Equifax Inc (EFX) — Q3 2025 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 and Events tab at our Investor Relations website. During the call, we will be making reference to certain materials that can be found in the Presentations section of the News & Events tab and our IR website. Also, we'll be making certain forward-looking statements including fourth quarter and full year 2025 guidance as well as our long-term financial framework. 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 2024 10-K and subsequent filings. In the third quarter, Equifax incurred a restructuring charge for cost reduction actions as we continue to streamline our operations globally as we complete the new Equifax Cloud and advance our global data and application cloud infrastructure and deploy EFX.AI capabilities across the organization to drive cost savings. These charges totaled about $44 million and are expected to deliver ongoing savings when completed by late 2026 of about $30 million per year. We will also be referring to certain non-GAAP financial measures, including adjusted EPS, adjusted EBITDA, and cash conversion, 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 in 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. Moving to Slide 4, Equifax had a robust third quarter with revenue of $1.54 billion, reflecting an increase of over 7% in constant currency and reported dollars. This revenue exceeded our July guidance by $25 million, primarily due to stronger performance in U.S. mortgage, EWS, and USIS non-mortgage sectors. Approximately two-thirds of the revenue outperformance came from USIS mortgage, driven by increased market volumes later in the quarter following a reduction in mortgage rates. Hard credit inquiries for mortgages fell about 7%, but this was better than our expectations of a decline exceeding 12%, especially as 30-year mortgage rates dipped below 6.5% in September. Overall, U.S. mortgage revenue saw a substantial increase of 13% during the quarter. In September, we experienced modest growth in mortgage inquiry activity, likely spurred by refinancing due to lower rates. However, new home purchase activity remains low, influenced by limited inventory, high home prices affecting affordability, and potential buyers holding out for lower mortgage rates. In the quarter, U.S. mortgage revenue accounted for 21% of Equifax's total revenue. John will soon discuss our expectations regarding mortgage activity for the fourth quarter, but we are optimistic that mortgage activity will gradually align with levels seen between 2015 and 2019 as inflation stabilizes and rates decrease. EWS non-mortgage revenue exceeded expectations, driven mainly by strong growth in EWS government due to increased state penetration. We have observed a significant uptick in discussions post-OB3, as both federal and state agencies prepare for the implementation of new solutions to meet stricter income and work requirements established by OB3, which bodes well for EWS Government growth in 2026 and 2027. USIS also performed well this quarter, with B2B non-mortgage revenue increasing by about 150 basis points sequentially, as they concentrate on customer growth in a post-Cloud environment. Foreign exchange impact on revenue was minimal in the quarter, in line with our July guidance. Adjusted earnings per share were $2.04, surpassing the midpoint of our July guidance by $0.12, thanks to robust revenue growth and solid operating leverage. Adjusted EBITDA margins stood at 32.7%, reflecting a sequential increase of 20 basis points. Our business units are executing effectively; EWS reported 5% revenue growth this quarter, driven by unexpected strong growth in Government and a 20% rise in Consumer Lending. EWS continues to expand, evidenced by a 9% increase in active records compared to last year. USIS experience an 11% revenue growth, outpacing expectations and significantly exceeding their long-term growth framework of 6% to 8%. USIS is gaining traction following the Cloud transformation, enhancing product innovation and customer growth. This quarter, they introduced a new auto credit file featuring a TWN indicator to enrich our credit file and boost market share. Internationally, constant dollar revenue increased by 7%, aligning with long-term growth expectations. The International team is making notable progress towards completing the Cloud transition, driving margin expansion through the decommissioning of legacy infrastructure. International adjusted EBITDA margins improved by approximately 360 basis points year-over-year. We also achieved significant progress in new product introductions, boasting a Vitality Index of 16%, a quarterly record attributed to successful product rollouts like the I-9 virtual solution sold directly and through background screening and payroll processing channels. We are raising our 2025 Vitality guidance for the third time this year from 12% to 13% due to our continued strong performance in NPIs. Additionally, leveraging our strong free cash flow, we returned about $360 million to shareholders, including the repurchase of 1.2 million shares for $300 million, roughly 1% of our outstanding shares. Following our strong third quarter results, we are raising our full-year revenue guidance by $40 million and adjusted EPS by $0.12 per share. With robust operating performance, we are also increasing our free cash flow guidance to a range of $950 million to $975 million, up from our previous guidance of $900 million provided in July, with cash conversion exceeding 100% of the previously established 95% framework. We are experiencing positive momentum from our strong third quarter as we transition into the fourth quarter and look ahead to 2026. John will provide more details about our fourth quarter and comprehensive guidance shortly. Moving to Slide 5, Workforce Solutions revenue grew by 5%, surpassing expectations primarily due to Government performance. Verifier revenue also increased over 5% this quarter, with non-mortgage Verifier growth of about 7%. Government revenue exhibited high single-digit growth, outperforming our mid-single-digit growth expectations, fueled by state penetration and OB3 momentum, which is encouraging as we move beyond the impacts of 2024 CMS funding changes. Talent Solutions revenue saw low single-digit growth this quarter, falling short of our expectations due to weaker hiring activity. Overall, U.S. hiring, especially in the white-collar sector, remained relatively weak in the third quarter, with overall BLS data showing a decline of about 4% in July and August compared to last year. Despite this, underlying talent employment verification revenue continued to perform well in the third quarter due to new products, penetration, pricing, and record growth. EWS mortgage revenue was up 2%, which is better than the market’s 7% decline in inquiries, as EWS mortgage inquiry volumes lag behind USIS credit inquiry volumes since credit is assessed earlier in the mortgage application cycle. EWS mortgage revenue benefits from record growth and pricing stability. Consumer Lending exhibited strong performance, with revenue surging 20% during the quarter driven by broad double-digit growth across personal loans, auto, and credit cards. Employer Services revenue bounced back to positive growth, up 1% and an increase of over 250 basis points sequentially. There remains some weakness in I-9 and onboarding revenue due to the lower hiring market affecting both blue-collar and white-collar segments. Workforce Solutions adjusted EBITDA margins of 51.2% were robust and slightly above expectations, supported by higher-than-expected revenue growth and strong operating leverage. TWN record additions reached 199 million active records, a 9% increase, and we also reported 113 million current records, reflecting a 6% increase. The growth of the TWN database continues to provide substantial value for verifiers and contributors, delivering higher hit rates. This year, we added 5 new partnerships on top of the 10 secured in the latter part of the previous year, and we anticipate that these new TWN relationships will significantly contribute to record growth in the fourth quarter and into 2026. Our 100 million current Social Security Numbers illustrate the considerable growth potential for TWN as we move toward the 250 million income-producing Americans. Turning to Slide 6, we remain actively engaged at both federal and state levels regarding the estimated $160 billion in improper social service and tax payments, which we view positively for the medium and long-term outlook for Workforce Solutions. The President signed the OB3 legislation in the second quarter, which presents significant growth opportunities for our EWS Government business through an enhanced focus on program integrity and new OB3 requirements. Our discussions in Washington and with state agencies have intensified since the OB3 signing in July, given the substantial value proposition that TWN offers in terms of speeding social service delivery, improving caseworker productivity, and enhancing income verification accuracy, leading to a reduction in improper payments. The new OB3 bill emphasizes heightened verification requirements in various areas. In SNAP, it ties federal funding levels to error rates and enforces work requirements. Currently, over 80% of states do not meet the new 6% income verification error rate mandated by OB3 for SNAP, with about 40% of states reporting error rates exceeding 10%. At current error rates, states could incur nearly $12 billion in SNAP benefit costs, which would shift from federal to state responsibility, making our TWN solutions increasingly attractive for reducing these error rates. Additionally, community engagement or work requirements for certain Medicaid recipients can be verified using the hours worked data included in the TWN data set. There will also be increased frequency of CMS redeterminations from 12 months to every six months for specific populations, in addition to tightening income verification requirements that TWN can fulfill. As previously mentioned, we have noticed a significant upsurge in commercial discussions post-OB3, thanks to our unique TWN data assets that aid state agencies in meeting these new requirements, a trend we expect will strongly benefit our EWS Government business in 2026 and 2027 and beyond. While revenue opportunities stemming from OB3 are likely to materialize in the latter half of 2026 and into 2027, increased state-level engagement offers immediate opportunities for us to penetrate the approximately 50% of states that are not currently utilizing TWN for CMS or SNAP verifications. We are also enhancing our engagement in Washington to support the broader focus on program integrity and addressing improper payments in new initiatives that TWN has historically not been involved with, including IRS earned income tax credit verification, new IRS overtime requirements, and unemployment insurance. These represent substantial potential new programs that could drive future growth for EWS. The EWS Government team is rolling out innovative solutions for federal and state agencies to support efforts to combat fraud, waste, and abuse. New products include continuous monitoring of state SNAP participant income data to verify changes in income above program thresholds, thereby reducing error rates, which will be available this quarter. Continuous evaluation of state Medicaid hours worked data is slated for mid-2026 as a new Workforce Solutions offering to comply with OB3 requirements. Our complete income solution, introduced in the third quarter, allows states to validate incomes through the Work Number and includes diverse income sources such as gig work, self-employment, and non-earned income through permission services. We have already secured partnerships with one state for this new solution and have several others in the pipeline, marking a unique opportunity for growth in our government vertical amid heightened focus on improper payments and new OB3 regulations. EWS holds considerable potential for medium- and long-term revenue growth in support of government programs, and we are confident in our framework projecting government vertical revenue growth exceeding the EWS long-term growth target of 13% to 15% as we capitalize on the extensive $5 billion government total addressable market. Transitioning to Slide 7, USIS achieved remarkable growth this quarter with revenue up 11%, significantly outperforming our expectations, primarily driven by mortgage revenue. Non-mortgage revenue increased by 5% this quarter, also surpassing expectations, which is a promising indicator as we approach the fourth quarter and 2026. B2B non-mortgage revenue saw an approximate 5% increase in the quarter, up over 150 basis points sequentially amid a stable lending environment, albeit still below long-term levels. We recorded low double-digit revenue growth in the auto sector and mid-single-digit growth in financial institutions, with aggregate revenue across all other B2B verticals growing at low single digits. Our Financial Marketing Services B2B offline segment experienced robust growth of 9% this quarter, propelled by strong revenue from our identity and fraud solutions facilitated by the new Equifax Cloud. We have not observed a rise in portfolio review expenditures indicative of increased risk management activities amidst a softer economic landscape. Consumer Solutions revenue remains strong, up 6%, while mortgage revenue surged 26% this quarter, exceeding expectations owing to mortgage volume increases late in the quarter due to slight rate declines, the benefits from FICO pass-through, and the success of our new mortgage pre-approval products. Interest in these products, particularly those featuring the TWN indicator, continues to remain strong. USIS adjusted EBITDA margins rose to 35.2%, representing a 130 basis point increase from last year, reflecting cost savings from our Cloud migration completed in the latter half of the previous year and operating leverage related to revenue growth in the quarter. Moving on to Slide 8, Equifax recently announced an expansion of our Vantage 4.0 mortgage credit score offerings in response to FICO's aggressive pricing strategies. FICO has reportedly increased its mortgage credit score pricing at a compound annual growth rate of over 100% over the last four years, with a notable doubling to $10 per score in 2026, following their loss of a 30-year monopoly in federally guaranteed mortgages in July. We outlined strategies aimed at fostering competition in the mortgage credit scoring market, promoting conversion to VantageScore 4.0, resulting in savings of $100 million to $200 million for our mortgage customers and consumers. Specifically, the Vantage 4.0 mortgage score is priced at $4.50 per score to encourage faster conversion to the superior, lower-cost VantageScore 4.0. We will maintain this $4.50 pricing through the end of 2027 to instill confidence in our customers during the conversion process. In 2026, the trended credit file incorporating the Vantage 4.0 associated with mortgage hard inquiries is expected to be priced comparably to the 2025 Equifax trended credit file featuring FICO scores. Furthermore, we plan to provide complimentary VantageScores through the end of 2026 to mortgage, auto, card, and consumer finance customers who purchase FICO scores to facilitate customer acceptance and conversion. Notably, we have integrated the new TWN indicator and essential employment indicators into our mortgage pre-qual and pre-approval offerings at no additional cost to enhance the value of our credit file and increase market share. Additional telco and utility attributes will also be incorporated into our trended mortgage prequal, pre-approval, and hard pull credit files without extra fees in 2026 to further add value. We are incentivizing our commercial teams to promote conversions to VantageScore 4.0, ensuring we deliver performance and cost savings to our customers. We believe these initiatives are substantial steps toward increasing competition in the scoring market while setting our mortgage credit products apart. Following FICO's price hikes, which included a 50% increase in score pricing, we've seen rising interest from the industry for using VantageScore 4.0, with numerous direct mortgage customers either already utilizing VantageScore, in the contracting phase, or expressing strong intent to convert. As depicted on the left side of the slide, VantageScore 4.0 is projected to yield an additional $4.50 per score in profit for Equifax, potentially generating over $100 million annually at full adoption and exceeding $100 million more as the mortgage market rebounds, totaling up to $200 million. This incremental annual profit would supplement the anticipated $700 million of Equifax's EBITDA growth discussed previously as the mortgage market returns to its normal levels seen between 2015 and 2019. Transitioning from FICO to VantageScore presents challenges due to FICO's long-standing monopoly in federally guaranteed mortgages; however, we believe FICO's substantial price increase of 16 times over the past four years and an unprecedented doubling to $10 in 2026 will serve as a catalyst to accelerate the conversion to Vantage in the mortgage market. Equifax is committed to providing savings for our mortgage customers and consumers while also expanding our margins in this new scoring landscape. We do not foresee changes to our 2026 financial framework due to the FICO price increase or the new Vantage pricing, but we expect the conversions to Vantage to be beneficial to Equifax in the medium to long term as they occur. Moving to Slide 9, International revenue increased by 7% in constant currency, indicating widespread growth across all regions. Canada’s revenue rose by 11% this quarter, showcasing strong sequential growth as the team capitalizes on their Cloud transformation to drive innovation and attract customers. Latin America revenue surged 9%, buoyed by double-digit growth in Argentina and Brazil. The Boa Vista business is performing exceptionally well, with a 12% increase this quarter compared to last year, as we introduce new multi-data Equifax solutions in the Brazilian market, allowing us to capture additional market share. Both Europe and Asia Pacific regions exhibited solid performance, increasing by 4% this quarter. International adjusted EBITDA margins reached 31.3%, reflecting an impressive increase of 360 basis points from the previous year, attributed to revenue growth, operating leverage, and cost savings from our Cloud migration. Turning to Slide 10, we achieved a Vitality Index of 16% in the third quarter, which surpassed our long-term goal of 10% by 600 basis points, marking a quarterly record. All business units reported strong double-digit growth in Vitality as we leverage our differentiated EFX.AI and new technology stack in a post-Cloud environment. So far, we have launched over 150 new products in 2025, marking the highest number of launches to date through the third quarter, indicating a positive outlook for the upcoming year. As a result of our strong performance in NPIs, we are increasing our full-year Vitality Index guidance by another 100 basis points to 13%, which is our third increase this year. We are excited about the momentum we have post-Cloud completion in innovation and new product offerings. The next phase of our product innovation focuses on deploying EFX.AI alongside our cloud-native technology, Ignite analytics platform, and proprietary data to provide higher-performing EFX.AI-powered scores, models, and products to our customers. Our strategy is to transition from solely providing data and analytics to becoming an essential partner in AI-powered decision intelligence. We are realizing this vision with our recently introduced Ignite AI Advisor solution, part of the growing suite of EFX.AI-enabled solutions newly integrated into the Equifax Ignite ecosystem. Ignite AI Advisor utilizes a lender's data in conjunction with Equifax data to produce actionable insights that enhance decision-making. Lenders can interact through a generative chat complemented by visual dashboards, dynamic charts, and graphs, empowering smaller organizations that may lack extensive in-house data capabilities to easily analyze information and identify new trends, leading to the creation of new offerings for their consumers and small businesses. We plan to formally launch more EFX.AI-powered innovations in the first quarter of 2026, including the innovative EFX IQ capability currently being piloted across various organizations in the U.S. and globally. EFX IQ will assist our clients in making fundamentally better and quicker decisions across all stages of their operations, from marketing to originations to account management, using our EFX.AI capabilities. One component of Equifax IQ is a new affordability model aimed at predicting a consumer's actual capacity to take on new debt rather than merely assessing risk, fostering more precise and responsible lending, which can increase customer approval rates and decrease losses. EFX IQ will also incorporate a unique decision optimization model that enables clients to simulate the impact of different lending strategies on business outcomes prior to execution. We are seeing strong market validation for these initiatives and our EFX IQ approach. Fraud remains one of the most pressing and rapidly evolving challenges faced by our clients. We are harnessing our advanced AI capabilities and unique data assets to introduce a new generation of fraud prevention tools that can identify risks overlooked by traditional methods. This quarter, we are launching two powerful solutions targeting distinct high-cost fraud issues for our customers. First, our next-generation synthetic identity model is designed to combat the rapidly growing threat of fabricated identities, utilizing AI to analyze billions of nontraditional data points to uncover subtle patterns indicative of these ghost identities. Secondly, our new first-party fraud model tackles credit abuse, where individuals obtain credit with no intention of repayment—a behavior that can be difficult to differentiate from standard consumer activity. EFX.AI is adept at recognizing the behavioral indicators that suggest fraudulent intent. Moreover, we are accelerating the development and implementation of agentic AI systems within our internal operations, creating significant opportunities to enhance customer service, accuracy, and efficiency while driving revenue and cost savings. A prime example of this is our AI agent for model performance monitoring, which automates critical and labor-intensive tasks needed to ensure our models operate accurately and equitably, while also reducing the time required for monitoring by our team. This allows our data scientists to concentrate on innovation, facilitating easier identification of opportunities to refine our models. We are also broadening our application of agentic AI capabilities to enhance efficiency across internal processes, encompassing customer support, operations, finance, and additional functions. These efforts illustrate meaningful steps we are taking to enhance our global AI capabilities and deploy AI agents across our enterprise. These advancements will be vital in driving future operational efficiency and margin expansion while accelerating our integration of intelligent automation into our products and services. Prioritizing EFX.AI's deployment both with customers and internally at Equifax is a major focus for 2026 and beyond. In 2025, the number of new products employing EFX.AI has tripled since 2023. All models we have developed in 2025 have been crafted utilizing EFX.AI, with these models demonstrating an over 30% performance improvement for our customers compared to legacy models. In 2026, we aim to provide further metrics on how we are leveraging EFX.AI to drive enhanced revenue and improved cost efficiency across the scores, models, and products provided to our customers as well as in our back office to amplify speed, accuracy, productivity, and cost savings. Transitioning to Slide 11, we are receiving overwhelmingly positive feedback from customers regarding the rollout of our TWN indicator, which we believe will enhance market share for the USIS credit file. Our unique ability to provide information from the Work Number along with a credit report offers unparalleled value to our customers; understanding a consumer's employment status alongside their credit profile allows for tailored marketing strategies that drive higher approval rates and operational efficiencies for our clients. We'll continue providing the TWN indicator alongside our USIS credit file without additional costs across all verticals to differentiate our offering and strengthen market share. Our new mortgage prequal credit file solution utilizing a TWN indicator enhances our credit file with additional data, such as employment status, employer identification, and historic income levels. This innovative solution is supporting mortgage lenders in optimizing marketing strategies and expediting the underwriting process. Additionally, we plan to launch TWN indicator solutions for auto dealers, where we've seen substantial interest in enhancing identity verification efforts, refining customer segmentation, streamlining processes, and supporting more informed credit decisions by integrating the TWN employment status without charge into their Equifax credit files. We anticipate launching similar TWN indicator solutions in personal loans and credit cards during the first half of 2026. Now, I will turn it over to John for more insights on our 2025 guidance and fourth-quarter expectations.

Thanks, Mark. Turning to Slide 12. As Mark mentioned, we are increasing the midpoint of our full year revenue guidance by $40 million given our strong third quarter performance. Total Equifax reported revenue is expected to be up 6.1% to 6.7%, versus the prior year with non-mortgage constant dollar revenue growth over 5.5%. FX is about 40 basis points negative revenue growth. As a reminder, the mortgage market decline as measured by hard credit inquiries in 2025 is almost a 150 basis point drag on our revenue growth rate. The midpoint of our full year adjusted EPS is also increasing by $0.12 per share, with year-to-year growth expected to be 3.6% to 5%. Full year free cash flow is expected to be between $950 million and $975 million, up from our July guidance with a cash conversion of over 100%. Our accelerating free cash flow gives us confidence in our ability to execute our capital allocation plans of investing in new products and M&A as well as returning cash to shareholders through increasing dividends and share repurchases. At the business unit level, we continue to expect Workforce Solutions revenue to be up mid-single digits with continued strong adjusted EBITDA margins from 51% to 51.3%. We expect both non-mortgage and mortgage revenue to be up mid-single digits for the year. We are raising our full year USIS revenue estimate to increase high single digits year-to-year, principally from stronger mortgage revenue. Based on run rates for mortgage hard credit inquiries over the latter part of the third quarter and early fourth quarter, our mortgage hard credit inquiry expectations included in guidance for the full year and fourth quarter are both down high single digits, a slight improvement from our July guidance. Full year mortgage revenue is expected to be up approaching 20%. Our full year non-mortgage revenue growth expectations of mid-single digits growth are consistent with our July guidance. Full year adjusted EBITDA margin is expected to be 34.9% to 35.2%. And our full year international revenue and adjusted EBITDA growth expectations are consistent with our July guidance. Equifax adjusted EBITDA margins are expected to be about 32%. This is down slightly from the levels we discussed in July, principally due to higher mix of mortgage revenue and higher variable compensation reflecting stronger revenue and operating earnings. Slide 13 provides the details of our 4Q '25 guidance. In 4Q '25, we expect total Equifax revenue to be up about 6.5% on a constant dollar basis year-to-year at the midpoint with FX favorable to reported revenue growth by about 60 basis points. Adjusted EPS in 4Q '25 is expected to be $1.98 to $2.08 per share. The year-to-year decline in adjusted EPS is driven principally by higher depreciation and amortization and higher variable compensation in 4Q '25. Variable compensation was at low levels in 4Q '24 as the mortgage market and related mortgage revenue and profitability declined substantially. Equifax 4Q '25 adjusted EBITDA margins are expected to be from 33% to 33.3%, up slightly from 3Q '25. At the business unit level, we expect Workforce Solutions revenue to be up mid-single digits with continued strong adjusted EBITDA margins from 50% to 50.3%. We expect Verifier non-mortgage revenue growth to be up high single digits with improving sequential trends. Mortgage revenue is expected to be up low single digits, consistent with the third quarter and employer revenue is expected to be up low single digits. We expect USIS revenue to be up high single digits, with adjusted EBITDA margins from 35.8% to 36.1%. We expect non-mortgage revenue growth to be mid-single digits. Mortgage revenue is expected to be up over 20%. International revenue growth is expected to be up at the high end of mid-single digits, consistent with the third quarter, with adjusted EBITDA margins from 31.2% to 31.5%. We have seen a limited negative impact from the U.S. federal government shutdown to date, specifically in transaction volumes with some federal agencies. Our guidance does not assume that the federal shutdown extends materially. To the extent that the shutdown extends materially, we would likely see an impact on our government business, principally from delayed verification activity. Overall, our guidance assumes economic and market conditions do not change meaningfully from the levels we saw in September and does not assume a broader economic slowdown driven by an extended federal government shutdown. We are centered on the guidance ranges we provided. Our current 2025 guidance compares very favorably to the initial guidance we provided back in February. Revenue and adjusted EPS growth at the midpoint of our current guidance are up about 150 basis points from what we provided in February. This is a strong performance by the team given the continued mortgage and hiring headwinds as well as periods of macro uncertainty. EBITDA margins are slightly below our February guidance, principally reflecting higher mix of mortgage revenue. As Mark discussed, we believe that the Equifax mortgage pricing structure for 2026 will result in lower combined cost of credit data and scores for customers that elect to use the Vantage score. We also believe this pricing structure will result in improved dollar profitability for Equifax should customers elect to use a FICO score, purchasing either from Equifax or a mortgage tri-merge reseller. And for customers that choose the higher performing, lower cost VantageScore, Equifax dollar profitability is further enhanced as we have no COGS on a VantageScore. In terms of 2026 revenue, the pace of VantageScore adoption and FICO calculation by mortgage resellers is difficult to predict. And although these shifts could negatively impact revenue growth in 2026, as I and Mark referenced, they will actually enhance dollar profitability relative to '25 and our long-term financial framework. As we look forward and consistent with our discussions at our Investor Day in June and in our July earnings outlook, we expect to deliver financial results consistent with our long-term financial framework of 7% to 10% organic revenue growth and 50 basis points of EBITDA margin expansion under normal market conditions. As a reminder, our long-term financial framework assumes overall economic growth, including growth in the U.S. mortgage market at about 2% to 3% per year. For perspective, at current run rates and using mortgage hard inquiries as a proxy. In 2026, the U.S. mortgage market would be up low single digits versus 2025. We will provide 2026 guidance, including our assumptions regarding mortgage industry volumes and the pace of shift to VantageScore and mortgage reseller direct score generation at our earnings call in early February. Now I'd like to turn it back over to Mark.

Thanks, John. Wrapping up on Slide 14. We had a strong third quarter with constant dollar revenue growth of 7%, within our long-term organic revenue growth framework against the mortgage market that was down 7%, led by strong 26% USIS mortgage revenue growth and stronger-than-expected USIS non-mortgage revenue growth and EWS non-mortgage growth driven by stronger growth in Government. As we outlined, we are raising our full year guidance at the midpoint by $40 million of revenue, adjusted EPS by $0.12 per share and full year free cash flow outlook from $900 million to $950 million to $975 million based on our strong third quarter results and momentum in the fourth quarter. Our free cash flow generation and the strength of our balance sheet positioned us well to return cash to shareholders in the quarter. In the third quarter, we returned about $360 million to shareholders through share repurchases and dividends, and we expect to continue to repurchase shares in the fourth quarter against our $3 billion share repurchase program. In the quarter, we also outlined our new Vantage mortgage pricing structure, which we believe will deliver higher profits for Equifax and shareholders as well as lower the cost of lending for our customers and consumers, a win-win for everyone. We're entering the next chapter of the new Equifax with our Cloud transformation substantially behind us as we pivot our entire team to leveraging the new Equifax Cloud for innovation, new products, and growth. We are using our new Cloud capabilities, single data fabric, EFX.AI, and Ignite our analytics platform to develop new credit solutions, leveraging our scale and unique data assets. And we're accelerating multi-data asset solutions, including those that combine traditional credit alternative credit assets and TWN income and employment indicators in verticals like mortgage, auto, card, and P loan that only Equifax can deliver that will drive share gains and growth. I'm energized by our strong third quarter performance, but even more energized about the next chapter of the new Equifax. This is an exciting time to be at the new Equifax. And with that, operator, let me open it up for questions.

Can you go into more detail on what you're hearing on the mortgage pricing changes, including anything coming out of the MBA conference? I hear you that the conversions not easy and will take time, but I thought you also said you have some clients in production with VantageScore. So just, I guess, how active are the conversations or transitions?

Yes, Jeff, as you know, MBA is taking place. It started on Sunday. We've got a team down there. John and I are there, but we're getting a lot of feedback. And really, before that, I used the phrase earlier in my comments, there's been a groundswell of attention, obviously, to the huge FICO price increase, doubling to $10 in 2026. And then the response from Equifax to put a very competitive offer on the table. So it's incredibly active. There's a lot of energy around the Vantage opportunity. It's going to take time to do it, but we've got customers that are already engaging around it. And I would say every customer, whether it's a reseller or end-user of it is well aware of the massive savings opportunity versus FICO that comes from conversion of Vantage. So there's just a lot of momentum there.

Okay. And then can you give more detail on the margin guidance, including the reduction in USIS margin guidance? I'm just not understanding the message, because I thought that you were going to flow through mortgage-driven upside. And I think non-mortgage is also somewhat better than expected, and the incremental margins on mortgage market-driven upside should be higher than your reported margins. I heard a bit about incentive comp, but it's not adding up to me with kind of the prior commentary that you flow through the mortgage market-driven upside, that's it.

Absolutely right. We addressed this in our commentary. We are observing positive trends at both the total Equifax level and specifically for USIS. We plan to pass on the profits from increased mortgage revenue, which is reflected in our better performance in the third quarter and the guidance provided for the full year. However, in the short term, we are experiencing some negative effects on USIS margins and Equifax margins. A significant factor is related to variable compensation. The performance we announced today is significantly improved for the second half of 2025 compared to what we projected in July, resulting in increased variable compensation that affects both Equifax and USIS directly. Additionally, our current mix is leaning more towards mortgage, which negatively impacts our gross margins during this period. However, as we have stated, we plan to return 100% of that variable profit to shareholders over time. You saw this reflected in the increased profitability for the quarter, the higher guidance, and the stronger cash flow performance in the third quarter, along with the much higher cash flow guidance for the full year.

Wanted to start on Government, very helpful commentary about the error rates and the ramp-up that you're seeing in discussions with the states. I guess, do you expect that this will really start to ramp after the end of the government fiscal year-end? Or will states really preemptively start using your solutions ahead of time? I know you talked about the second half '26, '27 is really where the sweet spot will be. But just wanted to understand the process a little bit better.

Yes, I believe it's a combination of both. We have been pleasantly surprised by the rapid increase in conversations at the federal level, as we've mentioned with some new programs we're developing. At the state level, following the OB3 signing on July 4 by the President, we've experienced a noticeable uptick in conversations over the last 90 days. As you noted, most effects of OB3 are expected to manifest late next year. Therefore, revenue from new solutions like our continuous monitoring and hours worked solutions will likely begin to materialize late in '26 and become significant in 2027. However, as I mentioned earlier, we're seeing growing engagement with states regarding our solutions. It's important to remember that the error rates I discussed pertain to the current period; in '25 and '26, we will really set those error rates. If states aim to reduce those rates and mitigate the potential costs of the benefits outlined in the OB3 bill, they must address integrity now, which is why we are seeing an encouraging increase in those discussions. Lastly, the challenges that impacted the business in 2025, particularly the changes in the previous administration regarding CMS cost sharing and data costs, seem to be behind us now. States are focusing on the stricter requirements of OB3, which we anticipate will positively influence our trajectory as we enter 2026, especially when the new requirements take effect late next year.

John, could you just go over a little bit more the general corporate expense line in the third quarter and what's driving that?

Sure. And the increase in general corporate expense really specifically is driven by what I referenced in terms of the answer to Jeff's question is really around an increase in variable compensation between the July guidance we provided and what we're seeing now based on the much stronger performance, right? So...

Based on the higher revenue?

And higher revenue and principally operating income, right? So what you're seeing is obviously much stronger overall performance, higher revenue and operating income, and that's resulting in a higher level of variable compensation, and a significant portion of that impacts general corporate expense.

The first question, if you could just remind us the different moving pieces, I guess, on the mortgage side. What I'm referring to USIS grew 26%, but EWS was only 2%. Can you just remind us of the different factors? I know there's always a difference but just maybe in this quarter.

Well, you could start with the FICO price increase in USIS, obviously, is quite substantial in the year, and we have the pass-through benefits there. So I think that explains a big piece of that high double-digit number in USIS. And then as we mentioned, and you saw it, I think, Manav, when rates came down kind of in September, we saw an uptick in mortgage activity. That usually benefits or always benefits USIS first in the prequal shopping stage. They see the polls earlier than EWS does. EWS, obviously, the mortgage market based on our inquiries was down 7% in the quarter. And that 2% increase in EWS just really reflects their pricing product and records outperformance against that negative market. And as John mentioned, I think, in his comments, we expect to see some improved performance in EWS because they typically are in the closing stage of those mortgages that likely were started in December. So we would expect to see that pick up as we go through into the fourth quarter, and that's in our guide for the fourth quarter.

But again, as Mark said, if you take a look at EWS outperformance over the first 9 months and in the third quarter, obviously, we don't give that number specifically anymore, but we've indicated we expect them to run high single-digit percentage growth outperformance, and that's kind of where they're running.

I think the feedback on the score pricing makes sense. I was just curious if you have received any feedback from your customers about the credit file cost increases you implemented. Is that something they have mentioned?

Yes, those discussions are currently taking place at MBA. I believe they are not receiving much feedback. Most of the focus seems to be on the FICO increase for next year, which has doubled to $10. This topic appears to be dominating the MBA meeting, while our conversations are ongoing.

Mark, given the focus on generating more VantageScore traction, can you talk about what it is that you guys can do to kind of drive the adoption in the marketplace? I mean, is there going to be a step up materially in your sales and marketing budgets in the area? Are you guys going to provide some help to the customers in terms of back-testing it versus FICO, like how should we be thinking about this operationally? And then where the efforts you guys are going to put in? Obviously, I understand it's a multiyear effort and seems like it's kind of an uphill effort, but the cost advantages over the long term might make sense, but you got to get these big bank behemoths moving on that.

I would describe it as a positive momentum shift. The recent pricing change from FICO, which increases the price from around $5 in 2025 to $10 in 2026, is projected to add approximately $0.5 billion in costs to the mortgage industry and consumers. This change serves as a significant catalyst for us. Our initial strategy involved pricing our scores at over 50% less than FICO’s, which caught the industry’s attention and offers substantial cost savings. Additionally, we plan to maintain our score pricing flat for the next two years to provide the industry with stability as they embrace this transition. We believe that offering the free VantageScore, not only in mortgages but across all sectors, will encourage adoption and understanding. There is already considerable momentum on this front. The conversations regarding VantageScore began some time ago, especially with FICO's price increase in 2025. Our upcoming actions are geared toward being proactive and responsive to our customers, aiming to provide cost savings with a score that is competitive with or superior to FICO’s. We will leverage our commercial strengths, using part of our incentive compensation to promote VantageScore conversions and support our customers. We’re making sure to offer analytics and insights to aid their understanding, and we are collaborating with the agencies on this initiative. From my viewpoint, it’s not a question of if, but when this will happen. We already have clients preparing to use it soon. Mortgages have traditionally relied on FICO, but in other sectors like auto loans and credit cards, major institutions have successfully utilized VantageScore for a long time. While adapting to this change will take time, I see exceptional momentum building. We intend to fully support our customers, as they are seeking the value and performance that VantageScore can provide.

Great. I wanted to see if you could help us understand some of the changes in Government. Overall, the forecast for the fourth quarter looks solid, but I understand there are some challenges with federal business due to the shutdown, while there are also increasing opportunities at the state and local level. I would appreciate any insights you could provide on the overall impact, particularly regarding the growth pace of the state and local business.

Yes. So we were pleased with the government performance in the third quarter, as you thought it was above our expectations and probably yours, which we're pleased with. The kind of air pocket we had from last year's funding changes at CMS seems to be behind us, which is good news. And as I said earlier, there's just a lot of momentum post-OB3 with the focus at the federal and state level around the $160 billion of improper payments and really addressing them. So that momentum is a positive. You saw we guided that we expect Government to grow sequentially in the fourth quarter and exit kind of at high single digits. That's just from core growth. I think John mentioned, as far as the government shutdown, we haven't seen an impact yet. We don't know how long this is going to go on, but a government shutdown would likely more be a deferral of revenue as opposed to a loss of revenue if it was going on for an extended period of time. But again, we haven't seen an impact and that’s kind of what we put in our guidance was that this will be resolved and won't have an impact on us in the fourth quarter. And that fourth quarter exit rate for Government with the momentum we have with the states and the federal government around conversion, not to remember that we're dealing with a big $5 billion TAM here. And when you think about states, less than half of the states across the U.S. use our solution. So that's always a new business opportunity for us where we deliver integrity. And with this new error rate requirement that's in place, that's really, the clock is running as we speak in '25 and '26. States are focused on, we've got to take action now in order to get in front of that error rate so we don't end up having to pay a massive amount of share of the benefit cost. So there's just a lot of positives there. I think we talked about some of the new programs in Washington that, that momentum continues. Chad Borton and myself are kind of in Washington every couple of weeks, meeting on things like the earned income tax credit with the IRS and Treasury and some of the other opportunities that are really new, new businesses for us but really address that $160 billion of improper payments. So it's a good time for EWS Government, and we continue to be optimistic going forward. As I said in my comments, when you look over the long term, we continue to believe Government will be our fastest-growing vertical in Workforce Solutions, and it will outgrow the underlying business really because of the value proposition the market opportunity, that $5 billion TAM, and you can add to it, OB3, just the requirements to tighten up those income verification requirements are really a very positive catalyst for the value that the TWN solution delivers in social service delivery.

Could you clarify if for 2026, the revenue could fall within the 7% to 10% range on the organic framework, or if you didn't mention that? I want to ensure I understood your comments correctly.

We didn't. And I'll help John with that, he can jump in too. But no, we did not give guidance for 2026 today. We'll do that in February as we typically do. What we did say is we wanted to clarify because we've gotten a bunch of questions about the FICO announcement and then Equifax's announcement on what those two announcements might have with regards to mortgage on our 2026 guidance, and what we intended to say a few minutes ago, and we also said it earlier in kind of investor meetings over the last couple of weeks is that the FICO announcement and the Equifax announcement doesn't change how we think about 2026. We had a view of it when we had our Investor Day back in June. As you know, in the Investor Day, we laid out an outlook through 2030. In that longer-term outlook, we think the whole mortgage opportunity with Vantage is a net upside. But with regards to '26, we intended today to say that the mortgage change we've made around the discounted Vantage pricing to drive adoption, we think will take time, but it hasn't changed how we think about our outlook for '26, and we'll share that with you in Feb.

That's very helpful. And then, Mark or John, I don't know, this may be a tough question, but any thoughts on what you define as success from a market share perspective on VantageScore longer term given the shift? And obviously, to your point, it was a 30-year monopoly. But as that share shifts, what would be a reasonable proxy? And does it go to market motion factoring your partners on Vantage, or is it independent?

Yes. Regarding our partners, particularly the tri-merge resellers, I have had discussions with them recently, and they are facing similar challenges as the entire industry due to the FICO price increase. Your question about success is pertinent. We expect to see share gains, and we believe there is significant momentum now because of the pricing strategy that FICO initiated by raising their prices for 2026. This has allowed us to create substantial value for the mortgage industry with our solution priced at $4.50, which we believe will lead to real conversion. Success for us will certainly be measured in terms of share gains, but it's important to acknowledge that this process will take time as the industry is quite complex. Additionally, we need to consider FICO's potential pricing strategies for 2027 and 2028. If they decide to increase prices again in 2027, it will create an even larger pricing advantage that could enhance our share gains. We believe we are well-positioned to capitalize on this. As we mentioned in our recent press release and during this call, there is a significant new profit opportunity for Equifax that will benefit both our company and our shareholders. For instance, when we sell a FICO score next year, it will cost us $10. In contrast, when we sell a VantageScore, we earn $4.50 while our customers save $5.50, which is beneficial for everyone involved. Therefore, it's just a matter of time, and as stated earlier, we are committed to supporting our customers and consumers in obtaining a mortgage score that offers equal or greater value than VantageScore, providing substantial economic benefits.

And it's across mortgage, but also across auto, P loans, really across the entire footprint, and we'll be making the same push broadly.

Mark, just a question on the bigger picture VantageScore and the adoption curve here. A lot of conversation seems to be focused on VS 4 versus classic FICO. Can you have any thoughts on 10T entering into that equation? Because when I think about it from the perspective of a lender, wouldn't the lender first want to make the decision of whether they're going to stick with classic FICO or upgrade? And if they choose to upgrade, then it's actually VS 4 that's 10T, not VS 4 versus classic FICO in the decision.

Yes, I think that's fair. 10T is still being introduced in the marketplace. That's going to take time. I think it's what we understand it's a higher-performing score than FICO classic, which is good, but it's double the price. And we believe, and Vantage has a lot of data out there now that the Vantage 4.0 outperforms FICO classic and is on par or better than 10T. But either way, when you have a score that is in the same ZIP code of performance, but it's half the price, that creates a real incentive for change. And the numbers are so large. When you think about the impact for the industry, if they stick with FICO classic or stick with FICO in 2026, that's $500 million roughly of increased cost to the industry. There's a lot of catalysts to take a hard look at Vantage, and we think there's going to be real adoption. As we said earlier, there already is. There's already momentum to do it. We've got customers in production. We've got lots of conversations happening. And remember, this is not three weeks old; the $10 is, but the focus on FICO pricing has been going on for a couple of years. So we think there's a real opportunity to bring both performance with 4.0 as well as value with where FICO took pricing.

I wanted to first ask about just overall consumer credit trends or conditions, seen some headlines and bankruptcies lately in the auto space, in particular. Just kind of curious what you're seeing in terms of scores or credit conditions and ability to pay within your different markets?

I believe we mentioned earlier that the situation is fairly stable. Overall, it remains a good environment. Our customers are generally strong, and consumers are working, which contributes to this stability. While activity is lower than peak levels, it remains steady. The bankruptcies you've referred to are not, as we understand, driven by credit issues; they seem to involve factors like fraud. Thus, they don't stem from an underlying consumer problem. The issues some auto companies faced are more related to their market strategies and operations. Looking ahead to the fourth quarter and early parts of 2026, we expect a stable environment. GDP is on the rise, and unemployment is relatively low, though job creation is limited, which is something the Fed is monitoring. Overall, we view the outlook as balanced moving forward.

As Mark said, if you look at auto, card, FI, really you're seeing slow growth, probably below what we call trend, but it's been fairly consistent, right? Slow growth kind of flat overall market, but weaker than long-term trends, but very consistent.

This is David Paige filling in for Ashish. Could you discuss International? Please elaborate on what you observed during the quarter and your outlook for the rest of the year.

Yes, good performance. We're pleased with the team's performance. I think we talked about very strong performance in Canada kind of post-Cloud. They finished the Cloud last summer and they're really deploying some new solutions and driving some share gains. Latin America was very strong. We talked about Brazil with our not new, but 2 years now, having Boa Vista performing really well, had a very, very strong quarter as we rolled out new solutions in Brazil, and we think we're seeing some share gains there. And in the other markets, solid performance in Australia, U.K., Spain, were solid performance.

The U.K. recently completed their transformation towards the end of the second quarter, approximately 6 to 9 months behind Canada. We are optimistic about their ability to improve performance as we move into 2026, thanks to the new infrastructure they now have, which we believe is much more robust than what our competitors in the U.K. are using.

I know you mentioned earlier that hiring, particularly white collar hiring continues to remain stressed. Can you give us some detail on what you're hearing from your conversations with customers and background screeners, and what is the expected impact to Talent in the fourth quarter?

Yes, I think it remains consistent. The market is sluggish, and we all know about the current job creation situation. Employment levels are relatively high, and unemployment is low. However, there isn't as much new job creation as many would hope for. From our discussions with background screening customers, they are relaying information from their clients, specifically HR managers at corporations across the U.S., indicating a continued cautiousness around hiring. This is largely due to the uncertainty surrounding tariffs and their future resolution. This uncertainty is one of the key factors that needs to be addressed. It seems the administration is making progress, but it's taking longer than expected.

This is Jun-Yi on for Jason Haas. Your USIS mortgage outperformance was 33% in the quarter, which was a step-up sequentially. Is that driven by the new mortgage pre-approval products, or what else drove that incremental outperformance?

I don't think it was 33%.

I don't think it was 33%.

It was 26%.

But the outperformance is really being driven by the same thing. It's been driven by all year, right? So we had obviously the very large FICO price increase that occurred last year, which is flowing through in our revenue. And yes, there is some growth in the prequal and pre-approval products. But probably the larger driver is the FICO price increase that happened last year.

Sorry, the 33%, I meant was like you did 26% revenue growth and then inquiries were down 7%, so you got 33%...

Yes, got it. Yes. Well done. Understood. Yes.

I get your point sir. Sorry, my second question. So 1 major adoption hurdle for VantageScore is often cited as its acceptance within the securitization market. So giving out for you VantageScores along with each purchase of a FICO score helps you get visibility among lenders. But I don't think the securitization market will end up seeing it. Correct me if I'm wrong, but how do you plan to navigate these adoption challenges?

Yes. So we already sell Vantage into the securitization market really that they use today. They've been using it for quite some time in the mortgage industry. I'm not from the origination side because there was a 30-year monopoly, but in kind of post-loan or post-closing analysis around mortgages, in mortgage portfolios, we've been using it for quite some time. So I think, as you point out, that's going to take time. I would point also to other verticals like auto and cards where it's widely accepted, meaning large lenders sell packages of loans with Vantage and securitize loans with Vantage. So it's definitely something that happens broadly, and it will definitely take some time.

We are continuing to increase the number of tools through Ignite and enhance our long-term data panels that we are making available to the securitization market, rating agencies, and others. This will allow them to complete their analytics more quickly and help us accelerate adoption.

Mark, I wanted to ask about a significant push that the MBA seems to be making around a shift away from the tri-merge report. I know we had this discussion a couple of years ago when the bi-merge was first introduced; the idea was first introduced, but it just seems like the voices are getting a bit louder. So I would just love to hear how you would respond to that and how that might impact you and what you're doing to sort of counter that?

Yes, there is some discussion on that topic, but we don't consider it a significant trend. The current emphasis is more on score pricing than on the tri-merge. We have consistently communicated with regulators, agencies, and our customers about the value of the tri-merge. There are notable differences among the three credit bureaus in terms of credit data. For instance, about 10 million consumers are only represented on one of the three credit files. If you only access one or two of them, those individuals may miss out on mortgage opportunities. Additionally, over 40 million consumers have a score difference of 30 to 40 points across the three bureaus. Pulling data from just one or two can either help or harm a consumer's situation. Integrity is also a significant factor. From our perspective, there is considerable interest in this area. The MBA seems to be focusing more on the costs associated with the recent increase in FICO scores, which has affected the industry. Hopefully, the discussions at the MBA meeting this week will address the steps we and our competitors are taking to provide alternatives that can lower score pricing for mortgage originators and consumers.

Yes. We are excited about the future and expect to make significant progress in this area.

This is Trevor. Thank everybody for joining the call. Please feel free to reach out to Molly or myself if you have any follow-up questions. Otherwise, have a great day.