Equifax, Inc.

Greetings and welcome to the Equifax third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Dorian Hare, Senior Vice President and Head of Corporate Investor Relations Thank you. You may begin.

Thanks, and good morning. Welcome to today's conference call. I'm Dorian Hare. 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 on our IR website, www.investor.equifax.com. During the call today, we will be making reference to certain materials that can be also found in the presentation section of the news and events tab at our IR website. These materials are labeled Q3 2021 Earnings Conference Call. Also, we will be making certain forward-looking statements, including fourth quarter and full year 2021 guidance, as well as a framework for 2022 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 our filings with the SEC, including our 2020 Form 10-K and subsequent filings. Also, we'll be referring to certain non-GAAP financial measures, including adjusted EPS attributable to Equifax and adjusted EBITDA, which will be adjusted for certain items that affect comparability of our underlying operational performance. These non-GAAP measures are detailed in reconciliation tables, which are included with our earnings release and also posted on our website.

Now, I'd like to turn it over to Mark. Thanks, Dorian. Good morning. We had a very strong third quarter in the first nine months of 2021, a continuation of our strong outperformance last year, with record revenue in the quarter of $1.223 billion, which was up over 14%, with core non-mortgage market and non-UC ERC claims revenue growth of 20%. We are executing extremely well against the critical priorities of our EFX 2023 strategy, as we highlighted on slide 4. Our focus on leveraging the new Equifax cloud for innovation, new products, and growth is clearly driving our strong financial results. Our revenue growth has accelerated from 3% in 2019 as we were recovering from the 2017 cyber event and investing heavily in our EFX cloud transformation to 17% last year. We are on track to deliver 19% core growth this year at the midpoint of our revised 2021 guidance. More importantly, our core growth, which excludes the impact of the mortgage market, unemployment claims, and ERC-related revenues, is expected to accelerate to 21% this year, a powerful figure that reflects the strength of our underlying business model and EFX 2023 growth strategy. Not only is our core growth accelerating above historical levels during 20 and 21 in challenging COVID markets, and more recently in a declining mortgage market, We are also expanding EFX beyond our traditional credit bureau routes to a more diverse data analytics and technology company with our investments in the Equifax cloud, new data assets and NPIs, along with reinvesting our outperformance in bolt-on M&A in areas such as talent, government, and ID and fraud. We are quickly pivoting from building the Equifax cloud to leveraging it for innovation and new products that will position the new Equifax for stronger and more diversified growth in the future. Our EFX 2023 growth strategy remains our compass for the future and drives all of our top and bottom line growth initiatives as we move towards 22 and beyond. Turning to slide five, Equifax had a very strong quarter. Revenue at $1.22 billion was up 14.5% with organic constant currency growth up a strong 12%. The almost 15% top line growth was off a strong 19% growth last year in a much stronger mortgage market. This was our seventh consecutive quarter of double-digit revenue growth. More importantly, our core growth was up a strong 20%. Our U.S. B2B businesses of Workforce Solutions and USIS, which together represent almost 75% of Equifax revenue, again drove our growth, delivering 17% revenue growth despite the 21% decline in the U.S. mortgage market in the quarter. Non-mortgage revenue was up over 30%, and organic non-mortgage revenue was up 24%, strengthening sequentially from the 16 and 20% we saw in the first two quarters of the year. Third quarter, Equifax adjusted EBITDA totaled $404 million, up slightly from third quarter last year with margins of 33%. As expected, margins were down versus 2020 due to the inclusion of cloud technology transformation costs of $45 million in our adjusted results in the quarter, which were excluded last year. and redundant cloud transformation systems costs of $15 million. These costs related to cloud tech transformation negatively impacted EBITDA margins by almost 500 basis points. Adjusted EPS of $1.85 a share was down slightly from last year. Adjusting for the cloud transformation costs of $45 million, or 27 cents a share, adjusted EPS would have been up a strong 11%. We continue to make significant progress executing the EFX Cloud data and technology transformation. In the quarter, we completed 4,000 B2B customer migrations for a total of 15,400 migrations completed so far this year. In September alone, USIS completed over 900 customer migrations. Since the beginning of the transformation, we've completed almost 97,000 B2B migrations, 3.5 million consumer migrations, and 1 million data contributor migrations. We remain on track and confident in our plan. We continue to expect the North American transformation to be principally complete in early 2022, with the remaining customer migrations broadly completing by the end of next year. International transformation will follow, being principally completed by the end of 2023, with some customer migrations continuing into 2024. We're still in the early days of leveraging the cloud, but remain confident that we'll differentiate us commercially, expand our NPI capabilities, accelerate our top line, and expand our margins from the growth and cost savings in 22 and beyond. Our NPI performance also continues to accelerate. In the quarter, we released 30 new products, and we still expect our vitality index to accelerate from 5% last year to over 8% in 2021. Given our very strong third quarter performance, we are increasing our full-year revenue guidance by approximately 320 basis points, or $131 million, at the midpoint of a range between $4.9 billion to $4.921 billion, up 19% from last year, and increasing our full-year adjusted EPS guidance by 22 cents per share to a midpoint of $7.57 per share, which adjusting for technology transformation costs implies a 23% growth in EPS. This includes our expectation that the U.S. mortgage market, as measured by credit inquiries, will decline just over 7% this year, with the bulk of the return to normalization in the second half, which we expect to be down around 20%. Roughly two-thirds of the 320 basis point increase in our revenue growth framework to 19% is from organic business performance, with the balance from the acquisitions of Aprys, HealthyFX, and Teletrax which we expect to add about $45 million to revenue in the fourth quarter. In the third quarter, Equifax core revenue growth, the green sections of the bars on slide six, grew a very strong 20%, the third consecutive quarter of core growth at or above 20%. Non-market growth in EWS and USIS and growth in international drove about 900 basis points to the core of revenue growth, excluding acquisitions and FX, with mortgage outperforms primarily in workforce solutions, driving about 800 basis points of organic core growth in the quarter. As we move through 22 and 23, we expect to continue to see strong and balanced core growth, reflecting the benefits of the new EFX cloud, accelerated NPIs, continued strong non-mortgage growth, both from organic growth and acquisitions, as well as continued strong outperformance from workforce solutions. Turning to slide seven, Workforce Solutions had another exceptional quarter, delivering revenue of $508 million, which was up 35%. This is the first quarter Workforce Solutions has delivered over a half a billion dollar of revenue in a single quarter, a big milestone. This was against a very strong 57% growth last year. Adjusted EBITDA margins were up over 54%. Non-mortgage revenue at Workforce Solutions was up over 48%, with organic non-mortgage revenue up 41%. The strength of Workforce Solutions and uniqueness of their twin income and employment data set was clear again in the third quarter. Workforce's verification services revenue of $403 million was up a strong 34%. Verification services mortgage revenue grew 22% in the quarter, despite the 21% decline in the mortgage market, with the EWS outperformance driven by increased records, penetration, and new products. Importantly, verification services non-mortgage revenue was up 55% in the quarter, consistent with the very strong growth we saw last quarter. Our government vertical, which provides solutions to federal and state governments in support of assistance programs, including food and rental support, grew over 20% in the quarter. Government remains one of our largest non-mortgage segments, with attractive growth potential in the future and represents about one-third of non-mortgage verification revenue. Our new SSA contract went live this quarter at relatively low startup volumes, and we expect to see it ramp as we move through 2022. We expect new products, the addition of APRIS, and expanded federal and state social services to fuel growth in our government vertical in the future. Talent Solutions, which provides income and employment verifications as well as other information for the hiring and onboarding processes through our EWS data hub, had another outstanding quarter from customer expansion and NPIs, growing over 100%. Talent Solutions now represents almost 30% of non-mortgage verification revenue. As you know, over 75 million people change jobs in the U.S. annually, with the vast majority having some level of screening as a part of the hiring process. The addition of AFRIS Insights and our new partnership with the National Student Clearinghouse will fuel growth and new products in this important vertical. The non-mortgage consumer lending business, principally in banking and auto, showed strong growth as well of about 90% in the quarter, both from deepening penetration with lenders and from some recovery in these markets, although auto has been impacted by inventory shortages. Employer services revenue of $105 million was up $30 million in the quarter. This is an important growth engine for workforce solutions that also delivers records. Combined, our unemployment claims and employer retention credit businesses had revenue of about $65 million, up about $14 million from last year. Substantial declines in the UC revenue in the quarter were more than offset by ERC, which grew substantially sequentially from as we support businesses in obtaining federal employee retention credit payments. Employer services non-UC and ERC businesses had revenue of about $40 million, up 60%, with organic growth of about 35%. Our I-9 business, driven by our new I-9 Anywhere product, continued to show very strong growth, up about 80%. Our I-9 business is now almost half of employer services non-UC and ERC revenue, Reflecting the growth in I-9 and the return to growth of workforce analytics, we expect employer services non-UC and ERC businesses to deliver total growth of about 40% and organic growth of about 25% in the year. Reflecting the uniqueness of the twin data, strong verifier revenue growth and operating leverage resulted in adjusted workforce solutions EBITDA margins of 54.3%. The decline versus last year is driven by investments in the tech transformation, as well as redundant systems costs, and as well as significant investments in data onboarding, sales, and marketing to continue to drive workforce solutions growth. Rudy Ploder and the workforce solutions team delivered another outstanding quarter in our position to deliver a very strong 21, 22, and beyond. Turning now to USIS, their revenue of $380 million was up slightly, from last year. Total USIS mortgage revenue of $148 million was down 17%, while mortgage credit inquiries were down 21%, slightly better than the down 23% we expected in July. USIS outperformance versus the overall market was driven by growth in marketing and debt monitoring products. Importantly, non-mortgage revenue of $240 million grew almost 16%, with organic growth of over 9%. Year-to-date non-mortgage revenue is up a strong 17%, and organic non-mortgage revenue growth is over 10%. Banking, insurance, commercial, and direct-to-consumer were all up over 10% in the quarter. Fraud was up almost 10% organically and up over 75% in total with the inclusion of our count acquisition. Auto was up mid-single digits despite supply pressures, and telco was down just over 5%. Financial marketing service revenue, which is broadly speaking our offliner batch business, was $55 million in the quarter and up about 20%. The strong performance was driven by marketing-related revenue, which was up over 20%, and ID and fraud revenue, which grew over 15%. In 2021, marketing-related revenue is expected to represent about 40% of FMS revenue, identity and fraud above 20%, and risk decisioning about 35%. The USIS sales team delivered record wins, up over 20% versus last year and 40% sequentially in the quarter. The New Deal pipeline in USIS remains very strong. During the quarter, USIS acquired Teletrack, a U.S. leader in alternative credit data. Teletrack is being consolidated with DataX, our specialty finance credit reporting agency that we acquired in 2018, to expand our capabilities in the fast-growing alternative data space serving unbanked and underbanked U.S. consumers. And USIS adjusted EBITDA margins were 40% in the quarter, flat sequentially with second quarter. Similar to second quarter, the decline in margins in the quarter versus last year was due to both costs related to cloud transformation, which include the cost of redundant systems and inclusion of our adjusted results of the technology transformation costs, which were being excluded in 2020, and the expansion of our investments in sales and marketing, as well as new products to leverage both the strengthening U.S. market and accelerate new product introductions to drive revenue growth in 22 and beyond. Turning to international, their revenue of $245 million was up 10% on a local currency basis and up 100 basis points sequentially. This was the fourth consecutive quarter of growth in our global markets following the COVID pandemic impacts. Asia Pacific, which is principally our Australia business, performed well in the quarter with revenue of $89 million, up about 7% in local currency. Australia delivered this growth despite the extended COVID lockdowns in many portions of that country. Australia consumer revenue continued to recover, up 3% versus last year, and about flat sequentially. Our commercial businesses combined online and offline revenue was up 8% in the quarter. Fraud and identity was up 13%, following 22% growth in the first half. European revenues of 68 million were up 9% in local currency in the quarter and flat sequentially. Our European credit reporting business was up about 5% with continued growth in both the UK and Spain. Our European debt management business revenue increased by about 21% in local currency off the lows we saw last year during the COVID recession. Canada delivered revenue of $44 million a quarter, up over 8% in local currency, despite a weakening Canadian mortgage market that was down 15%. Canada experienced strong growth in fintech, while supply issues continued to impact their auto business. Latin American revenues of $45 million grew 16% in the quarter in local currency, which was the third consecutive quarter of growth coming out of COVID-19. We continue to see the benefit in LATAM of the strong new product introductions introduced over the past three years. International adjusted EBITDA margins at 26.7% were down slightly from 27.3% in the second quarter. The sequential decline was driven by incremental technology costs in Australia and Canada as they accelerate their cloud transformation programs. The decline in the quarter was principally due to costs related to the cloud transformation, both the cost of redundant systems and the inclusion in our adjusted results of the technology transformation costs, which were being excluded last year. Margins were also negatively impacting the quarter by our increased investments in sales and marketing and new products. Global consumer solutions revenue of $82 million was down 6% on a reported basis, and 7% of local currency basis in the quarter, slightly above our expectations. We saw growth of about 2% in our global consumer direct business, which sells directly to consumers through Equifax.com and represents a little over half of GCS revenue. The decline in GCS revenue in the quarter was again driven by our U.S. lead gen partner business. We expect the GCS partner business and GCS business overall to return to growth in the fourth quarter. GCS adjusted EBITDA margins of 23.4% were up sequentially, reflecting lower operating costs. The decline versus last year was principally debt-driven by revenue declines. Turning now to slide 8, Workforce Solutions continues to power Equifax as clearly our strongest, fastest-growing, and most valuable business, with strong 35% growth in the quarter, up 57% growth a year ago. Core revenue growth was 42%, driven by the uniqueness of the twin income and employment data, scale of the twin database, and consistent execution by Rudy and his team. EWS's ability to consistently and substantially outgrow their underlying markets is driven by three factors. First, growing the work number database. At the end of the third quarter, twin reached 125 million active records, an increase of 12% or 13 million records from a year ago, and included 97 million unique records. At 97 million uniques, we now have over 60% of non-farm payroll, which makes our twin data set more valuable to our customers with higher hit rates. We are now receiving records every pay period from 1.9 million companies, up from a million when we started the year, and 27,000 contributors a short two years ago. The exclusive agreement with a major payroll processor that we announced on our February call went live in the third quarter and contributed to this growth. Our strong momentum continues as we signed another large payroll processor last week on an exclusive basis that will come online in the coming months. We also expect to add further payroll processors in the coming months. As a reminder, almost 60% of our records are contributed directly by employers to which EWS provides comprehensive, employer services like UC Claims, W-2 Management, I-9, WOTC, ERC, HSA, and other HR and compliance solutions. Our acquisitions of Higher Tech, I-2 Verify, and Health EFX this year strengthen our ability to deliver these unique HR services, particularly through relationships with payroll processors and HR software companies. These partnerships have been built up over the past decade by the Workforce Solutions team, The remaining 40% of our records are contributed through partnerships with payroll providers and HR software companies, most of which are exclusive. We still have substantial room to grow our income and employment database and expect to continue to add new data contributors, as well as reach agreements with several additional payroll processors in the fourth quarter to add their records on an exclusive basis to TWIN in 2022. Beyond the over 50 million non-farm payroll records not yet in the TWIN database, We're focused on data records from the 40 to 50 million gig workers and around 30 million pension recipients in the U.S. marketplace to further broaden the TWIN database. We have plenty of room to grow TWIN. Second, increasing our average revenue per transaction through new products and pricing our existing products to value, recognizing the depth of information TWIN allows us to deliver to customers. Workforce Solutions' new product pipeline is rapidly expanding as our teams leverage the power of our new Equifax cloud capabilities. And third, by increasing our penetration in the markets we serve and expanding into new markets. For example, we continue to increase our penetration in the mortgage market. At the end of 2020, Workforce Solutions received an inquiry in almost 60% of completed mortgages, up from 55% in 2019. This 500 basis point increase is a big step forward, but we still have plenty of runway to expand the customers using twin and mortgage. We're also seeing substantial growth in twin and other credit markets, including card and auto, as these verticals take advantage of the unique lift from twin income and employment data and the 60% hit rates with our database. Growing system-to-system integrations is another key lever in driving both increased penetration and increasing the number of pulls per transaction. During the quarter, about 75% of twin mortgage transactions were fulfilled system to system, up over 2X from 32% in 2019. And again, we still have plenty of growth potential here. Workforce Solutions is performing exceptionally well with attractive above-market and above-Equifax growth rates and margins that we expect to continue in the future. Slide 9 highlights the core growth performance of our Our combined U.S. B2B businesses delivered 3% revenue growth in mortgage in the third quarter, outperforming the mortgage market by 24 basis points with the market down 21%. This strong performance outperformance was again driven by workforce solutions with core mortgage growth of 43% enabled by the multiple drivers that I just discussed. Slide 10 provides an update on new product innovation leveraging the Equifax cloud and our differentiated data. a key driver of our current and future growth. In the quarter, we delivered 30 new products with 150 new products in the market so far this year, which is up 18% from the 96 we delivered in the same timeframe last year. We continue to expect our 2021 Vitality Index, defined as a percent of revenue delivered from MPIs launched in the past three years, to be over 8%. In the third quarter, we launched significant new products we expect to continue to drive growth in 22 and beyond, The SSA Payroll Exchange that went live is an EWS product that supports verifications of SSI and SSDI social services, delivering critical income and employment status based on program requirements. OneView with DataX is a new integrated consumer credit report that redefines how we deliver, display, and provide insights to our customers. It also sets the stage for integrating non-traditional credit data in a single view solution for our customers. Alternative data from DataX, Teletrak, NC+, rental payments, and other sources are a critical priority for Equifax, and we expect to continue to drive NPIs in this space in the future. Digital Identity Trust 2.0 product provides businesses with a comprehensive, passive identity verification service that delivers a trust-do-not-trust recommendation across both physical and digital identity vectors. This product will leverage count data by year-end. MarketMix Premier solution enables the ability for FIs to access market share and size of liquidity across geographics. This provides quick identification of targeted growth markets to deploy spend across branch sales and marketing efforts. And lastly, the new Equifax affordability product in Australia uses bank transaction data and sufficient categorization to provide an affordability view to customers while removing friction for the consumer. clearly focused on leveraging our new Equifax cloud capabilities to drive our NPI rollouts and new product revenue in 2021 and beyond. Growing that NPI is central to our EFX 2023 growth strategy. In detail on slide 11, in 2021, we reinvested our strong outperformance in strategic and accretive bolt-on acquisitions that strengthen our position in existing growth markets and allow us to enter new markets with new capabilities. Our 2021 acquisitions add $300 million plus synergies to our run rate revenue. We are focused on executing acquisitions that are creative to our long-term revenue growth and margins and deliver attractive shareholder returns. Our priorities for M&A are clear and aligned around, number one, expanding our differentiated data, which is at the core of Equifax. We have scale and unique data sets that we want to expand and leverage with new data elements to drive enhanced decisioning for our customers. All of our acquisitions deliver new and differentiated data, and more data drives better decisions. Second, expanding and widening our largest and fastest-growing business workforce solutions is a priority for our M&A. The Aperis Insights, Higher Tech, HealthyFX, and IQ Verify acquisitions strengthen workforce and position EWS for future outperformance. And last, broadening our IT and fraud capabilities in the fast-growing digital and e-commerce space is another priority. M&A priority. Counts strongly advanced our capabilities in this fast-growing space. We closed the APRIS acquisition on October 1st and are focused on integration, new solutions, and growth. APRIS Insights and our new partnership with the National Student Clearinghouse are big step forwards in our strategy to build out an EWS data hub centered off our almost 500 million historical twin data records to address the fast-growing talent and government markets. As detailed on slide 12, combining our scale twin data with APRA's Insights Criminal and healthcare credentialing and sections data, along with other partner data assets, including the exclusive partnership for college and university data we entered into in the third quarter with the National Student Clearinghouse, allows Workforce Solutions to deliver the most complete, real-time, 360-degree view of the prospective employee or applicant for government benefits available in the markets. The talent solutions and government verticals offer large and growing markets for our workforce solutions business through the EWS Data Hub. We estimate an addressable market of $5 billion in the U.S. hiring space and onboarding process, with around 75 million new employees onboarded annually in the U.S. Workforce Solutions' government vertical is focused on delivering data and solutions to support federal and state benefit programs, as well as law enforcement agents. This is a substantial and growing sector that we estimate to have an addressable market of about $2 billion. APRIS Insights strongly accelerates our ability to penetrate these large and fast-growing TAMs. Insights is anticipated to generate $150 million of run rate revenue during 2021 and to grow on a standalone basis at over 15% annually. We also anticipate building towards approximately $75 million in revenue synergies by 2025, leveraging the EFX cloud to integrate AFRS Insights' rich people-based risk intelligence data in the EFWS data hub to formulate new multi-data solutions and through cross-selling efforts. Acquiring AFRS Insights and partnering with the National Student Clearinghouse provides strong pillars for workforce solutions growth in fast-growing markets going forward. Slide 13 highlights our focus on adding alternative data to our database focused on the 60 million un- or underbanked population in the United States. According to a Federal Reserve study, 6% of U.S. adults do not have a checking, savings, or money market account, although two-fifths use some form of alternative financial service. More over 16% of adults have a bank account but also use an alternative financial service product, generally at much higher costs. Providing services that help bring these underserved populations into the financial mainstream is core to our purpose of helping people live their financial best and is an important priority for our customers. Our acquisition of Teletrack in September, which we are combining with our DataX business, creates a leading U.S. specialty consumer reporting agency with data on more than 80 million thin-file, unbanked, and underbanked, and credit-rebuilding consumers. Our National Consumer Telecom and Utilities Exchange Partnership is another unique data set focused on this space that has more than 420 million records and 250 million consumers, helping our customers to expand underwriting to no-hit or thin-file customers. We are focused on expanding our unique alternative data from sources including specialty finance companies, alternative lenders, telco companies, cable and satellite TV providers, municipalities, and utilities to drive growth in the fast-growing alternative data markets. And we'll continue to look for opportunities to strengthen our alternative databases through partnerships and M&A. And now I'd like to turn it over to John to discuss our outlook for the rest of the year, our increase in guidance for 2021, as well as share our early read on 2022 assumptions and our financial framework for 2022. Thanks, Mark.