The Equifax Inc. Q2 2024 Earnings Conference Call is being held and is being recorded. Trevor Burns, Senior Vice President, Head of Corporate Investor Relations, is moderating the call with Mark Begor, Chief Executive Officer, and John Gamble, Chief Financial Officer, as speakers. The call will include reference to materials and forward-looking statements, as well as non-GAAP financial measures. The call can be accessed through the IR website.

Equifax CEO Mark Begor updates on the progress of the company's cloud transformation, with USIS completing the migration of all customers and services to the cloud data fabric. This milestone, along with the previous migration of the EWS Work Number Exchange, means that over 80% of Equifax's revenue will be in the cloud by the end of July, with a goal of 90% by year-end. The company expects to have a competitive advantage in the market as they shift from building to leveraging the cloud, allowing them to focus on growth, innovation, and new products. The streamlined access to proprietary data through the data fabric will accelerate new product development, and the use of Explainable AI and Google Vertex AI will further enhance their global analytics and decisioning platforms. The USIS cloud will also provide stability and faster data transmission, giving Equifax a competitive edge and driving share gains in the digital market.

Equifax is driving faster data ingestion and analytics with the new Equifax Cloud, allowing the USIS team to focus on growth and innovation. The completion of USIS and EWS migrations to the cloud will also allow for the development of new products that integrate TWN income and employment data with USIS credit data solutions. The company is also making progress on their international cloud transformation, with Canada expected to complete migrations next month and Europe and Latin America making significant progress. The company is approaching the finish line of their cloud transformation and is now focused on leveraging their new cloud capabilities to drive top and bottom line growth. In the second quarter, Equifax reported strong revenue of $1.43 billion, exceeding their April guidance.

Equifax reported strong financial results for the quarter, with adjusted EBITDA margins in line with expectations and adjusted EPS well above guidance. The company's global non-mortgage businesses saw strong growth, with 13% current constant currency revenue growth and 9% organic growth. EWS Verifier had 20% growth, driven by government and talent sectors. International revenue grew by 28% and USIS non-mortgage revenue growth of 1% was in line with expectations. Total U.S. mortgage revenue was up 4%, with strong growth in USIS and a decline in EWS. Equifax also had a strong quarter of new product innovation, with a Vitality Index of almost 13%. Workforce Solutions revenue was up 5% and exceeded expectations.

Non-mortgage verification services had a strong quarter with 20% revenue growth, driven by the government sector which saw a 30% increase. Talent solutions also had a strong quarter with 13% revenue growth, driven by increased volumes and growth in insights incarceration data products. EWS mortgage revenue was down 12%, in line with expectations, but is expected to improve in the third and fourth quarters due to increased TWN records and planned additions. Consumer lending revenue was up 8%, while employer services revenue was down 11%.

In the fourth quarter, excluding ERC, revenue was down 2% due to lower WOTC revenue, but was partially offset by positive ACA revenue growth. Workforce Solutions' adjusted EBITDA margins were strong, and the company continues to invest in new products and expand into high-growth verticals. The contribution of Rudy Ploder, who has been with the company for 20 years, was acknowledged, and Chad Borton has been appointed to lead Workforce Solutions. The company has seen 30% growth in the government vertical, with a three-year CAGR of over 50%, and is supporting federal agencies with digital data to help deliver social service benefits and ensure program integrity.

EWS government vertical is expected to continue growing due to increased sales resources, new product rollouts, and system integrations. EWS also had a strong quarter of new record additions, signing agreements with four new partners that will contribute over 3 million records to the TWN database. The company added 8 million active records, bringing the total to 180 million and unique individuals to 132 million. There is still room for growth towards the TAM of 225 million income-producing Americans.

EWS is seeing progress in building partnerships and expanding their TWN database. USIS revenue grew 7%, with mortgage revenue up 27%. Non-mortgage revenue saw 1% growth, below expectations due to a focus on completing customer cloud migrations and tight credit conditions impacting the auto market. USIS also saw declines in third-party bureau sales and telco and auto industries.

The declines in revenue in certain areas were partially offset by growth in the broader FI market and insurance. ID and fraud were below expectations, as was auto. Financial marketing services and marketing revenue saw growth, primarily due to pre-screen marketing. USIS is seeing growing demand for its Ignite solutions and fraud revenue was up significantly. The D2C business also had a strong quarter and is expected to continue to see growth. USIS's adjusted EBITDA margins were below expectations, but the completion of their cloud transformation is expected to improve customer engagement and revenue growth in the second half of the year. International revenue saw strong growth, exceeding expectations due to continued growth in Latin America and Europe.

In the second quarter, Europe saw a 12% increase in local currency revenue, with strong growth in credit and data businesses and debt management. Latin America's revenue increased by 124%, mainly due to the acquisition of Boa Vista, with organic growth of 30%. Brazil's revenue was $41 million, and the team is making good progress on integration and product launches. Canada and Asia Pacific also saw growth and improved margins.

In the second quarter, we saw strong progress in driving innovation with over 30 new products launched and a 12.5% Vitality Index, up 350 basis points from the previous quarter. EWS, USIS, and International all showed strong VI performance and we expect this trend to continue in the second half of the year. Our focus on EFX.AI, one of our key strategic priorities, is enabled by our new Equifax Cloud and we are excited to have a new AI leader onboard to drive our vision and execution. We are also ahead of our goal for using AI and ML in developing new models and scores, with 89% of new models and scores in the second quarter being built using these technologies. Finally, we are confident in our full-year 2024 guidance.

Equifax is maintaining their 2024 guidance with predicted revenue of $5.72 billion and adjusted EPS of $7.35 per share. They anticipate a strong second half, with revenue projected to increase by 9.5% and adjusted EPS by 13%. This assumes that the mortgage market will remain consistent with levels seen in June and early July, resulting in a decline of 11% in USIS credit inquiries. Despite a weak mortgage market, Equifax expects to see growth in their non-mortgage businesses, particularly in their Workforce Solutions verification services. They also expect significant future improvements in the mortgage market, which will result in a recovery of $1.1 billion in mortgage revenue and high gross margins.

The company is continuing to see growth in EBITDA margin, particularly in the fourth quarter, due to the transformation of their businesses in various countries. The third quarter guidance is based on current run rates and reflects a decline in credit and TWN inquiries, but an improvement in mortgage market activity is expected in the future. The company expects mortgage revenue outperformance to moderate in the second half of the year, with a 30% outperformance in the third quarter and 40% for the full year.

In the third quarter of 2024, Equifax expects total revenue to increase by 9% at the midpoint, with non-mortgage revenue growing by 10%. Mortgage revenue is expected to grow by 12% and account for about 20% of total revenue. Workforce Solutions revenue is expected to grow by 8%, with strong growth in non-mortgage verifier revenue. Employer Services revenue is expected to decline but return to growth in the fourth quarter. USIS revenue is expected to increase by 8.5%, with strong growth in mortgage revenue. Adjusted EBITDA margins for EWS and USIS are expected to decrease and increase respectively.

In the third quarter of 2024, Equifax expects international revenue to increase by 18% in constant currency, with a 12% increase in organic constant currency. EBITDA margins are expected to be around 28%, reflecting revenue growth. Adjusted EPS is projected to be $1.75 to $1.85 per share, a 2% increase from the previous year. The company's leverage ratio is currently at 3.0 times and they aim to reach 2.5 times by the end of 2024. This will allow them to return cash to shareholders and make acquisitions. For the full year of 2024, Equifax's revenue is expected to grow by 10.5%, with organic growth of 8.5%. Total mortgage revenue is expected to grow by over 10%, while non-mortgage revenue should also grow by over 10%, led by strong growth in Workforce Solutions and international markets. Foreign exchange is expected to have a negative impact of 180 basis points on revenue.

The company is maintaining its adjusted EPS at $7.35 per share, but EBITDA margins are expected to be slightly lower due to delays in cloud migrations. Full-year guidance for BU is consistent with previous projections, with the exception of USIS and international EBITDA margins. Workforce Solutions revenue is expected to grow by 7%, with non-mortgage revenue up 10%. USIS revenue is expected to increase by 9%, with mortgage revenue up 25%. International revenue is expected to grow by 15%, with EBITDA margins approaching 27.5%. Based on the midpoint of 3Q and fiscal year guidance, 4Q revenue is projected to increase by 10% and adjusted EPS by over 20%.

The improvement in adjusted EPS in 4Q ‘24 compared to 3Q ‘24 is expected to be driven by revenue growth, cost and expense reductions, and lower capital expenditures. About half of the improvement is due to revenue growth, with a mix of higher margin non-mortgage revenue and lower margin mortgage revenue. Cost reductions from cloud migrations and fixed cost and expense reductions account for a quarter of the improvement. Taxes and other items below operating profit make up the remaining 20%. Capital expenditures for 2024 are expected to decrease by $100 million due to the completion of cloud migrations. The U.S. mortgage market is also expected to recover, presenting a potential $1 billion annual revenue opportunity for Equifax in 2025 and beyond.

Equifax had a strong quarter with 11% revenue growth, driven by their EWS non-mortgage verifier revenue, active record growth, and broad-based VI. They are focused on completing their cloud transformation in North America and global markets, which will improve competitiveness, drive margin expansion, and increase free cash flow for M&A, dividends, and share repurchases. Completing the USIS consumer cloud migrations in the next few weeks is a significant milestone, and they expect CapEx to decrease in 2024 and reach their long-term goal by 2025. Another priority is investing in EFX.AI to drive innovation and improve their products and operations. Equifax is on the offensive with these efforts.

Equifax is entering the next chapter of their transformation, shifting from building their new cloud to utilizing it to drive revenue and cash flow. They are confident that their new cloud, data assets, and market-leading businesses will lead to higher growth, margins, and free cash flow. They remain focused on their long-term model of 8-12% revenue growth and 50+ basis points of margin expansion annually. The company is also making changes to their investor relations team, with Sam McKinstry staying with the company and Molly Clegg joining. The first question from a Barclays analyst was about the cost savings from the tech transformation and how much of it is included in the third and fourth quarter, as well as the expected run rate in 2025.

John Gamble and Mark Begor discuss their company's financial outlook for the third and fourth quarters of the year. They mention that they have factored in cost savings from the completion of transformations in North America and Spain. They also mention that a significant portion of these savings will be seen in the fourth quarter. Begor reflects on the company's progress in transitioning to the cloud and expresses excitement for the future. They aim to be balanced in their outlook for the second half of the year.

In paragraph 21, the speaker states their confidence in their forecast and highlights some challenges they have faced, such as softening in USIS's end markets and the lack of mortgage growth. They expect these challenges to mitigate in the second half of the year. The speaker also mentions strong performance in EWS and government, with talent having a particularly strong quarter. They expect international businesses to continue performing above expectations. In the second question, the speaker confirms that mortgage revenue was 20% in the second quarter and asks about the third quarter guide, specifically regarding USIS. The speaker is interested in knowing if the cloud migration will be completed by the end of the month and if this will lead to revenue acceleration in August.

The speaker addresses a comment about CDK and its impact on auto revenues and dealers in the second quarter, stating that it is now behind them. They discuss the assumptions and drags on USIS for the third quarter, mentioning a slight softening in end markets, including the impact of higher rates on mortgages and consumer demand for loans in auto. The distraction from transformation is also mentioned as a factor, with improvements not expected until the fourth quarter and next year.

The speaker explains that EWS verifier has seen significant growth in the second half, driven by record additions and new partnerships. They have strong visibility for the third and fourth quarters, with more record additions expected to drive revenue. The system allows for immediate revenue when records are added.

The company is expecting to see growth in the fourth quarter due to seasonal hiring and government sign-ups. They also anticipate improvements in employer revenue due to the wraparound effect of the previous year's decline. The company is cautious about potential surprises but has given themselves room for unexpected events.

The company is discussing their forecast for the upcoming months, including the impact of the WOTC change and the potential for a rate cut in September. They have high visibility on their records and use a process to forecast potential macro elements. They are confident in their execution and completing transformations. They have seen strong growth in talent.

Mark Begor, the CEO of Equifax, discussed the company's new products and their contribution to growth. He mentioned the huge potential for growth in the talent sector, particularly in terms of penetration, as well as the focus on new products in areas such as incarceration, education, and employment data. The company has also signed a new partnership for education data and is working on combining all data elements into a single transaction for background screening. In the second quarter, the insights portfolio, particularly incarceration data, drove growth in the talent sector.

The paragraph discusses the strong growth seen in the quarter and its drivers, including penetration into the $5 billion TAM in the government sector and the extension of the CMS contract. The sustainable growth rate is expected to come from penetrating the state agencies and becoming embedded in their workflows. The CMS contract is a five-year contract with annual escalators, providing visibility. There are no one-offs contributing to the growth.

Equifax's government sector has been the largest contributor to its Workforce Solutions vertical, with a 50% CAGR in the last three years. The company expects this sector to continue outpacing its 13-15% framework for EWS in the long-term and is investing heavily in it. No guidance has been given for 2025, but sequential trends in the second quarter have been strong and are expected to continue in the third and fourth quarters, driven by the ACA agreement with CMS. A question was then asked about the expected acceleration in USIS revenue due to the completion of its cloud transition.

Mark Begor discusses the company's confidence in their acceleration and potential market share gains. He mentions that the completion of their complex cloud transformation will benefit them in the second half of the year, but the real benefits will be seen in 2025 and beyond. The company expects to see share gains and has already moved 99% of their customers to the cloud, with positive feedback. The investment in the cloud is expected to give them a stronger competitive position and new products will also contribute to their growth.

The company's USIS division has been below their 10% vitality goal for several years due to their cloud transformation. However, there has been positive acceleration in the quarter with 8% vitality and 100 bps increase. This has allowed the team to create bandwidth for new products, including identity and compliance solutions, risk-based solutions, and marketing products using their unique data. With the completion of the cloud in both USIS and EWS, there is a focus on combining TWN data with the credit file to add value and drive credit file share. This will also benefit both businesses and make the credit file more valuable. The company is energized about these solutions and plans to implement them in the second half of the year, with a likely completion date of 2025. Overall, the company is focused on always-on stability and leveraging their data to drive competitive advantage and introduce new products.

John Gamble and Mark Begor discuss the growth of Ignite in pre-screening and Vertex AI, as well as the performance of EWS mortgage. They expect to see revenue benefits from record additions in the second half of the year, which will be a major driver of growth. They also note that inquiries are already coming in, and the HMDA data released last week has not changed their expectations for EWS mortgage.

The company is experiencing strong momentum in their records business, which is expected to drive revenue in the second half of the year. They also anticipate benefits from new products and are focused on innovation, which has been dampened due to their focus on completing the cloud. The company's vitality has increased to 8%, but it has been below their goal of 10% for several years.

Equifax expects USIS to reach 10% growth by the end of 2025, with new products and a dedicated team focused on EWS and USIS product combinations. The company anticipates an acceleration in 2025 and a positive momentum of products leading to revenue in the future. The implied 4Q margins include a tax benefit, but the company expects long-term improvement in margins by 50 basis points per year. Exact margins for 2025 will be discussed in the future.

The speaker discusses the potential for record growth in the Gig/1099 and pension sectors, with a range of deals from larger, more chunky ones to smaller direct relationships. He mentions the long runway for pension records and the prevalence of defined benefit pensions in government organizations and legacy corporations.

The company has a dedicated team focused on obtaining pension records, led by a full-time leader. They also have separate teams for 1099 and W2 records, and are investing in new products to obtain direct record relationships. The 1099 team targets self-employed individuals, including high-income professionals, through avenues such as tax prep services. The company's scale allows them to pursue records in various places, leading to higher hit rates for customers.

The speaker discusses the expected outperformance in mortgage for EWS and how it relates to the overall mortgage inquiry trend. They mention that they expect the gap to narrow in the second half of the year and that their assumption is based on current trends. They also mention that they plan to flow through the savings from their tech transformation into margin expansion, rather than reinvesting it to best harvest increased revenue from the cloud transition.

Equifax has been investing heavily in their technology transformation to stay competitive in the long-term, while also making investments in new products and resources. This will allow them to grow at a rate of 8-12% and expand their margins. They are also expecting to see a return on their investments in the mortgage market and cloud cost savings, which will allow them to start returning cash to shareholders. However, there was some softness in the ID and fraud portion of their business, particularly in chargeback management. They have launched new products and platforms in this area and are expecting to see growth in the future.

The Vitality Index in EWS has been accelerating due to various factors such as talent, innovation, and new products in different verticals. The completion of the cloud has also contributed to this growth. The company has rolled out new products in areas such as talent and mortgage, and has plans to introduce more in the future. They have also launched a new I-9 solution in the employer market.

The company's vertical focused on new products and government has seen strong growth. They are confident in their ability to innovate and expect to return to 10% growth over time. International and USIS also had good growth in innovation. The company was impacted by flooding in Brazil, but their Brazil business has performed well. They are optimistic about their Boa Vista acquisition and the potential for growth.

Mark Begor, the leader of EWS, reported that the new additions to their business were broad-based and driven by a dedicated team led by Joe Muchnick. They have added records from individual relationships and have formed partnerships with pension administrators, HR software companies, and payroll processors. The total addressable market for records is 225 million working Americans, and their data set currently includes 132 million individuals. Over the past few years, they have outgrown their framework for record growth of three to four points per year due to their focus and resources. In terms of auto, they have faced some challenges with the CDK issue.

The speaker discusses the current state of the consumer credit environment and notes that there has been a slight deterioration in demand, particularly among subprime consumers. This is largely due to inflation and higher interest rates. The speaker also mentions that this has had an impact on the mortgage market.

The impact of higher interest rates has affected the mortgage and auto markets, leading to decreased consumer demand and inventory build-up. However, the company's other verticals are still performing well, and the margin guidance was lowered due to the timing of the cutover and transition, but this should not impact the 2025 outlook as the company is close to completing its transformations. There will be a couple of months of overlap before shutting down the legacy infrastructure, which will come out of the 2024 run rate.

Equifax expects full run rate in 2025, but there have been some delays in finalizing projects, such as USIS and Canada, which will push out savings. The company will have less benefit in 2024, but will see the full benefit in 2025. In response to a question about potential rate cuts by the Fed, Equifax CEO Mark Begor notes that it is difficult to estimate the specific impact on the company, but it will likely have a positive effect on their mortgage vertical as it could lead to increased activity and revenue. The company estimates that current market conditions could potentially result in $1.1 billion of incremental revenue.

The interest rates in the United States are currently the highest in the world, but it is expected that they will come down over time, leading to a positive impact on the mortgage market and the company's financials. Talent revenue saw a 13% increase in the second quarter due to continued penetration in the TAM, customer wins, and the use of new products. There was also growth in Insights and education products. January and February were weak for hiring, but there was a recovery in March and better performance in the second quarter.

Equifax is investing in AI and ML capabilities to enhance their scores, models, and products. This investment is incremental and not displacing other technology spending. The company has been consistently increasing its focus and spend on AI and has a goal of having 100% of its models and scores using AI in the future. This is a key part of their EFX 2026 strategic priorities and will deliver higher-performing solutions for customers.

The company is excited about the potential of having all their data in a single data fabric and the completion of their Equifax cloud. This will allow them to improve their product capabilities with AI and ML. They are spending a significant amount of their capital on this and it is a priority going forward. There has been no change in the outlook for credit cards in the second half of the year, with a flattening out of subprime credit risk exposure and a steady performance in the prime/near-prime market. Banking and lending have been growing in the mid-single-digits in the first half of the year.

Mark Begor, CEO of Equifax, expects the strong performance in the first half of the year to continue in the second half, driven by a strong consumer base with wage growth and strong balance sheets. The company's customers are also investing in marketing and origination, and Equifax is delivering differentiated solutions to help them grow their businesses faster. In terms of mortgage outperformance in Verifier, the results were in line with the guidance given, with a small variance that cannot be attributed to any specific factor.

The company's performance in the second quarter was consistent with expectations, giving them confidence for improved performance in the second half of the year. International markets, particularly Latin America, had strong organic growth driven by new products and innovation. The company expects continued growth in these markets for the rest of the year, with some potential share gains. Full-year guidance was given and the company expects strong performance in International and LATAM for the rest of the year.

George Tong from Goldman Sachs asks about the impact of tight credit conditions on the nonmortgage business in the USIS. Mark Begor clarifies that he did not mention tight credit conditions in auto, but rather the high rates that are affecting consumer demand for financing. He also discusses the strength of the consumer, employment, credit scores, and other financial institutions, which are all positive factors for credit conditions.

Mark Begor, CEO of Equifax, discusses the impact of interest rates on consumer demand in mortgage and auto industries. He also talks about the growth in Equifax Workforce Solutions (EWS) and the four main levers that contribute to its growth: records, price, penetration, and product. He mentions that the ability to add records and penetrate into new verticals are unique to EWS and contribute to its overall growth.

The speaker, Trevor Burns, thanks everyone for their time and invites them to reach out with any follow-up questions. He concludes the teleconference and webcast.

This summary was generated with AI and may contain some inaccuracies.