. Thanks for taking the questions. I wanted to touch on inflation. Obviously it's the highest, you know what's the name and quite some time. Where are you guys gonna see it on the cost side of your business and how much have you guys been able to successfully pass along to clients?

Speaker 4: Yeah, so I share your concern when I think about the 9.1% inflation or 9.4 of the UK or pick your market, what I spend more my time thinking about is what the impact on the consumer on our customers with regards to our cost structure, it hasn't had much of an impact. We haven't seen a big impact in labor. We're still able to track the people we want inside of with some slight pressure on wage rates, but we're still managing that.

Speaker 4: You know, a big part of our cost structure is, you know, is technology and, you know, we're really heading more towards cost savings there as we convert from our legacy infrastructure, you know, to the cloud. And, you know, we've got long-term contracts in our cloud infrastructure. And with regards to passing it on, you know, price versus inflation, we're in that positive. You know, we, you know, we put pricing increases in place earlier this year that, you know, give us a net positive margin impact versus inflation, you know, is that even with inflation where it is today.

Speaker 10: Understood that's helpful. And then just a quick follow up, particularly on the unemployment verification, claims part of the EWS business. Now, how should we think about the puts and takes and you guys said you weren't currently expecting a recession? But if we do had a new recession, how much of a potential tailwind could that be in a more garden variety recession not with an employment kind of where it was in 2020? But just a little more run of the mail would be helpful.

Speaker 4: Yeah, it's obviously a positive for us. You know, that business is a lot bigger today than it was in 08, 09. Obviously, we've got a lot more scale. You know, we're expanding the business, you know, with a lot of the investments in people and technology and capabilities as well as the M&A that we've done. So it'll clearly be a tailwind. Obviously, it's a headwind right now, you know, coming off 20 and 21 when there was a lot of furloughs and layoffs, you know, during the COVID environment. I know, John , would you size it in any way? Yeah, just to give you a perspective, this year it's $135 million business.

Speaker 4: management and portfolio management activity goes up in an economic event. Now we're not seeing that today because it's you know there isn't really an economic event yet but that's a counter sickleical element for our core credit businesses and of course you know we got all kinds of levers and workforce solutions you know we're going to keep adding records whether the economy is up down or sideways. you know we're going to keep adding records and we're going to keep adding records.

Speaker 7: Thank you. Our next question is coming from Andrew Jepry from Truest Security. Your line is now live.

Speaker 7: Hi. Good morning, guys. Appreciate you taking the time. Mark, I wanted to ask you a question about the twin database and sort of line of sight to getting to 2X current records. Do you think you can get there with your current payroll agreements? Do you need to add more? And I know you mentioned they're exclusive today. Can you talk about your comfort with those remaining exclusive sort of in the long run and just any color in terms of trajectory there would be helpful?

Speaker 4: Yeah, so a bunch of layers of questions in there. First, I think as you point out, it's a really attractive lever for growth and unique to this business, right? No other data business that I know of as the ability to add records the way workforce has been able to do. And of course it translates into revenue, day one, quarter one, week one, the minute we add them. Because remember, as we're integrated or even through web access, customers are coming to our data set looking for all of their applicants.

Speaker 4: And as we grow our hit rates, it really drives the revenue. And the records are up 22% in the quarter. We've had very strong double digit growth for the last three years of growing the data set. And now have 144 million actives and 110 million uniques, which is really powerful in the scale of the data set. Not only is it driving revenue, but it also drives usage, meaning it's a data set that's more valuable. And you remember, you think about it. Our customers want 100% coverage.

Speaker 4: you know, because the consumers that they can't identify in our data set, they got to go somewhere else and do a manual verification or do something else that slows down their process. So as we add records to our data set, we become more valuable to them.

Speaker 4: So, as you know, 50% of our records come from partnerships. 50% come from direct relationships that we have through our employer services business. And we want to grow both. Our employer services, as you know, we've been making acquisitions. We've done five acquisitions in the last two years to strengthen our capabilities in employer services, whether it's an I-9, unemployment claims, work opportunity tax credit. And that's a kind of a $6 billion term. And we've got a $400 billion plus business.

Speaker 4: And the power of that is not only we're growing the outsourcing there, but when we get the contracts for I-9 or unemployment claims or work opportunity tax credits, we also get records. So growing records there is a big lever. The other 50% come from partnerships, so payroll processors. And what I'm referring to is really mostly W-2 or non-farm payroll income.

Speaker 4: which is uh... employees which is the uh... hundred sixty million individuals in the united states versus the hundred and ten we have today the new market for us are getting which is thirty forty million in pensioners which is uh... you know other twenty to thirty so if you think about the hundred and ten million you know there's about two hundred twenty million americans that have some force form of income that's what we want to grow the database to and that's gonna take time you know if you think about going from a hundred and ten million to two hundred twenty million you know that may take a decade

Speaker 4: But there's such runways for growth and we now have dedicated teams on the pension side and we expect to be onboarding records, you know, obviously from those aren't typically with payroll processors. There are other entities that are processing those whether it's a benefits administrator or individual companies and then the gig records, you know, those are all records. We want to add as we go forward. I think your last question was around our partnerships. So last part of your question was around here.

Speaker 4: question was around our partnerships and exclusivity. As I said, the vast majority of our partnerships are exclusive. All the relationships we signed in the last four plus years have been exclusive and all the relationships we intend to sign going forward as well as extend is our intention for them to be exclusive. We think that's good for us and good for our partners going forward.

Speaker 7: Super comprehensive answers. Thanks. Appreciate it.

Speaker 7: for comprehensive answer. Thanks, appreciate it.

Speaker 11: Thank you. The next question is coming from Andrew Nicholas from William Blair. Your line is now live.

Speaker 10: Thanks and good morning. I think different answers have touched on this already, but I want to ask a little bit more directly about the health of the US consumer and what you're hearing from customers on the core credit side. Are you seeing any signs of weakness across the USIS business as it relates to core credit? Guidance doesn't seem to imply any slowdown there. So if you could just kind of talk about what gives you confidence in that part of the outlook and the overall state of the economy.

Speaker 4: Yeah, and to be clear, we're not. The US consumer from our perspective is strong. I think you've heard it from the banks over the last couple of weeks or so, as they talk about their performance. There's no sign. It really starts with employment. People are working. And there's two open jobs for every person looking for a job, which we've never seen in really our environment. You've seen strong wage growth, which is a positive, and it starts with people who are working. So that's a big deal.

Speaker 4: and some of the lower subprime or lower income consumers is having a bigger impact there. But kind of broadly, we don't see the consumer weakening in the second half. We haven't seen our customers thinking about it that way. They're obviously, everyone's watching, but you haven't really seen a change in delinquencies. Like card delinquencies are lower than they were in 2019. There's a little uptick in subprime auto delinquencies, but the consumer is strong. It starts with they're working. And then adds to it those that are homeowners.

Speaker 4: have a bunch of equity in their home, plus 20, 25, 30% versus a couple years ago that's untapped. So those are all equations that are quite positive around the consumer, which is going to make, in my view, tainting inflation quite challenging because consumers are still out there spending. You've seen the banks' credit card spends are up strong double digits. Consumers are traveling. They're still spending, maybe not on big ticket transactions, but they're still pretty strong and we haven't seen any signs of it changing.

Speaker 6: Another thing which has happened since 2019 is that the percentage of consumers that are actually defined as subprime is just down materially, right? So it's down to the on the order of 20% of consumers and was much higher back in 2019 And that's just the strengthening and credit scores you've seen so that's very material for people's access to credit So credit scores are up 15 to 20 points

Speaker 10: You know, since 2019 still. So a lot of factors supporting the consumer. Great, thank you. That's very helpful. And then switching gears a bit for my follow up, Mark, I think you alluded to growing the work number, internationally as part of the three year or 2025 outlook. I understand in the past you've talked about your right to win there in your relationships with global organizations as being a differentiator, but just kind of curious, can you speak to, kind of go to market strategy there is.

Speaker 10: Is it any different in these international markets than what you've developed here through payroll providers and an outsourced kind of HR capabilities or are there differences in those markets that we should kind of keep in mind that make that go to market strategy even if they're different or not?

Speaker 4: No, it's very similar. We could spend hours talking about all the things we're working on. And obviously, expanding workforce internationally is one of the initiatives that Rudy and his team has. As you know, we're in four markets now. We added UK in the first quarter. We paused during our cloud transformation to go in other markets. We're in Australia, Canada, UK, and India. We paused a couple years ago when we were doing the cloud transformation, but now that we have a tech stack that we've invested a couple hundred million dollars in.

Speaker 4: It makes it easy to enter new markets from a technical standpoint. So that's an approach that we have and why we kind of made our first move into the UK following our cloud transformation at Workforce Solutions. The market dynamics are very similar. Mortgage is a place where you want to use it and you think about the markets we're in. They have mortgage markets, consumer mortgage markets. So that would be a priority for us when we think about future markets. And we think about future markets.

Speaker 4: And then the talent side is another one, using the data for the hiring process is similar. And as you point out, we have some levers with our current multinationals in the US where we're collecting their records from them directly or through partnerships. But the direct relationships, they want us to do income and employment verification for them in other markets, so that's a positive. And then as you also point out, the payroll processors we do business with today in the US, many of them are global, so they want to…

Speaker 4: to have the same relationship outside the United States. And then in individual markets, there's payroll processors or HR software companies that are unique to so many markets, and we're developing partnerships with them. So it's clearly part of our strategy. We've got a lot of needle movers in workforce solutions between now and 2025. This will be one of the smaller ones, but it's one that we're investing in. I think you'll see more traction out of it perhaps in 24, 25, 26 than you will see in 23, 24.

Speaker 4: But as you would expect us to do, we're investing in it. And we think we've got a franchise that obviously has a strong market position here in the States. And it's one that we want to take global and take advantage of it, because there really aren't other players like Workforce outside the United States. Thank you. Our next question is coming from Shlomo Rosenbaum from Steve Foyer. There's no lie.

Speaker 6: Hi, good morning. Thank you for taking my questions. Hey, can you dig in a little bit more on what's going on with FMS and the offline? And you said it's like the part where you're doing a fraud and a header data. I'm just not clear as to what all of a sudden change in that business is, there's something competitively that changed in where maybe one of the other bureaus are doing better over there, or is there anything else happening? And typically, in a certain point in the cycle, you guys would see a...

Speaker 12: you know a pickup in in in some of the fms business as well in terms of portfolio reviews and i want to know are they starting to pick up because danks are worried about that you're not getting them or they're just not happening you're not getting them or they're just not happening

Speaker 4: Yeah, the portfolio reviews are a constant part of the business, but as you point out, in times of economic challenges, that typically we see some real pickup there. That hasn't happened yet. The financial institutions really don't view the second half of being economically challenged. It's more in the newspaper than it is in the consumer or their results. I don't know, do you want to touch on the header business again? Yeah, I think Mark covered, Sloane, really what's going on with the fraud or header business within FMS. We are seeing low —

Speaker 6: to you about them as we do with anything with NPI and we can give you perspective on how we think that product area may grow.

Speaker 12: Great, thanks. Just for the follow-up, the other part of the business that you would start to see slowing down would be the background screening area. Are you seeing anything that's indicating that, given the layoffs and stuff that you're hearing from some of the bigger technology companies, that the polls are really starting to slow or significantly changing? No, we're not. Remember, when you think about our business, it's obviously different than the background screening industry because we're so new in...

Speaker 4: kind of dealing with the industry. We have so much penetration opportunity. It's our view that even if the market slows, our ability to digitize and help background screeners digitize their businesses will mitigate, if you will, or offset some of that and add to it new products that we'll be rolling out for the background screeners that include other data elements. So when an economic event happens and there is some slowdown there, there are large div nickman being the undertaker

Speaker 4: you know we think we'll be able to you know offset that was some of the new products as well as penetration because we're fairly new remember that the TAM for that talent in background screeners is about

Speaker 4: four billion and you know our business is a couple hundred million bucks so you know we've got the opportunity to continue to grow into the data elements of that even in economic event.

Speaker 12: Next question is coming from Craig Huber from Huber Research Partners. Your line is now live. Great. Thank you. Can you talk a little bit further about how you think your verification service business will do if we go into an elongated recession here? You guys adding more and more records here. It's a significant part of your business. How do you think it will do an elongated recession? Yeah, I think we've been pretty clear. We think it will do pretty well. As we pointed out in the comments and in prior calls, you go back to 08-09, which was a pretty brutal...

Speaker 4: is one of many levers that the business has that we think is what makes aquifax. is what makes aquifax.

Speaker 4: So different today versus our last economic event, if you want to call OEDO 9.0, our ability to grow is significantly enhanced by workforce being such a big part of Equifax and having so many different levers that are either unaffected by a recession or allow them to actually benefit from a recession like the unemployment claims business. And then also, the 50% or so of records you get from outside the partnerships. You talk about the pitch there that you use to get.

Speaker 6: and are these new products something that you had planned to invest in in 2023? And is that something that you're maybe pulling forward this year? So by far the largest impact in the reduction in our adjusted ETS, we try to walk through the drivers, right? But in terms of the margin piece, right, outside of interest and outside of the impact of that tax, right, by far the largest driver is obviously the reduction in mortgage and mortgage has very high variable profit, right? So that's what's really driving the reduction in our margin dollars and therefore driving the reduction in our adjusted ETS. And yes, there is some incremental cost that we're investing going forward in as we invest going forward in new products, but that's not the driver. The driver is really the movement in mortgage, right? While we were trying to do is to give you perspective on there's a substantial driver and there's some other things that are impacting margins as well. We talked about investments in the development cost. We talked about some mixed issues in international as we gross the debt management business. And we also talked about the fact that we get a little bit of a benefit because our variable compensation goes down. So we're just trying to give you a perspective on the different side levers that are playing within the larger impact of the decline in the mortgage market. Got it. Okay. Thank you for that. And then just as a follow up, I'm curious if you know, experience talked about how they're now and they may have certified them for table uncertainty. And I'm curious how you think about that. Like is that.

Speaker 11: and webcast, you may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.