Equifax Inc (EFX) — Q1 2023 Earnings Call Transcript

Thanks and good morning. Welcome to today's conference call. I'm Trevor Burns. With me today are Mark Begor, Chief Executive Officer; and John Gamble, Chief Financial Officer. Today's call is being recorded. An archive of the recording will be available later today in the IR Calendar section of the News & Events tab at our IR website. During the call today, we'll be making reference to certain materials that can also be found in the Presentation section of the News & Events tab at our IR website. These materials are labeled 1Q 2023 earnings conference call. Also, we will be making certain forward-looking statements, including second quarter and full-year 2023 guidance. We hope you understand Equifax and its business environment. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from our expectations. Certain risk factors that may impact our business are set forth in filings with the SEC, including our 2022 Form 10-K. We'll also be referring to certain non-GAAP financial measures, including adjusted EPS and adjusted EBITDA, which will be adjusted for certain items that affect the comparability of our underlying operational performance. These non-GAAP measures are detailed in reconciliation tables, which are included with our earnings release and can be found in our IR website. Now I'd like to turn it over to Mark.

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 the $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 and U.S. consumer. We continue to navigate a higher interest rate environment that has 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. In the second half, we expect mortgage inquiries to be approaching an unprecedented 40% below 2015 to 2019 levels. The combined market impact in 2022 and 2023 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 to deliver 20% non-mortgage constant dollar growth last year, and 4% total growth last year, and an expectation to deliver 8% non-mortgage and 4% total growth in 2023 at the mid-point of our guidance, more than offsetting the large negative impact from the unprecedented mortgage market decline. Broadly, consumers are still strong with unemployment at historically low levels and with modest increases in delinquencies. We're seeing some credit card and personal loan delinquency increases in subprime and more broadly delinquency rates are now back to pre-pandemic levels, although they remain significantly below the levels we saw in 2009 and 2010. Auto loan delinquency rates for subprime consumers are above pre-pandemic levels as well as above the levels we saw in 2009 and 2010. And as you know, delinquencies generally are manageable when people are working. While we have seen limited pockets of increases, we continue to watch this important metric as we move through the rest of the year. Historically, as delinquencies 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 Federal Reserve actions. However, with inflation still well above Federal Reserve targets, we expect further rate increases. We believe there has been some credit tightening at some customers with more impact in FinTech due to both expectations of a slowing economy in the second half and capital issues impacting certain banks. 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's broad-based business model enable us to weather this unprecedented mortgage market decline and deliver revenue growth and margin expansion. Turning to Slide 4. Equifax had another strong quarter with non-mortgage constant dollar revenue growth up 10%. First-quarter reported revenue of $1.302 billion was down 4.5% and down 4.3% 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-based strength and 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 from which we expect to grow to 36% in the fourth quarter from revenue growth and our $120 million cost savings plan. As a reminder, the bulk of the spending reduction benefit is expected in the second half, and we have $50 million of carryover benefit in 2024 from our actions this year. Adjusted EPS of $1.43 per share was above our February guidance range of $1.30 or $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 within our 8% to 12% long-term growth framework. All business units delivered stronger than expected non-mortgage growth, which is positive momentum for the rest of the year. Estimated U.S. mortgage market originations, which MBA forecasted to be down about 58% in the quarter, were slightly weaker than the previously discussed down 55% in our February framework. Total U.S. mortgage revenue was down about 33% or 25 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 higher-than-expected U.S. credit inquiries from increased consumer shopping and positive mix in workforce solutions driven by significant growth from our new mortgage 36 trended product. We continue to make significant progress in 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 American 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 Boa Vista Serviços, the second largest credit bureau in Brazil. When completed, the Boa Vista Serviços acquisition will add $160 million of 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. 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. The plan will reduce our total workforce of over 23,500 employees and contractors by over 10% during 2023, as well as deliver cost reductions from the closure of major North American data centers and other broader spending controls. Total spending reductions from these 2023 actions are expected to be about $200 million with about $120 million reduction in expense or about $0.75 per share and $80 million reduction in capital spending. 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 $5.275 billion to $5.375 billion, and adjusted EPS guidance of $7.05 per share to $7.35 per share. Our guidance continues to assume a weakening U.S. and 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 32% 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 2023 spending reductions plan, 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 5. 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 solutions up 11%, international up 10% in constant currency, and USIS up 8%. This broad-based non-mortgage growth across the business units will be increasingly supported by the completion of the Equifax Cloud and continued new product innovation across the businesses. First quarter constant dollar non-mortgage growth of 10% was well within our 8% to 12% long-term revenue framework despite some slowdown in U.S. hiring activity that impacted EWS' Talent Solutions and I-9 businesses, as well as the comparison against a very strong 25% non-mortgage constant dollar revenue growth in the first quarter last year. Turning to Slide 6. 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. EWS had another strong quarter of record additions with an incremental 4 million records added to the TWN database ending the quarter with 156 million current records, up 15% and 117 million unique records, which was up 12%. This is a very positive sign, 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 records represent individuals on the TWN database and current records represent current active jobs in the database. In our case, we have almost 50 million individuals having more than one job in our dataset. 117 million unique individuals on TWN deliver high hit rates, including self-employed or 1099 employees and defined benefit pensioners. We now cover just over 50% of the 220 million people in the U.S. with employment and income records that are relevant to the TWN database and our customers. As I referenced last quarter, we're also beginning to onboard pension records with records from one major pension administrator and discussions with many more. Through our cloud tech transformation, we're expanding our capabilities to ingest unique 1099-based self-employment records. About 50% of our records are contributed directly by individual employers from our employer services business relationships. The remainder are contributed through partnerships principally with payroll companies. During the quarter, we signed agreements with three new payroll processors that will deliver records during the balance of 2023. The TWN U.S. database now has 618 million total current and historical records from over 2.7 million employers. Increasingly, more of our new products incorporate current and historical records, with about 50% of first-quarter verification services revenue coming from products that include historical 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 compared to EWS' 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 saw strong new product innovation driven by the adoption of our new mortgage 36 solution, which is a 36-month trended product. During the quarter, over 50% of TWN mortgage inquiries were for products that included trended or historical information at higher price points. Turning to Slide 7. Workforce delivered revenue of $596 million, down 8% and in line with our expectations. Verification Services revenue of $456 million was down 11%, driven by the decline in mortgage revenue that I just referenced. Verification Services non-mortgage revenue, now representing 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 Verifier non-mortgage revenue, with revenue up 33% driven by robust 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 a 6% decline in the overall hiring market. Talent Solutions volumes have remained consistent since the middle of the fourth quarter despite the declining hiring market. We outgrew the market decline 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, continued expansion of TWN 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 personal loan declines with FinTech lenders. Employer Services revenue of $141 million was up 4% from growth in our I-9 and onboarding businesses despite the negative impact of U.S. hiring offset by a 9% decline in unemployment claims driven by lower jobless claims. Despite the slowdown in hiring, we've not seen an increase in UC transactions yet. As a reminder, first-quarter Employer Services revenues are seasonally higher than other quarters due to higher Affordable Care Act and W-2 volumes. Last month, Workforce Solutions launched the PeopleHQ portal, a new cloud-native solution that brings together multiple best-in-class employer compliance services in a single unified online experience. PeopleHQ serves employers of all sizes and supports the total employee journey with enhanced and connected people-first experience leveraging the full suite of EWS Employer Solutions, powered by the Equifax Cloud and leveraging industry-leading security measures. The PeopleHQ portal will have several EWS services, including work number verification service, I-9 HQ, including I-9 Anywhere and I-9 Inspect, and ACA HQ with best-in-class Affordable Care Act capabilities that help employers meet the needs of their employees while also reducing risk for penalties. PeopleHQ is another example of how EWS is leveraging our new cloud-native capabilities to deliver new solutions to the market that will drive employer revenue and continued direct record growth. Workforce Solutions adjusted EBITDA margins of 50.4% were up 370 basis points from the fourth quarter and in line with our February guidance and expectations above 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 EWS and uniqueness and value of their TWN income and employment data in Employer Services businesses was clear again in the quarter. Rudy and the EWS 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 8. USIS revenue of $422 million was down about 2.5% and much better than our expectations due to stronger mortgage and non-mortgage performance. USIS mortgage revenue was down 25%, better than we expected. Although estimated mortgage originations were 300 basis points weaker than expected at down an estimated 58%, USIS credit inquiries were stronger than expected at 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 net estimated originations at 33%. At $105 million, our mortgage revenue was about 25% of total USIS 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. B2B non-mortgage revenue of $261 million, which represented over 60% of total USIS revenue, was up 8% with organic revenue growth of about 3%. B2B 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 a slower pace than in the fourth quarter, more than offset by declines in smaller financial institutions and FinTechs. 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 OneScore 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 our data and cloud transformation later this year. Financial Marketing Services, our B2B offline business returned to growth with revenue of $48 million, up 4%, and in line with our expectations. Revenue growth in offline fraud insights and IXI 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 a significant weakness from smaller financial institutions and FinTechs, and we have not seen an increase in risk-based portfolio reviews yet. USIS Consumer Solutions business had revenue of $56 million in the first quarter, up 8% from strong performances in our consumer direct and indirect channels. USIS 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. USIS is on offense as they finalize their cloud transformation and are pivoting to selling cloud-enabled new solutions. USIS adjusted EBITDA margins were 32.6% in the quarter and in line with our expectations. EBITDA margins were down sequentially due to negative mix from seasonally sequential growth in mortgage solutions, which drives higher royalties and data costs, as well as the normalization of annual employee incentive costs. USIS is also incurring incremental costs from customer migrations to the new Equifax cloud that are accelerating as we move through 2023. We expect USIS adjusted EBITDA margins to be about 34% in the second quarter up sequentially reflecting revenue growth and the accelerating benefit of our 2023 spending reduction plan. Last month we announced Todd Horvath joined Equifax as our USIS President. Todd has a proven track record of leading enterprise teams and financial services to drive growth and strong commercial relationships. He brings more than 20 years of financial services management experience, a commitment to driving product and operational excellence, and strong expertise in enterprise and cloud technologies to his role as the USIS President. I'm energized to welcome Todd to the Equifax leadership team and believe that his experience in transformation, innovation, and customer experience will prove valuable in taking USIS to the next year. Turning to Slide 9. 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 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 UK. 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 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 debt management to return to revenue growth later this year. Our UK 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%, with Australia delivering 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 double-digit growth in Argentina, Uruguay, Paraguay, and Central America from new product introductions and pricing actions. 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% and above our expectations. Growth in consumer and identity and fraud was offset partially by lower mortgage volumes in Canada. International adjusted EBITDA margins at 23.5% were better than our expectations due to 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 EFX 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 the first quarter, we launched over 30 new products and delivered 13% Vitality again. Our first quarter Vitality Index was again led by strong performance in Workforce Solutions and in Latin America. 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 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 top-line growth and margins. On the right side of the slide, we've highlighted several new products introduced in the quarter. Leveraging our differentiated data, USIS launched OneScore, 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 Equifax DataX and Teletrack 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 in the scorable population by more than 20%. These new solutions are a testament to the power of the Equifax Cloud in 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 over to John to provide more detail on our second quarter guidance. We're up 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, Mark. Before I discuss 2023, I'll share a little more detail on first quarter 2023. First quarter corporate expense at $146 million 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%. 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 levels similar to 1Q 2023 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. Capital expenditures as a percent 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 MBA at down almost 58%, which is about 300 basis points weaker than the down 55% for the first quarter that we discussed in February. As shown 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 6.5% in the quarter to about 6.3% today. It appears that the somewhat lower rates attracted people to begin the home buying process, but continued tight inventory and high home prices limited closings and originations. As we look for the rest of 2023, our planning does not assume a fundamental improvement in the mortgage or housing markets. We're applying normal seasonal patterns to the current run rate of credit and TWN inquiries that we are 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. As we have discussed in the past, TWN inquiries are closely linked to originations. USIS 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 to an 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 3Q 2023 being about flat with 2Q 2023, and then declining in 4Q 2023 versus 3Q 2023. We expect that with these sequential patterns and the weaker overall originations in 2023 than we discussed in February, U.S. mortgage originations would be down slightly in the second half versus the first half, and 4Q 2023 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 in spending reduction in 2023 versus 2022 levels, including workforce reduction, closure of data centers, 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 the fourth quarter; adjusted EBITDA margins would have been about 31%. For 2Q, we expect adjusted EBITDA margins approaching 32.5% at the mid-point of our guidance range. This sequential margin expansion is driven by both revenue growth as well as the acceleration of the savings in the second half of 2023 related to our $200 million spending reduction plan. As revenue grows sequentially in the second half of 2023 and cloud and broader cost reductions accelerate, EBITDA margins and adjusted EPS improve sequentially, with EBITDA margins 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 2023. In 2Q 2023, we expect total Equifax revenue to be between $1.31 billion and $1.33 billion, with non-mortgage constant currency revenue growth of 7% to 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. 2Q 2023 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, Business Unit EBITDA margins in total are expected to be up sequentially from 1Q 2023 driven by workforce delivering adjusted EBITDA margins of over 51% in the quarter, as well as margin improvement in USIS from revenue growth and cost actions. Corporate expenses will decrease meaningfully, sequentially in 2Q 2023 as equity compensation was principally reflected in the first quarter. Business unit performance in the second quarter is expected to be as described below. Workforce Solutions revenue growth is expected to be down about 1%, negatively impacted by the anticipated 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 customer-specific weakness in consumer lending. We expect EWS non-mortgage growth to reaccelerate to double digits in the third and fourth quarters. EBITDA margins 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. USIS 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. EBITDA 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%. Non-mortgage constant currency growth of 7% to 8% is down from the 10% we delivered in the first quarter. We do expect to return to 10% plus growth in 3Q and 4Q, principally driven by accelerating growth in EWS as well as stronger growth in international. We're expecting adjusted EPS in 2Q 2023 to be $1.60 to $1.70 per share.

Thanks, John. 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 EFX 2025 strategic priorities. At 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, EWS signed three new payroll processors, and with our TWN current records reaching 156 million, up 4 million records sequentially and up 15% versus last year. Workforce delivered another very strong quarter with a Vitality Index over 20% from innovative new products and solutions leveraging the new EFX Cloud while further penetrating the high-growth talent and government verticals. USIS continued their momentum from the fourth quarter with B2B non-mortgage growth of 8% total and 3% organic in the quarter, driven by online B2B 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. In our first quarter, the Vitality Index up 13% continues to be well above our 10% long-term NPI framework as we delivered over 30 new products leveraging the new Equifax Cloud in the quarter. We made significant progress executing against our EFX Cloud data and technology transformation with over 70% of our revenue being delivered from the new Equifax Cloud. We're laser-focused on completing our North America migration this year to become the only cloud-native data analytics company. 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, positioning us for an uncertain economic environment while reducing the capital intensity of our business. Given our strong performance in the quarter, our ability to continue to outperform our underlying markets and deliver on our plan 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 competitive benefits of being always on, the 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, OneScore leveraging all of our alternative data, and a wide array of trended solutions leveraging our historical data. NPIs leveraging our differentiated data and Cloud capabilities are accelerating and are well above our 10% long-term Vitality goal, with over 13% Vitality last year and 13% in the first quarter. Even more encouraging is Workforce Solutions NPI results, who completed most of their Cloud work early last year and is delivering over 20% Vitality in 2023. This is an 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, along with 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.

Thank you. Good morning. Mark, I was just hoping you could talk a little bit about what your regional bank exposure is and just broadly how you factored the credit tightening that we are hearing about 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 those trends. So I was just hoping you could help us parse those through.

Yes. I'll start with FinTech. We have a FinTech business, and our position there is smaller compared to some competitors. We've observed tightening in that space for several quarters, which began almost a year ago due to balance sheet challenges in FinTech. We haven't seen much impact on mid-size banks; we expect them to keep originating, although there will be some tightening as mentioned, and this is reflected in our guidance for the second half where we anticipate a slowdown in some originations. However, most of our revenue comes from larger financial institutions that have not been affected by the balance sheet tightening related to deposits.

And in terms of full-year, the comment you made about were slightly stronger given the adjustments in FX. What you're seeing is international's 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.

Great. Thanks. Good morning, guys. I wanted to follow up on Manav's question, on some of the concerns of credit crunch and kind of some of the shifting in deposits, but just wanted to see if in March kind of 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 volumes kind of when everything was happening with some of these regional banks or were you guys largely unimpacted given the heavier exposure to the money centers?

Well, I would say even though, as you know, our mid-size banks, there was no impact that we could see or measure really in March or really in April so far from deposit tightening, you know what we mentioned that we've seen some tightening in some areas, FinTechs, for example, number one, because of delinquency concerns in subprime consumers, which I would characterize as unrelated to the deposit and balance sheet issues that some of those FinTechs have been having. Broadly we haven't seen that impact. It's really been more just risk management from tightening around certain credit bans because of concerns around consumer exposure. And again as you heard my comments earlier, broadly the consumers still quite healthy and broadly delinquencies are still very manageable and low versus historic levels, which is allowing our customers to continue to originate. But back in February, and again, today, we still are looking at the second half as being what we characterize as some level of slowdown, and that's reflected in our guidance and how we think about our ability to deliver in the second half. That's reflected in our reaffirmation of the full-year guidance, we think that strength of the broader businesses and remember, there's a lot of Equifax businesses that are outside of financial services. When you think about Workforce Solutions government, Talent Solutions, our employer business, many of our identity and fraud businesses in USIS are not in financial services. So there's a diversity element, of course, we have an international business that's quite large that's all a part of Equifax.

Yes. As Mark mentioned in DDM, we did say in pre-screen, we are seeing some impact right from FinTech as well as smaller financial institutions. And that's really where we're seeing it in pre-screening and why pre-screen was weaker.

Hi John, what's implied in the 2023 guide in terms of organic constant currency revenue growth on non-mortgage bases? So this is for 2023 versus the 8% that was in the first quarter.

Yes. 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 and strengthening in our total non-mortgage growth as we go through the rest of the third quarter and fourth quarter.

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 that's trending both in the first quarter and what your expectations are for progression as we move through the year there.

Yes, growth remains strong, and we should have emphasized it. We have several positive developments at Equifax that deserve attention. As you know, we acquired Talent a couple of years ago and added Midigator last year. Both businesses are performing exceptionally well in the U.S. and globally, contributing to double-digit revenue growth. They play a role in our solid USIS performance. Additionally, identity is a key focus for Equifax, where we are working on both new products and M&A. The identity and fraud team is rolling out new solutions to enhance their capabilities, not only in the retail e-commerce sector but also in financial institutions, insurance, and telecommunications, where we are introducing new offerings as well.

Got it. That's really helpful color. And just as a follow-up on the Talent Solution side of the business, it seems like 1Q was at least a little better than 4Q on the revenue side of things. It seems like some of that is likely price, but just wanted to see if you have any color? Was this predominantly pricing? Is there any seasonality? Because I guess it seems like some of the hiring data seems a little cautious from what we've seen. But just wanted to see if you could help us square the puts and takes of that sequential bump-up in Talent Solutions revenue.

Yes. I think you point out the underlying market is declining. There's less hiring going on for sure. You have a combination of companies doing layoffs and when companies do layoffs, they generally tighten up headcount addition. So we're clearly seeing that started in the fourth quarter and continued through the first quarter. Really, it's kind of a similar decline. Then what's offsetting that is remember, we have a large business here, but the TAM is huge. It's about a $5 billion TAM, and we've got a nearly $400 million business here. So we have a lot of penetration opportunities. Even if the market's declining, we have the opportunity to add new customers or gain more market share with existing customers, which are primarily background screeners. Number two, as you point out, every year we take up price generally in the first quarter. So that price benefit 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 drive that penetration. We've rolled out a number of new products in the first quarter that are also benefiting the talent business. Last 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 when background screens are completed. So the number of levers that workforce has in that vertical, and frankly in all those verticals allows them to outperform their underlying markets quite strongly, and that's inherent in their business model.

Hi, thank you very much. Hey, this one might be for John. Can you talk about the non-mortgage and non-mortgage organic Verifier revenue? I think that was given out in previous quarters, but I didn't see it on the slide. And then I have a follow-up.

So again, what we talked about, I think in the quarter is 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 EWS in the past year so that there's really not a significant impact from acquisitions. What we're expecting as we just talked about a minute ago to drive the growth as we go forward is continued acceleration in growth in government and 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 back half of the year that's above 10% as it was in the first quarter.

Thank you. Good morning. Could you quantify your 2023 revenue and earnings guidance? How much you've included both from pricing actions at EWS and positive price mix from the shift to trended data particularly 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 EWS business beyond this year in terms of how you think about balancing strong unit demand versus taking price? Thank you.

Yes, 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 the majority of Equifax businesses take price up every year. We generally do it on 1/1 and we did that this year, and we expect to do it next year and going forward. So there's no question that that's a part of our strategy. 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 product initiatives, which generally are delivering differentiated solutions with more data. 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 growth for us. You should also think about Workforce Solutions in particular as having multiple levers that I would say are all important. Certainly, pure prices, pure product growth is a real margin expander and revenue expander for workforce and the rest of Equifax. Record growth certainly drives very meaningfully our top-line and our bottom line at Workforce Solutions, and is very unique. Our other businesses and most other data businesses in the industry already have all the records or have marginal ability to add to them. In our case, there's 220 million working or income-producing Americans in the U.S., and we've got 117 million of them. There's a lot of growth opportunity here, and being up double-digit in the quarter is big revenue growth. In Workforce, we also have big penetration opportunities. Remember, most data businesses; your dataset is used on every transaction, and every customer that is highly penetrated. Because they've been around for a long time, even in mortgage, in Workforce Solutions close to 40% of mortgages are done manually income and employment verification. It was 55 a few years ago. So we've grown that 500 basis points. 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 balance is right on. We try to be very balanced in all of our businesses, including workforce around what we're doing on pure price in balance. How we look at it going forward is always going to be around the value we're delivering and the unique solutions that we have.

Hey, good morning, guys. Thanks for taking the 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 I ask is that it looks like your second quarter margin guide comes down a little bit sequentially versus the first quarter. I'm just trying to understand what's going on there. If it's maybe your cloud migration expenses are starting to ramp or anything you'd call out on international margin. Thanks.

Sure. Margins were better than we anticipated in the first quarter, although they are not at our long-term target. This improvement was largely due to strong revenue performance across all regions, particularly in Asia Pacific, where we saw results exceed normal expectations. We did mention that margins may be slightly weaker in the second quarter, which is mainly tied to changes in revenue and additional expenses related to our ongoing migration and transformation efforts. As we transition from the first to the second quarter, there will be some associated costs. Overall, we anticipate margin performance as outlined for the second quarter and expect to see improvements in international margins as the year progresses.

Hi, thanks. Good morning. What does EWS business within non-EWS, where did you see the most change in volume growth going from 4Q to 1Q and how do volume trends need to change to achieve your full-year non-mortgage EWS outlook?

Yes. So I think it's around non-mortgage in what the drivers of that EWS in 2023. First, on kind of a 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 have been quite active with their north of 20% Vitality. And then if you go into specific verticals, I think we've given pretty good guidance of where we think talent to be; we expect the market to be down, but we're going to outperform the underlying talent market. Government we expect to have very strong growth, stronger than the long-term framework for Workforce Solutions. We've had strong success in growing that business at the state level in particular and using our data for social service delivery. Appriss Insights, the business that we bought a couple of years ago is performing well; that's going to be a driver of growth in 2023 for non-mortgage. What would you add, John?

No, I think you covered it well.

Yes. Thanks for everybody's time today. And please follow-up if any questions. Thank you.