Q1 2023 Equifax Inc Earnings Call

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Hello, and welcome to the Equifax Q1, 2023 earnings conference call and webcast. If anyone should require operator assistance. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded its now my pleasure to turn the call over to Trevor Burns Senior Vice President head of corporate Investor Relations. Please go ahead Trevor.

Oh, Thanks, and good morning.

Welcome to today's conference call I'm Trevor Burns with me today are Mark <unk>, Chief Executive Officer, and John Gamble, Chief Financial Officer.

Thanks.

Today's call is being recorded an archive recording will be available later today.

IR calendar section of the news and events tab.

At our website www dot I'm sure not equifax dotcom.

During the call today.

We will be making reference to certain materials.

It can also be found in appreciating.

Sure.

And I've been stopped our website.

How do you set yourself they don't like each one twice right.

Earnings Conference calls also when he makes sense certain forward looking statements, including second quarter unfold.

Guidance I hope you understand that called pet channels business environment.

These statements involve a number of risks uncertainties and other factors that could cause actual results to differ materially.

Our expectations certain risk factors that may impact our business.

Awesome, you're bringing certain non-GAAP financial measures.

S E T S and adjusted EBITDA was absolutely justified.

That's correct.

Some variability.

Operational performance is.

non-GAAP measure CECI tells a reconciliation tables.

Included in earnings release.

Can be found on our IR website now I'd like to turn it over to watch thanks, Trevor and good morning, Equifax delivered another strong quarter with 10% constant currency non mortgage revenue growth as we executed well against our Equifax 2025 strategic priorities and a $200 million spending plan, we announced in February .

Before I cover our strong results for the quarter I want to provide a brief overview of what we're seeing in the U S economy U S consumer.

We continue to navigate a higher interest rate environment that is severely impacted the U S mortgage market.

Mortgage originations were down 56% in 2022, and we expect them to be down about 32% this year.

And the second half, we expect mortgage inquiries to be approaching an unprecedented 40% below 2015 to 2019 levels.

The combined combined market impact in 'twenty, two and 'twenty three is expected to reduce equifax revenue by over $900 million, but the breadth and depth of the equifax business model and fast growing non mortgage businesses allowed equifax deliver 20% non mortgage constant dollar growth last year, and 4% total growth last year.

And an extra expectation to deliver 8% non mortgage at 4% total growth in 2023 at the midpoint of our guidance more than offsetting the large negative impact from the unprecedented mortgage market decline.

Auto loan delinquency rates for subprime consumers are above pre pandemic levels as well as above the levels. We saw in 29 2009 2010.

And as you know delinquencies generally are manageable when people are working.

While we have seen limited pockets of DQ increases we continue to watch this important metric as we move through the rest of the year.

Historically as DQ is increase our customers will begin to reduce marketing and tighten originations.

Gross hiring year to date through February was down about 6% slightly better than the trends we saw in the fourth quarter.

And inflation remains at elevated levels, but has begun to moderate slightly given fed actions, but with inflation still well above the targets. We expect further rate increases.

And we believe there has been some credit tightening at some customers with more impact in fintech from both expectations of a slowing economy in the second half and capital issues impacting certain banks and as you recall our guidance assumed a slowdown in the second half.

While we are operating in an uncertain and challenging economic environment Equifax continues to deliver the breadth and depth of Equifax is broad based business model is allowing us to weather this unprecedented mortgage market decline and deliver revenue growth and margin expansion.

Turning to slide four Equifax had another strong quarter with non mortgage constant dollar revenue growth up 10%.

First quarter reported revenue of 1.302 billion was down four 5% and down four 3% on an organic constant currency basis and above our expectations against an unprecedented 58% mortgage market decline in the quarter.

Revenue was above the high end of our February guidance from broad broad based strength in execution across Equifax and continued strong new product rollouts.

First quarter, adjusted EBITDA totaled $380 million with adjusted EBITDA margins of 29, 2% both in line with our expectations adjusting for the incremental stock based compensation expense incurred in the quarter adjusted EBITDA margins would've been approximately 31%, which is the baseline of which we expect to grow to 36% in the fourth quarter revenue.

Growth and our 120 million dollar cost savings plan.

As a reminder, the bulk of the spending reductions benefit the second half and we have $50 million of carry over benefit in 2024 from our actions this year.

Adjusted EPS of $1 43 per share was above our February guidance range of $1 30 to $1 40 per share from stronger than expected revenue growth.

Our equifax non mortgage businesses, which represented about 80% of total revenue in the quarter were strong with 10% constant currency and 8% organic constant currency revenue growth.

With the 10% growth solidly inside are 8% to 12% long term growth framework.

I'll be used delivered stronger than expected non mortgage growth, which is a positive which is positive momentum for the rest of the year.

Estimated U S mortgage market originations, which MBA forecast to be down about 58% in the quarter were slightly weaker than the down 55% and our February framework.

Although U S mortgage revenue was down about 33% or 25 four points better than the market with both total revenue and our mortgage outperformance stronger than we outlined in February .

The stronger outperformance was driven by better U S credit inquiries from higher than expected consumer shopping and positive mix and workforce solutions driven by significant growth from our new mortgage 36 trended product.

We continue to make significant progress driving completion of the Equifax data and technology transformation at the end of the quarter over 70% of Equifax is being delivered from the new Equifax cloud, which will expand to 80% by year end as we substantially complete the North America customer migrations to the Equifax cloud.

Our new Equifax cloud infrastructure is delivering always on capabilities and faster new product innovation with integrated datasets faster data delivery better data quality and industry, leading enterprise level security.

We continue to be convinced that our equifax cloud and single data fabric will provide a competitive advantage to equifax for years to come.

New product innovation, leveraging the capabilities delivered by the Equifax cloud is also executing at a very high level, our new product vitality index of 13% in the quarter is at record levels and 300 basis points above our 10% long term vitality goal.

And as you recall in February we reached a definitive agreement to acquire a Boa Vista services. The second largest credit Bureau in Brazil, when completed the Bvs acquisition will add $160 million run rate revenue in the fast growing Brazilian market.

The transaction is subject to Boa Vista shareholder approval and other customary closing conditions and we expect the transaction to close in the third quarter.

Yeah.

As we outlined in February we're executing a broad operational restructuring across equifax, reflecting both the acceleration of our cloud transformation benefits and a broader focus on operational improvements aided by our new cloud capabilities.

Plan will reduce our total workforce of over 23005 hundred employees and contractors by over 10% during 2023.

As well as delivering cost reductions from the closure of a major north American data centers and other broader spending controls.

Total spending reductions from nice 2023 actions are expected to be about $200 million with about $120 million reduction in expense or about 75 per share an $80 million reduction in capital spending.

And we're tracking well to the plans we laid out in February and we remain committed to meeting these cost improvement targets.

In 2024, the run rate benefit of these actions will reduce spending by an incremental $50 million to over $250 million.

And we're maintaining our 2023 full year revenue guidance of five to seven five to $5 $3 75 billion and adjusted EPS guidance of $7 five a share to $7 35 per share our guidance continues to assume a weakening U S. In global economy in the second half.

Given the slightly weaker U S mortgage market that we saw principally in March we are now assuming U S mortgage market inquiries for 2023 to be down about three 2% or 200 basis points weaker than we discussed in February .

Given our strong and broad based performance in the first quarter, our ability to continue to outperform underlying markets and execution on our planned 2023 spending reductions we are reaffirming our 2023 guidance in a continued challenging mortgage market and expected slowing economy in the second half.

We also continue to expect to deliver adjusted EBITDA margins of over 36% in the fourth quarter, which is a very important stepping off point for 2024, John will provide more detail on the overall mortgage market and our second quarter and full year guidance shortly.

Turning to slide five in the first quarter. We continued our strong non mortgage revenue performance delivering 10% constant dollar and 8% organic constant currency revenue growth all three business units delivered strong non mortgage revenue growth in the quarter with workforce up 11% international up 10% in constant currency and U S. I up eight per U S. I S up eight.

Were sent.

This broad based non mortgage growth across the business units will be increasingly supported by completion of the equifax cloud and continued NPI growth across the businesses.

First quarter constant dollar non mortgage growth of 10% was well within our 8% to 12% long term rep longterm revenue framework. Despite some slowdown in U S hiring activity that impacted Aws's talent solutions and 99 businesses.

As well as the comparison off a very strong 25% non mortgage constant dollar revenue growth in first quarter last year.

Turning to slide six workforce solutions delivered another very strong quarter with non mortgage revenue growth up 11% and total revenue down 8% as expected from the 58% mortgage market decline.

UWS had another strong quarter of record additions with an incremental 4 million records added to the twin database ending the quarter with 156 million current records up 15% and 117 million unique records, which was up 12%.

This is this is a very positive sign has historically the first quarter has lower net record growth as large retail and logistics companies reduce elevated holiday season staffing in the first quarter.

And as a reminder, unique record unique records represent individuals' ended twin database and current records represent current active jobs in the database and in our case, we have almost 50 million individuals having more than one job in our dataset.

The 117 million unique individuals on twin deliver high hit rates.

Including self employed or 10, 99 employees and defined benefit pensioners, we now cover just over 50% of the 220 million people.

People in the U S with employment and income records that are relevant the twin database and our customers.

As I referenced last quarter. We're also beginning to onboard pension records with records from one major one major pension administrator and discussions with many more.

And through our cloud technical Tech transformation, we're executing expanding our capabilities to ingest unique 10, 99 based self employment records.

And as a reminder, about 50% of our records are contributed directly by individual employers from our employer services business relationships.

The remaining are contributed through partnerships, principally with payroll companies and during the quarter, we signed agreements with three new payroll processors that will deliver records during the balance of 2023.

And the twin U S database now has $618 million total current and historical records from over $2 7 million employers increasingly more of our new products are incorporated current and historical records with about 50% of first quarter verification services revenue coming from products that include a historical.

<unk> or trended records.

Mortgage revenue was down 38% in the quarter, which was in line with our February guidance, but outperformed the overall mortgage market by 20 points when compared to the 58% decline in originations. These are very strong results when compared to AWS is 52% outperformance in the first quarter last year.

In addition to strong record growth and the positive impact from price actions in the quarter. We also strong strong NPI performance driven by the adoption of our new mortgage 36 solution.

Which is that which is a 36 much 36 month trended product <unk>.

During the quarter over 50% of twin mortgage inquiries were for products, including trended or historical information and all at higher price points.

Turning to slide seven workforce delivered revenue of $596 million down, 8% and in line with our expectations.

Verification services revenue of 450.

56 million was down 11% driven by the decline in mortgage revenue that I just referenced.

Verification services non mortgage revenue, which now represents about two thirds of verifier revenue delivered strong 16% growth in the quarter.

We saw continued very strong growth in the government vertical which is about 45% of verify your non mortgage revenue with revenue up 33% driven by strong growth with CMS at the state level, new products and record additions.

We expect this strong growth in our government vertical to continue throughout the year.

Talent solutions delivered strong 10% growth in the quarter, despite the 6% decline in the overall hiring market.

<unk> solutions volumes have remained consistent since the middle of the fourth quarter. Despite the decline declining hiring market, we outgrew the market declined by over 15 percentage points delivering 10% growth a very strong performance driven by continued penetration of our digital solutions and background screening strong new product growth.

Expansion of twin records and favorable pricing.

In the quarter, we launched new products targeted to staffing and hourly segments designed to meet specific needs of background screeners and end market employers in these very high volume market segments.

We're also seeing continued penetration of our new educational background solutions. We expect these new products to continue to drive talent growth throughout 2023.

Consumer lending was down 1% in the quarter due to lower auto volumes with financial institutions, and Pete Pilon declines with Fintech lenders.

Employer services revenue of $141 million was up 4% from growth in our I nine and Onboarding businesses. Despite the negative impact in U S hiring offset by a 9% decline declining you see or unemployment claims driven by lower jobless claims.

Spike the slowdown in hiring we've not seen any increase in U S trends that you see transactions, yet and as a reminder, first quarter employer services revenues are seasonally higher than other quarters due to higher affordable care Act and W. Two volumes.

Last month workforce solutions launched the people HQ portal, a new cloud native solution that brings together multiple best in class employer compliance services in a single unified online experience.

People HQ serves employers of all sizes and supports the total employee journey with enhancing connected people first experience leveraging the full suite of AWS employer solutions power.

Powered by the Equifax cloud and leveraging industry, leading security measures that people HQ portal will house several several AWS services, including the work number verification service I nine.

HQ, including <unk> anywhere and <unk> inspect and HCA HQ with best in class Affordable Care Act capabilities that help them lawyers meet the needs of their employees, while also reducing reducing risk for penalties.

People HQ is another example of how AWS is leveraging our new cloud native capabilities to deliver new solutions to the market. It will drive employer revenue and continued direct record growth.

Workforce solutions adjusted EBITDA margins of 54% were up 370 basis points from the fourth quarter and in line with our February guidance and as expected about 50% due to first quarter record growth new product introductions and pricing actions more than offsetting the macro effect of lower volumes in mortgage and talent solutions.

As well as the negative mix from seasonally higher employer services revenues.

The strength of AWS, and uniqueness and value of their twin income and employment data in employer services businesses were clear again in the quarter Rudy in the AWS team delivered another strong quarter outperforming the mortgage and hiring markets and continued strong record growth that will drive revenue and margins in the future.

Turning to slide eight U S. I S revenue of 422 million was down about two 5% and much better than our expectations due to stronger mortgage and non mortgage performance.

U S. I S mortgage revenue was down 25% and was better than our expectations.

Estimated mortgage originations were 300 basis points weaker than our expectation of down an estimated 58% U S. I S credit inquiries were stronger than we expected a down 44%.

Credit inquiry performance continues to outperform originations, reflecting higher relative levels of consumer mortgage shopping behavior in this higher interest rate environment.

Revenue outperformance relative to credit inquiries was strong at 19% driven principally by pricing actions and was also strong versus a mess they estimated originations at 33%.

At $105 million, our mortgage revenue was about 25% of total U S. <unk> revenue in the quarter.

Total non mortgage revenue of 317 million was up 8% in the quarter with organic growth of about 4%.

The 8% growth was stronger than the mid single digit growth that we expected in our February guidance.

<unk> non mortgage revenue of 261 million, which represented over 60% of total U S. <unk> revenue was up 8% with organic revenue growth of about 3%.

BTB non mortgage online revenue growth was up 9% total and up over 3% organically.

During the quarter online revenue had very strong double digit growth in commercial auto identity and fraud and insurance.

Banking was up slightly in the quarter with growth at large financial institutions, although at slower pace than in the fourth quarter more than offset by declines in small with smaller financial institutions and fintech.

Commercial was up over 20% with continued strong growth from our differentiated commercial credit data, including financial telco utility and industry trade lines and our new one score for commercial that we launched in the first quarter.

Commercial is an increasing area of strength delivering above market growth in the risk segment and we should see continued strong performance as we complete they their data and cloud transformation later this year.

Financial marketing services, our BTB offline business returned to growth with revenue of $48 million was up 4% and in line with our expectations revenue growth in offline fraud insights and I ask it I actually I wealth products was partially offset by lower pre screen marketing revenue.

Pre screen revenue from larger customers slowed growth in the quarter, but we saw significant weakness from smaller <unk> and fintech.

Yeah.

And we have not seen an increase in risk based portfolio reviews yet.

U S <unk> consumer solutions business had revenue of $56 million in first quarter up 8% from very good performances in our consumer direct and indirect channels.

<unk> is winning in the marketplace with strong momentum from new solutions and differentiated data in key verticals of identity and fraud commercial and auto.

We're also in active dialogues with U S customers about the competitive benefits of the Equifax cloud with always on stability faster data transmission and Equifax cloud enabled new solutions USA.

<unk> is an offence as they finalize their cloud transformation and are pivoting to selling cloud enabled new cloud enabled solutions.

U S. <unk> is also incurring incremental costs from customer migrations to the new Equifax cloud that are accelerating as we move through 2023.

We expect U S. I S. Adjusted EBITDA margins to be about 34% in the second quarter up sequentially, reflecting revenue growth and the accelerating benefits of our 2023 spending reduction plan.

Last month, we now have announced Todd Horvath joined Equifax as our U S. I S. President Todd has a proven track record of leading enterprise teams in financial services to drive growth and strong commercial relationship.

And he brings more than 20 years of financial services management experience, our commitment to driving product and operational excellence and strong expertise in enterprise and cloud technologies to his role as the U S. I S President.

I am energized to welcome Todd to the Equifax leadership team and believe that his experience and transformation innovation and customer experience will prove invaluable to taking U S. <unk> to the next year.

Turning to slide nine international revenue was 284 million in the quarter up 9% in constant currency, and 8% organically and much better than our expectations from new products and pricing actions.

We're seeing a broad based execution from Lisa and our international team.

Europe local currency revenue was down 4%, but stronger than expected. The decline was due to the expected 20% decline in our debt management business in the U K.

As we discussed last year, our UK debt management business was very strong in the first half of 2022 as the UK government made large catch up debt placements following their COVID-19 debt collection moratoriums.

As a result, we expect to see declines in that business in the first half of 2022. However, we do expect to see consistent sequential growth in our debt management business as we move through 2023.

In the quarter, we secured an expanded budget allocation from the UK government, which will deliver higher volumes of debt placements during the year and we expect good management to return to revenue growth later this year.

Our U K and Spain, CRA business revenue was up 7% in the quarter, a very good performance and stronger than we expected. This strong performance was principally due to strong growth from consumer Decisioning and analytical solutions.

Asia Pacific delivered very strong local.

Currency revenue growth of 11% and which Australia delivered high single digit growth in the quarter. We also saw very strong growth in our India business up over 40%.

Latin America local currency revenue was up a very strong 32% driven by very strong double digit growth in Argentina, Uruguay, Paraguay, and Central America from new product introductions and pricing actions and this is the eighth consecutive quarter of strong double digit growth for the Latin American team, which we expect to continue in 2023.

Canada local currency revenue was up 8% above our expectations growth in consumer and identity and fraud was offset partially by lower mortgage volumes in Canada.

In international adjusted EBITDA margins at 23, 5% or better than our expectations due to the stronger revenue growth and good execution against their 2023 cost reduction plans.

Turning to slide 10, new product introductions, leveraging our differentiated data in the new Equifax cloud are central to our E. F X 2025 growth strategy.

Building off the momentum from 2022, where we launched over 100, new products and delivered a record vitality index of over 13% in.

In the first quarter, we launched over 30, new products and delivered 13% vitality again.

Our first quarter vitality index was again led by very strong performance in workforce solutions and in Latin America and.

And in the quarter over 80% of new product revenue came from non mortgage products leveraging the new Equifax cloud.

Leveraging our new Equifax cloud capabilities to drive new product Rollouts, we expect to deliver a vitality index in 2023 at about 13%, which is well above our 10% long term vitality index goal.

This equates to over $700 million of revenue from new products introduced introduced in the past three years during 2023.

New products, leveraging our differentiated data, our new equifax cloud capabilities and single data fabric are central to our long term growth framework and are driving equifax topline growth and margins.

On the right side of the slide we've highlighted several new products introduced in the quarter leveraging our differentiated data U S. I S launched one score a new consumer credit scoring model that combines traditional equifax credit history with telecommunications pay TV and utility payment data on over 191 million consumers as well as equity.

<unk> data acts and pellet track specialty finance data on about 80 million consumers, including payment history from non traditional banks and lenders.

Which will potentially increase credit scores by up to 25 points and the global population by more than 20%.

These new solutions are testament to the power of the Equifax clouding driving innovation that can increase the visibility of consumers to help expand access to credit and create new mainstream financial opportunities for them.

Now I'd like to turn it over to Jon to provide more detail on our second quarter guidance, we're off to a strong start in 2023 building off the momentum from a strong 2022 non mortgage growth from new products record growth and pricing John Thanks, Marc before I discuss 2023, I'll share a little more detail on first quarter 'twenty three first quarter corporate expense at 146.

A million dollars was above our expectations, principally due to higher variable compensation with our strong first quarter results and costs related to executing the broader restructuring related to the $200 million spending reduction program.

Items below operating income came in as we expected with interest expense of $58 million depreciation and amortization, excluding acquisition related amortization of $89 million and a tax rate of about 26, 1% cash.

Capital spending in the quarter was about $154 million and in line with our expectations. We expect capital spending in the second quarter to remain at level similar to <unk> 23, and then sequentially decline in the third and fourth quarters as we complete significant U S and Canadian customer migrations to data fabric.

Total capital spending in 2023 is expected to be $545 million capex as a percentage of revenue will continue to decline in 2024, and thereafter, as we progress toward reaching 7% of revenue or below.

As Mark mentioned first quarter mortgage market originations were estimated by M. B, a down almost 58%, which is about 300 basis points weaker than the down 55% for the first quarter that we discussed in February .

On slide 11, however, first quarter credit inquiries were down 44% better than our February expectations. The 30 year fixed mortgage rate did decline from a high of six 5% in the quarter to about six 3% today. It appears the somewhat lower rates attracted people to begin the home buying process, but continued tight inventory and high home price.

There's limited closings on originations.

As we look for the rest of 2023 are planning does not assume a fundamental improvement in the mortgage warehousing markets. We're applying normal seasonal patterns to the current run rate of credit and twin inquiries that we were that we're seeing in late March and early April .

On that basis for 2023, we are expecting mortgage market originations to decline about 32% versus 2022 or about a 200 basis point greater decline than we discussed in February .

We have discussed in the past when inquiries are closely linked to originations usia's credit inquiries. Despite the weaker overall originations market should still be down about 30% versus 2022 due to the better than expected credit inquiries in the first quarter and the expectation of continued greater than normal mortgage shopping that does not move too on origination.

Looking at the second quarter again, applying seasonal patterns to the run rates. We're seeing in late March and early April mortgage market originations are assumed to be down about 38% and credit inquiries down about 33%.

As we discussed in February sequentially as we move through the second half of 2023, a more normal pattern of mortgage activity would have mortgage originations in <unk> 'twenty three being about flat with <unk> 23, and then declining and <unk> 23 versus <unk> 23.

We expect that would be sequential patterns in the weaker overall originations. In 2023, then we discussed in February U S mortgage originations would be down slightly in the second half versus the first half and <unk> 23 would be about flat year to year.

Turning to slide 12, as Mark referenced earlier in the first quarter, we outperformed on revenue delivery and delivered well against our 2023 spending reduction plan that will deliver $200 million, so and spending reduction in 2023 versus 2022 levels, including workforce reduction closure of Datacenters and additional cost control measures.

In the first quarter adjusted EBITDA margins were slightly stronger than expected at 29, 2% adjusted for the negative timing of the impact of higher stock based compensation in the quarter versus fourth quarter adjusted EBITDA margins would have been about 31%.

For <unk>, we expect adjusted EBITDA margins of approaching 32, 5% at the midpoint of our guidance range. This sequential margin expansion is driven by both revenue growth as well as acceleration of the savings in the second half of 'twenty three related to our $200 million spending reduction plan.

As revenue growth sequentially in the second half of 'twenty, three in cloud and cloud and broader cost reductions accelerate EBITDA margins and adjusted EPS improved sequentially with EBITDA margin is expected to exceed 36% and adjusted EPS exceeding $2 per share in the fourth quarter.

Slide 13 provides our guidance for the second quarter of twenty-three into Q 'twenty. Three we expect total equifax revenue to be between $1, three 1 billion and $1 three $3 billion with non mortgage constant currency revenue growth of seven 8%, partially offset by mortgage revenue declines moderating to about down 14%.

Compared to down 33% in the first quarter FX is expected to negatively impact revenue growth by just over 100 basis points.

<unk> 23, adjusted EBITDA margins are expected to approach 32, 5% up over 300 basis points sequentially given revenue growth. The 2023 cost actions and lower equity compensation expense overall EBITDA margins in total are expected to be up sequentially from <unk> 23, driven by workforce delivering adjusted.

EBITDA margins of over 51% in the quarter as well as margin improvement in U S. I guess from revenue growth and cost actions corporate expenses will decrease meaningfully sequentially and <unk> 23 is the equity compensation was principally reflected in the first quarter.

Business unit performance in the second quarter expected to be as described below workforce solutions revenue growth is expected to be down about 1% negatively impacted by the expected about 38% decline in mortgage market originations non mortgage revenue will be up high single digits overcoming year over year declines in U S hiring and cut.

Specific weakness in consumer lending, we expect AWS non mortgage growth to reaccelerate to double digits in the third and fourth quarters EBITDA margins are expected to be up over that.

They are expected to be over 51% up over 100 basis points sequentially, driven by sequential revenue growth and strong execution of 2023 cost actions workforce solutions will represent just under 50% of equifax revenue in the quarter.

<unk> revenue is expected to be up about 3% year to year non mortgage revenue growth should be approximately at the level similar to the 8% we delivered in the first quarter, partially offset by a decline in mortgage revenue due to the expected 33% decline in mortgage credit inquiries.

<unk> margins are expected to be about 34% up sequentially due to revenue growth and strong execution on cost actions international revenue is expected to be up about 6% in constant currency with EBITDA margins expected to be about 23%.

Total non mortgage constant currency growth of 7%, 8% is down from the 10% we delivered in the first quarter. We do expect a return to 10% plus growth in <unk> and <unk>, principally driven by accelerating growth in AWS as well as stronger growth in international.

We're expecting adjusted EPS of <unk> 23 to be $1 16 to $1 70 per share.

Slide 14 provides the specifics of our 2023 full year guidance as Mark mentioned, we are maintaining our full year guidance. Despite the expected weaker U S mortgage originations and a more negative impact of foreign exchange. We expect total mortgage revenue to be down year to year at similar levels to our February guidance at down eight.

Percent or slightly more negative as we discussed we expect mortgage originations will be down 32% versus the down 30%. We discussed in February we do not expect this to impact the U S. I S mortgage revenue.

We are seeing higher levels of shopping, which offset the decline in originations and AWS. We expect an improved mix of higher value trended mortgage solutions to partially mitigate the impact of the originations decline.

For non mortgage constant currency revenue, we continue to expect constant currency growth at about the levels. We discussed in February at up 8% or slightly better given our strong performance in NPI and stronger growth in international these levels of growth. The strong start we had to the year execution and NPI delivery of our 2023 spending.

<unk> and cloud transformation plans allow us to deliver to our guidance. Despite the negative impact of FX. We believe that our full year guidance is centered at the midpoint of both our revenue and adjusted EPS ranges.

As we discussed in February we remain focused on delivering our mid term goal of $7 billion in revenue and 39% EBITDA margins market conditions are significantly different than we first discussed in November of 2021, our goals of achieving these these goals in 2025.

Mortgage market is expected in 2023 to be down about 40% from the normal 2015 to 19 average levels. We had discussed to deliver $7 billion in revenue in 2025, our core organic revenue has grown over 300 basis points faster than we discussed with you in November of 2021, However, a recovery in the mortgage market.

The levels, we are seeing in 2023 are on the order of two thirds of the lost volume is still likely needed to achieve our $7 billion goal. We are focused on driving above market growth and delivering the cost and expense improvements committed with our 2023 and 2024 spending reduction plans and as part of our data and technology cloud transformation.

You are needed to achieve 39% EBITDA margins as we exceed the $7 billion revenue level. We will continue to discuss with you our progress toward our $7 billion goal as the mortgage in overall markets evolve in 2023 and forward now.

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

Thanks, John wrapping.

Wrapping up on slide 15, Equifax delivered another strong and broad based quarter with above market performance delivering strong 10% non mortgage constant currency dollar revenue growth, reflecting the breadth and depth of the equifax business model and our execution against our FX 2025 strategic priorities.

But the business unit level workforce solutions had another strong quarter powering our results delivering 11% non mortgage revenue growth with adjusted EBITDA margins of 50%.

As I mentioned earlier AWS signed three new payroll processors would end with our twin current records, reaching $156 million up 4 million record sequentially and up 15% versus last year.

Workforce delivered another very strong quarter with a vitality index of over 20% from innovative new products and solutions leveraging the new FX cloud, while further penetrating the high growth talent and government verticals.

U S. I S continued their momentum from the fourth quarter with <unk> non mortgage growth of 8% total and 3% are figure organic in the quarter driven by online <unk> non mortgage growth of 9% total and 3% organic as they accelerate customer migrations to their new Equifax cloud.

International delivered strong 9% local currency growth with strong growth in Latam, Australia, Canada, India, and our European credit businesses.

And our first quarter vitality index up 13% continues to be well above our 10% long term N P. I framework as we delivered over 30, new products leveraging the new Equifax cloud in the quarter.

And we made significant progress executing against our FX cloud data and technology transformation with over 70% of our revenue being delivered from the new Equifax cloud and we're laser focused on completing our North America migration this year to become the only cloud native data analytics company.

And we're executing against our spending reduction plans that will deliver $200 million of savings in 2023 with run rate savings of over $250 million in 2024 that will expand our margins to 36% and EPS to over $2 per share as we exit the year, which positions us for an uncertain economic environment, while reducing the cap.

Intensity of our business.

And as mentioned earlier, given our strong performance in the quarter, our ability to continue to outperform our underlying markets and deliver on our planned 2023 spending reductions we've reaffirmed our 2023 guidance for revenue and adjusted EPS.

We're entering the next chapter of the new Equifax as we pivot from building the Equifax cloud over the past four years to leveraging our new cloud capabilities to drive our top and bottom line. We're energized by the early benefits of the Equifax cloud.

We're delivering on the cost benefits, we outlined four years ago, and you're seeing our margins expand the.

The competitive benefits of being always on faster data transmission and digital macro are positioning us for share gains.

The power of a single data fabric, where all our data has moved from siloed environments to a single data.

Environment is allowing us to deliver unique solutions like our new mortgage credit report leveraging NC plus data one score leveraging all our turnover all our all of our alternative data and a wide array of trended solutions leveraging our historical data.

N P is leveraging our differentiated data and cloud capabilities are accelerating and well above our 10% long term vitality goal with over 13% vitality last year and 13% in the first quarter.

Even more encouraging is he is workforce solutions NPI results.

<unk> completed most of their cloud work early last year and is delivering over 20% vitality in 2023.

This is exciting time for equifax and I'm energized about our strong above market performance, but even more energized about the new equifax in 2023 and beyond.

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

Certainly, we'll now be conducting a question and answer session. We ask you. Please ask one question and one follow up if you'd like to be placed in the question queue. Please press star one at this time you.

You May press star two if you'd like to move your question from the queue. Once again. Please ask one question and one follow up our first question today is coming from Manav Patnaik from Barclays. Your line is now live.

Thank you good morning, I'm Mark I was just hoping you could talk a little bit about you know what your regional bank exposure is and just broadly how you factor. It you know the the credit tightening that they're hearing about you know into your guidance because it sounds like on a non mortgage constant currency basis, you're actually raising the outlook.

A bit which seems counter to this transfer was just hoping you could help us parse those two.

Yeah.

Maybe I'll start with Fintech as you know we have a fintech business our position there is smaller than at least one of our competitors and we've been seeing tightening in that space for a number of quarters I think it started really almost a year ago with the Fintech tightening are you know really from their balance sheet challenges.

We haven't seen much impact if you go to mid size banks, we expect them to continue to originate there'll be some tightening there as we outlined and we believe that's factored into our second half guidance.

Where we expect to see a slowdown in some of the originations, but as you might imagine the bulk of our revenue comes from the larger F. EIS that haven't been impacted by this our balance sheet impacts our balance sheet tightening from deposits.

And in terms without it here.

Terms of full year that the slightly the comment you made about were slightly stronger given the adjustments and FX. What youre seeing is international is actually performing a little better right. So in our 2023 guidance, we did take up our expectation for international growth by about 100 basis points.

Got it Okay. That's helpful. And then you know Michael This thing you know you've talked about you know a tech transformation a lot and you know you just mentioned the always on single data fabric et cetera, but you know with all the news around AI and chat GPT and so forth.

And in the media I was just hoping you could talk about you know where you are with your capabilities, there and the risks and opportunities you see.

Yeah, It's a great question Manav, it's one that we've talked about before.

Ben.

You know working and deeply involved in AI on our data analytics team for a long time.

You've heard us talk about the N D T, which is our one of our patented solutions around explainable AI that we're using both internally and with our customers and it's embedded in our ignite solution and our relationship with Google as you know we're on the Google Cloud brings a very strong capable.

<unk> to us that we're leveraging to expand our AI capabilities and as you pointed out I think this is a.

I would call it a macro meaning for the industry of using AI to really drive more predictability and manage more data going forward and we believe we're uniquely positioned.

To really take advantage of the AI capabilities by having number one all our data in a single data fabric, which is you know is unique to Equifax and then second being cloud native as.

As we complete the cloud over the coming quarters, principally in North America, that's going to allow both workforce solutions and U S. I S to really leverage those AI capabilities to just bring.

New solutions and more solutions, leveraging more data to our customers going forward.

Alright, thank you.

Thank you. Your next question is coming from Kyle Peterson from Needham <unk> Company. Your line is now live.

Great. Thanks. Good morning, guys, you don't want to follow up on <unk> question on some of the.

They have concerns of a credit crunch and kind of some of the shifting in deposits, but just wanted to see you in March.

At the peak of some of the volatility with the regional banks did you guys see any disruption whether it be temporary or modest in in volumes kind of when everything was happening.

With some of these regional banks or you know where do you guys largely on impacted given the heavier exposure to the money centers.

But I would say, even though our midsized banks there was no impact that we could see or measure really in the in the AR in March or really in April so far from deposit tightening we mentioned that we've seen some tightening in some areas. Our fintech for example, number one because of delinquency.

Turns and in subprime consumers, which I would characterize is unrelated to the deposit.

And and balance sheet issues that some of those fin techs have been having and you know broadly we haven't seen that impact its really been more just risk management, you know from tightening around certain credit bands because of concerns around consumer exposure and again as you heard my comments earlier broadly the consumers.

Still quite healthy and you know broadly delinquencies or you know are still very manageable and low versus kind of historic levels, which is allowing our customers to continue to originate but back in February and again you know today, we still are looking at the second half as being a what we characterize as some level of.

Oh down and that's reflected in our guidance you know and how we think about our you know our ability to deliver in the second half and that's reflected in our.

Our reaffirmation of the full.

Full year guidance.

We think the strength of the broader business isn't remember.

There's a lot of equifax businesses that are outside of financial services. You know when you think about workforce solutions government talent solutions, our employer business.

Many of our identity and fraud businesses in U S. I S or you know not in financial services. So there's a diversity element and of course, we have an international business is quite large.

All a part of Equifax.

As Mark mentioned in D D and we didn't say in prescreen and we are seeing some impact from fintech as well as smaller financial institutions, and that's really where we're seeing it in pre screen and might prescreen was weaker.

Yeah.

Got it.

That's really helpful color and just as a follow up on the talent solutions side of the business. It seems like <unk> was at least a little better and <unk> on the revenue side of things. It seems like some of that is likely price, but just wanted to see if you guys could give any color.

Was this predominantly pricing is there any seasonality because I guess it seems like some of that the hiring data as soon as little a little cautious.

From what we've seen but just wanted to see if you could help us square the put.

And takes of that sequential bump up in the town of solutions revenue.

Yeah, I think as you pointed out the underlying market is declining theres less hiring going on for sure. You know you have a combination of companies doing layoffs and when companies do layoffs. They generally you know tighten up head. Count addition, so we're clearly seeing that that started in the fourth quarter and continued through the first quarter really it kind of a similar decline.

And then what's offsetting that is remember we have a large business here, but the Tam is huge.

About a $5 billion Tam and we've got a almost a four.

100 million dollar business here. So we have a lot of number one penetration opportunities.

So even if the markets declining we have the opportunity to add new customers or get more market share with existing customers, which are primarily background screeners number two as you point out you know every year, we take a price generally in the first quarter, so that price benefit.

It is a it is in the results in the first quarter and that's a positive and you heard us talk about some of the new products, which really is driving that penetration we've rolled out a number of new products.

In the first quarter that are also benefiting the talent business and then laugh would be record additions as we add new records, we have more jobs on our database and those allow us to have higher hit rates you know when a background screens are completed so you know the the number of levers that workforce has in that vertical and frankly, all the verticals.

Now allows them to outperform their underlying markets, you know quite strongly and and that's a you know inherent in their business model.

Yeah.

Got it that's really helpful. Thanks, guys.

Thank you. Your next question is coming from Andrew Steinman from Jpmorgan. Your line is now live.

Hi, John .

Implied in the 2023 guide in terms of organic constant currency revenue growth on a non mortgage basis. So this is for 23 versus the 8% that was in the in the first quarter.

Yeah. So I don't think we gave an organic number for the full year right.

But what we are expecting to see as we talked about is nice strength in strengthening in our and our total non mortgage growth as we go through the rest of the third quarter and fourth quarter.

Okay could you just talk a little bit about that acceleration in AWS CFO already been pretty clear about the international momentum.

Sure. So I think what AWS, because continuing to see very good performance in government and we expect to continue to see that that move forward.

As we go through the rest of the year Theyre also seeing really nice progress in new product. So we're expecting to see good acceleration in NPI record additions record additions as we go through the rest of the year as well as they added three new payroll processors in the first quarter and we expect to see accelerating growth in records as we go through the year. So I think all of those things will help us continue to drive.

Higher performance and in non mortgage in AWS as we go through the rest of the year.

Much appreciate it thank you.

Thank you next question is coming from Andrew Jeffrey from true with Securities. Your line is now live.

Hi, Thanks, and good morning appreciate you taking the question.

Uh huh.

Mark you mentioned trended data and in AWS, which is pretty intriguing can you discuss a little bit kind of what the price differential is on some of those newer trended data products and then sort of as a follow up can you also just refresh us on what percent of AWS inquiries go.

Unfulfillment today, either because you don't have the data or you don't have the records in the database and how you think those trends are.

Move over time.

Yeah, Yeah, two great questions.

On the first one.

You know that's a big part of our not only AWS, but across equifax, but AWS when they completed the cloud last year was really able to unleash a lot of the capabilities around leveraging their historical dataset and I think as you know we keep every record. So we have over 600 million records and.

If you think about mortgage or do you think about auto or you know so many other verticals are understanding how much someone has paid today is very valuable, but having the history of what they are paid and is that pay increasing is it decreasing is it staying the same or if you've got a.

Our employee in individual who's a compensated with a sales commission you know on.

On a quarterly basis or an annual basis that won't be picked up in a snapshot today. So trended data is very very valuable and we talked about in the call that we launched and I think it was in the early in the fourth quarter, our new mortgage 36 product that gives 36 months worth of history of employment, leveraging our historical data and that.

Become a very strong seller inside of the mortgage space and that sells it you know really multiples, meaning a two to three X what a snapshot itself sell for our our basic income and employment data data sells for 40 to $50 to $60.

You know the trended data will be multiples of that because it delivers so much more predictive information for our customers and our customers are buying it.

Same thing in other verticals you know around that historical data is very valuable and background screening.

Some employers are looking for last job worked for certain jobs.

Other employers or maybe in a white collar roller looking four five years' worth of history, and we obviously sell that longer history at a higher price point versus just the snapshot. So that's a big growth up player for us and I think we talked on the the comments early the formal comments that you know verifier revenue now is approaching 50%.

Your second question on records.

Working or employed individuals in the United States, including a 160 768 million nonfarm payroll 20 to 40 million gig or self employed individuals and remember our <unk>.

99, self employed employee or worker.

Could be a doctor or dentist a lawyer.

You know very high paid jobs are there also you know are going to be a a uber driver. So there's a wide array of employees in that $20 million to $40 million. So we're going after those records and then there's another 20 to 30 million defined benefit pension or is in the U S. And that's pension income is income that our customers want to use when.

Someone who's retired or receiving pension income is going out to get a financial product, whether it's a mortgage and auto loan so against the $220 million.

Total income producing individuals in the United States, we have about $117 million. So we're you know our hit rates are well north of 50%, but you know what the real opportunity is as we continue to grow records and it's just a very unique lever for any business to have because as you know we're already getting.

The inquiries.

Two our workforce solutions for every applicant that our customers have and when we're not able to fulfill they have to do it manually.

Through using paper pay stubs and calling around to employers so as we add new records.

During the quarter were able to monetize them instantly because we already have the inquiries are the orders coming to our database. So that's why we have such a big focus and a large team of workforce solutions people focus on all of those different verticals to add records to our workforce solutions and you know when you think about records being up.

You know double digit that translates into double digit revenue. So it's a very powerful lever for the business.

I appreciate it thank you.

Yeah.

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

Hi, Thank you very much and this one might be for John just can you can you talk about the none the mortgage and non mortgage organic verifier revenue I think it was given out in previous quarters, but I didn't see it on the slide and then a follow up.

So again, what we talked about I think in the quarter as we had very good growth in total.

It was about 16% I think in verifier, and then 11% growth we didn't give a specific organic number acquisitions weren't that substantial in AWS in the past year. So there's really not a significant impact from acquisitions and really what we're expecting as we just talked about a minute ago to drive the growth as we go forward is really continued.

<unk> and growth in government and continued a continued addition of records benefits of new products as well as additional pricing that should allow us to get to drive back to total growth in the in the back half of the year, that's above 10% as it was in the first quarter.

Okay. Thanks, and then when you talked about the new payroll processors, how do you see this is.

Significant effort on the company's part to go ahead and continue to add the records, but I didn't see the comment that those were exclusive like we have seen in previous quarters. So that just left out or were some of them just not exclusive.

No the contracts that we're signing are and will continue to be exclusive going forward. That's our that's our plan and it needs work.

Okay, great. Thank you very much.

Yeah.

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

Hi, good morning, Thanks for taking my questions I wanted to start it doesn't seem like from the deck. There was any mention of the identity and fraud business in the quarter just wondering how how that's trending both in the first quarter and what your expectations are for.

Progression as we move through the year there.

Yes, that's still strong growth, we should've should have called it out there was not.

Not intended that it did not do that we've got a lot of good things happening at Equifax and we should have highlighted that one also as you know we acquired count you know a couple of years ago, and we've added mitigate or last year and are those two businesses in the United States and actually globally are performing very well and continuing to deliver that double digit revenue. So they were a part of that U S.

A strong U S performance and as you know identity is an area that is a.

I already focus for Equifax are both around our new products is it is also and also around M&A and the identity and fraud team of rolling out new solutions to really expand their capabilities not only in count space in the retail World where E. Commerce has been their focus but as you know we've got a large.

And expanding them identity business in FY insurance, and telco, where we're bringing new solutions are there also.

Yes.

Great. Thank you and then for my follow up I wanted to ask about <unk>.

Mortgage growth in AWS, it looks to me like the.

The outperformance relative to inquiry volumes as has been narrowing or at least narrowed in the quarter.

Just wondering if there's anything to read into that is that a lower kind of normal level of outperformance to expect through the rest of the year. If you could just kind of unpack the 38%.

Mortgage declined relative to the 44% decline in inquiries in the first quarter that would be helpful. Thank you.

Yes, I think the more relevant comparison really is against originations right because U S. A U S. I S. Obviously ties very closely to credit inquiries like AWS is much more closely tied to originations because AWS twin data is not pulled as early in the cycle of our mortgage as credit is so it's.

Very closely tied to an origination and the 20% outperformance relative to originations. We think was very strong and very consistent with our expectations. So we feel really good about the way, they're performing and again, it's all the things <unk> already referenced strong record growth good performance in pricing and especially in the last couple of quarters, they've done an outstanding job of rolling out mortgage 36, which is their new <unk>.

Trended product, which has been very beneficial and which the rollout will complete here as we get through first quarter into second quarter. So we.

We feel really good about their outperformance against mortgage they're also off of a tough comp from last year had very tough comps from a very very strong outperformance from some of the new products that were rolled out.

Late in 'twenty, one and into 'twenty. Two are you know they had a very very strong 22, and we're pleased with their outperformance. We think is very strong.

Makes sense. Thank you didn't account for that new launch. Thank you.

Thank you next question is coming from Craig Huber from Huber Research. Your line is now live.

Yes. Good morning. Thank you. My first question can you just give us a little more detail. If you would in the U S for auto and credit card business, how that did and maybe what your outlook is for the rest of the year.

So I think we indicated that auto performed well and we also indicated I believe that that F. I R banking right was about flat right and our credit card business is inside of EFI.

And I think we also said in the comments that what was driving the F. Five to flat was fintech down which has been under pressure from originations for a while some slowdown but limited in the smaller banks and continued growth with the larger F. EIS. So there was you know kind of a balancing impact in there.

And then my final question guys on your uses of free cash flow was your thoughts your change we should expect anything different here than other potential debt pay down.

Yeah, you know, we're still focused first and foremost on growing the company and expanding our EBITDA margins and I think as you know Craig.

As we complete the cloud our Capex will come down it's down this year. Our plan is to take it down again next year. So that's going to expand our free cash flow certainly our margins will continue to expand and when we think about uses of free cash flow. No change you know are one to two points of revenue growth from bolt on M&A. You know is a part of our capital.

Allocation strategy and as you know we've got a boa Vista in the pipeline to add to Equifax, which is actually a bit north of that one to two points of revenue growth and then we've been very clear that in the future as our margins move towards that 39% in 2025, our free cash flow will continue to expand.

And excess free cash flow beyond what we used for M&A and Capex, we want to return to shareholders at the right time through buyback and dividend and that's certainly a part of our plan in the future.

Sorry, Harry near term rate, where we are focused on and on.

Reducing leverage and and and and as we move through 2023 in early 2024, you'll see us focus on leverage reduction and I think in the back half of the year focus on integrations, obviously as we complete pvs and integrate the other acquisitions, we've done over the next couple of years.

Sorry back on the first question for auto and credit card outlook for the second half if you could just touch on that a little bit further thank you very much.

So we didn't really give a forecast by segment right, but I think what we did talk about is that embedded in our guidance is an expectation is we'll see generally weakening markets as we go through the rest of this year. That's certainly true in the U S. In the back half sorry in the back half of this year in the U S. But also in most of our international markets, we didn't give specific forecast.

Around auto <unk> or F I.

Okay. Thank you.

Thank you next question is coming from Kelsey Xu from Autonomous Research. Your line is now live.

Thanks for taking my question.

Some went down.

For.

Wholesale Alexander.

Hi, how are you thinking about.

Hi, Paul our growth trajectory.

We don't there's a number of solutions out there.

From Fintech and as you know experience got a business there too.

Scale of our data set our ability to continue growing that data set and the fact, we get you know a verified records directly from the source you know, meaning the the company's payroll records and the depth of the record also as you probably know we get over 50 attributes in every payroll record that includes name social <unk>.

Birth job title, which is very important for our employer vertical, but then all kinds of details on the payroll gross paid net paid deduction stock compensation incentive compensation sales compensation hours worked et cetera. So the depth of our database. The fact that its current every pay period and the the ski.

All of it you know really gives us a very strong position and then lastly, I think as you know we have system to system integrations that we've built in all of our verticals.

Where is it part of their workflows, our customers' workflows they hit our database.

So were hit first.

Where solutions like you described or some of the Fintech play in is a you know where theres not a verification available from workforce solutions and you have to go through another source, which is typically manual and that's why we have a partnership with Yodlee, where we do a bad transaction data and Theres other solutions like that but.

You know you've seen continued super strong growth from workforce because of the uniqueness and the scale and depth of the dataset.

Got it Super helpful.

You're right.

Hmm.

Strong growth there.

Yeah, that's a that business is a direct to consumer business that are you know, where we sell a credit monitoring solutions and other solutions like that.

It's really the business is rolled out some new products its leveraging our new cloud capabilities and just having better performance you know in our in some of the success.

Success rate of landing new consumers that want to use our credit monitoring solutions in the marketplace, though where you know we're pleased with that performance and having it returned to growth you may recall that our you know it struggled a you know a year ago, two years ago, and as we got into the cloud and leverage those capabilities and rolled out the new products, we've had some better performance, which.

We're pleased with.

Thanks Kristina.

Thank you. Your next question today is coming from Jeff Mueller from Baird. Your line is now live.

Yes. Thank you good morning.

I guess I had a different take on the verifier talent to get that revenue dollars stepped up sequentially, but when I look at the year over year, I guess revenue plus 10 gross hiring minus six so I think that's an industry metric and then records plus 15 mathematically that seemed like the story.

But you are calling out several other I guess structural growth drivers or factors.

No you've gotten asked a lot about one specific situation referenced by another public company, but just if you can help me on the other structural growth drivers or if theres any other offsets to that might need to consider thank you.

But one thing I would change in your walk there, Jeff I think you're hitting a lot of the right points is the record growth remember in talent, we use our historical records and current records growth is very important but you know most of what we're leveraging is not records from the quarter in that business. It's records over the last year or two year three years or four years or five years. So.

That isn't going to be quite as big an impact as far as higher hit rates you know as we add.

In essence, what you're at it you want to add is more jobs, new product rollouts as we talked a they've rolled out a couple of new products.

A number of new products over the last.

12 months to 18 months. So those are benefiting you know kind of on a year over year basis is there embedded in you know with our customers principally background screeners and we rolled out a couple of new ones in the quarter. You know one for the hourly workforce that we think is a is going to provide growth to us going forward and then the other growth lever for that business to offer.

Set a declining market is just pure penetration.

Remember, we're doing you know in rough you know kind of high level math, you know to intent or three intern background screens are using our data you know the others are still using the manual P. P. O you know kind of a process. So that's an opportunity for the business I don't know if that's helpful.

That's helpful. Thank you and then.

Just the 36% plus and $2 is a launching off point I just wanted to make sure I'm thinking through the seasonality correctly I guess in future years, there is still some seasonally lower margin or EPS.

Q1, but.

Timing of equity grants and other factors, but it's nowhere near as pronounced as it was in 2023, because there was a one time.

Catch up in 'twenty three that impacted Q1, just want to make sure I have that right. Thank you.

So can you just talk about the incentive compensation impact in the first quarter, along with the equity compensation impact.

So so specific to equity now the impact each year is probably relatively similar right. Because it's just the fact that the grants that are executed in a given year based on the structure of the programs. Now currently ended up being the expense ends up being taken in the first quarter as Mark mentioned in terms of the impact on our margins going from the <unk>.

The first of 20.

Fourth of 22, the first of 2023, we did obviously have an incremental impact as we normalized cash incentive compensation and that's not something that we should see each year going forward, but but the equity incentive compensation, yes, that's something you'll see each year, but I think to your question.

The cost out is quite substantial meaning our cost structure is going to be meaningfully lower as we exit the year and complete you know the the the restructure the restructurings that were talking about and I think we've also talked I think on the last call. We expect to have number one carryover benefit because these cost outs.

And throughout the year. So we're not at full run rate of those cost actions in the fourth quarter. So you get a benefit in 2024 that will help our margins next year and then we also expect to have further cloud savings in our 2024 as we complete you know we're not fully complete with the cloud at the end of this year, so there'll be additional.

Benefits from that.

Thank you very much.

Thank you next question is coming from Heather Dusky from Bank of America. Your line is now live.

Hi, Thank you for taking my question.

Can you update us on your plan.

Our on your you asked I asked product launch strategy now that you've finalized our tech transformation I'm curious we've seen some releases around the product content should we see those launches ramp more meaningfully this year and Linda it's hard to see a benefit.

Sales for this effort.

Yeah, 100%.

As a reminder.

U S. I S is not complete with their cloud transformation, but there you know in.

And the final chapter so we're going to complete that this year, we have a meaningful number of customers already on the U S. I S cloud, which is a big deal.

You are seeing an acceleration of new product rollouts.

In 2023 already.

From the U S. I S team you may have seen our announcement, which I didn't talk about this morning of our we talked about in February of our new mortgage credit report, where we're adding our cellphone utility data to that that's going to provide a meaningful lift in our in our credit scores for consumers by the addition of that data and we're the only ones that can do that so that's going to be a.

Very positive product for us in the in the mortgage space I talked about this morning are the new one score solution that combines our cellphone utility data, which is a very large data set for equifax that only we have along with our tele track.

And data X solutions on 80 million consumers in the U S. So that's another new solution that will be additive to the credit file and differentiate us in the marketplace. So that's a brand new product, it's a that's out there.

We also launched a new solution in our commercial business, that's really driving that business growth I mean, that's one that's been in the marketplace, you know a little bit longer for a few months, but you're seeing very strong double digit growth in our commercial business at an absolution, we're combining our bank transaction data with along with our pay net lease.

<unk> trade line data, which driven dip, which delivers very meaningful predictability lips and performance lifts for our commercial customers. So big time, you know we have a you're already seeing it you know the early early days of them rolling out their solutions and I think you are seeing in some of the some of the revenue in the businesses.

And that'll continue to show up as we complete the cloud and U S. I S. Later this year the other lever that's going to be I think we've talked about is we expect to have competitive or market share gains from the stability, meaning always on as well as the data transmission benefits.

From the Equifax cloud for U S. I S. So that's another lever and we've been clear that we're in active dialogues with customers that are moving equifax into preferred positions.

Because of our investment in the cloud and again, there's another U S. I S benefits. So those are impacts on their revenue should show up as we move through 'twenty, three but really kick in in 'twenty four 'twenty five.

Thank you that's helpful and just as a housekeeping question there was that 25 million dollar.

Not really.

Later to M&A integration just curious what's.

What's that related to in particular is that right.

Not anything with all he saw or is it other past transaction.

Okay. So youre talking about the difference between our adjusted and Unadjusted financials now we.

We include M&A integration for a period of time.

Outside of our of our adjusted EPS and that's just the M&A integration related to the some of the transactions have been completed over the past 18 months.

Okay. Thank you very much.

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

Thanks, So much I was hoping to ask about the margin ramp in the second half I know you talked to that 200 million of expense savings with a bulk of that coming from opex, but I guess just how much of the margin expansion is in the bag. If you will based on spending that.

Going away versus how much is based on scale or <unk>.

Improvement in the business.

Well I'd say in the second half, there's a significant amount obviously from spending reductions.

And there's a there's a lot of execution to do in order to generate those spending reductions we feel confident that we're going to do it.

But the and we're executing very well through April and I'm doing that but we're focused on delivering those spending reductions and expect to do that so it's a significant amount of the improvement in the second half, but we also do have some revenue ramp in the second half rate, we talked about some growth that we're expecting to see an AWS specifically around their non mortgage segment, we're expecting to see.

<unk> strong performance across the international good performance in U S. I asked leaving across non mortgage. So we are expecting to see those those improvements in revenue, which will also help drive margin enhancements. So it's really in both areas and both are meaningful and there's execution necessary for both of them in order to deliver the 36% percent plus mark.

Maybe just to add on that I'm not sure I'd use your term into bag, but I would say we have a high degree of confidence because we have real visibility around the cost reductions you know those.

Or ones, where we know you know when contractors are going to leave and when we're gonna decommission Datacenters. That's all in our control. So that gives us a lot of confidence in the ability to execute against that if that makes sense.

Terrific.

My follow up wanted to ask about work number you know there've been a few income and employment verification providers moving into the space I guess, how do you see the long term playing out are there specific areas, where maybe new competitors can compete in like like current employment.

More recently on planet Earth is like you are providing a lot of value with the historical and you now have the advantage. There. So just I guess, maybe long term competitive wise you know how do you see that the industry playing out.

Yes, it's not lost on us there's other players there you know that our biggest competitor is the way we think about it as paper pay stubs.

Almost 50% of income and employment Verifications are still done manually.

You know in the United States.

The scale of our data set obviously is a real advantage and we continue to grow that you know being up double digit in records in the quarter, adding three new payroll processors as you know we add a record through our employer solutions business as we grow that business and you see her W. Two or all the other services, we provide to our <unk>.

Directly to our HR managers, you know scale is clearly a real advantage to us and as you also point out increasingly the historical records that we have from our decades in the business are Super valuable you know with a 50% verifier revenue.

Coming from those historical records, that's very hard to get you know when you're a fintech I'm trying to get someone's bank account information that only has the net pay in it you know getting that historical net pay as a data point, but it's generally not deep enough or.

Broad enough you know what you use in a lot of the Verifications that are that we're using so scale is a big deal for us the depth of the dataset, meaning having gross pay through all the deductions all those details and then are the historical records. So we're focused on expanding I think as you know we've done.

I think five acquisitions in the last 24 months to strengthen our employer capabilities. There that's a big growth lever for us to add records and we're continuing to add payroll partners with three new ones are assigned in the first quarter that'll come online. So you know what were clearly very very focused on expanding the record set that we have.

Thank you.

Thank you next question is coming from David <unk> from Evercore ISI. Your line is now live.

Thank you good morning could you quantify your 2023 revenue and earnings guidance. How much is included both from pricing actions at AWS and positive price mix from the shift to trended data.

Particularly benefited.

Benefited by the new mortgage 36 product and just as a follow up Mark if you could give us a broader framework about how you think about pricing in the AWS business beyond this year in terms of how you think about balancing.

Strong unit demand versus taking price. Thank you.

Yeah, David I think as you know for competitive reasons and commercial reasons, we don't disclose any of our price actions in any parts of the business I think we've been clear that are you know.

The majority of Equifax businesses take price up every year, we generally do it on one one and we did that this year and we expect to do it next year and going forward. So no question that that's a part of our strategy and you know when you think about price and I know you do you've got to think about pure price, but also the impact of our new.

<unk> initiatives, which generally are delivering.

Our differentiated solutions with more data and that more data drives more predictability and value for our customers and allows us to charge more for that so new products are clearly a lever of our growth growth for us and you know again you you should also think about workforce solutions in particular of having multiple levers that.

I would say our all important certainly pure prices pure product growth is a real margin expander in revenue expander for workforce and the rest of Equifax record growth certainly drives a very meaningfully our topline and our bottom line at workforce solutions and it's very unique.

Our other businesses and most other data businesses in the industry already have all the records or have you know marginal ability to add to them you know in our.

Our case Theres 220 million, you know working or income producing Americans in the U S and we've got 117 of them millions. So there's a lot of growth and being up double digit in the quarter. You know is a big revenue growth you know.

And workforce, we also a big penetration opportunities.

Remember most data businesses. Your dataset is used on every.

Transaction and every customer that's highly penetrated because they've been around for a long time, even in mortgage and workforce solutions. You know close to 40% of mortgages are done manually income and employment verification and that was 55, a few years ago. So we've grown that 500 basis points, so a bunch of levers.

Beyond price is what makes workforce so unique in its ability to outperform the underlying markets that it competes in.

Your point on balances are is right on you used the right word we tried to be very balanced in all of our businesses, including workforce around what we're doing on pure price in AR balance.

How do we look at it going forward as I always going to be around the value, we're delivering and our you know the unique solutions that we have.

Great and just the second part of that if you would on <unk>.

Contribution from the increasing growth of trended data I think John you indicated you know half of passive units in U S. We're now trended data driven.

I think that was workforce that we said that in verification, but.

Cross all of Equifax businesses. This is not a new trend.

But it's one where it workforce the cloud has really enabled them to.

Really rollout a wide array of trended solutions and you know we talked about on the call earlier mortgage 36, which is 36 months of income and employment data on an individual allows the mortgage originator to more quickly get a full picture of that consumer and allow them to approve more loans.

Which is what they're trying to do they spend five to $6000 of origination costs. They want to make sure they're working with a consumer that can close and afford alone that they're putting in front of them. So you know trended as a is a big deal and it was trended solutions all sell at higher price points than you know a snapshot of the of the data.

Yeah.

Understood. Thank you.

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

Hey, good morning, guys. Thanks for taking my question.

I wanted to ask about the strength in the international margin in the quarter is there anything that you'd call out there either from a regional mix or I know you talked about introducing a bunch of new products.

And the reason why I ask is because it looks like your second quarter margin guide comes down a little bit sequentially.

Versus the first quarter. So I'm just trying to understand what's going on there or if it's maybe your cloud migration. These expenses are starting to ramp.

Anything you'd call out on international margins. Thanks.

Sure. So margins obviously were good in the first quarter better than we expected not where we want them to be long term, but it's better than we expected and a lot of it was driven by a really good revenue performance right. They had very good revenue performance in all regions.

And really very strong revenue performance for example, stronger than you'd normally expect to see in Asia Pacific So that along with the stronger performance across all regions. I think gave them better margin performance than we had expected. It's we did indicate slightly weaker in the second quarter and Thats really just related to some of the movements in revenue there is some incremental expense.

As they continue to move through migration and transformation Theres certainly expense there is it going from the first to the second quarter, but but generally speaking I think what we're what we're expecting to see is is as margin performance. As we described in the second quarter and then as we move through there through the rest of the year improving margin performance in international.

Okay. Thank you and then just I apologize if I missed this but did you give kind of what your.

What kind of interest rate.

Work you guys are expecting for the back half of the year, that's kind of embedded in your guidance just we.

If I if I was able to do that are you know I'd be in a different job probably but.

We just said we expect it to be higher inflation I think the fed telegraphed that.

We expect it to be higher and that's why we put the slowdown in the second half of our guidance back in February and we're we're still sticking with that.

Got it okay. Thank you guys appreciate it.

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

Hi, Thanks, Good morning, Doug.

The WNS business.

Within non E. W where did you see the most change in volume growth going from four Q How'd, you volume trends need to change to achieve your full use non mortgage outlook.

George you're breaking up I don't know if you're on a cell phone or a speaker I think your question is about AWS and I believe it's around non mortgage growth, but I didn't hear the rest of it can you try again.

Yeah, basically trying to see where we saw them, Spain and non mortgage UWS growth growing 42 to one and basically how those trends need to evolve to achieve your full year non mortgage UWS outlook.

Yeah. So I think it's around non mortgage in our in what.

What the drivers of that dws in 2023.

First on <unk>.

Growth lever basis record growth is obviously going to be positive. They did a pricing action early in the year and all the verticals. So that's going to benefit through the year, new product rollouts, you've seen or been quite active with their north of 20% vitality and then if you go into specific verticals.

We've been pretty good guidance on where we think talent to be meaning we expect the market to be down, but we're going to outperform the underlying talent market.

Government, we expect to have a very strong growth, meaning are stronger than the long term framework for workforce solutions. We've had some very strong success of growing that business at the state level and in particular in using our data for social service delivery.

Delivery.

Apperson sides of the business that we bought a couple of years ago is performing well that's going to be a driver of growth in our in 2020.

Three for for non mortgage what would you add John .

You covered it well.

Does that help you on a desktop yeah. Yeah. That's helpful. And then on the mortgage you outperform your mortgage inquiries guidance in <unk> by about 10 points, but you maintained your full year guidance for mortgage inquiries can you talk a little bit about your thinking there.

Yeah, So mortgage inquiries were not quite 10 points better than the first quarter, but they certainly were better and and what we do is we took we take a look at our current run rates. So as we took a look at late late April sorry late March and early April we took a look at the level of inquiry volumes, we're seeing and we just run a normal year.

So as we normalize them for seasonality for the year and then based on that what it showed is we think we're going to come in and assuming no meaningful change in the Morgan overall mortgage market dynamics, we'd come in at about down 30%. So that's that's how we take a look and that's how we try to measure the market as Mark said, it's really hard to forecast interest rates are what's going to happen broadly.

So we try to use our current experience and then normal seasonal patterns to determine our full year and and based on what we're seeing in late March and early April we think that leads to about down 30% for the year.

Got it.

Okay.

Thank you. Our next question is coming from Faiza <unk> from Deutsche Bank. Your line is now live.

Yes, hi, good morning.

So first just.

A housekeeping question on mortgage Engrafting year, just wanted to clarify that you're still expecting.

Mortgage revenues to be down, 8% I know, you've tweaked a little bit how you're thinking about the seasonal patterns around inquiries origination, but just wanted to clarify that that that overall.

Ill expectations. If that's what we said, we said mortgage down 8% or maybe slightly more negative than that and it's really driven by the fact that we're not seeing as we just sort of last question seeing a change in inquiry volume for U S. I S. Despite the fact that originations are weaker right. So that's not a big impact on U S. I guess a weaker originations.

And about the weak or weaker originations do impact AWS, and we're expecting that they'll be able to principally offset.

Or at least partially offset a portion of the negative impact of lower originations by better mix and it's specifically around mortgage 36, and an increasingly more trended products. So that's how we got to down 8% or maybe slightly more negative.

Understood and then you know theres been as you know we talked about this a couple of quarters ago regarding FHFA.

No change around the credit score model, which is now being implemented and <unk> 24, I'm curious what you're hearing from lenders and how you expect that to play out next year.

Yeah, we're not hearing much you know as we've said many times.

When that was announced I think the industry is still trying to figure out how to implement or if they implement this there's still discussions going with the regulators about the merits of that change and what meaning does it makes sense on the three credit reports actually provide to you know more access to credit. So that's a dialogue that's still happening, but you know what.

Whatever impact that it'll be it'll take some time to be implemented even with the.

So called the first quarter implementation the mortgage originators can still pull three credit files, you know, it's not mandatory to pull two it's mandatory to pull three today now it'll be mandatory to pull two or more going forward. So the implementation.

We be delayed and I think as you know we've also proactively are not aligned with this but the timing was great you know rolled out our new mortgage credit file that has the cellphone utility data elements in it.

To really drive the value of our file versus our competitors you know, it's it's something they can't do because of the scale of our cellphone utility database. So you know we're trying to position our file as being more valuable you know are in going forward and then maybe one last point as you know they also what is also mandated.

Is to go from one credit score being a FICO score to be to credit scores FICO advantage and that's a good guy for us and our competitors. You know are two scores is going to allow us to have a revenue increase versus one and I think the thinking there is it's gonna theres enough differences between the two scores just like there are between the three credit files.

The two scores will drive access to credit our credit and drive predictability and approvals.

Yep understood and if I may just ask John a quick question on on cash I.

I know you don't guide to cash flow, but can you give us you mentioned capex, but can you give us sort of some of the other factors that we should be thinking about as we model our own our own cash flows.

Well, obviously, you've covered earnings and in capital spending right. Obviously working capital is something that we continue to focus on generally speaking as you look at the year right. Our working capital tends to be much more negative in the first quarter like you saw this year like you've seen every year because of the fact that we we pay out benefit.

In the first quarter, our compensation programs and also we make our 401k batch right. So you tend to see a negative impact on our cash flow in the first quarter. Like you did this year like you did last year and then our cash flow tends to accelerate as we move through the year and and we're expecting to continue to make working capital improvements as we move through the rest of this year. So I wanted to go back to.

Our guide to exiting the year at 36% EBITDA margins that obviously is generating a lot more free cash flow as we exit the year I don't know, whether you're modeling the year or longer term you know.

But that 36%.

Percent stepping off point for the end of the year into 2024.

And we've also we haven't giving actual guidance, but we use the words that we expect capex to come down again next year.

And of course, with our 39% EBITDA margin goal for 2025, you know theres a lot of cash flow that'll be generated from the step from now to 36% and 36 to 39, and we talked to earlier on the call about how we think about capital allocation.

As I mentioned earlier Capex will come down and I think we've given guidance before John of about 7% of revenue being our long term capex investment in the company, which will be more focused on new products going forward versus the cloud transformation. We also have in our long term framework to add 1% to 2% of revenue from bolt.

On M&A, so that'll be a element of our free cash utilization, but you should get out to 'twenty four 'twenty five there'll be excess free cash flow.

I'll be quite meaningful that we intend to return to shareholders through dividend and buyback at the right time.

Great. Thank you really appreciate it.

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

Yep, Thanks for everybody's time today.

Hey.

Please follow up with any questions. Thank you.

Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.