Equifax Inc (EFX) — Q1 2024 Earnings Call Transcript

Good morning. Thanks. 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 on our IR website. During the call, we'll be making reference to certain materials that can also be found in the Presentation section of the News and Events tab at our IR website. These materials are labeled Q1 2024 earnings conference call. Also, we'll be making certain forward-looking statements, including second quarter and full-year 2024 guidance to help 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 2023 Form 10-K and subsequent filings. We will also be referring to certain non-GAAP financial measures, including adjusted EPS and adjusted EBITDA, which will be adjusted on certain items that affect the comparability of our underlying operational performance. These non-GAAP measures are detailed in reconciliation tables, which are included with our earnings release and can be found in the Financial Results section of the Financial Info tab at our IR website. Now I'd like to turn it over to Mark.

Thank you, Trevor, and good morning. Turning to Slide 4, we're off to a strong start in 2024. First quarter reported revenue of $1.389 billion was up 7% at the high end of our February framework. Adjusted EBITDA margins of 29.1% were slightly above our expectations, and adjusted EPS of $1.50 a share was well above the high end of our guidance. Total U.S. mortgage revenue was up 6% in the quarter, stronger than expected. The strength in mortgage revenue was in USIS, where mortgage revenue was up 38% against credit inquiries that were down 19% and 700 basis points better than expected and continued strong performance in our new mortgage prequal products. EWS mortgage revenue was down 15% and consistent with our expectations. Twin inquiries down 22% were slightly better than expected, offset by slightly lower than expected revenue per inquiry, principally driven by product and customer mix. Our global non-mortgage businesses, representing about 80% of total revenue in the quarter, had strong 9% constant currency revenue growth, well within our 8% to 12% long-term revenue growth framework. This was slightly below our expectation of 9.5% non-mortgage revenue growth. Non-mortgage organic constant currency record growth was 5% in the first quarter. At the BU level, EWS Verifier non-mortgage revenue was up a strong 15% and stronger than expected, driven by very strong 35% growth in government and good growth in auto and debt management, slightly offset by some verticals in talent. Employer revenue was down 10% and weaker than expected. This was principally driven by a more rapid decline in ERC revenue than we expected and delays in state government processing of WOTC claims. ERC is now at a run rate of $103 million a quarter and should stay at about that level for the rest of the year. For WOTC, the federal requirement for states to validate WOTC claims changed late last year, and most states have not completed the changes required to process claims, which dampened our revenue in the quarter. This impacted our WOTC revenue in the first quarter, but we expect this to be a timing issue as this essentially creates a backlog of WOTC submissions that will have to be completed by the states that will begin turning to revenue as state processing accelerates in the remainder of 2024. Offsetting these declines in the quarter, we saw mid single digit growth in I-9 and onboarding revenue. Going forward, we expect employer revenue, including ERC, to be up low single digit percentages for the remainder of 2024. In total, EWS non-mortgage revenue was up 7%, and overall EWS revenue was up 1% with adjusted EBITDA margins of EWS at 51.1% over 50 basis points stronger than our expectations from strong operating leverage and strong performance. USIS had a very strong quarter with revenue up 10%, its highest quarterly revenue growth in three years, even against the 19% mortgage market decline. As I referenced earlier, mortgage revenue was up 38% and stronger than expected from mortgage and pricing pass-through and our new prequal solution. Non-mortgage revenue was up 1% and was weaker than expected. Although we had very strong double-digit growth in Kount and consumer solutions and mid single-digit growth in banking and lending, we saw double-digit declines in third-party bureau sales and low to mid single-digit declines in Telco and Auto. In USIS, adjusted EBITDA margins were 32.7% in the quarter, and up about 70 basis points higher than our expectations. International delivered 20% constant dollar revenue growth and 6% organic constant currency revenue growth, excluding the impact of the BVS acquisition, both of which were above our expectations. Very strong growth in Latin America and Europe was partially offset by lower than expected growth in Asia Pacific. International delivered 24.3% adjusted EBITDA margins, up slightly from our expectations. As you can see from the right-hand side of the slide, we added a new strategic priority this year to focus on driving AI innovation. As mentioned in February, 70% of our new models and scores were built last year using AI and ML, with a goal of 80% this year. In the first quarter, we exceeded this goal with 85% of our new models and scores being built with Equifax AI and Machine Learning. Equifax.ai, leveraging our proprietary data, Equifax Cloud, and API capabilities, is a big area of focus and execution for Equifax in 2024 and beyond. We're maintaining our 2024 guidance with revenue at the midpoint of $5.72 billion and adjusted EPS of $7.35 a share. Our strong first quarter with revenue at the top end of the range, and EPS above the top end of the range gives us confidence in our ability to deliver the full year guidance we provided in February. We expect strong constant dollar non-mortgage revenue growth of over 10%, and our full-year guidance is based on the assumption that the U.S. mortgage market continues at levels consistent with current run rates, with U.S. credit inquiries down about 11% from 2023. Before I cover our business unit results in detail, I want to provide a brief overview of what we're seeing in the U.S. economy and with the consumer. Broadly outside of the bottoming of the mortgage market, there is not a lot of change from our view back in February. The U.S. consumer and our customers remain broadly resilient. Employment remains at historic levels with low unemployment, which is a positive for consumers and customers. Employment turnover and hiring are at lower levels entering 2024 than last year, with hiring levels in January and February at their lowest levels in three years. This is more pronounced for higher salaried roles than lower salaried or hourly jobs. Credit card and auto delinquency rates for prime consumers, representing about 80% of the market, are stable and at historically low levels of less than 1%, but above pre-pandemic levels. Subprime credit card and auto delinquency rates continue to remain above pre-pandemic levels, with auto subprime delinquencies above 2009 levels. As we've discussed before, when consumers are working, they largely have the capacity to keep current under financial obligations, which is good for our customers and good for Equifax. Turning to Slide 5, workforce solutions revenue was up 1% in the quarter, slightly below our expectations. EWS mortgage revenue was down 15% as expected. Twin inquiries were down 22% or slightly better than expected, although weaker than USIS credit inquiries as homebuyers continue to have difficulty completing purchases while shopping behavior continues to be fairly strong. Our revenue outperformed inquiries by 7%, which was below the about 11% we guided during February. The benefit of the mortgage price increases implemented in January by EWS and stronger fulfillment rates due to the growth in twin records were as expected. However, these were partially offset principally by a shift in product and customer events. As we look to the remainder of 2024, we expect twin record growth to result in improved mortgage outperformance with the second quarter up slightly from first quarter levels and the second half of the year at about 14% outperformance. For the full year of 2024, we expect mortgage outperformance to be about 11% at EWS. This is down significantly from the 20% we saw last year as we lapped the late 2022 launch of our higher-priced Mortgage 36 trended data solution. Non-mortgage verification services revenue, representing over 70% of verifier revenue, delivered very strong 50% growth at the top end of the EWS long-term revenue growth framework of 13% to 15% and was also above our expectations. Government, now our largest Verification Services vertical, had another outstanding quarter and was stronger than our expectations with 35% revenue growth. Government revenue benefited from both our new CMS and SNAP contracts, continued expansion of state contracts, continued TWN record growth, and pricing. We expect continued growth in government throughout 2024, with stronger growth rates in the first half as post-COVID CMS redeterminations are principally completed in the first quarter. Talent Solutions revenue was down 4% in the quarter, weaker than expected, as we saw very slow volumes through both January and February. The market saw about flat revenue, which we expect to continue into the second quarter. Consumer lending revenue was up 6% in the quarter as we saw strength in our auto and debt management businesses, slightly offset by declines in card. This is the second consecutive quarter of consumer lending revenue growth as we're lapping headwinds from the FinTech lending pullbacks in 2022 and 2023. Auto and debt management revenue growth was principally driven by strong record growth and our pricing actions in the first quarter. As I referenced earlier, Employer Services revenue was down 10% compared to the about 4% decline we discussed in February from ERC and ROIC reductions. Moving forward, we expect employer revenue, excluding ERC, to be up low single digits for the remainder of 2024. Workforce Solutions adjusted EBITDA margins of 51.1% continue to be very strong from non-mortgage revenue growth, due to cost execution while we continue to invest in new products, expanding in the high growth verticals like government and talent, and growing our TWN records. Turning to Slide 6 and expanding on our discussion of EWS TAMs, in February, we provided additional details on our fast-growing government vertical. On the left side of the slide, we outlined some of the federal agencies we're supporting with EWS Workforce Solutions, digital income, employment, and incarceration data that accelerate the time to deliver needed social services benefits to over 90 million Americans and help government agencies ensure program integrity, a win-win for all parties. In the middle of the slide, you can see the substantial progress our EWS government vertical has made in a short period, penetrating the $5 billion TAM with a three-year CAGR of over 50%. We expect EWS to continue making significant progress penetrating the government vertical from additional sales resources at the federal and individual state capital level, strong, clean record growth, and new product rollouts with our differentiated incarceration data and system-to-system integrations enabled by our cloud-native technology that makes our solutions easier for our government customers to consume. EWS had another strong quarter of new record additions and signing new payroll processors. During the quarter, EWS signed agreements with two new payroll processors, including one large payroll processor that will contribute over six million current records to the TWN dataset. This added to the six partnerships we signed in the fourth quarter that are coming online in the first half of 2024, bringing the total number of payroll providers added to the TWN database to 35 since the beginning of 2021 and the pipeline for new records continues to be strong. Both of these wins in the quarter are a testament to EWS’ ability to deliver the highest levels of client service from technology, data security and accuracy, operational excellence, as well as the highest level of record monetization. EWS participates in a broad range of verticals including government, mortgage, talent solutions, talent screening, card, auto, and personal loans. Given our advancements in AI and cloud-native capabilities, the time to board new records from payroll processors has decreased over the past few years. We expect these new record additions in the first quarter to come online and begin generating revenue in early third quarter. In the quarter, EWS added four million current records, growing the TWN database by 10% over last year. At the end of the quarter, the TWN database had 172 million current records on 126 million unique individuals. Total records, both current and historic, are now about 670 million and were up about 8%. These are very strong results given the typical churn in holiday season hiring in the first quarter. In terms of coverage, we have current employment records on about 75% of BLS non-farm payroll and over 55% coverage on the estimated 225 million income producing Americans. At 126 million unique active records, we have plenty of room to grow the TWN database towards the TAM of 225 million income producing Americans. As shown on Slide 8, USIS revenue was up 10%, stronger than our expectations and well above their 6% to 8% long-term growth framework, principally due to stronger than expected mortgage revenue. USIS mortgage revenue was up 38% and stronger than our expectations. Mortgage credit inquiries at down 19% were still down substantially but 700 basis points above our February guidance. We also continue to see very strong performance from our new Mortgage Prequal solution. The strong pricing environment, along with the strength in our Prequal product drove the very strong mortgage outperformance of 57%. At $145 million, mortgage revenue was just over 30% of total USIS revenue in the quarter. Non-mortgage revenue was up just over 1% and weaker than the above 3% growth we had expected. Third-party sales to credit bureaus, including Experian and TransUnion were down double digits in the quarter. Excluding the impact of third-party bureau revenue, USIS non-mortgage revenue was up about 2% and closer to our February guidance. B2B non-mortgage online revenue growth was down less than 1% and below our expectations, again driven by lower third-party bureau sales and, to a lesser extent, declines in auto and telco. Offsetting these declines was strong double-digit growth in Kount and very good mid single digit growth in banking and lending. Commercial revenue growth was up low single digits in the quarter. Financial Marketing Services, our B2B offline business, was down 1%, slightly below our expectations. Marketing revenue was down 4%, principally due to a 10% decline in IXI revenue versus a difficult comp in the first quarter last year. We expect IXI revenue to grow for the full year. Pre-screen marketing was down less than 1% and at similar levels to the quarterly revenue we had in 2023. We continue to see declines in smaller FIs, partially offset by growth in larger FIs. Within risk and accounting reviews, we did see limited growth in our portfolio review business but not to the level we would typically see if our customers were expecting a weakening economy. Fraud revenue was up a strong 8% from new business. USIS Consumer Solutions D2C business had another very strong quarter up 10% from very good performances in both our consumer direct and indirect channels. USIS EBITDA margins were 32.7% in the quarter and higher than our expectations from stronger mortgage revenue growth. Turning now to Slide 9, International revenue was up 20% in constant currency and up 6% in organic constant currency. International revenue was up 20% in constant currency and up 6% in organic constant currency, excluding the impact of BVS, both of which were above the 18% growth we guided to in February due to better-than-expected revenue in Europe and Latin America. Europe local currency revenue was up a very strong 10% in the quarter from strong growth in our UK, CRE, CRA B2B consumer, and direct-to-consumer channels as well as our debt management business. Latin America local currency revenue, excluding Brazil, was up 31% versus last year, driven by strong double-digit growth in Argentina and Central America. Brazil revenue in the quarter on a reported basis was $41 million. We expect to make good progress on the BVS integration as we expect to implement Interconnect, our end-to-end decision platform this summer for small- and medium-sized businesses and by year-end for large businesses, and implement Ignite, our advanced analytics platform by year-end. The combination of our Ignite and Interconnect platforms will bring significantly enhanced capabilities to both the business and to the Brazilian market. Canada delivered 4% in the quarter as expected. Canada is on track to complete their migration to the Equifax Cloud in the second quarter. Similar to USIS, we expect to see accelerating NPI as they complete the cloud. Asia-Pacific revenue was below our expectations with revenue down 10% due to lower market volumes, principally in our Australian commercial business. We expect Asia-Pacific to have declining revenue in the first half due to the softer market conditions and the near-term impact of long-term contract extensions we signed with several large customers. We expect Asia-Pacific to return to revenue growth in the second half of this year. International adjusted EBITDA margins of 24.3% were above our expectations due to revenue growth and continued strong cost management. Turning to Slide 10. We continue to make very strong progress with new product innovation, launching over 25 new products in the quarter with a 9% up Vitality Index from broad-based strong performances across all of our BUs. As a reminder, our VI measure includes NPIs for the last three years. On January 1, it drops out NPIs from all of 2020. While our first quarter VI was slightly below our long-term goal of 10%, as we lacked a large EWS Talent Solutions product launch in 2020, we expect our quarterly VI to accelerate throughout the year, leveraging our EFX Cloud capabilities to drive new product rollouts for the full year 2024 VI of over 10%. Consistent with the fourth quarter of last year, USIS delivered another strong quarter with VI of 7% as we're closer to cloud completion and able to leverage our new cloud-native infrastructure for innovation in new products, such as our suite of Ignite solutions including Ignite for prospecting and Ignite for financial services. EWS delivered VI of over 10%. We expect EWS VI to accelerate throughout 2024 with new product introductions focused on incarceration data, mortgage prequal, and I-9 and onboarding products. As I mentioned earlier, EFX.AI is a pillar of our EFX2026 strategic priorities enabled by our EFX Cloud. In the middle of the slide, you can see that we're accelerating the pace at which we are developing new models, scores, and products using AI and machine learning. In the first quarter, 85% of our new models and scores were built using AI and ML, which is ahead of our 2024 goal of 80% and last year's 70%. NPI and AI are a clear focus for Equifax, which will drive innovation that can increase the visibility of consumers to help expand access to credit and create new mainstream financial opportunities as well as drive EFX top-line growth and margins. Before I turn it over to John, I want to spend a few minutes on our progress on two of our critical EFX2026 strategic priorities that support our long-term growth framework of 8% to 12% top-line growth and 50 basis points of annual margin expansion. Completing the cloud and inhibiting from building and leveraging our cloud capabilities is a big 2024 priority, which is fundamental to accelerating NPI and execution of AI and more broadly analytics as well as substantially strengthening system response time and resilience of our technology for our customers. Completing the cloud also frees up our team to fully focus on growth and expanding innovation, new products, and new markets. Our progress towards completing the cloud is gaining momentum with over 70% of our total revenue in the new Equifax Cloud at the end of the quarter. We're focused on executing the remaining steps to reach 90% with Equifax revenue in the cloud by year-end. USIS expects to complete their consumer credit, mortgage, and telco and utilities exchange customer migrations to the new Equifax Cloud data fabric principally in the third quarter, which will allow them to decommission legacy systems in the second half of this year as planned. Customer feedback from the thousands of customers that we migrated to Equifax Cloud year-to-date has been very positive. Canada is progressing as planned to complete their consumer credit exchange migrations to the data fabric in late second quarter of this year with their data center decommissioning planned for the third quarter. Europe continues to make significant progress with the goal of completing Spain's consumer exchange migration to data fabric and the decommissioning of their legacy systems in the third quarter. The UK is on schedule to complete cloud migrations, decommissioning of their technology and data centers in the first half of 2025. In Latin America, we completed the Argentina and Chile cloud migrations and expect to make substantial progress on the remaining Latin American countries throughout the rest of 2024. Lastly, as planned, we expect Australia to make big progress this year towards completing their consumer credit exchange migrations to the Equifax Cloud in 2025. Driving AI innovation is an important EFX2026 strategic priority that leverages our cloud-based data fabric and application architecture, and global Ignite analytical and Interconnect decisioning platforms. We're making great progress in embedding these EFX.AI capabilities across our global footprint. Ignite and Interconnect are now broadly available worldwide. During 2024, we're deploying both Equifax proprietary explainable AI along with Google Vertex AI across Ignite, Interconnect, and our global transaction systems. For Equifax, Vertex AI enables faster and more predictive model development on our Ignite platform. For our clients, Ignite, which combines data analytics and technology into one cloud-based ecosystem, allows customers to connect their data with our unique data through our identity resolution process to gain a single holistic view of consumers. We now have access to 100% of the U.S. population through our data sets in our single data fabric. This is expanding the global population of its consumers for our customer cases by over 20%. We're driving faster data ingestion and analytics with greater than five times the processing power of our legacy applications tied into our clients' existing campaign, account management, and business platforms. Completing the cloud and expanding EFX.AI, along with continued expansion of our differentiated data sets will accelerate innovation and new products at Equifax and will drive both our top and bottom line. In the first quarter, we're also off to a good start on our broader operational cloud restructuring plan across Equifax, reflecting cost reductions from the closure of North American data centers and other broader spending controls against our $300 million goals. These actions are improving operating margins and lowering the capital intensity of our business. We're entering the next chapter of new Equifax as we pivot from building the new Equifax Cloud towards leveraging our new cloud capabilities to drive our top and bottom line. And now I'd like to turn it over to John to provide more detail on our first quarter financial results and to provide our second quarter framework. Our second quarter guidance builds on our strong first quarter performance from new products, record growth, and pricing.

Thanks, Mark. Turning to Slide 11. First quarter mortgage market credit inquiries were down about 19%, and TWN mortgage inquiry volumes were down 22%. We believe homebuyers continue to have difficulty completing purchase transactions, resulting in a continuation of shopping, which generally results in credit inquiries that occur earlier in the purchase process being stronger than TWN inquiries. Consistent with our practice from the first quarter and the last several years, our guidance for both credit inquiries and TWN inquiries is based on our current run rates over the last two to four weeks modified to reflect normal seasonal patterns. For both credit and TWN inquiries, we saw some weakening in trends in late March and early April as mortgage rates increased over that period. Mortgage credit inquiry run rates remain somewhat better than the guidance we provided in February. Our guidance reflects mortgage credit inquiries to be down about 13% in the second quarter of 2024 and 11% in calendar year 2024, about 600 basis points and 500 basis points better than our February guidance, respectively. Our guidance reflects TWN inquiries at about the levels we discussed in February with TWN inquiries down about 19% in Q2 and down about 14% for the year. This reflects the continuation of mortgage shopping we saw in the first quarter. As a reminder, and as we discussed in February, we expect the level of USIS mortgage revenue outperformance to moderate as we move through 2024 as we start to lap the growth in new mortgage prequal products. We expect 2Q USIS mortgage outperformance to be about 40%, down from the 57% in the first quarter, with full-year USIS mortgage outperformance also expected to be on the order of 40%. We expect TWN revenue mortgage outperformance in the second quarter to be up slightly from the 7% we saw in the first quarter. Slide 12 provides the details of our 2Q 2024 guidance. In 2Q 2024, we expect total Equifax revenue to be between $1.41 billion and $1.43 billion, with revenue up about 8% at the midpoint. Nonmortgage constant currency revenue growth should strengthen to about 11%. Mortgage revenue in the second quarter is expected to be up about 3%. Mortgage revenue will be just over 20% of Equifax revenue. FX is negative to revenue about 2 points. Business unit performance in the second quarter is expected to be as follows: Workforce Solutions revenue growth is expected to be up about 3%, with mortgage revenue down about 12.5%. EWS nonmortgage revenue should grow over 9% in the quarter. Nonmortgage Verifier revenue will again be up about 15% in the second quarter driven again by government and a return to growth in Talent Solutions. Employer Services revenue is expected to decline about 4% in the quarter due to declines in ERC revenue. Excluding ERC, Employer Services revenue should be up slightly. We expect Employer Services to return to revenue growth in the fourth quarter of 2024 as we lap ERC headwinds. EWS adjusted EBITDA margins are expected to again be about 51%. USIS revenue is expected to be up over 8% year-to-year, despite the continued decline in mortgage market inquiries. Mortgage revenue should be up over 25%. Non-mortgage year-to-year revenue growth of over 2% should be up from the 1% we saw this quarter. Adjusted EBITDA margins are expected to be up strongly to about 34.5%. International revenue is expected to be up over 20% in constant currency due to the addition of BVS. Revenue is expected to be up approaching 10% in organic constant currency. EBITDA margins are expected to be about 25.5%, reflecting revenue growth. We expect Brazil to deliver revenue of over $40 million in the second quarter. Equifax 2Q 2024 adjusted EBITDA margins are expected to be about 32% at the mid-point of our guidance, an increase sequentially of about 300 basis points, principally reflecting the higher equity compensation expense we saw in the first quarter. Adjusted EPS in 2Q 2024 is expected to be $1.65 to $1.75 per share, about flat versus 2Q 2023 at the mid-point. Capital expenditures in the first quarter were about $125 million and consistent with our expectations. We expect capital expenditures in the second quarter to be at levels consistent with the first quarter, and we continue to expect CapEx to be about $475 million for the year, which is a year-to-year reduction of over $100 million. As we discussed in February, one of our capital allocation priorities in 2024 is leverage reduction from free cash flow expansion. As of the end of the first quarter, our leverage ratio was just over 3 times with a goal by year-end 2024 of about 2.5 times. We believe these levels of leverage are nicely within the levels required for our current BBB, Baa2 credit ratings. As we achieve these levels, we will have significant flexibility to begin to return cash to shareholders through dividend increases and share repurchases, as well as to continue to do bolt-on acquisitions. As Mark covered earlier, we are making very good progress on completing migration of our U.S. and Canadian consumer credit exchange changes to cloud, which will enable the shutdown of significant legacy systems in Q3 and Q4. These actions enable significant cost benefits in the second half of 2024, which will allow us to deliver sequentially higher EBITDA margins and adjusted EPS in Q3 and Q4. Slide 13 provides the specifics of our 2024 full-year guidance, which is overall unchanged from the full-year guidance we provided in February. Consistent with our February guidance, constant currency revenue growth is expected to be about 10.5%, with organic constant currency revenue growth of 8.5% at the center of our 7% to 10% long-term organic growth framework. Total mortgage revenue is now expected to grow over 10%, reflecting USIS mortgage revenue that is stronger than our February guidance. Total mortgage revenue is expected to grow more than 20 points better than the about 13% reduction from the average decline in USIS and EWS mortgage inquiries in our framework. Non-mortgage constant dollar revenue should grow over 10%, with organic growth of over 8%. This is solidly within our long-term framework, although slightly below the levels we discussed in February. FX is about 190 basis points negative to revenue growth. We have also slightly adjusted BU level guidance. We expect Workforce Solutions to deliver revenue of about 7% in 2024. This reflects mortgage revenue down slightly about 11 points better than underlying EWS mortgage transactions. EWS non-mortgage verticals are expected to grow about 10%. The slight decline from February guidance is due to the expected weaker revenue performance in employer driven by the more rapid decline in ERC and deferral of WOTC revenue Mark referenced earlier. Excluding the expected significant decline in ERC revenue as that pandemic support program completes, EWS non-mortgage revenue growth is about 12%. We expect USIS to deliver revenue growth of over 9% in 2024, above the high end of our long-term growth target of 6% to 8%. Mortgage revenue is expected to grow over 25%, on the order of 40 points stronger than the expected over 11% decline in mortgage credit inquiry. Non-mortgage revenue is expected to grow about 3%, down from the 4% in our February guidance. We continue to expect non-mortgage growth will be driven by strong consumer services, commercial identity and fraud, and FI. As we saw in the first quarter, the overall auto market was weaker than our expectations, impacting our auto-based revenue, and our D2C revenue, the business in which we sell credit data to other credit bureaus was weaker than we expected and down substantially. We continue to expect international to deliver constant currency revenue growth of over 15% in 2024, with organic constant currency growth of about 10%. As we discussed in February, the high levels of inflation we are seeing in Argentina are expected to benefit overall international revenue growth by about 5 percentage points. Although uncertain, we have assumed that the currency devaluation in Argentina will more than offset inflation in our 2024 planning. We believe that our guidance is centered at the mid-point of both our revenue and adjusted EPS guidance ranges. Turning to Slide 14 and as we discussed in February, the U.S. mortgage market is on the order of 50% below its historic average inquiry levels. As the market bottoms and moves from a headwind to a tailwind, the mortgage market recovers towards its historic norms that presents over $1 billion of annual revenue opportunity for Equifax, none of which is reflected in our current 2024 guidance. At our mortgage gross margins, this over $1 billion of mortgage revenue would deliver over $700 million of EBITDA and $4 per share that you would expect to move into our P&L. Now, I’d like to turn it back over to Mark.

Thanks, John. Wrapping up on Slide 15, Equifax delivered another strong quarter with 9% constant dollar non-mortgage revenue growth, which was well within our 8% to 12% long-term revenue growth framework, reflecting the power and breadth of the Equifax business model and strong execution against our EFX 2026 strategic priorities. As I mentioned at the beginning of my comments, a big priority for 2024 is to complete our North America cloud transformation as well as significant portions in our global markets, which will result in continued market expansion and reductions in our capital intensity as the key benefit of our data and technology cloud transformation. As we complete the cloud, we expect CapEx to increase in 2024 by over $100 million to about $475 million or under 8.5% of revenue, with further reductions in 2025 allowing us to move towards our long-term CapEx goal of 7% of revenue as we exit next year. Exiting 2024 with 90% of Equifax revenue in the new Equifax Cloud is a big milestone, so the team can move fully towards focusing on growth. Aligned with completing the cloud transformation is our strategic priority to drive innovation through our investments in EFX.AI. AI and ML are changing the way we develop new products in our single data fabric, build higher performing models, scores, and products, allow us to inject and cleanse more data, and operate our consumer care centers more efficiently. We are on offense with EFX.AI. We are entering the next chapter of the new Equifax as we pivot from building the new Equifax Cloud towards leveraging our new cloud capabilities to drive our top and bottom line. We are convinced that our new Equifax cloud differentiated data sets, in our single data fabric leveraging EFX.AI and ML, and market-leading businesses will deliver higher growth, expanded margins, and free cash flow in the future. We remain focused on executing our long-term model, delivering 8% to 12% revenue growth with 50 basis points of annual margin expansion annually. I’m energized by our strong performance in the first quarter and momentum as we begin 2024, but even more energized about the future of the new Equifax. And with that operator, let me open it up for questions.

Thank you. Good morning. I just had a broader question on just the visibility that you have because unlike the prior years, mortgage is actually much better than what you guys guided. But still there were, I think, a lot of moving pieces that didn't allow you to beat by more, I guess. Just curious I think this quarter, obviously, ERC was exceptional, but auto, APAC like, just – can you just help us understand how much visibility you have in these other areas?

Yes. Manav, good morning. I think we have good visibility. We typically do, as you know, but there's still a lot of uncertainty. As you know, you go back using your comment on mortgage, 60 days ago, I think a lot of us were looking forward, as well as most of the experts that we have multiple rate cuts in 2024 as recently as two weeks ago, there were still people thinking there was going to be a June cut. I think, as you know, that's kind of pushed out. Rates went up three weeks ago, two weeks ago, mortgage rates went up 20 basis points to 7%. So while there's a lot of visibility, there's still a lot of uncertainty around what I would call it, principally the mortgage market. And given we're in the first quarter, we thought it was prudent to be balanced in the framework we put forward. As you know, we beat in the first quarter. We had some things to manage in ER spend, EWS like the ERC decline or the WOTC deferral because of the change in forms. There are always things we're managing as a company. We thought it was prudent to be balanced given where we are in the quarter and kind of the macro of mortgage. Outside of mortgage, we're pretty comfortable with the economy. We held the year and we'll take another look at it as we go through the second quarter.

Okay, got it. And then just the 7% mortgage outperformance in EWS, I know you guys had said that you expected 1Q to be the low end or the low point was seven, kind of in line with your expectations and then just thinking about the 11 for the year and beyond. Is that going to be the new norm then?

Yes. So we've had very strong mortgage outperformance at EWS over the last couple of years, records are a big driver of that. Obviously, we take price up every year, which we did in 2024. We've also had in the last couple of years what I would call outperformance in EWS mortgage from some of the new product introductions, principally Mortgage 36. So that's kind of the delta from 2024 outperformance, call it in the high teens to 20, down to the double-digit or low single digits. So we were kind of focused on that. As we look forward to the balance of the year, you heard us talk about the record additions which are going to benefit all of the EWS verticals, including mortgage, including the larger payroll processor that we signed. It's going to come online, kind of mid-year, that's going to add 6 million records. So those higher hit rates will benefit all of the EWS businesses in the second half as we continue to grow twin records, and also will benefit mortgage.

Relative to our expectation for the first quarter, seven was a little lower than we expected. As we said in the script, it was really driven a lot by customer mix and channel mix, right. We saw some shifts in our customers to some of our customers that had lower pricing than others, and that impacted our first quarter outperformance levels. Going forward for the rest of the year, we basically assume that level of mix is going to continue. As Mark said, the growth is really driven by records. Long-term, I think we've said before that we're expecting mortgage outperformance to look pretty much like the level of outperformance excluding the economy – of the economy that we're talking about for EWS in general, which is something like 11%, 12%, 13%. So I think long-term, that's the type of level we're thinking about.

Hi. John, could you go back to Slide 11 and the 500 basis point better assumption on a USIS mortgage credit inquiries for 2024. Does that translate into 500 basis points better mortgage revenue growth for USIS? And if not, why? And I'm going to give you my second question. We'll also make a comment about mortgage solutions trajectory for the year.

So it translates into better mortgage revenue for USIS in total, not necessarily specifically for EWS, right. So you need to look at both EWS as well as core mortgage. But yes, inquiries translate fairly directly. Yes.

And the other part was, could you just talk about mortgage solutions trajectory for the year?

So again, what we're talking about is just mortgage in total, right. So I think the trajectory for mortgage in total is what we talked about on the call. We didn't really split mortgage solutions and EWS. We manage it as one single business. I understand it's on two different line items when we report, but we tend to focus on mortgage in total and trying to drive the mortgage performance overall up for the year. I think we gave very specific information about what we expected overall mortgage is very strong, up over 25% for the full year, right, outperformance on the order of 40 points. So we think it's going to be very strong in total.

Mark Begor: I missed the first step – the first half of your question about if rates stay higher for longer, how does it impact Equifax?

Yes. So mortgage, I think you get – mortgage, obviously this year, we're still expecting mortgage to be down. But like, if rates stay where they are, we would expect in 2025, mortgage market to be fairly flat, in 2025 until rates come down. I think John outlined again, what we believe that whether it's 2025, 2026, or 2027, as rates get down to what I would call a more normal level, as you know, we're at a 20-plus year high right now. Over that longer timeframe, there's a big tailwind in mortgage. For the rest of our businesses, we haven't really been impacted by rates. There's a little bit of impact in auto; those higher rates are pressuring some of the payments, if you will, for that lower end consumer and subprime and near prime. But broadly, we're performing well where rates are from a non-mortgage standpoint, and we would expect that to continue. When we think about the long-term of Equifax, we're still committed and confident in our 8% to 12% kind of long-term framework for the company, including a point or two of M&A in that long-term framework. It's kind of current rates. We've got the benefit of rates coming down to some level where they're going to come down to four, three and a half, or whatever over the long-term, I don't think any of us expect them to go back to where they were during the COVID pandemic. As they come down, we're going to have we believe a real tailwind as the mortgage market recovers from its levels of 50% below what we would characterize as normal.

And just as a reminder for 2024, right, as we said in the script, our guidance reflects current activity, current run rates, which is at current rates, right. So effectively, our guidance assumes rates stay where they are.

Hi. Thank you very much for taking my questions. Hey, Mark, can you talk a little bit about the mortgage outperformance in USIS? There’s obviously the FICO pricing increase, and then you mentioned the new Prequal product. Given the magnitude of the outperformance, could you kind of parse that a little bit for us? Is it like overwhelmingly FICO with some Prequal or how should we think about that in terms of the impact the new products having there? And then I have a follow-up.

Yes. The pricing pass-through is a very, very big piece of the mortgage outperformance. We haven't broken it down to two, but the new solution, the prequal that's used in the shopping stage, is a meaningful piece and we're very pleased to have that on top of the price action. You should expect us to continue to bring new solutions to market, and this is an example of that as we go forward. As we look forward to 2025 and beyond, we'll continue to focus on new solutions from our standpoint. I think all of us will have to see what that pricing looks like as we get into 2025 from our FICO partner there and what they decide to do next year, as well as beyond 2025.

Okay, thank you. And then here, this is for John. Can you just go over the puts and takes on Workforce Solutions 2024 guidance going to 7% from 8% despite the fact that the mortgage market inquiries are expected to be better. Some of the stuff that were mentioned sounds like they would be more delays rather than permanent impacts. I'm just hoping you can just parse that out a little bit more because that's kind of surprising to people, I'd say one of the most surprising in what we saw in kind of the earnings report.

Sure. So, I think the full year is down a point, principally because of employer. Right. So, that some of the items we talked about certainly were yes, it's a deferral, but it's lower for the year and it doesn't all turn in 2024. ERC is lower for the year. Generally speaking, the reduction is principally related to employer. On mortgage, we indicated that we're seeing slightly better performance than mortgage on inquiries. Right. That we had expected shopping when we gave guidance back in February to kind of not be as substantial in 2024. What we saw in the first quarter is it was. We're now assuming it will continue for the entire year. Even though the inquiries are similar to; we're expecting a little weaker level of performance in terms of outperformance. Right. That we just talked about. So that's affecting mortgage revenue overall. Non-mortgage verifier revenue is really strong, that continues to be very, very good. Government's performing incredibly well, outperforming our expectations overall. We expect talent to recover. We had fairly good performance in kind of the non-mortgage financial services portion of the P&L. We felt relatively good about that. So overall, non-mortgage in verification services is very good. The real movement relative to the 8% we gave before, the biggest driver is employer services and then also mortgages, is even though maybe you have a little better overall inquiries in total for the year, they're being offset by the weaker level of outperformance that we talked about. Principally driven by mix. Right. Principally driven by customer mix, which we saw in the first quarter.

Yes. Hi. Thank you. I wanted to ask about the third party sales to credit bureaus that you mentioned that was weak and down double digits in the quarter. What exactly is that and what's driving it? And how should we think about this for the rest of the year?

Yes, we sell our credit reports to a number of companies that provide credit monitoring to consumers in the U.S. We have our own business, including sales to Experian and TransUnion, as well as lots of others that provide credit monitoring. We have seen some softness, particularly with other two credit bureaus in the first quarter and actually late in the year. That's really what we referred to. I don't know enough about what's driving that, whether they're cutting back on marketing or it's just a more competitive market. But that was an element that we just sold fewer credit reports that are passed through in credit monitoring solutions.

Yes. We basically assume it's going to continue into the second quarter. Right. So we're seeing it to be at lower run rates. So we're assuming those run rates are just going to continue.

Okay. Understood. And then just to follow up on the question around EWS revenues. I know you said that you still expect, I think, government revenues to be up 15% for the year. Curious how we should think about the second quarter, sort of where we are in terms of redeterminations. So basically what's left in Q2 and then if you could also just comment on, I know you're talking about a recovery in talent. But give us a sense of how we should think about talent revenues for the year.

Yes. So I think that the number you're quoting for government we talked about back in February, and what we're seeing is government is outperforming that. We feel very good about our government revenue very strong in the first quarter. Yes, redeterminations are technically completed by the end of March. So yes, that revenue should decline, but we're seeing really good performance across government strength in CMS, strength in other areas, strength within the states. Really good progress as we continue to expand staff both through FDA and then also directly with the states. So we feel good about our ability to continue to grow government at a stronger pace than we had previously expected in talent. But we're indicating that we expected to get back to growth, right. I mean, we saw some weakness in January and February, nice recovery in March. We're expecting that to continue. We're going to get back to growth as we go through the year. As I just mentioned, we do feel relatively good about what we're seeing overall in our non-mortgage financing structure, so we feel relatively good there as well. So overall, non-mortgage and verification services looks like it's performing very nicely. And again, just like with mortgage, as we move through the year, the substantial growth in records, the tremendous growth that we're seeing in adding new payroll processors now large and small, is going to add to the strength in all three of those areas that I just talked about: government directly, talent also, because it not only adds hit rates, it also deepens the historical file that we're able to deliver to our customers. So it makes our product even more valuable, and also in non-mortgage financing.

Hi good morning. I wanted to ask about the FHFA's kind of latest timeline for its credit score requirements. I think they put that out at the end of February. Just wondering how you think about kind of now with that out there, the timing of the impact to your business and if a couple months later or even a couple quarters later since I think you last spoke on it, what your expectations are in terms of the impact to Equifax broadly?

Sure. I think the latest on that, this pushed out to late this year or early next year. It's still in a comment period. There are a lot of inputs coming in that don't support the 3B to 2B, from what we understand, including congressional inputs on that. There's also what's on the table, is to add a VantageScore in addition to the FICO score. With regards to our view of timing, we don't expect anything to happen in 2024, and that's not in our guidance; it's not in our framework. Everything we see and hear suggests that will be in 2025, if at all.

Got it. Thank you. And then just for my second question, I wanted to go to Slide 14. I know this isn't a new slide, and you've talked about the 2015 to 2019 inquiry level relative to where we are today. I'm just wondering if there's any additional color you can give to that average inquiry level from 2015 to 2019 as it relates to kind of a mix between refi and purchase. And I ask because obviously it would seem like refinance after the wave of refinancing in 2020 and 2021 would be potentially subdued for a longer period of time than 2024, 2025, 2026 if we don't get back to those kinds of interest rates. So is there any other context you can provide with that number? I guess, more succinctly, how much of that 2015, 2019 inquiry level is purchase versus refi? Thank you.

Yes. If you look at originations during that time period, Right. Because obviously that in historical periods, the details are available; it was like average $7.5 million a year. And it was something like, something under 60% would have been purchase and something over 40% on average would have been refi. That was kind of the mix that you saw during that period, on average.