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spk08: Hello, and welcome to the Equifax Inc. Q1 2024 Earnings Conference Call. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star one on your telephone keypad, and we do ask that you limit yourselves to one question and one follow-up. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Trevor Burns, Senior Vice President, Head of Corporate Investor Relations. Please go ahead, Trevor.
spk02: Good morning. Thanks. Welcome to today's conference call. I'm Trevor Burns. With me today are Mark Begor, Chief Executive Officer, and John Gamble, Chief Financial Officer. Today's call is being recorded. An archived recording will be available later today in the IR Calendar section of the News and Events tab. and our IR website. During the call, we'll be making reference to certain materials. It can also be found in the presentation section of the news and events tab at our IR website. These materials are labeled 1Q2024, earnings conference call. Also, we'll be making certain forward-looking statements, including second quarter and full year 2024 guidance to help you understand Equifax and its business environment. These statements involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from our expectations. Certain risk factors that may impact our business are set forth in filings with the SEC, including our 2023 Form 10-K and subsequent filings. We will also be referring to certain non-GAAP financial measures, including adjusted EPS and adjusted EBITDA which will be adjusted for certain items that affect the comparability of our underlying operational performance. These non-GAAP measures are detailed in reconciliation tables, which are included with our earnings release and can be found in the financial results section of the financial info tab on our IR website. Now I'd like to turn it over to Mark.
spk04: Thanks, Trevor, and good morning. Turning to slide four, we're off to a strong start in 2024. First quarter reported revenue of $1.389 billion was up 7% at the high end of our February framework. Adjusted EBITDA margins at 29.1% were slightly above our expectations, and adjusted EPS of $1.50 a share was well above the high end of our guidance. Total U.S. mortgage revenue was up 6% in the quarter, stronger than expected. The strength in mortgage revenue was in USIS, where mortgage revenue was up 38% against credit inquiries that were down 19% and 700 basis points better than expected and continued strong performance in our new mortgage pre-qual products. EWS mortgage revenue was down 15% and consistent with our expectations. Twin inquiries at down 22% were slightly better than expected, and this was offset by slightly lower than expected revenue per inquiry, principally driven by product and customer mix. Our global non-mortgage businesses, which represented about 80% of total revenue in the quarter, had strong 9% constant currency revenue growth, which is well within our 8% to 12% long-term revenue growth framework. This was slightly below our expectation of 9.5% non-mortgage revenue growth. Non-mortgage organic constant currency revenue growth was 5% in the first quarter. At the BU level, EWS verifier non-mortgage revenue was up a strong 15% and stronger than expected, driven by very strong 35% growth in government and good growth in auto and debt management, slightly offset by some weaknesses in talent. Employer revenue was down 10% and weaker than expected, This was principally driven by a more rapid decline in ERC revenue than we expected and delays in state government processing of WOTC claims. ERC is now at a run rate of under $3 million a quarter and should stay at about that level for the rest of the year. For WOTC, the federal requirements for states to validate WOTC claims changed late last year, and most states have not yet completed the changes required to process claims, which dampened our revenue in the quarter. This impacted our WOTC revenue in the first quarter, but we expect this to be a timing issue, and this essentially creates a backlog of WOTC submissions that will have to be completed by the states that will begin turning to revenue as state processing accelerates in the remainder of 2024. Offsetting these declines in the quarter, we saw mid-single-digit growth in I-9 and onboarding revenue. And going forward, we expect employer revenue, including ERC, to be up low single-digit percentages for the remainder of 2024. In total, EWS non-borgage revenue was up 7%, and overall EWS revenue was up 1%. And adjusted EBITDA margins at EWS at 51.1% were over 50 basis points stronger than our expectations from strong operating leverage and strong performance. USIS had a very strong quarter with revenue of 10%, its highest quarterly revenue growth in three years, even against the 19% mortgage market decline. As I referenced earlier, mortgage revenue was up 38% and stronger than expected from market and pricing pass-through and our new pre-qual solution. Non-mortgage revenue was up 1% and was weaker than expected. Although we had very strong double-digit growth in count and consumer solutions, and mid-single-digit growth in banking and lending. We saw double-digit declines in third-party bureau sales and low to mid-single-digit declines in telco and auto. And USIS adjusted EBITDA margins were up, were 32.7% in the quarter and up about 70 basis points higher than our expectations. International delivered 20% constant dollar revenue growth and 6% organic constant currency revenue growth, excluding the impact of the BVS acquisition, both of which were above our expectations. Very strong growth in Latin America and Europe was partially offset by lower than expected growth in Asia Pacific. International delivered 24.3% adjusted EBITDA margins, up slightly from our expectations. As you can see from the right-hand side of the slide, we added a new strategic priority this year to focus on driving AI innovation. As mentioned in February, 70% of our new models and scores were built last year using AI and ML, with a goal of 80% this year. In the first quarter, we exceeded this goal with 85% of our new models and scores being built with Equifax AI and machine learning. Equifax.ai leveraging our proprietary data, Equifax Cloud and NPI capabilities is a big area of focus and execution for Equifax in 2024 and beyond. We're maintaining our 2024 guidance with revenue at the midpoint of $5.72 billion and adjusted EPS of $7.35 a share. Our strong first quarter with revenue at the top end of the range, EPS above the top end of the range, gives us confidence in our ability to deliver the full-year guidance we provided in February. We expect strong constant dollar non-mortgage revenue growth of over 10%, and our full-year guidance is based on the assumption that the U.S. mortgage market continues at levels consistent with current run rates, with U.S. credit inquiries down about 11% from 2023. Before I cover our business unit results in detail, I want to provide a brief overview of what we're seeing in the U.S. economy and with the consumer. Broadly, outside of the bottoming of the mortgage market, there's not a lot of change from our view back in February. The U.S. consumer and our customers remain broadly resilient. Employment remains at historic levels with low unemployment, which is a positive for consumers and customers. Employment turnover and hiring at lower levels entering 2024 than last year. Hiring levels in January and February were at their lowest levels in three years. This is more pronounced for higher salaried roles than lower salaried or hourly jobs. Credit card and auto delinquency rates for prime consumers, which represent about 80% of the market, are stable at historically low levels of less than 1%, but above pre-pandemic levels. And subprime credit card and auto delinquency rates continue to remain above pre-pandemic levels, with auto subprime delinquencies above 2009 levels. As we've discussed before, it's our view that when consumers are working, they largely have the capacity to keep current on their financial obligations, which is good for our customers and good for Equifax. Turning to slide five, workforce solutions revenue was up 1% in the quarter, slightly below our expectations. EWS mortgage revenue was down 15% as expected. Twin inquiries at down 22% were slightly better than expected, although weaker than USIS credit inquiries as homebuyers continued to have difficulty completing purchases while shopping behavior continued to be fairly strong. Our revenue offer formed inquiries by 7%, which was below the about 11% we have guided to in February. Relative to our February guidance, the benefit of the mortgage price increases implemented in January by EWS and stronger fulfillment rates due to the growth in twin records were as expected. However, these were partially offset principally by a shift in product and customer events. As we look to the remainder of 2024, we expect twin record growth to result in improved mortgage outperformance, with the second quarter up slightly from first quarter levels, and the second half of the year at about 14% outperformance. For the full year of 2024, we expect mortgage outperformance to be about 11% at EWS. This is down significantly from the 20% we saw last year as we lapped the late 22 launch of our higher price mortgage 36 trended data solution. Non-mortgage verification services revenue, which represents over 70% of verifier revenue, delivered a very strong 15% growth at the top end of the EWS long-term revenue growth framework of 13% to 15%, and was also above our expectations. Government, which is now our largest verification services vertical, had another outstanding quarter and was stronger than our expectations with 35% revenue growth. Government revenue benefited for both our new CMS and SNAP contracts, continued expansion of state contracts, continued twin record growth, and pricing. We expect continued growth in government throughout 2024, with stronger growth rates in the first half as post-COVID CMS redeterminations principally complete in the first quarter. Talent Solutions' revenue was down 4% in the quarter, which was weaker than expected, as we saw very slow volumes through both January and February. Mark saw about flat revenue, which was more consistent with our expectations, and decreased which we expect to continue into the second quarter. Consumer lending revenue was 6% in the quarter as we saw strength in our auto and debt management businesses slightly offset by declines in CAR. This is the second consecutive quarter of consumer lending revenue growth as we're lapping headwinds from the fintech lending pullbacks in 22 and 23. Auto and debt management revenue growth was principally driven by strong record growth and our pricing actions in the first quarter. As I referenced earlier, employer services revenue was down 10% compared to the about 4% decline we discussed in February from ERC and WOTC reductions. Going forward, we expect employer revenue excluding ERC to be up low single digits for the remainder of 2024. Workforce solutions adjusted EBITDA margins of 51.1% continue to be very strong from non-mortgage revenue growth, good cost execution, while we continue to invest in new products, expand into high-growth verticals like government talent, and grow our coin records. As a reminder, EWS first quarter margins are seasonally lower from a higher mix of employer solutions revenue, principally from ACA and W-2 in the first quarter. Turning to slide six and expanding on our discussion of EWS TAMs in February, we provided additional details on our fast-growing government vertical. On the left side of the slide, we outlined some of the federal agencies we're supporting with Workforce Solutions digital income employment incarceration data that accelerated time to deliver needed social service benefits to over 90 million Americans and help government agencies ensure program integrity, a win-win for all parties. And in the middle slide, you can see the substantial progress our EWS government vertical has made in a short period of time, penetrating the $5 billion TAN with a three-year CAGR of over 50%. We expect EWS to continue making significant progress penetrating the government vertical from additional sales resources to federal and individual state capital level, strong twin record growth, new product roll-ons with our differentiated incarceration data, and system-to-system integrations enabled by our cloud-native technology that makes our solutions easier for our government customers to consume. Our SSA contract, last year's $1.2 billion CMS contract extension, and the new $190 million SNAP contract are examples about EWS helping various government agencies improve the consumer experience and their own operating efficiency from the application of authentication phases to redetermination and recovery processes. The strength of the EWS government vertical was clear again in the quarter, and we expect strong future growth in this business in 2024 and beyond. Turning to slide seven, EWS had another strong quarter of new record additions and signing new payroll processors. During the quarter, EWS signed agreements with two new payroll processors, including one large payroll processor that will contribute over 6 million current records to the TWIN dataset. This adds to the six partnerships we signed in the fourth quarter that are coming online in the first half of 2024. And this brings the total number of payroll providers added to the TWIN database to 35 since the beginning of 2021, and the pipeline for new records continues to be strong. Both of these wins in the quarter are a testament to EWS's ability to deliver the highest levels of client service from a technology, data security, and accuracy, operational excellence, as well as the highest level of record of monetization as EWS participates in a broad range of verticals, including government, mortgage, talent solutions, talent screening, card, auto, and personal loans. And given our advancements in AI and cloud native capabilities, the time to forward new records from payroll processes has decreased over the past few years. We expect these new record additions in the first quarter to come online and begin generating revenue in early third quarter. In the quarter, EWS added 4 million current records, growing the twin database by 10% over last year. At the end of the quarter, the twin database had 172 million current records on 126 million unique individuals. Total records, both current and historic, are now about 670 million, and we're up about 8%. These are very strong results given the typical churn in holiday season hiring in the first quarter. In terms of coverage, we have current employment records on about 75% of U.S. non-farm payroll and over 55% coverage on the estimated 225 million income-producing Americans. At 126 million unique active records, we have plenty of room to grow the TWIN database towards the TAM of 225 million income-producing Americans. As shown on slide 8, USIS revenue was up 10%, stronger than our expectations and well above their 6% to 8% long-term growth framework, principally due to stronger than expected mortgage revenue. As I referenced earlier, USIS mortgage revenue was up 38% and stronger than our expectations. Mortgage credit inquiries at down 19% were still down substantially, but 700 basis points above our February guidance. We also continue to see very strong performance from our new mortgage pre-qual solution. The strong pricing environment, along with the strength in our pre-qual product, drove the very strong mortgage outperformance of 57%. At $145 million, mortgage revenue was just over 30% of total USIS revenue in the quarter. Non-mortgage revenue was up just over 1% and weaker than the above 3% growth we'd expected. Third-party sales to credit bureaus, including Experian and TransUnion, were down double digits in the quarter. Excluding the impact of third-party bureau revenue, USIS non-mortgage revenue was up about 2% and closer to our February guidance. B2B non-mortgage online revenue growth was down less than 1% and below our expectations, again driven by lower third-party bureau sales, and to a lesser extent, declines in auto and telco. Offsetting these declines was strong double-digit growth in count and very good mid-single-digit growth in banking and lending. Commercial revenue growth was up low single digits in the quarter. Financial marketing services, our B2B offline business, was down 1% and slightly below our expectations. Marketing revenue was down 4%, principally due to a 10% decline in IXI revenue versus a difficult comp in the first quarter last year. We expect IXI revenue to grow for the full year. Prescreen marketing was down less than 1% and at similar levels to the quarterly revenue we had in 2023. We continue to see declines. Smaller FIs principally are partially offset by growth in larger FIs. Within risk and accounting reviews, we did see limited growth in our portfolio review business. but not to the levels we would typically see if our customers were expecting a weakening economy. And fraud revenue was up a strong 8% from new business. USI has consumer solutions, D2C business, at another very strong quarter, up 10%, from very good performances in both consumer direct and our indirect channels. And USIS EBITDA margins were 32.7% in the quarter, and higher than our expectations from stronger mortgage revenue growth. Turning now to slide 9, international revenue was up 20% in constant currency and up 6% in organic constant currency, excluding the impact of BVS, and above the 18% growth we guided to in February due to better-than-expected revenue in Europe and Latin America. Europe local currency revenue was up very strong 10% in the quarter from strong growth in our UK CRA B2B consumer and direct-to-consumer channels, as well as our debt management business. Latin America local currency revenue, excluding Brazil, was up 31% versus last year, driven by strong double-digit growth in Argentina and Central America. Brazil revenue in the quarter on a reported basis was $41 million. We expect to make good progress on the BVS integration as we expect to implement InterConnect, our end-to-end decision platform this summer for small and medium-sized businesses, and by year-end for large businesses, and implement Ignite, our advanced analytics platform, by year-end. The combination of our Ignite and InterConnect platforms will bring significantly enhanced capabilities to our GoaVista business and to the Brazilian market. Canada delivered 4% in the quarter as expected, and Canada is on track to complete their migration to the Equifax cloud in the second quarter, and similar to USIS, we expect to see accelerating NPI as they complete the cloud. Asia-Pacific revenue was below our expectations with revenue down 10% due to lower market volumes, principally in our Australian commercial business. We expect Asia-Pacific to have declining revenue in the first half, due to these softer market conditions and the near-term impact of long-term contract extensions we signed with several large customers. We expect Asia Pacific to return to revenue growth in the second half of this year. International adjusted EBITDA margins of 24.3% were above our expectations due to revenue growth and continued strong cost management. Turning to slide 10, we continue to make very strong progress with new product innovation, launching over 25 new products in the quarter with a 9% vitality index from broad-based strong performances across all of our VUs. As a reminder, our VI measure includes NPIs for the last three years, and on January 1 dropped out NPIs from all of 2020. While our first quarter VI was slightly below our long-term goal of 10% as we lacked a large EWS talent solutions product launched in 2020, we expect our quarterly VI to accelerate throughout the year, leveraging our EFX cloud capabilities to drive new product rollouts with a full year 2024 VI of over 10%. Consistent with the fourth quarter of last year, USIS delivered another strong quarter with BI of 7% as we're closer to cloud completion and able to leverage our new cloud-native infrastructure for innovation and new products, such as our suite of Ignite solutions, including Ignite for prospecting and Ignite for financial services. EWS delivered BI of over 10%. We expect EDIP-USDI to accelerate throughout 2024 with new product introductions focused on incarceration data, mortgage pre-qual, and I-9 and onboarding products. As I mentioned earlier, EFX.AI is a pillar of our EFX 2026 strategic priorities enabled by our EFX Cloud. In the middle of the slide, you can see that we're accelerating the pace at which we are developing new models, scores, and products using AI and machine learning. In the first quarter, 85% of our new models and scores were built using AI and ML, which is ahead of our 2024 goal of 80%, and last year's 70%. NPI and AI are a clear focus for Equifax, which will drive innovation that can increase the visibility of consumers to help expand access to credit and create new mainstream financial opportunities, as well as drive EFX top-line growth and margins. Before I turn it over to John, I want to spend a few minutes on our progress on two of our critical EFDX 2026 strategic priorities that support our long-term growth framework of 8% to 12% top-line growth and 50 basis points of annual margin expansion. Completing the cloud and pivoting from building and leveraging our cloud capabilities is a big 2024 priority, which is fundamental to accelerating NPI and execution of AI and, more broadly, analytics, as well as substantially strengthening system response time and resilience of our technology for our customers. Completing the cloud also frees up our team to fully focus on growth, expanding innovation, new products, and new markets. Our progress towards completing the cloud is gaining momentum with over 70% of our total revenue in the new Equifax cloud at the end of the quarter. And we're focused on executing the remaining steps to reach 90% of Equifax revenue in the cloud by year end. USIS expects to complete their consumer credit, mortgage, and telco and utilities exchange customer migrations to the new Equifax Cloud data fabric principally in the third quarter, which will allow them to decommission legacy systems in the second half of this year as planned. Customer feedback from the thousands of customers that we've migrated to the Equifax Cloud year-to-date has been very positive. Canada is progressing its plan to complete their consumer credit exchange migrations to the data fabric in late second quarter of this year with their data center decommissioning plan for the third quarter. Europe continues to make significant progress with the goal of completing Spain's consumer credit exchange migration to data fabric and the decommissioning of their legacy systems in the third quarter. And UK is not scheduled to complete cloud migrations decommissionings of their technology and data centers in the first half of 2025. In Latin America, we completed the Argentina and Chile cloud migrations and expect to make substantial progress on the remaining Latin American countries throughout the rest of 2024. And lastly, as planned, we expect Australia to make big progress this year towards completing their consumer credit exchange migrations to the Equifax cloud in 2025. Second, driving AI innovation is an important EFX 2026 strategic priority that leverages our cloud-based data fabric and application architecture and global Ignite analytical and interconnect decisioning platforms. We're making great progress in embedding these EFX.AI capabilities across our global footprint. Ignite and interconnect are now broadly available worldwide, And during 2024, we're deploying both Equifax proprietary explainable AI along with Google Vertex AI across Ignite, Interconnect, and our global transaction systems. For Equifax, Vertex AI enables faster and more predictive model development on our Ignite platform. And for our clients, Ignite, which combines data, analytics, and technology in one cloud-based ecosystem, Customers can connect their data with our unique data through our identity resolution process to gain a single holistic view of consumers. We now have access to 100% of the U.S. population through our data sets and our single data fabric. This is expanding the score of a population of consumers for our customer cases by over 20%. And we're driving faster data ingestion analytics with greater than five times the processing power of our legacy applications tied into our clients' existing campaign, account management, and business platforms. Completing the cloud and expanding EFX.AI along with continued expansion of our differentiated data sets will accelerate innovation and new products at Equifax that will drive both our top and bottom line. In the first quarter, we're also off to a good start on our broader operational cloud restructuring plan across Equifax, reflecting cost reductions from the closure of North American data centers and other broader spending controls against our $300 million goal. These actions are improving operating margins and lowering the capital intensity of our business. We're entering the next chapter of the new Equifax as we pivot from building the new Equifax cloud towards leveraging our new cloud capabilities to drive our top and bottom line. And now I'd like to turn it over to John to provide more detail on our first quarter financial results and to provide our second quarter framework. Our second quarter guidance builds on our strong first quarter performance from new products, record growth, and pricing. John. Thanks, Mark. Turning to slide 11, first quarter mortgage market credit inquiries were down about 19%, and twin mortgage inquiry volumes were down 22%. We believe home buyers continue to have difficulty completing purchase transactions, resulting in the continuation of shopping, which generally results in credit inquiries, which occur earlier in the purchase process, being stronger than twin inquiries. Consistent with our practice from the first quarter and the last several years, our guidance for both credit inquiries and twin inquiries is based on our current run rates over the last two to four weeks, modified to reflect normal seasonal patterns. For both credit and twin inquiries, we saw some weakening in trends in late March and early April as mortgage rates increased over that period. Mortgage credit inquiry run rates remain somewhat better than the guidance we provided in February. Our guidance reflects mortgage credit inquiries to be down about 13 percent in the second quarter of 24 and 11 percent in calendar year 24, about 600 basis points and 500 basis points better than our February guidance, respectively. Our guidance reflects twin inquiries at about the levels we discussed in February, with twin inquiries down about 19% in QQ and down about 14% for the year. This reflects the continuation of mortgage shopping we saw in the first quarter. As a reminder, and as we discussed in February, we expect the level of USIS mortgage revenue outperformance to moderate as we move through 2024 as we start to lap the growth in new mortgage pre-qual products. We expect 2Q USIS mortgage outperformance to be about 40%, down from the 57% in the first quarter, with full-year USIS mortgage outperformance also expected to be on the order of 40%. We expect twin revenue mortgage outperformance in the second quarter to be up slightly from the 7% we saw in the first quarter. As Mark indicated, second half 2024 mortgage outperformance should be about 14%, with full year about 11%, and at the low end of our long-term 11% to 13% framework. Slide 12 provides the details of our 2Q 2024 guidance. In 2Q24, we expect total Equifax revenue to be between $1.41 and $1.43 billion, with revenue up about 8% at the new point. Non-mortgage constant currency revenue growth should strengthen to about 11%. Mortgage revenue in the second quarter is expected to be up about 3%. Mortgage revenue will be just over 20% of Equifax revenue. FX is negative to revenue about two points. Business unit performance in the second quarter is expected to be as follows. Workforce solutions revenue growth is expected to be up about 3%, with mortgage revenue down about 12.5%. EWS non-mortgage revenue should grow over 9% in the quarter. Non-mortgage verifier revenue will again be up about 15% in the second quarter, driven again by government and a return to growth in talent solutions. And employer services revenue is expected to decline about 4% in the quarter due to declines in ERC revenue. Excluding ERC, employer services revenue should be up slightly. We expect employer services to return to revenue growth in the fourth quarter of 2024 as we lap ERC headwinds. EWS adjusted EBITDA margins are expected to again be about 51%. USIS revenue is expected to be up over 8% year to year, despite the continued decline in mortgage market inquiries. Mortgage revenue should be up over 25%. Non-mortgage year to year revenue growth of over 2% should be up from the 1% we saw this quarter. Adjusted EBITDA margins are expected to be up strongly to about 34.5%. International revenue is expected to be up over 20% in constant currency due to the addition of BBS. Revenue is expected to be up approaching 10% in organic constant currency. EBITDA margins are expected to be about 25.5% reflecting revenue growth. We expect Brazil to deliver revenue of over $40 million in the second quarter. Equifax 2Q24 adjusted EBITDA margins are expected to be about 32% at the midpoint of our guidance, an increase sequentially of about 300 basis points, principally reflecting the higher equity compensation expense we saw in the first quarter. Adjusted EPS in 2Q24 is expected to be 165 to 175 per share, about flat versus 2Q23 at the midpoint. Capital expenditures in the first quarter were about $125 million and consistent with our expectations. We expect capital expenditures in the second quarter to be at levels consistent with the first quarter. And we continue to expect CapEx to be about $475 million for the year, which is a year-to-year reduction of over $100 million. As we discussed in February, one of our capital allocation priorities in 2024 is leverage reduction from free cash flow expansion. As of the end of the first quarter, our leverage ratio was just over three times, with a goal by year end 2024 of about two and a half times. We believe these levels of leverage are nicely within the levels required for our current BBB VAA2 credit ratings. As we achieve these levels, we will have significant flexibility to begin to return cash to shareholders through dividend increases and share repurchases, as well as to continue to do bolt-on acquisitions. As Mark covered earlier, we are making very good progress on completing migration of our U.S. and Canadian consumer credit exchanges to cloud, which will enable the shutdown of significant legacy systems in 3Q and 4Q. These actions enable significant cost benefits in the second half of 24, which will allow us to deliver sequentially higher EBITDA margins and adjusted EPFs in 3Q and 4Q. Slide 13 provides the specifics of our 2024 full-year guidance, which is overall unchanged from the full-year guidance we provided in February. Consistent with our February guidance, constant currency revenue growth is expected to be about 10.5%. with organic constant currency revenue growth of 8.5% at the center of our 7% to 10% long-term organic growth framework. Total mortgage revenue is now expected to grow over 10%, reflecting USIS mortgage revenue that is stronger than our February guidance. Total mortgage revenue is expected to grow more than 20 points better than the about 13% reduction from the average decline in USIS and EWS mortgage inquiries in our framework. Non-mortgage constant dollar revenue should grow over 10%, with organic growth of over 8%. This is solidly within our long-term framework, although slightly below the levels we discussed in February. FX is about 190 basis points negative to revenue growth. We have also slightly adjusted EU level guidance. We expect workforce solutions to deliver revenue of about 7% in 2024. This reflects mortgage revenue down slightly, about 11 points better than underlying EWS mortgage transactions. EWS non-mortgage verticals are expected to grow about 10%. The slight decline from February guidance is due to the expected weaker revenue performance in employer driven by the more rapid decline in ERC and deferral of WOTC revenue Mark referenced earlier. Excluding the expected significant decline in ERC revenue as that pandemic support program completes, EWS non-mortgage revenue growth is about 12%. We expect USIS to deliver revenue growth over 9% in 2024, above the high end of our long-term growth target of 6% to 8%. Mortgage revenue is expected to grow over 25% on the order of 40 points stronger than the expected over 11% decline in mortgage credit inquiries. Non-mortgage revenue is expected to grow about 3% down from the 4% in our February guidance. We continue to expect non-mortgage growth will be driven by strong consumer services, commercial, identity and fraud, and FI. As we saw in the first quarter, the overall auto market is weaker than our expectation, impacting our auto-based revenue, and our D2C revenue, the business in which we sell credit data to other credit bureaus, was weaker than we expected and down substantially. We continue to expect international to deliver constant currency revenue growth of over 15% in 2024, with organic constant currency growth of about 10%. As we discussed in February, the high levels of inflation we are seeing in Argentina are expected to benefit overall international revenue growth by about 5 percentage points. Although uncertain, we have assumed currency devaluation in Argentina will more than offset inflation in our 2024 planning. We believe that our guidance is centered at the midpoint of both our revenue and adjusted EPS guidance ranges. Turning to slide 14, and as we discussed in February, the U.S. mortgage market is on the order of 50% below its historic average entry levels. As the market bottoms and moves from a headwind to a tailwind, and the mortgage market recovers towards its historic norms, that presents over $1 billion of annual revenue opportunity for Equifax, none of which is reflected in our current 2024 guidance. At our mortgage gross margins, this over $1 billion of mortgage revenue would deliver over $700 million of EBITDA and $4 per share that we would expect to move into our P&L. Now I'd like to turn it back over to Mark. Thanks, John. Wrapping up on slide 15, Equifax delivered another strong quarter with 9% constant dollar non-mortgage revenue growth, which was well within our 8% to 12% long-term revenue growth framework, reflecting the power and breadth of the Equifax business model and strong execution against our EFX 2026 strategic priorities. As I mentioned at the beginning of my comments, a big priority for 2024 is to complete our North America cloud transformation, as well as significant portions in our global markets, which will result in continued market to margin expansion and reductions in our capital intensity as a key benefit of our data and technology cloud transformation. As we complete the cloud, we expect CapEx to decrease in 2024 by over $100 million to about $475 million, or under 8.5% of revenue, with further reductions in 2025, allowing us to move towards our long-term CapEx goal of 7% of revenue as we exit next year. And exiting 2024 with 90% of Equifax revenue in the new Equifax cloud is a big milestone so the team can move fully towards focusing on growth. Aligned with completing the cloud transformation is our strategic priority to drive innovation through our investments in EFX.AI. AI and ML are changing the way we develop new products in our single data fabric, build higher performing models, scores, and products, allow us to ingest and cleanse more data, and operate our consumer care centers more efficiently. We are on offense with EFX.AI. We are entering the next chapter of the new Equifax as we pivot from building new Equifax Cloud to leveraging our new cloud capabilities to drive our top and bottom line. We are convinced that our new Equifax Cloud differentiated datasets and our single data fabric leveraging EFX.AI and ML and market-leading businesses will deliver higher growth, expanded margins, and free cash flow in the future. We remain focused on executing our long-term model, delivering 8% to 12% revenue growth with 50 basis points of annual margin expansion annually. I'm energized by our strong performance in the first quarter and momentum as we begin 2024, but even more energized about the future of the new Equifax. And with that, operator, let me open it up for questions.
spk08: Thank you, and I'll be conducting your question and answer session. If you'd like to be placed into question queue, please press star 1 on your telephone keypad. We ask that you please ask one question and one follow-up. Once again, that's star 1 to be placed into question queue, and star 2 if you'd like to remove your question from the queue. One moment, please, while we pull for questions, and we do ask you to ask one question and one follow-up. Our first question is coming from Manal Panayak from Barclays. Your line is now live.
spk07: Thank you. Good morning. I just had a broader question on, you know, just the visibility that you have, because, you know, unlike the prior years, mortgage was actually, you know, much better than what you guys guided, but still there were, I think a lot of moving pieces that didn't allow you to beat by more, I guess. So just curious, I think this quarter, obviously ERC was exceptional, but, you know, auto, APAC, like just, can you just help us understand how much visibility you have in these other areas?
spk04: Yeah, Manav, good morning. I think we have good visibility. We typically do, as you know, but there's still a lot of uncertainty. As you know, you go back using your comment on mortgage. 60 days ago, I think a lot of us were looking forward, as well as most of the experts, that we'd have multiple rate cuts in 2024. As recently as two weeks ago, there was still people thinking there was going to be a June cut, and I think, as you know, that's kind of pushed out. um rates went up uh you know three weeks ago two weeks ago mortgage rates went up 20 basis points to seven percent so you know while there's a lot of visibility there's still a lot of uncertainty you know around uh i would call it principally the mortgage market and given we're in the first quarter um we thought it was prudent to be balanced uh in uh you know the framework we put forward is as you know we beat in the first quarter we had some things to manage you know in er spend EWS, like the ERC decline or the WOTC deferral because of the change in forms. And, you know, there's always things we're managing as a company, but we thought it was prudent to be balanced given where we are in the quarter and kind of the macro of mortgage. Outside of mortgage, we're pretty comfortable with the economy. And, you know, we held the year, and, you know, we'll take another look at it as we go through second quarter.
spk07: Okay, got it. And then just the, you know, the 7% mortgage outperformance in EWS. I know you guys had said that you expected 1Q to be the low end or the low point. Was 7 kind of in line with your expectations? And then just, you know, thinking about the 11 for the year and beyond, is that going to be the new norm then?
spk04: Yeah, so as you know, we've had very strong mortgage outperformance at EWS over the last couple of years. Records are a big driver of that. Obviously, we take price up every year, which we did in 2024. We've also had, in the last couple of years, what I would call outperformance in EWS mortgage from some of the new product introductions, principally mortgage 36. So that's kind of the delta from 24 outperformance, call it in the high teens to 20, you know, down to the, you know, kind of double digit or low single digits. So we were kind of focused on that. As we look forward to the balance of the year, you heard us talk about, you know, the record additions, which are going to benefit all of the EWS verticals, including mortgage, you know, including the large payroll processor that we signed that's going to come online, you know, kind of mid-year that's going to add 6 million records. So those higher hit rates will benefit all of the EWS businesses, in the second half as we continue to grow twin records and also will benefit mortgage. Relative to our expectation for the first quarter, seven was a little lower than we expected, as we said in the script. It was really driven a lot by customer mix and channel mix, right? We saw some shift in our customers and to some of our customers that had lower pricing than others, and that impacted our first quarter outperformance levels. Going forward for the rest of the year, we basically assume that level of mix is going to continue. And as Mark said, the growth is really driven by records. Long term, I think we've said before that we're expecting mortgage outperformance to look pretty much like the level of outperformance excluding the economy that we're talking about for EWS in general, which is something like 11%, 12%, 13%. So I think long term, that's the type of level we're thinking about.
spk08: Thank you. Our next question is coming from Andrew Steinerman from J.P. Morgan. Your line is now live.
spk05: Hi, John, could you go back to just slide 11 and the 500 basis point better assumption on USIS mortgage credit increase for 24? Does that translate into 500 basis points better mortgage revenue growth for OIS? And if not, why? And I'm going to give you my second question. Also make a comment about mortgage solutions trajectory for the year.
spk04: So it translates into better mortgage revenue for USIS in total, not necessarily specifically for OIS. So you need to look at both OIS as well as core mortgage. But yes, inquiries translate fairly directly.
spk05: And the other part was, could you just talk about mortgage solutions trajectory for the year?
spk04: So again, what we're talking about is just mortgage in total. And I think the trajectory for mortgage in total is what we talked about on the call. We didn't really split mortgage solutions and OIS. We managed it as kind of one single business. I understand it's on two different line items when we report, but we tend to focus on mortgage in total and trying to drive the mortgage performance overall up for the year, and I think we gave very specific information about what we expect overall mortgage to do. Quite strong. Very strong. Up over 25% for the full year, right? Outperformance on the order of 40 points, so we think it's going to be very strong in total.
spk08: Thank you. Our next question today is coming from Kyle Peterson from Neiman Company. Your line is now live.
spk06: Thanks, guys. Just wanted to get your thoughts. We do kind of end up in a higher for longer outlook for the year. How do you guys think about this impacting You know, some of the different business lines, you know, obviously mortgage could see some pressure. But, you know, how should we think about, you know, some of the put and takes, you know, in areas like card and auto, at least how you guys are seeing things today?
spk04: I missed the first half, Kyle. Is the first half of your question about if rates stay higher for longer, how does it impact Equifax? Yeah, got it. Yeah, so mortgage, I think you get. You know, mortgage, obviously this year, we're still expecting mortgage to be down. But, you know, like if rates stay where they are, we would expect in 2025, you know, mortgage market to be fairly flat, you know, in 2025 until rates come down. And I think John outlined again, you know, what we believe, whether it's 25, 26 or 27, as rates get down to what I would call a more normal level, as you know, we're at a 20 plus year high right now. over that longer timeframe, there's a big tailwind in mortgage. For the rest of our businesses, we haven't really been impacted by rates. There's a little bit of impact in auto. Those higher rates are pressuring some of the payments, if you will, for that lower end consumer and subprime and near prime. But broadly, we're performing well where rates are from a non-mortgage standpoint. And we would expect that to continue. So when we think about kind of the long-term of Equifax, you know, we're still committed and confident in our eight to 12%, you know, kind of long-term framework for the company, including a point or two of M&A in that long-term framework, you know, and that's, you know, it's kind of current rates. And then we've got the, you know, the benefit is rates come down to some level where they're going to, they're going to come down to, you know, four or three and a half or whatever over the long-term. I don't think any of us expect them to go back to where they were, you know, kind of during the COVID pandemic. But as they come down, we're going to have, we believe, a real tailwind, you know, as the mortgage market recovers from its, you know, levels of 50% below what we would characterize as normal. And just as a reminder for 2024, right, as we said in the script, our guidance reflects current activity, current run rates, which is at current rates, right? So effectively our guidance assumes rates stay where they are.
spk06: Got it. That's helpful. And then just a follow-up. I know we've seen some consolidation in the background screening space. I know some of that's at least pending right now. But I just wanted to get your thoughts on if we do see some consolidation there, is there any change in your strategy or outlook on talent within APRIS and when you're at the TWIN products, or is everything just pretty much dependent on hiring volumes?
spk04: Yeah, I wouldn't say it's all dependent on hiring volumes. Obviously, hiring volumes have had an impact on us. We've been able to navigate through the hiring volumes, which are still quite low. Most companies are keeping a tight belt as they think about where the economy is going as far as hiring on the white-collar side. Obviously, blue-collar is super strong. There's I don't know what it is, 9 million plus open jobs right now. So there's still a very vibrant economy from the hiring side. As far as talent, we just see a big cam there with lots of opportunity to grow. We have strong relationships with all the top players, including the two you mentioned. And we expect to continue those relationships. We've got a very aggressive pipeline of new product additions that we're continuing to roll out in the talent space. There's a lot of white space for us to penetrate, meaning background screeners that are still using manual, if you will, employment verifications. So that's an opportunity for us. So we remain very optimistic around the future for the talent vertical. And as you point out, when hiring, I would call it in the white collar side, stabilizes or perhaps when rates come down and there's some increase in economic activity, You know, we'll get some tailwind from the market side as people are expanding their businesses. And then we'll have the things under our control to continue to adding records. You know, the additional records result in higher hit rates there. You know, the 4 million records we added in the quarter are 4 million jobs, you know, that are now going to be able to be, you know, monetized in the hit rates we're delivering to talent. I talked about new products. And, of course, you know, we took some price up in January in the We'll do that again in 2025. So we're optimistic about talent. You know, we're super optimistic about government. You know, as you know, with the 35% performance in the quarter, which is we see a lot of opportunities there too.
spk08: Thank you. Next question is coming from Heather Balsky from Bank of America. Your line is now live.
spk00: Hi. Thank you. I wanted to go back to the EWS outperformance versus the volume issue. And you talked a little bit about customer shift and it's something that hasn't come up in the past and curious if you could dive in a little bit more in terms of kind of what can drive a shift in the sort of mix of customers that you're working with and how you're thinking about that for the rest of the year. And is it a function of how the mortgage market is performing or is it new customers that you're bringing in just to help us understand that better?
spk04: It's a little bit of all of the above, but it's really the mortgage market now at the low levels of activity, down 50% from where it was. There is some changes that happen on how much volume specific customers are completing in a quarter or a month. And we see shifts in that that are, I would call it more pronounced when the numbers are smaller. If you have one mortgage originator that perhaps is being more aggressive at one point in time, around the originations they want to do, their marketing, their spending. As you know, a lot of this is, most of it's done digitally. So there's ebbs and flows on, particularly in this market from what we've seen, ebbs and flows of kind of the activity that a mortgage originator will put into it. I don't know, John, what else would you add? I would just add, just got to remember, a point about performance is not a large number, right? So we can see shifts about performance of several points, and it isn't a really large number on our mortgage revenue. And that's why you saw that we had a little bit of outperformance in inquiries, and, yes, we had some underperformance and outperformance, but we ended up with revenue on, right? So I think, unfortunately, what we're talking about here is really small percentages that can be impacted by not large movements in revenue, and that's what you're seeing here, right? But overall, you know, Mark covered it already, right, that the real driver here of this business is consistent, large growth in records, which makes the products more valuable, which is why we expect to see continued improvement in the level of mortgage revenue as we go through the year, relatively speaking. So we feel very good about what's going on with the products we're offering because of the fact that we're adding records so rapidly.
spk00: Thank you. It's helpful. And as a follow-up question, shifting to margins, you did take your inquiry number up on the mortgage side. So just curious how to think through But if you maintain your EBITDA outlook for the full year, just sort of give and take there in terms of the flow through on higher inquiries and what might be offsetting that.
spk04: Yeah, I think I'd start with the comments I had earlier. I don't know if you heard my response to Manav's question. You know, look, it's first quarter. You know, there's still a lot of – we have a lot of visibility in lots of parts of the business. I think the mortgage side is less visible, as was pointed out. You know, 60 days ago, all of us thought there'd be, at least the world thought there would be a bunch of rate cuts in the second half, including one in June. You know, two weeks ago, the June one felt like it disappeared. So, you know, given it's the first quarter, we were very pleased with, you know, what we saw as, you know, revenue being at kind of the midpoint of our guidance, which is very strong, and then EPS outperformance. We thought it was prudent to hold the year and give you a good outlook of what we think second quarter is and As I said, we'll look at it again as we get through second quarter and have what I would characterize as more of a visibility. I don't think any of us expected inflation to so-called spike up a little bit in the last couple of months when we set that guide earlier in the year. But we're confident in delivering the full-year guidance that we laid out, and we'll give you an update as we get through second quarter. We'll have more visibility at that time. As you look through the year, we are expecting margins to go up. It's obvious in our guidance, right? I talked a little bit about the fact that we have meaningful cost reductions coming as we decommission major systems and our consumer businesses in North America. We feel good about executing against those, as Mark talked about. We also just, you've got to remember, we generally have an improving mix of revenue as we go through the year, especially in the fourth quarter. As mortgage declines as a percentage of our revenue. It happens every year. It's just market, right? So as that happens, that tends to be margin accretive for us. So So executing against our plans and quite honestly, the addition of records in EWS is very accretive for us as we go because obviously that's very high margin revenue that doesn't draw with it expense below variable costs. So we feel very good about our ability to deliver on our full year numbers.
spk08: Thank you. Our next question today is coming from Owen Lau from Oppenheimer. Your line is now live.
spk01: Hey, good morning. Thank you for taking my question. I want to go back to talent. I think you mentioned the Jan and Feb volume was, I think, below expectation, but March number is better and you expect that trend to continue. I just want to understand the drive of that weakness in Jan and February and what makes you confident that the volume would be similar to March level, maybe in the second quarter or so. Thanks a lot.
spk04: Yeah, we attribute when we talk to our customers, which are background screeners, the kind of softer January, February, just kind of a very tight operating environment that most companies are operating on. Again, we over-skew to white-collar workers versus blue-collar. Blue-collar is still, I would call it red-hot, meaning there's more jobs open than people looking for them. That's not the issue. Most companies are really watching the economy, and we saw that in January, February. we did see an uptick in March and, you know, we try to operate off current trends we see, and, you know, that's still continuing in April. And, you know, we expect that, you know, to kind of stay at that level, but I wouldn't call it like a big recovery, um, just back closer to what we thought the year was going to be as we exited, uh, 2023.
spk01: Got it. That's very helpful. And then for your cloud migration from, I think seven, uh, 70% revenue to 90%, uh, cloud revenue by the end of this year, Can you help us, again, how can we quantify these uplifts and translate that to revenue growth and margin expansion, and how much of that you've made that into your full-year guidance already? Thanks.
spk04: Yeah, it's certainly in our guidance. Obviously, we haven't given guidance for 2025 yet. We'll do that as we get through this year. We expect those cloud completions this year to benefit 2025. That's built into our margin expansion assumptions in 2024. And then there'll be some carryover of the second half decommissionings that we have as we complete like the USIS cloud transformations in the kind of middle of the year and some of the international cloud transformations, same kind of timeframe. Those start layering in on kind of a monthly basis as we go through this year. And those will provide some benefits as we go into 2020 five. Um, so I think we've given, and we're happy to share some more around the margin side. The top line side is one, uh, you know, there's, there's multiple layers of how the cloud is going to benefit us, uh, you know, from a top line standpoint, you know, we're going to be a differentiated partner, you know, to our customers with the always on stability from the cloud. You've already seen the uplift in new product innovation, you know, coming from our differentiated data in the cloud. So that's going to continue and, You know, businesses like USIS that have been constrained by their cloud migration efforts over the last year and change, you know, as they complete the cloud, we would expect that to accelerate their new product rollouts, you know, going forward. So, you know, we have a lot of optimism of what it's going to do from a competitive standpoint as we complete the cloud. And as I said in my prepared comments earlier, the other big benefit is the ability for the team as we get, you know, towards the second half of the year and into 2025 to fully focus on just growing the business. Over the last almost four plus years, we've been growing the business, operating the business, and doing this cloud transformation. It's a heavy, heavy lift. Getting that completed is a big, big milestone for the company so we can really take advantage of all of our differentiated data, the cloud, our increased focus on AI and ML. You know, that's going to benefit us as we go into the second half and into, you know, 25 and beyond.
spk08: Thank you. Our next question today is coming from Shlomo Rosenbaum from Steve Fuller. Your line is now live.
spk03: Hi. Thank you very much for taking my questions. Hey, Mark, can you talk a little bit about the mortgage outperformance in USIS? You know, there's obviously the FICO pricing increase, and then you mentioned the new pre-call product. Given the magnitude of the outperformance, could you kind of parse that a little bit for us? Is it like overwhelmingly FICO with some prequal, or how should we think about that in terms of the impact the new product's having there, and then have a follow-up?
spk04: Yeah, the pricing pass-through is a very, very big piece of the mortgage outperformance. We haven't broken down the two, but the new solution, the prequal that's used in the shopping you know, stage is a meaningful piece. And, you know, we're very pleased to have that on top of the price action. You know, you should expect us to continue to bring new solutions to market. And, you know, this is an example of that as we go forward. And, you know, as we look forward to 25 and 26 and beyond, we'll continue to focus on new solutions, you know, from our standpoint. And, you know, I think all of us will have to see what that pricing looks like as we get into 25, you know, from – from our FICO partner there and what they decide to do next year and as well as beyond 2025.
spk03: Okay, thank you. And then this is for John. Could you just go over the puts and takes on Workforce Solutions 2024 guidance going to 7% from 8% despite the fact that the mortgage market
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