Equifax, Inc.

Greetings, and welcome to the Equifax Incorporated's fourth quarter 2024 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 today should require operator assistance, please press star zero from your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Trevor Burns, Senior Vice President, Head of Corporate Investor Relations. Trevor, you may now begin.

Thanks and good morning. Welcome to today's conference call. I'm Trevor Burns. With me today are Mark Begaard, Chief Executive Officer, and John Gamble, Chief Financial Officer. Today's call is being recorded and archiving the recording will be available later today in the IR calendar section of the news and events tab at our investor relations website. During the call, we will be making reference to certain materials. It can also be found in the presentation section of the news and events tab at our IR website. These materials are also labeled 4Q2024, earnings conference call. Also, we're making certain forward-looking statements, including first quarter and full year 2025 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, adjusted EBITDA, and cash conversion, which will be adjusted for certain items that affect the comparability of our underlying operational performance. These non-GAAP financial measures are detailed in reconciliation tables, which are included with our earnings release and can be found in the financial results section of the financial info tab at our IR website. As a note, based on feedback from many of you, starting with our first quarter call in April, we will plan on shortening our prepared remarks. Some of the content that we normally share in the prepared remarks may be included in the appendix. to our quarterly earnings presentations. If you have any questions or comments, please feel free to share them with me and Mahli. Now I'd like to turn it over to Mark.

Before I cover our results for the quarter, I want to spend a few minutes on our 2024 performance. Turning to slide four, we were pleased with our financial performance in 2024 that was in line with the goals we set at the beginning of the year against some challenging mortgage and hiring macros. 2024 revenue was up almost 8% on a reported and organic constant currency basis at the low end of our long-term 8% to 12% growth framework. Adjusted EPS was $7.29 per share, up over 8.5% versus last year. Cash conversion was 89%, approaching our target of 95% plus, with free cash flow of $813 million, up 58%. and we reduced our debt leverage to our target levels of under three turns. We delivered accelerated improvement in constant dollar revenue growth at almost 10% and EBITDA margins at over 34% in the second half of the year, although not at the levels we had planned given market headwinds, principally in U.S. hiring and the mortgage market. Overall, 2024 performance was strong, aligned with our EFX 2027 strategic priorities and was an important inflection point in our ability to accelerate our free cash flow generation that sets us up well to drive growth through targeted bolt-on acquisitions while positioning Equifax to return capital to shareholders through both dividend growth and launching a multi-year share repurchase program in 2025. We delivered against our EFX 2027 strategic priorities. We made strong progress towards completing our cloud data and technology transformation as USIS, Canada, Spain, Chile, and several other Latin American countries completed their consumer cloud customer migrations, a huge milestone for Equifax. We now have close to 85% of Equifax revenue in the new Equifax cloud, which is a big accomplishment after five years of investment. We expect to have a significant competitive advantage as we pivot from building to leveraging the Equifax cloud in 2025 and beyond, that will allow us to fully focus on growth, innovation, new products, and AI. Our cloud progress allowed us to decommission legacy systems and data centers and deliver about $300 million in spending reductions last year that increased to about $360 million in 2025. Leveraging the new Equifax cloud, we are now on offense with EFX.AI. In 2024, 95% of our new models and scores were built using Equifax AI and machine learning, up from 70% in 2023. In 2024, the EWS team had another outstanding year of record additions, ending the year with 188 million active records, up 20 million records, or 12%, with 734 million total records in the twin data set. The team signed 15 new strategic partnerships in 2024, including Workday, which we expect will fuel EWS Verification Services revenue growth in 2025 and beyond. And we continued our strong new product growth with broad-based 2024 Vitality Index of 12%, which was 200 basis points above our long-term 10% goal and equates to about $650 million of new product revenue last year. Our vitality index in EWS and international were very strong, and importantly, we saw USIS vitality index strengthen 200 basis points from the first half to the second half of last year. We expect our vitality index to be above our long-term goal of 10% again in 2025 as we leverage the Equifax cloud to deliver new products that only Equifax can provide. As we move into 2025, I'm energized by our commercial momentum, new product, innovation, and AI capabilities and the benefits of the new Equifax cloud. Turning to slide five, Equifax fourth quarter reported revenue of $1.419 billion was up 7%. The dollar strengthened substantially in the quarter, negatively impacting revenue about $12 million versus our October guidance. On an organic constant currency basis, revenue growth of 9% was just over 100 basis points or $17 million below the midpoint of our October framework, driven principally by weaker U.S. hiring and mortgage markets, which declined significantly in the last half of the fourth quarter. The weaker U.S. hiring markets impacted our talent and onboarding businesses, driving the bulk of the weakness versus our guidance midpoints. This resulted in non-mortgage constant dollar revenue growth being just under 6% in the quarter and about 150 basis points weaker than our expectations. Total U.S. mortgage revenue was up 29% in the quarter and also below our expectations. U.S. mortgage revenue declined meaningfully in late December and January as mortgage rates have moved above 7%. Based on these trends, we expect 2025 mortgage revenue credit inquiries to be down 12% in 2025. Despite the pressure from weaker mortgage and hiring macros, Equifax delivered fourth quarter adjusted EBITDA of 502 million, which was up about 30 million sequentially with adjusted EBITDA margin of 35.4% in line with our October framework. And this is the first quarter in Equifax history of adjusted EBITDA over $500 million, a big milestone for the future. Adjusted EPS of $2.12 per share was at the midpoint of our October guidance and was the first quarter of adjusted EPS over $2 a share since the second quarter of 2022. We were disappointed that we were below October revenue guidance for fourth quarter revenue given the mortgage and hiring declines late in the quarter. However, the team performed well in managing costs and expenses to deliver on our commitments on both adjusted EBITDA and EPS. We remain focused on delivering on our commitments and have no change in our Equifax long-term growth framework. Turning to slide six, workforce solutions revenue was up 7% in the quarter and below our October guidance principally due to lower than expected talent solutions and I-9 and onboarding revenue from the weaker hiring market. Talent solutions revenue was up 2% in the quarter. In October, we discussed declining trends in hiring volume that weakened meaningfully during the fourth quarter. And in January, we saw further weakening of monthly hiring volumes off the lower December levels. Despite the weaker hiring macro, Talent Solutions continues to outperform their underlying markets, benefiting from new records, new products, penetration, and pricing, as well as new solutions from the new total verified data hub, which includes trended employment data, as well as incarceration, education, and licensing and credentialing data. Government had another strong quarter with revenue up 11% and consistent with our expectations. As expected, growth rates in the fourth quarter were lower than the third quarter, principally due to copping off very strong growth we saw last year from redetermination volumes. We saw continued strong momentum in incarceration data sales in the fourth quarter, with insights revenue up double digits. EWS mortgage revenue was up 17% in the quarter, with twin inquiries up 6%. EWS total mortgage revenue outperformed twin inquiries by 11%, up about 150 basis points sequentially from strong record growth in the fourth quarter. Employer services revenue was down 9% in the quarter. The weaker hiring market also negatively impacted I-9 and onboarding revenue. And as I referenced earlier, the weak hiring market has continued in January, and we expect it to impact first quarter performance. Workforce Solutions adjusted EBITDA margins of 51.9%. We're up a strong 70 basis points and consistent with our guidance, despite the weaker-than-expected revenue growth. The EWS team continues to tightly manage costs while staying focused on driving top-line growth. Turning to slide seven, twin record additions continue to be very strong again in the fourth quarter, with active records up 6 million in the quarter and 20 million for the year, or 12%. to 188 million records. In the fourth quarter, EWS signed agreements with three new strategic partners, which brings the total new partnerships in 2024 to 15. We expect these new partnerships, along with our new Workday partnership, to drive record growth and EWS revenue growth in 2025. At 137 million unique active records, we have plenty of room to grow the twin database, towards the TAM of about 225 million income-producing Americans. Turning to slide eight, USIS revenue was up over 10% in the quarter, driven by strong mortgage outperformance, which was consistent with our guidance and well above the USIS long-term revenue growth framework of 6% to 8%. USIS non-mortgage revenue grew almost 2.5% in the quarter and was slightly below our guidance. Within online, we saw mid-single-digit growth in FI, which was an improving trend, low single-digit growth in auto, and a return to growth in our direct-to-consumer business, the segment where we principally sell data to the other credit bureaus. Telco declined in the quarter, comping off a very strong fourth quarter last year, and we saw declines in identity and fraud principally from our chargeback management business. USIS mortgage revenue was up a very strong 47%. Mortgage credit inquiries were flat during the quarter, but we saw them weaken late in the quarter and decline meaningfully sequentially in December as rates moved above 7%. The strong pricing environment, along with growth in mortgage pre-approval and pre-qualification products, drove the mortgage revenue growth. In the fourth quarter, mortgage pre-approval and pre-qual inquiries declined sequentially. At about $115 million, USIS mortgage revenue was just over 24% of total USIS revenue in the quarter. Financial marketing services, our B2B offline business, was about flat in the quarter and in line with our October guidance. We saw strength in our identity-based businesses and with our expanding relationships in the payment segment. Our IXI wealth data revenue was down in the quarter, comping against a very strong fourth quarter in 2023. USIS consumer solutions D2C business had another very strong quarter, up 9%, with strong growth in our consumer direct channel from strong customer acquisition trends. USIS adjusted EBITDA margins were 38.3% in the quarter, up 440 basis points sequentially, and consistent with our guidance. USIS performed extremely well in delivering the expected cloud cost reductions as they decommissioned legacy consumer, telco, and utility technology platforms. With the USIS consumer and our telco and utilities cloud transformations complete, the USIS team is positioned well for growth in 2025 and beyond. Turning to slide nine, international revenue was up a strong 11% in constant currency and above their 7% to 9% long-term revenue framework and stronger than our October guidance. Latin American growth was very strong, driven by double-digit growth in Brazil. Canada and Australia delivered higher growth rates sequentially, and Europe grew mid-single digits in the fourth quarter, which was sequentially weaker in the UK CRA, reflecting overall UK economic conditions. International adjusted EBITDA margins of 32.5% were stronger than our October guidance, up 480 basis points sequentially, and the highest since the fourth quarter of 2020 from strong revenue growth and good cost execution. Turning to slide 10, we continue to make very strong progress driving innovation new products, delivering a 12% vitality in the fourth quarter from broad-based double-digit performances across all of our businesses. We expect strong Equifax double-digit vitality index again in 2025, above our 10% long-term goal, leveraging our Equifax cloud capabilities to drive product rollouts using our differentiated data and EFX.AI capabilities. With our USIS consumer and telco customer migrations complete, we are rapidly developing and bringing to market new solutions that include our unique twin income and employment data along with our USIS credit and alternative data assets. We expect our twin-powered credit solutions to help our clients gain deeper insights into consumer creditworthiness from solutions using both credit and twin income and employment indicators, which is a big win for our clients, for consumers, and Equifax. We're rolling out a new solution that provides mortgage lenders key twin income and employment information, along with the Equifax credit report. This new solution allows lenders to instantly obtain information about both a mortgage applicant's credit worthiness and the applicant's employment status with a single data request from Equifax. A huge differentiator leveraging the power of our unique EWS and USIS data assets that are in the Equifax single data cloud fabric. We plan to launch additional only Equifax solutions in 2025 for the auto vertical where both credit and income verifications are integral to credit underwriting. Moving to slide 11, we enter 2025 executing well against our Equifax 2027 strategic priorities and we're well positioned to deliver continued strong AI powered new product growth, leveraging new Equifax cloud that will drive our top line growth. 2025 is a pivotal year for Equifax in our ability to accelerate our free cash flow generation as CapEx comes down and our EBITDA expands. Our strong free cash flow conversion that will approach our 95% long-term goal and leverage our expanding EBITDA positions Equifax to return capital to shareholders through both growing our dividend and launching a multi-year share repurchase program in 2025. We are continuing to face challenging end markets in U.S. mortgage and hiring. With mortgage rates above 7%, we've seen meaningful declines in hard mortgage inquiries over the past six weeks. Based on those trends, our 2025 guidance reflects USIS hard credit inquiries declining 12% compared to last year. We will continue to forecast our mortgage revenue off current EFX credit and twin inquiry run rates, and as in the past, we do not include interest rate decreases or increases in our forecasts. For perspective, the USIS hard credit inquiries that we disclose quarterly represent over 70% of total USIS mortgage revenue in 2024. Also, based on weak hiring trends over the past eight weeks, we expect 2025 US hiring be down about 8% relative to 2024, and on the order of over 10% below average BLS hires over the last 10 years. And last, with the US dollar strengthened significantly over the past three months, and at current FX rates, 2025 revenue will be negatively impacted by about 130 basis points, or about $75 million. Based on these economic assumptions, we expect to deliver 2025 revenue of about $5.95 billion, up 4.7% on a reported basis at the midpoint of our guidance. Constant currency revenue growth is expected to be about 6%, with both mortgage and non-mortgage constant currency revenue up about 6% in 2025. The assumed declines in the U.S. mortgage and hiring markets are impacting our overall growth rate by over 200 basis points. Absent these mortgage and hiring market declines, 2025 organic constant dollar revenue growth would be at the midpoint of our long-term organic growth framework of 7% to 10%. At the business unit level, we expect workforce solutions to deliver revenue growth of over 7% in 2025. Verification services revenue is expected to be up about 8% and lower than our long-term framework due to the weak mortgage and hiring markets. Mortgage revenue is expected to be up about 3% due to the impact of the expected decline in the U.S. mortgage market. Non-mortgage verifier revenue is expected to be up over 9% down from the levels of seen in 2024 principally driven by the expected decline in U.S. hiring and the resulting expected mid-single-digit growth in our talent business. And government growth is expected to be impacted due to tough 2024 comps and some weakness in the first half of 2025 as states adjust to modified CMS and USDA food and nutrition service funding practices. Government revenue growth should return to double-digit levels in the second half of 2025. Continued strong twin record growth, a vitality index of over our 10% Equifax goal, and continued growth in both pricing and penetration will continue to drive verification services revenue growth despite the mortgage market and hiring market headwinds. We expect employer services to be about flat in 2025, with growth also impacted by the expected declines in US hiring and onboarding. We expect USIS to deliver revenue growth over 5% in 2025, which would bring USIS revenue to about $2 billion. We expect mortgage revenue to grow over 8% despite the expected 12% decline in hard mortgage credit inquiries. Non-mortgage revenue growth is expected to grow about 4%, up from 2% last year. And USIS revenue is expected to benefit from accelerating NPIs and share gains as they leverage the new Equifax cloud. And we expect international constant currency revenue growth to be about 7% in 2025, consistent with their 7% to 9% long-term financial framework. At these revenue levels and at the midpoint of our guidance, EBITDA margins should increase about 25 basis points, with EBITDA increasing about 5% to over $1.9 billion. Adjusted EPS at the midpoint of our guidance is expected to be $7.45 per share, up 2% over last year, with free cash flow at about $900 million and free cash flow conversion at about our long-term target of 95%. With our leverage now below 2.6 turns, we are well positioned to continue our bolt-on acquisition strategy and start increasing the return of capital to shareholders through both growing the dividend and a multi-share repurchase program during 2025. Now I'd like to turn it over to John to provide more detail on our 2025 assumptions and guidance and also provide our first quarter framework.

Thanks, Mark. As Mark discussed and is shown on slide 12, Our planning assumes USIS hard mortgage credit inquiries are down about 13% in 1Q25 and 12% for all of 2025, which again, in 2024 represented over 70% of USIS mortgage revenue. Sequentially, we are assuming that our US mortgage business will have normal seasonality in 2025. Slide 13 provides the specifics of our 2025 full year guidance. 2025 is being significantly impacted by declines in U.S. mortgage and hiring markets, as well as negative FX. The year-to-year declines in these markets are impacting revenue growth by over 200 basis points, adjusted EBITDA margins by about 150 basis points, and Equifax adjusted EPS growth by about seven percentage points. Absent these market factors, our constant currency revenue growth would be consistent with our seven to 10% long-term framework, and adjusted EPS growth would be approaching 10%. Slide 13 also includes additional detail on expected BU adjusted EBITDA margins, as well as guidance on specific P&L line items. Equifax EBITDA margins are expected to be up about 25 basis points in 2025, which is below the 50 basis points of annual improvement in our long-term framework, principally due to revenue growth also being below our long-term framework, due to market factors we just discussed. The benefits from the cost actions Mark referenced are benefiting margins more than offsetting the impact of higher costs, particularly in USIS mortgage. EWS EBITDA margins in 2025 are about 50.5%, down from the 51.8% delivered in 2024. Margins in 2025 are impacted by lower revenue growth levels, revenue mix, as well as costs related to the addition and boarding of twin partners. USIS EBITDA margins at about 35.5% are expected to be up about 100 basis points year to year, realizing the full-year benefit of cost reductions from decommissioning legacy systems, again, more than offsetting higher costs, particularly in mortgage. International EBITDA margins at about 28.5% are expected to expand about 100 basis points from 2024, benefiting from revenue growth and 2024 cost actions related to decommissioning legacy systems. Corporate expense, excluding depreciation and amortization, is increasing in 2025 relative to 2024, principally due to increased variable compensation as we return to target levels of incentive payouts, as well as continued investments in corporate technology, security, and compliance. Depreciation and amortization is expected to increase by about $55 million in 2025 as we put significant North American and other cloud-native systems into production in 2024. And our estimated tax rate is expected to be about 26.75% in 2025 and above 2024 due principally to increased impact of overseas taxes and lower U.S. development tax credits as we reduce capital spending. Capital spending should be about $480 million in 2025, down from 496 million in 2024. And as we complete the cloud, more of our capital spending will be dedicated to innovation driving revenue growth versus building our infrastructure. We believe that our guidance is centered at the midpoint of both our revenue and adjusted EPS guidance ranges. Slide 14 provides the details of our 1Q25 guidance. In 1Q25, we expect total Equifax revenue to be between $1.390 and $1.420 billion, up about 1% on a reported basis year-to-year at the midpoint. Constant dollar revenue growth at the midpoint is almost 3%. Adjusted EPS in 1Q25 is expected to be $1.33 to $1.43 per share, down 8% versus 1Q24 at the midpoint. The decline in adjusted EPS of about $0.12 per share is principally driven by higher depreciation and amortization of about $15 million or $0.09 a share and the higher effective tax rate in 1Q25 reducing adjusted EPS by about $0.02 a share. Equifax 1Q25 adjusted EBITDA margins are expected to be about 28.5% at the midpoint of our guidance down about 50 basis points year to year. The sequential decline in adjusted EBITDA margins reflects seasonally higher fourth quarter revenue and higher first quarter equity compensation. Business unit performance in first quarter is expected to be as follows. Workforce solutions revenue growth is expected to be up about 1% year to year. Verification services revenue is expected to be up 2.5%. Mortgage revenue is expected to be about flat, with growth in records and pricing offset by the expected continued mortgage market decline. Verifier non-mortgage revenue is expected to be up about 3.5%. Government revenue is expected to be about flat with a difficult comp versus 1Q24 CMS redetermination volumes, and as Mark indicated, some weakness in the first half of 2025 as states adjust to modified CMS and USDA food and nutrition service funding practices. Government revenue growth should return to double-digit levels in the second half of 25. Talent revenue should be up mid-single digits as growth is impacted by expected declines in U.S. hiring. Employer revenue is expected to be down mid-single digits. EWS-adjusted EBITDA margins are expected to be about 49%, down about 200 basis points due to the lower revenue growth and cost impacts from boarding record contributors. USIS revenue is expected to be up about 3% year-to-year. Mortgage revenue is expected to be up about 5%, and non-mortgage revenue is expected to be up about 2.5%. Mortgage growth is being impacted by significant declines in USIS hard inquiries, which are being more than offset principally by third-party vendor pricing actions. Adjusted EBITDA margins are expected to be up 150 basis points at about 34%, again reflecting the benefits from USIS decommissioned legacy consumer and telco and utility systems. International revenue is expected to be up about 6% in constant currency. Adjusted EBITDA margins are expected to be flat year to year in 1Q25. Returning to slide 15, free cash flow is expected to continue to strengthen to about $900 million and approach our 95% cash conversion goal in 2025. As Mark indicated, as we have reached leverage levels consistent with our long-term goals and targeted BBBA2 credit ratings, we have significant flexibility to both restart bolt-on acquisitions and increase capital return to shareholders. Turning to slide 16, the U.S. mortgage market assumed in our 2025 guidance is over 50% below its historic average hard credit inquiry levels. As the mortgage market recovers toward its historic norms, At current mortgage pricing and mix and current twin records, that represents on the order of $1.2 billion of annual revenue opportunity for Equifax. At current average mortgage growth margins, this would deliver adjusted EBITDA and adjusted EPS above the $700 million and $4 per share, respectively, that we have discussed with you in the past and that we would expect to move into our P&L as the mortgage market recovers toward normal levels in 2026 and beyond. Now I'd like to turn it back over to Mark.

Thanks, John. Turning to slide 17, in 2025, our guidance reflects the challenging markets in both U.S. mortgage and hiring, resulting in our expectation that constant currency revenue at 6% will be below our long-term financial framework. Despite this end market weakness, we expect to deliver adjusted EBITDA of over $1.9 billion, driven by margin expansion of 25 basis points. and about $900 million of free cash flow from cash conversion of about 95%. As end markets normalize, we are confident in our ability to deliver organic revenue growth in our 7% to 10% long-term range, continue expanding EBITDA margins at 50 basis points per year, and growing cash conversion at above 95% while executing on our bolt-on M&A strategy. And in 2025, we expect a significantly increased return of capital to shareholders. Wrapping up on slide 18, in 2024, Equifax delivered financial performance in 2024 that was in line with the goals we set at the beginning of the year, with revenue up almost 8% on a reported basis and on an organic constant currency basis. Adjusted EPS at $7.29 per share, up 8.5%, pre-cash flow of $813 million, and cash conversion of 89%. And we had strong execution against our EFX 2027 strategic priorities in a challenging economic environment. We delivered on the critical priority of completing our North American consumer cloud transformation, as well as significant portions of our global markets with close to 85% of Equifax revenue now in the new Equifax cloud. Our cloud-native infrastructure is already providing competitive advantages of always-on stability, faster data transmission speeds, and industry-leading security for our customers. And importantly, Equifax resources in technology, product, and DNA are pivoting from building to leveraging the Equifax cloud for innovation, new products, and growth. We are using our single-data fabric, EFX.AI, and Ignite, our analytics platform, to develop new credit solutions powered by twin indicators in verticals like mortgage and auto that only Equifax can deliver, which we expect will lead to share gains and growth for our USIS business. Exiting 2024 with close to 85% of Equifax revenue in our new cloud environment is a huge milestone for the team so we can fully focus on growth. We're also at an important inflection point with our accelerating free cash flow and a strong balance sheet to position Equifax to return our substantial excess free cash flow to shareholders in 2025. We are entering the next chapter of Equifax with our cloud transformation substantially complete. I'm energized by our momentum as we enter 2025, but even more energized about the future of the new Equifax. And with that operator, let me open it up for questions.

Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question, please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. In the interest of time, to allow as many as possible to ask questions, we ask you to please zoom yourself to one question and one follow-up. Thank you, while we pause a moment for poll for questions. Thank you. And our first question will be coming from the line of Jeff Muller with Baird. Please proceed with your question.

Yeah, thank you. Good morning. So I'm trying to listen to everything you're saying on EWS margin guidance, but it's still hard for me to reconcile margins contracting year over year on 7% revenue growth. And I get that there's macro factors that are impacting volumes and there's a decremental margin associated with that. You also called out that there's onboarding costs for new partners, but I would think you've had that for a while, including last year. So just any other factors, and if you can specifically hit on what's going on in terms of payout ratios for twin record partners, both as you sign new and renew.

Yeah, Jeff, I'll start and John can jump in. I think you hit the factors impacting EWS and Equifax in 2025. Clearly, the mortgage market decline takes a lot of high calorie revenue out of the forecast, as well as the same on the talent side. Onboarding is larger now than it was in prior years. As you know, we added 20 million records last year, but we added 15 partners, including three in the fourth quarter. So we've had our highest record addition last year and our highest partner additions last year. So onboarding, we do expect to be Larger in 2025 those onboarding costs, which of course will benefit us in the future, you know moving forward What else John would you add?

So we have seen also nice growth we talked about in insights We've seen nice growth in some education products and we want to continue to drive that growth But those those products have lower variable margins and contribution margins obviously been twin that has very very high margins so so that is pressuring margins to a degree and And we're continuing to make substantial investments in EWS to drive future growth and deliver new products. And given the fact that revenue growth is a bit lower, that obviously is somewhat decremental to margin in a year. So overall, I think we still expect this to be a very strong margin business. We believe as the mortgage market and hiring recovers, we're going to return to margin growth. But the factors we just talked about, plus the headwinds of the difficult markets, is what's resulting in the decline in 25%.

Okay, but just on the payout ratios that you're paying? No change.

Yeah, sorry, Jeff. Sorry, I didn't cover that one. No change. There's no change in our payout ratios. We extended it. We have about 60 partners. I think there was a handful of those that extended last year. Same terms as in the past. No change in what our payouts are. We have attractive partnerships now. With a lot of partners, they get a lot of value out of it, and so do we, but we see no change in those payout ratios. That's not impacting our margins at all. Very helpful. Thank you.

Thank you. Our next question is from the line of Manav Patniak with Barclays. Please proceed with your questions.

Good morning. I just wanted to confirm, Mark, when you said without the mortgage and hiring headwinds, growth would be 200 base points higher. I guess, is that assuming that those markets would be flat? And then I just wanted to know how you would quantify what the EPS impact of that would be.

Yeah, and Manav, I think, as you know, back in October when we talked about our third quarter earnings, we gave you some comments around what trends were at that time. and rolled that forward to 2025. At that time, we thought the mortgage market was going to be up about five points based on current trends. And obviously, the decline that happened in mid-December and is happening as we speak was surprising to us. Obviously, 7% mortgage rates are high, but the decline was a lot sharper than we expected over the last six weeks. So really, what we're comparing to is somewhere between that flat and up five. when we think about the impact that it would have had because as recently as two months ago, we were looking at 2025 being a slightly positive mortgage market environment, and it's not now. From an EPS standpoint, it's very high calories.

So Manav, when we calculated the benefit to EPS, obviously we just assumed recovery to a flat market. The growth rate recovery, again, is just really relative to a flat market. And we just used the variable margins that we would have on those products. And so we assumed both for mortgage, USIS, and twin inquiries would go to flat. And then we just assumed the hiring market, as opposed to being down eight, would be flat. And we flowed through variable margins. Okay, got it.

And then maybe just on the government side, Mark, you know, just help us with that cadence again in terms of, you know, what's going on there. And are you seeing any early, you know, impacts on Doge and all that stuff that's been thrown out there?

Yeah. Yeah. So I think you're focused on maybe the fourth quarter end 2025. You know, we have been performing exceptionally well, as you know, with very high growth rates. So you're getting into some hard comps in the fourth quarter and then in 2025, including in the first quarter. We did mention that CMS in particular made a change in the reimbursement program with the states where they used to reimburse that CMS, reimbursed 100% of data costs. They're now at 75%, so the states have to pay 25%. That had some impact in the fourth and, you know, likely in the first as states are adjusting to that. As you know, states have budgets. And if they're going to start paying for some of that data costs themselves, they've got to adjust their budgeting and their operating statements. And we're focused on working with the states to, in some cases, going direct to them with our solutions that, you know, have some impact in the first half of the year, you know, on our government business. As John said, we expect the government business to return to double-digit growth in the second half. You may remember we signed a large contract extension with SSA in September last year. That really comes into effect in 2025. So that'll have a positive impact, particularly in the second half. And then our contracts have pricing escalators that aren't uniform on when they go into effect during the year, but we have some larger government contracts that have escalators that are positively impacting the second half. So that's another good guy as we get into the year. Anything else, John?

Just in the first half, and Mark mentioned it, we're still dealing with the fact that there were redeterminations in the first quarter of last year and part of the second quarter. So revenue was very strong in the first quarter of 2024 and moving into the second quarter of 2024.

Okay, thank you.

Our next questions are from the line of Andrew Steinerman with JP Morgan. Please receive your questions.

Hi. Two quick ones on mortgage. The first one is, John, could you just tell us what mortgage revenues were as a percentage of fourth quarter revenues? And the second one is, just make sure we get a definition of U.S. hard mortgage credit increase, which Equifax has been seeing down for the last six weeks, as you just stated. That's a difference from what the MBA has reported on their mortgage weekly application reports. And I just wanted to know if maybe you're measuring different things hard versus soft. I'm not sure really.

So 4Q24 was 17.7%. And you know this, Andrew, we've been disclosing hard inquiries, the inquiries that actually impact your credit file for 10 plus years, right? And so we consistently disclose that number. It doesn't include soft inquiries, right? So a pre-qual or a pre-approval product. And we focus on hard inquiries because that's what's in the tri-merge. That's what's required to be purchased to close a loan. And we think that probably has the highest level of correlation over time with originations, right? And we've taken a look at originations historically. We have good origination date in the credit file through You know, think about early 2024. That time period relative to the 15 to 19 average is down something on the order of 45%. And if you look at hard inquiries in that same time period, we're down not quite 50%. So the correlation seems quite good, and that's why we continue to disclose that number specifically. Okay. Thank you.

Thank you. Our next question is from the line of Tony Kaplan with Morgan Stanley. Please proceed with your questions.

Thanks so much. Maybe first on just USIS 2% non-mortgage growth versus last quarter of up five. Just wanted to hear about any sort of changes in the selling environment or just any factors you wanted to share on sort of the overall impact broad market conditions that you're seeing? And obviously, you've mentioned mortgage and hiring, but anything outside of those two would be helpful.

Generally speaking, I think what we indicated is we thought auto performed relatively well in the fourth quarter. We thought FI, also low single digits, performed relatively well. I think the biggest difference that you saw was that FMS in the third quarter was up double digits. The team did a great job selling into some new customers in the third quarter, which drove FMS very strong. We talked about the fact that we built some outstanding new relationships in the payment industry. Some of that really drove really good growth in our FMS for batch business. So that was probably the biggest difference between what was delivered in the third quarter and the fourth quarter. But in terms of online, I think we feel like auto performed relatively well. Again, low single digits, FI low single digits. D2C actually came back to growth for the first time in quite some time. And we actually saw a little bit of performance in insurance. So I'd say the online performance, relatively consistent. The big difference was FMS.

Great. And then on my follow-up, I did want to ask about the government opportunity. I know you've spoke a lot about the trajectory, so thank you for giving that. Just more in general, when you think about government programs, I feel like you had some success with CMS and SSA, but I guess as the government's sort of rethinking their programs and you can provide some efficiency to them, how are you thinking about the opportunity for basically getting new programs but offset by the point that potentially there could be a lot of programs that are cut? you know, just how do you sell into that environment? How are you thinking about the change in opportunity just more broadly? Thanks.

Yeah, it's a great question, Tony. We still think there's a big market opportunity. And in this administration, you know, even more focus around delivering social services accurately, you know, to those in need and focusing on where there's improper payments or abuse in the system, which really means people that are receiving benefits that perhaps don't qualify. And I think we've all read seen all the studies that says there's quite a bit of that. Our view is, and I suspect it's yours too, is that broadly social services aren't going to be cut. There will be a focus, and we see a focus in Washington, and we're working both on the Hill and also towards the White House around how our programs can really help in the delivery of social services accurately. So that's, we think, a positive macro for Equifax. I know you know that TAM for us is a about $5 billion of manual verifications that are done in the government space. And again, it's done at the state level. We have penetration in a lot of states, but a lot of states are fully manual. And as you know, a state is not typically a customer, it's the agencies within a state. So we've got a large commercial team. We're out there selling the productivity from using our solution, the accuracy and speed from using our solution. And again, the big macro, I think a positive for us in 2025 is broadly, there's been a bigger focus in Washington around accuracy, which we think plays well to our data, which is verified. So we remain very bullish on the future of our government business and that big $5 billion TAM. We exited the year at roughly $700 million. So we've got a lot of opportunity. And the battleground for us or the opportunity is really at the state level and the agencies. So that's why we've got Equifax resources deployed in the state capitals, you know, to really work on these programs. So we remain very optimistic around government in the future. Super. Thanks.

Our next questions are from the line of Faisal Alway with Deutsche Bank. Please proceed with your questions.

Yes, hi, thank you. So I wanted to follow up on the pre-call products and the soft pulls. I think you mentioned that 70% of maybe the inquiries or the revenues are hard pulls. So just wanted to clarify if that's what you meant, that 30% are soft pulls and 70% are hard credit pulls. So I'm curious what you're expecting in terms of the penetration of pre-call products. And if you're seeing any share shifts there, whether lenders are using one or two bureaus, and how are you in the initial shopping process, and how do you expect that to play out in 25?

Yeah, it started playing out in 2024. Your metrics are pretty close that there's a large shopping element or soft pull element of mortgage. That was a real tailwind for us following the You know, COVID, when rates started to increase, people were shopping around further. We have seen some decrease in shopping, you know, really as a part of what we've seen in the last, you know, call it two months or six, eight weeks. As rates went higher, people, you know, those that are shopping are still shopping, but there's less people shopping, you know, thinking about a mortgage. There's been a change in consumer confidence. The other changes that we've seen happening is there's some moves by mortgage originators who historically might pull all three in the shopping process you know some originators are either pulling one or two credit files instead of the full three which obviously has an impact on our revenue our focus there is obviously to be uh you know responsive commercially but more importantly is a big focus around our differentiated data and i talked about you know we're rolling out as we speak a uh call it a shopping credit file for mortgage it has twin indicators on it twin data that makes our shopping file more valuable to the mortgage originator because we want to differentiate between our competitors in that 1 and 2B world in the shopping side. You may remember we also have NC Plus attributes that we're including with our mortgage credit file that also differentiates our mortgage credit file in that shopping process. And unrelated to mortgage, we're doing the same thing as I mentioned in auto. We'll be rolling out in the first half of this year a twin indicator on our auto credit file, you know, for the same reason. And obviously what we want to do is provide incremental value with the twin data on our credit file for both mortgage and auto, but still capture the twin full poles, which are required for mortgage and are required for auto that happened later in the process. So it's a, it's, I think a really attractive advantage for Equifax to compete in both spaces. with our differentiated data that really only we have. Only Equifax can put those twin indicators on our mortgage and credit file.

And just in terms of the numbers, right? So we were quoting revenue, right? So it's something over 70% of revenue is hard pulls. And then in addition to soft pulls, there's a high single-digit percentage of – a batch job, UDM, property data, rental data, et cetera, that wouldn't be a soft pull, right? So when you break down our mortgage revenue, it's something over 70s hard pulls, high single-digit percentages. That is the other things that I just referenced, and the remainder would be soft inquiries.

Got it. Thank you. And then just as a follow-up, apologies if I missed this, but any thoughts on twin inquiries for 25 and outperformance? I know we saw some improvement in the fourth quarter on

on both of those metrics so curious how you're thinking about that it's just in general right we're expecting twin inquiries probably to be a little better than mortgage increase in 2025 just for the shopping reasons mark referenced and i'm talking about hard inquiries but um but really no more no more specificity than that all right thank you our next question is from the line of kyle peterson with needham please receive your questions

Great. Good morning, and thank you for taking the question. Just one for me. I wanted to focus on, you know, capital allocation. Obviously, the leverage and balance sheet's in a pretty good spot. You guys are kind of hinting at, you know, both increasing the dividend and starting a buyback. How are you guys thinking about, you know, balancing priorities between the two as well as potential timing as to when we could see some of these actions, you know, As in like, is it middle of the year, late in the year? How should we think about that?

Yeah, I think we tried to be more than hinting and we've been doing that for quite some time. As you know, it's been a goal of ours to complete the cloud transformation where we invested quite a bit of CapEx into moving us to the cloud native mode. And then when that CapEx coming down is in our margin expansion and the savings from that really generated a lot of excess free cash flow. We've checked that box at close to 85% in the cloud. That's complete. The one we want to see a little more visibility around before making that decision, really to your timing question, is where is the economy? Where is the mortgage market? Where is the hiring market? To be frank, 60 days ago, call it, in November and early December, we didn't anticipate rates go into seven or the mortgage market declining 12% over the last six, seven weeks. That has been surprising to us and it's so rapid and so recent. We want to see a little more time there. Where is that mortgage market going? Where are rates going? What impact are tariffs going to have on that? So I think getting through a portion of the year so we have some more visibility on that, I think will be quite important. Our confidence around our guidance for 2025 is high, with the underpinning of the mortgage market and hiring market, which we think we've baselined at the best data we have now. And as we mentioned, we're going to have very strong free cash generation this year. Even with our EBITDA expansion, we're going to generate a lot of EBITDA and a lot of excess free cash flow. We do plan to use some of that, both leverage that grows with our margins expanding and EBITDA expanding, as well as the free cash to look for continued attractive bolt-on M&A, no change in our bolt-on M&A strategy. And then we want to return cash to shareholders. We want to get back to growing the dividend again. And we'll give that framework on growing the dividend at the right time in 2025. And then we also want to return cash to shareholders. And what we would envision is a multi-year buyback program authorization by our board to buy back stock as we go through 25, 26, 27, pick that timeframe. And when you look out in our model, I think yours looks like that too, and you can pick your mortgage market assumptions or recovery assumptions. We generate a lot of cash over the next three plus years, and it's going to give us the ability to return that cash to shareholders. It's been a clear part of our strategy, and it's a focus of ours. And we clearly envision you know, implementing that in 2025. All right. Thank you very much.

Our next questions are from the line of Craig Huber with Huber Research Partners. Please proceed with your questions.

Yeah, thank you. Just want to just better understand, I mean, obviously trying to forecast the U.S. mortgage market has been quite difficult for a number of years. and so forth. You're obviously taking, extrapolating the current trends out for the remainder of the year. There's nothing new with how you guys forecast the mortgage part of your business and so forth. The rest of your business, however, you are making some various assumptions and so forth. Maybe you can just talk about the differences there, about how you put together your outlook for the year. Thank you.

Yeah, no change in how we do that. We don't have many parts of our business that are impacted by macros, really mortgage principally is one, and to a lesser degree, the hiring market, it's a smaller impact. But when you have a 10% decline in the underlying activity, which we've heard from background screeners has been happening, same thing over the last, call it 60, 80, 90 days, that has an impact. For the rest of the business, we have a lot of visibility. We know that we took price up on 1.1 broadly across all of Equifax. We know what that price is. We know where we have subscription agreements that are in place, multi-year contracts, either with minimums or with terms in them that we can forecast. We have deal pipelines where we're adding new business. We have contracts that we signed last year that are going into effect this year that we lay into our forecast. On the record side in EWS, we have quite a bit of visibility of new partners that we added to three in the fourth quarter and some that we added in the second half, record additions when we expect those to come online. And as you know, those translate into revenue instantly, you know, as soon as we add the records because we have the inquiries coming in, you know, with other partners that are already with us. We also have, you know, lots of programs with them because we don't have all their records typically. So we're working, you know, with them to add those, you know, records in. So, you know, across the rest of the business, I think we have a lot of visibility and we typically are able to you know, forecast well, you know, our goal in setting a framework for the quarter or for the year, in this case, first quarter in 2025, is to lay out our best forecast, a forecast that we know how to meet and with a goal of beating it. You know, and, you know, we, I would say, you know, like any company, you know, we try to have the right balance of conservatism in that forecast, you know, with that goal of delivering, you know, for our investors around what we lay out.

I mean, some specifically like around auto, for example, I think our expectation is auto sales, new and used kind of flat, maybe a little better. And we, again, we get input from our customers, similar concept around card and personal loans. I mean, generally speaking, I think we didn't, we think the consumer is relatively healthy, right. But we are seeing some cracks in consumer confidence. You've seen that obviously come through in January. Um, and then internationally, like we're, we're assuming that we're going to see the markets continue to grow, but, um, but nothing substantial, not really any stronger than their long-term average growth framework. And probably the UK and Europe were expecting to see slower growth than their long-term framework.

I appreciate that. Let's follow up question here on the vitality index. Is there any specific products that you'd want to call out that you're very energized about for long-term growth that you guys are putting in place there? Thank you.

Yeah, there's a whole bunch. And I already highlighted, I'll highlight again because it's top of my list is You know, with USIS now in the cloud, obviously EWS got in the cloud a couple years ago, we can now combine those data assets. And we think that's going to be super powerful. And as I mentioned a few minutes ago and in my prepared comments, you know, the rollout of a mortgage credit file that includes twin indicators on it, you know, we think is very powerful because only we can deliver that. We're doing the same thing with our cell phone utility attributes on the mortgage credit file. And then we're going to do the same thing in auto and likely in personal loans because we think it'll differentiate our credit file. And that's going to be particularly powerful when there's only one credit file being pulled. We want to be the one to be pulled. We want to drive market share there. So I think the cloud is really giving us in our single data fabric a lot of opportunities to leverage our differentiated data assets. We're also having great success with a solution here in the U.S. we call OneScore, which takes our non-credit file assets data sets. And as you know, we have the cell phone utility data set. We have DataX and Teletrak that we acquired. You put that together, we have a very large set of consumers and trade lines that are not in the credit file, which allows us to differentiate our credit file again and drive performance. The third one I would highlight is just the use of AI. We've been ramping up our AI capabilities around scores and models and products. I think, as you know, we're using it in the vast majority of our models and scores today. And we're seeing very meaningful performance lifts around wider sets of data being used in that score and model, driving performance, like the one score data element. So a whole bunch there. And as you know, innovation and new products is central to our strategy and our DNA at Equifax. We report to you, but we run the company around the Vitality Index. And that makes us a stronger partner with our customers. When we're innovating and bringing new ideas to our customers, we're viewed as a more valued partner. So that's clearly central to how we want to operate in Equifax going forward in the cloud. And our scale differentiated data really enables us to be advantaged around that innovation and new products.

I just wanted to clarify, my answer to the last question about international growth rates was relative to economies, not the Equifax growth rates themselves.

Understood. Thanks, guys.

Our next questions are from the line of Jason Haas with Wells Fargo. Please proceed with your questions.

Hey, good morning, and thanks for taking my questions. Apologies if I missed it, but can you say what the talent verification outperformance was versus the white collar hiring market in 4Q? And then how do you expect that to trend going forward? Because I think that'll give us some helpful understanding of how you think about talent, excluding the impacts from the softer hiring market. Thanks.

Yeah. So at the fourth quarter, we indicated it was about eight points, right? Better. That was a little weaker than it was in the third quarter. I don't think we gave guidance for what it would be going forward. But historically, we've been running somewhere between high single digits and low double digits better than the market over time. Fourth quarter was a little weaker than third quarter. And it was really specific to the way our annual pricing was executed in the two different years. Our 2024 annual price increases actually A portion of them were executed in the fourth quarter of 23, and then the remainder in the first quarter of 24. Our 2025 price increases substantially hit in the first quarter of 2025, so we just had a grow-over effect issue in the fourth quarter of 24 versus 2023 because of the difference in timing of price increases.

Okay, great. That's very helpful. Thank you. And then as a follow-up, Can you talk about the implied USIS mortgage outperformance for 2025? I think if I did the math right and I heard everything correctly, it's about 20 percentage points of mortgage outperformance. It's a bit of a step down from 2024. I think I might know why, but can you talk about that? That'd be helpful, thanks.

Yeah, the biggest difference is really around, and it was a question that was asked earlier, around soft pulls, around pre-qual and pre-approval products. What we saw going from 23 to 24, since those products were relatively new in late 23 going into 2024, was very, very substantial growth in those products in 2024. So that drove a substantial amount of outperformance relative to hard pulls. What we're expecting in 2025 is we're continuing to expect to expect pre-approval and pre-qual to perform well, but the growth rate will obviously be much lower because of the fact that we're coming off of a much larger base. So that's really the biggest difference in our performance. We're expecting to continue to perform well year on year, continue to drive more new products. Mark's talked about it substantially, but it's really just the difference in the base on pre-qual that's driving the difference in growth rate.

Okay. And sorry to ask you a third follow-up, or second follow-up, but I thought maybe you would also allude to the supplier price increase. So is that less of a tailwind in 2025 than it was in 2024?

On dollar amount, they're relatively similar.

Okay.

All right. That's helpful. Thank you. The next questions are from the line of Owen Lau with Oppenheimer. Please proceed with your questions.

Hey, good morning. Thank you for taking my question. So on your international revenue growth, it was 11% in the fourth quarter, and you got to 7% in 2025 and 6% in the first quarter. Could you please unpack a little bit more about the driver of that slowdown? Thanks.

Actually, we think 7% is quite good, right? So our long-term model is 7% to 9%. So we feel very, very good about the 7% to 9% growth. I think Mark talked about where we're seeing the growth come from. And the good news is what we're seeing is really improved performance and growth really across all geographies. The only geography I think that's dealing with a little bit of market headwinds is the UK. And we're seeing some economic slowdown in the UK. That's affecting us in 2025 as well as we're expecting the UK economy in general to be a bit weaker. Brazil was really strong in the fourth quarter. We had an outstanding performance from Brazil in the fourth quarter. In the second half, really. In the second half, really. We're expecting Brazil to perform well in 2020, in 2025, perhaps not double digits, but we're very happy with the way our Brazil acquisition is performing. So, net-net, I'd say we feel pretty good about the 7% next year.

Got it. So, quickly on mortgage assumption, I know there's a lot of questions about mortgage already, but you mentioned that you haven't baked in any weight cut or weight increase. But if there is a, let's say 25 to 50 basis point rate cut in 2025, do you still expect incremental benefits for your mortgage increase, given that last year's 30-year mortgage went down to 6% and there was a refinancing weight already? How do you think about that this year? Thanks.

Yeah, we've seen with changes in the 10-year and changes in mortgage rates, had definitely an impact. Back in August, September, when mortgage rates went down with the 10-year in advance of the election, we did see an uptick in activity or inquiries, both shopping and mortgages, both purchase and refi, as you point out. This late-in-the-year impact that happened in mid-December and all the way through January when rates went above seven surprised us with the magnitude of it and how deep it's been to drop another 12 points. But yeah, you know, we've clearly seen as rates move up, there's an impact and we would expect the same if rates come down. It's hard to see that now, you know, with rates with, you know, the tariff discussions going on and, you know, when is that going to settle down in the marketplace and how the bond market reacts, which, as you know, has a big impact on mortgage rates. And then John mentioned it and I mentioned it also is that there's some element of consumer confidence. you know, that is lower right now, which rolls into decisions around, you know, buying a home or decisions around buying a car. That clearly is consumer confidence is lower, you know, perhaps with all the activity taking place in the new administration. You know, we're clearly seeing that. But, you know, over the long term, you know, we're 50% below historic levels in mortgage inquiry activity. We don't think that's going to stay there over the long term. The question is, when will rates come down? And we've been very clear, and we showed it in our deck again today, that we expect that to be a very meaningful impact for Equifax to the tune of over a billion dollars of incremental revenue, as well as incremental margin. And we'll flow that through. If there's a positive impact against our minus 12 outlook, we would expect that to be accretive to our framework for 2025, meaning that we'd have incremental revenue and we'd let that margin drop through. doing the right investments for the future of Equifax as you expect us to do, we wouldn't incrementally invest more if the mortgage market recovers. We're going to continue to focus over the long term for Equifax. And if there is an uptick, that's going to drive our margins up and our EPS and our cash flow up.

And as Mark mentioned, again, our long-term framework only assumes that we're going to see modest growth in overall markets, including mortgages, think 2% to 3%, right? So again, to deliver our long-term framework, which includes substantial revenue growth and earnings growth of north of 10%. We don't need the mortgage market to fully recover. We just need the mortgage market to stabilize and start growing slowly two to three points a year, and we can deliver extremely well.

Got it. Thanks a lot. Thank you. Our next questions are from the line of Andrew Nicholas with William Blair. Please proceed with your questions.

Hi, good morning. Thanks for taking my questions. Um, first one is on margins. Uh, I think inter quarter, you talked about wanting to, or thinking you can kind of approach a hundred basis points of a margin expansion, 25, obviously the 25 basis point guide this year is a little bit lower, but if I do the math, it seems like the lighter mortgage would, would more than account for that Delta. So I'm wondering if, if there were other kind of cost actions you took inter quarter to protect.

margins or if maybe you're getting a bit better expansion than you had thought from the tech transformation in 25. yeah so um the numbers you quoted are correct right so i think the team did a really nice job in the fourth quarter what you saw is on weaker revenue we delivered the margins we committed and i think the team did a nice job of managing costs as we went through the fourth quarter so obviously as we're going into next year we're continuing to try to manage costs closely to allow ourselves to deliver margin growth, even in the face of those substantial declines in both mortgage, but also talent.

We implemented sizable cloud cost savings in the third quarter that, as you know, are giving us year over year benefit in 2025. So we have real visibility to that, but those are done, right? So we've already completed those. So that's good news for us as we go into 25. And we have some incremental cloud cost savings. As you know, we still have some markets we're completing we're going to complete spain in the first quarter we'll get some small benefit from that we've got paraguay we completed in december um you know so those kind of completions that kind of roll through 25 as we move from that you know close to 85 of our rev in the cloud towards uh you know the 100 you know present incremental cloud cost savings you know as we go through principally in 25. you know so we've got those in our outlook perfect thank you and then

For my follow-up, I know it's a little bit more detailed, but on the new product that you're, or set of products that you're offering that are going to have the twin data flags on them in mortgage and in auto later in the year, is that predominantly a market share play or do you also get more price for those products with that flag? Just trying to understand kind of strategically how that plays out.

We'd look for both. If you think about mortgage where some customers are only using one file in shopping, we want to be that file. So getting that incremental revenue or market share as you describe it is very attractive. We're delivering more value, so we should get price for it. And then same thing in auto. you know, many dealers will pull one mortgage credit file, you know, when a consumer comes in. We want to be that credit file we pull because it's pulled because we're going to provide incremental information around the eligibility for that consumer. Because remember, I can auto in a mortgage, but I'll use auto example. A consumer comes in, their credit is super important, but, you know, many auto loans require income verification and certain income levels, you know, in order to you know, qualify for that auto loan. Knowing that up front in the early stages of that consumer interaction is super valuable and only Equifax can provide it. And, you know, as I mentioned, we'll likely have a solution for personal loans. And as an old credit card guy, I know the value of combining income, you know, with credit score, even in a credit card space. So the power we have now is having those data assets, Twin and our credit assets at USIS, But having both businesses in the cloud, you know, post-USIS completing the cloud last summer gives us the ability to really leverage those in the marketplace and drive share and drive revenue and price. Thank you.

Next questions are from the line of Kelsey Zhu with Autonomous Research. Please proceed with your questions.

Hi. Thanks for taking my question. I want to talk about the SSA contract extension that you've announced at the end of Q3. Was wondering if you can talk a little bit more about what's the current level of run rate revenue in 2024 from SSA and the expected growth in 2025 and beyond. I think the originally announced $500 million for five years does rely on some amount of further state penetration as well. So just wondering how you're thinking about that in light of CMS changing their .

Yeah, this particular contract with SSA is a federal contract. So it's not one that's done like CMS where the states deliver that service and the states, you know, use the data at the local agency level. And as you point out, the customer for us in CMS is really the agency at the state level. In the case of CMS, this is a federal contract that's used for disability benefits eligibility that are delivered directly at the federal level, and it's really used to authenticate the individual's recipient's eligibility to continue receiving that Social Security disability income. If they have a change in income, then it changes their benefits eligibility. You know, that's a contract that, you know, we've had in place in the past. We extended the contract in September, you know, with higher prices in it. And that's what I mentioned is going to give us benefits as we go into 2025. Thanks.

I was also wondering if you have any updated thoughts on sizing the incremental record additions from the Workday Partnership, or just in general, how should we think about record growth in 2025?

Yeah, we don't, as you know, we typically don't discuss any of our partners' workdays unique because we both announced it last September. So, you know, we just highlight the fact that we have that one. So we don't talk about what specific partner record additions in. We have over 60 partners. And as I said, we added 14 last year plus workday, including three of those 15 in the fourth quarter. Record additions were very strong last year, you know, 20 million records up 12%. you know, that's higher than what we expect over the longterm. Um, but record additions have been quite strong over the last five years, you know, above our longterm for EWS, we think about record additions, you know, of being in the, you know, kind of three, 4% kind of range. So, you know, very strong, um, years. Um, the positive for 2025 is we have a lot of visibility around three partners. We added in the fourth quarter, those records didn't come on yet. And, uh, we have partners we added in the second half, they were still onboarding records. And as I mentioned, Earlier, we have partners we added two, three, four, five years ago where we're still adding records. When they get a new client, those become new records. But typically, we have pockets of records given the structure of their technology or databases that we're still onboarding to Equifax, even from partners that are a couple of years ago. So that's a big part of our visibility around records when we look forward a quarter or through a year like 2025. And then we also have a list of, you know, a set of potential partners that we've been talking to for a year, two years, three years that are not with Equifax today that we're looking to bring on board, like the 15 we added last year. And then as a reminder, a little under 50% of our records come from our direct relationships through our employer business. And as we grow I-9 clients or UC clients, they're bringing in records there also. So it's a multifaceted approach. We have one leader and one team involved. that drives record additions. That was a change we made a year ago, and it's paid off in 2024, you know, with the kind of focus from having a dedicated leader giving the obvious benefit or value, you know, of adding records. So we've got a big focus on that. So we're expecting, you know, record growth in 2020-25 that, you know, is aligned with the growth kind of frameworks we laid out for the year for EWS.

Thanks a lot.

The next questions are from the line of Scott with Wolf Research. Please proceed with your questions.

Hey, guys. Good morning. Just one question from me. When we think about the guidance for EWS revenue growth and sort of in the context of your medium-term framework, that color on records growth was helpful, but maybe if you can frame sort of the kind of pricing and penetration contribution to growth for this year that you're expecting relative to the long-term growth framework. Thanks.

Yeah, as you know, we don't talk about price in any of our businesses, but we can be clear that we take price up every year in all of our businesses, including EWS. I think we've said many times we have more pricing advantage, if you will, because the uniqueness of what we deliver with EWS and Twin than we do in other parts of Equifax. Penetration will be a positive for us in 2025. In EWS, we expect new product rollouts to also be a positive. You know, they've been over-indexing our 10% goal for, gosh, almost four years at EWS, and we expect, again, very strong over 10% vitality, so the continued rollout of new products. As you point out, records is an important pillar, you know, on the ability to grow, you know, in that space. And then penetration, you know, we just have large verticals with a lot of room to grow, and we're principally competing, as you know, against manual verifications whether it's a verification of employment with a background screener, verification of income with a government agency, in auto where there's still penetration opportunities. So those are some of the areas where our teams are focused on.

That's helpful. Thank you.

Our next questions are from the line of Ashish Sabara with RBC Capital Markets. Please proceed with your questions.

Hi, this is David on for Ashish. Thanks for taking our question. Just a follow up to that last question. Are you seeing any, I know you're not commenting on pricing, but are you seeing any competitive dynamic shifts related to the first advantage and Sterling merger? Thank you.

Yeah, we don't talk about specific customers. As you know, we have a great relationship with Sterling and a great relationship with first advantage. And, you know, we do with the other, you know, background screeners, we view them as strategic partners. And, you know, we have all kinds of relationships with them, whether it's, you know, verification of employment, you know, we have an education solution, we sell incarceration data to them, new products that we're working to deliver, you know, to them. So, you know, don't want to talk about specific impacts, but, you know, we have very strong partnerships with the two you mentioned, as well as the rest of the industry. Yeah, thank you.

Our next questions are from the line of Matt O'Neill with FT Partners. Please receive your questions.

Yes, hi. Thank you so much for taking my question. Just curious, going back to the talent and labor areas, any incremental comments on, you know, verticals, employers, sort of size or type, sort of public, private, where some of the conservatism or weakness is most noted? And then while I fully understand not commenting on price, I guess just with the mortgage score price rolling through last month, you know, just curious if there is, you know, anything of note there, if that's been a smooth process. Thank you so much.

Yeah, the first one on hiring, and remember, it also impacts us in onboarding where we're selling I-9 solutions. You know, if there's less new employees, there's less background screens, there's less I-9. So clearly an impact. And, you know, you use the term conservatism. We're telling you what trends are. you know, when we talk with our customers, it's very broad-based. You know, there's a mode, it seems to be kind of coming into the election and post-election that companies are keeping a tight belt around hiring as they think about their budgets and plans for 2025, as they, you know, are concerned about, you know, what's going to be the impact in Washington. You know, the whole tariff conversations, you know, create a lot of angst with lots of customers about what's going to happen. I think you've seen the impact on consumer confidence, that likely is impacting lots of customers when they think about what kind of investments around people and resources. But it's, you know, it's been, you know, surprising to us, like mortgage, that the hiring activity, you know, declined so meaningfully in the latter half of the quarter, kind of post the election, its companies are kind of sitting on the sidelines to see, you know, where, how is this all going to play out? And when that happens, you just don't hire you know, a lot of people. And that clearly impacts us. And sorry, the second half of your question was, I think, on the supplier pricing crease that went through. And what was the question?

Yeah, just, you know, if there was anything to note on how that's flowing through in the market, or if it's been, you know, fairly, you know, received as expected.

Yeah, I think received as expected is probably the right way to describe it. Nobody likes a price increase. And a price increase of that size is challenging. But we did mention that there's some change in behavior around the shopping process where historically a mortgage originator might have pulled three credit files from all three credit bureaus in that shopping process. Some changes going to a single pull or a dual pull and then pulling the three later on in the process. Um, that's likely driven by the cost of the, uh, the credit file. Understood. And that's why we're focused. That's why that that's why we're focused on how do we differentiate our credit file? And, uh, you know, we're quite energized about, you know, our ability to add those twin indicators to it that, you know, we, we would expect would drive, you know, share and revenue for us, um, having something that is differentiated from our competitors. Makes a lot of sense. Yep. Thank you.

Thank you. The next question is from the line of Simon Clinch with Redburn Atlantic. Please receive your questions.

Hi. Thanks for taking my question. I've got two questions. First of all, just wondering if you could just walk through the outperformance that we've seen in EWS mortgage just over the last four quarters. We've seen certainly weaker contribution from pricing and mix, as you've talked about before, but that's still sort of pervasive today, despite easier comparisons, and as well as your records growth on top of that. So I was wondering how we should think about that portion going forwards from here.

So you're referring to the performance of mortgage revenue relative to underlying inquiries, when you say, is that what you're asking about? In EWS. In EWS?

Yes, and if I... And if I strip out the records growth contribution.

Yeah, we think it's actually strengthened as we've gone through the year, right? We feel relatively good about the way, about the performance we've seen in terms of adding records, which is the biggest driver, right, in our ability to outperform the underlying inquiry market. So we feel very good about how it's progressed during the year. You know, it's gone from... It improved during the year. Yeah, very nicely during the entire year. And we ended up double digit in the fourth quarter. So... So we think the performance is good and it's all heavily driven by what Mark talked about, which is the tremendous success we had this year in boarding new records. And as we go into next year, that will be the driver again. So our ability to continue to successfully board new records, which we feel very good about, is what's going to allow us to continue to perform well relative to whatever the mortgage market does.

And I remind you, I know this makes sense, but not every record that's added is a mortgage customer. There's a smaller portion of the population in the United States owns a home and will participate in the mortgage space. Generally, they're near prime and prime customers. We're adding records that are, call it subprime customers or lower income consumers. And those records are super valuable in auto loans, they're super value in personal loans, and they're really super valuable in government. And the beauty of EWS is that every record we add now given the demographics of the different verticals we participate in, have value, you know, and generally multiple value going forward. So it's a really powerful model on records. In addition to records, you know, in the mortgage space, we do take a price. We do roll out new products, which we rolled some new products out in the second half of last year in EWS. And we've got some new products rolling out in 2025, like the twin indicator that we talked about that'll be, you know, a positive for Equifax Revenants.

Okay, that's helpful. Just on the point about the twin indicator, I know you've had a few questions on this already, but when I'm thinking about the indicator that you're going to bundle with the credit file, is that one going to be available only to customers of EWS verifications, first and foremost? And then secondarily, how are you going to balance, I mean, how do you balance the risk of reducing the value of the records from EWS by providing that indicator in the credit file?

No, it's a great question. You know, in the mortgage space, you know, most mortgage originators, I'd say the vast majority of mortgage originators use Twin. So, you know, they're customers now. Auto, there's pockets of customers that don't, so that'll be an opportunity. But we'll make this credit file with the Twin indicators available to all customers because even if they're doing a manual verification, which is a very small portion in mortgage and call it a larger portion in auto, knowing upfront that Mark's employed when they're in the shopping process with Mark in a mortgage or auto application is very valuable. And we're going to be very careful, as you might imagine, around giving, you know, it's not slivers of information, but giving important information upfront that helps in the shopping process but being very balanced around the fact that we want to protect that full poll that happens later on. It's, you know, very deep levels of data. We have 50 different attributes on the full twin credit report. You know, it's got a trended data going back 12 months, 24 months, 36 months. That's not what we're anticipating put on a front on the mortgage shopping or auto shopping credit file. What that originator, or F&I individual at a dealer needs is, you know, is Mark employed? It might be, you know, where is Mark working? It might be an average of Mark's income over the last 12 months. You know, just some snippets, if you will, that are super valuable in that shopping process to really separate a consumer that maybe couldn't qualify for that auto loan or mortgage. So do you want to work on that with that consumer or help steer what kind of products to put in front of that consumer by having that additional information? Because remember, a credit score, which comes with today is really what you get in a shopping process is a credit score and a credit file really just gives information around someone's propensity to repay their new loan based on their past behavior. but it has zero information about their ability to repay. You know, they might have a decent credit score, but they're out of work. You don't have visibility to that. So that's the kind of thing we want to deliver up front. We think it'll differentiate our credit file and deliver more value to our customers, you know, in their workflows. And then, as I mentioned twice now, protect, you know, the actually credit files. There's a full credit file typically pulled, you know, in many of these processes a second or third time. but also protect the twin reports that are pulled either once or twice or sometimes three times in those workflows dependent upon the vertical.

That's great. Thank you so much. Thank you.

The next question is from the line of Arthur Trueslove with Citi. Pleased to see you with your questions.

Thanks, everyone. A couple from me. So first one, You've said that your margin in USIS can go up from 34.5% in 24 to 35.5% in 2035. I was just wondering why this increase was so small. I mean, I guess given the cloud-based cost savings, you might have expected 300 BIPs or so. So just wondered what was missing there. Second question, you've made clear on this call that over the last month or two, the situation in mortgage and hiring has clearly deteriorated and it seems like this is probably the key reason to you guiding down at this point. I just wanted to confirm as well, your mortgage forecast of minus 12% on volumes, that is just a function of what you've seen in the last few weeks, isn't it? And that obviously factors in mortgage rates at 7%. So can you just confirm that I've understood that properly?

Yeah, the second one, 100%. What we've seen over the last six, seven weeks has been a sharp decline, surprising in the depth of it, but a reality. And what we're seeing as far as activity is rates went over 7%. And I think you'd have to lay in there not only the rate shock of that, but also perhaps consumer confidence and what they're reading in the paper about what's happening, all the activity in Washington. And just to be clear again, what We'll update this again when we see changes in it. For sure, we'll give you an update in April when we report our first quarter earnings. Over the last 10 years, this is how we forecasted mortgage because we're not economists. We can't forecast interest rate increases or decreases, but we've been super clear with you that if this improves, that'll expand our revenue and expand our margins in our EPS. If either there's a change in confidence and consumer activity or the rates come down, you know, slightly, and as we mentioned earlier on the call in September, August, September last year, we saw rates come down into the sixes and we saw, you know, an increase in activity. So we know there's, you know, a correlation between where rates are and what consumer behavior, you know, is going to be. John, you want to take the first one on margins? Sure.

And USIS margins, again, it's very similar to Equifax margins, right? So we're absolutely seeing savings from the cost reduction from moving to the cloud. That's driving improvement in margins. our growth rate is lower in 2025 than in our long-term model. And obviously, we have very high variable margins. So what we're seeing is that with the growth rate higher inside the long-term model for USIS being 6% to 8%, you would see much larger margin expansion in terms of a percentage basis. One of the things we are fighting against, which we've all been talking about for quite some time, obviously, we get some revenue lift from our from our mortgage supplier price increase, but it also is margin dilutive. So we can hold margins with our own price increases along with it, but it isn't really accretive to our margin profile because of the way the price increases pass through. So beneficial on the revenue side, not beneficial on the margin percentage side, but beneficial on the margin dollar side.

Thank you. Just one follow-up from me, if it's okay. You're obviously forecasting margins down in workforce solutions, and you're saying part of that is bringing on TWN partners. Just give an idea of how many basis points bringing on the TWN partners costs and then whether that then comes back in subsequent years.

Thank you. Yeah, this is onboarding costs, so it's one-time costs. We'll have incremental people involved, technology costs. you know, a little bit bigger than normal because we added 15 partners last year. So, you know, as I said, some of those second half additions are still being onboarded. So there's just additional activity and yeah, it does go away. You know, it's, it's, I think there's just a larger amount now because of our success last year of adding partners, John, right?

Yeah. We pay incentives to partners to board faster, right? So as that happens that it ends up being margin dilutive in the period in which it occurs. Thank you.

Thank you. Our next questions come from the line of George Tong with Goldman Sachs. Please receive your questions.

Hi, thanks. Good morning. With respect to your margin outlook, can you elaborate on key drivers you have internally that could drive upside to your 2025 EBITDA margin guide, or would you say your outlook is relatively fixed given external conditions?

Obviously, there's a lot of drivers internally on the way to drive revenue faster. The biggest ones Mark's already talked about, which is our ability to continue to drive more revenue growth. Obviously, our long-term margin expansion of 50 basis points a year is driven by the fact that we have extremely high variable margins across the vast majority of our product portfolio. So the faster we can, as we drive to introduce more products, new products faster, it drives incremental revenue benefit As we continue to put more AI and ML into our products, it drives better scores, higher growth rates, more data contribution, and more data usage by our customers. So the biggest thing we can do is obviously drive revenue faster, and then we'll continue to work to drive down costs more rapidly. One of the ways we do that obviously is executing on our cloud migrations. As that occurs, We can continue to take out costs more quickly as we execute those effectively. That'll drive costs out and we'll continue to manage costs prudently as we go through 2025 and every year going forward.

The principal upside, I guess, George, is where you're going. The principal upside for our revenue margin, EPS, and free cash flow drive framework for 2025 is going to be what happens to mortgage and hiring markets. If they get better... we're not going to invest more costs from that margin expansion or revenue expansion. We're going to drop that through. And that's, you know, you've seen the impact, you know, that it's had on us from what you expected, meaning the street expected for 2025. You know, it's quite substantial because they're all incremental margins.

Yep. Makes a lot of sense. And then with respect to your cloud transformation savings, any color you could provide on the quarterly phasing of savings in 2025 and perhaps 2026?

Yeah, I would think about them as much smaller. When you think about us being close to 85% in the cloud and the big increase like in USIS was a very substantial cloud completion. We got big savings from that in 2024 that also comp into 2025. They're going to be smaller. We haven't communicated what they are. When you think about Spain completing in the first quarter, for example, and some of the other completions we expect this year, those are in our guidance. You know, so they're in our cost plans, you know, what they're expected to be. But you shouldn't think about them as being anywhere near the magnitude of, you know, what you saw last year and actually in some of the prior years.

Very helpful. Thank you. Thank you.

Our final question is from the line of Shlomo Rosenbaum with Stiefel. Pleased to see you with your questions.

Hi, this is Adam. I'm a professional. Just one for me. What are you hearing from banks in terms of macro expectations and how the various areas of credit are performing? Thanks.

Yeah, so I think, you know, broadly, our customers, banks, fintechs, you know, here and around the globe, with unemployment low and employment high, that's a positive. You know, so that clearly is one is consumers are working. They generally get paid their bills. I think we've seen that impact on inflation which is still you know high uh for in relative terms and impacting that subprime consumer you know their delinquencies have increased um so you've seen some already repositioning if you will around underwriting there and the level of uh you know capacity that principally fintechs want to take on but you know you're still seeing you know very strong you know kind of focus in that space the subprime players you know are focused on growing their originations there And no real change on the broader set of the credit spectrum. And our customers are financially strong. When you think about the banks, the fintechs, you don't see issues there. The other piece of it is around consumer confidence and the impact of higher rates. I think we've talked ad nauseum around mortgage. We've seen an impact in auto where higher rates are either forcing consumers to buy used cars versus new or keep old cars and keep them on the road, meaning not buy that new car, that new used car. So there's clearly been an impact there, you know, from what we've seen in higher rates. But broadly, you may be stepping back. I don't think we see a change in 25 outside of call it mortgage in FI, which we've already talked about the down 12. I don't think we see any real change in either customer behavior or consumer behavior, you know, as we go into 2025.

Thank you. At this time, I will now turn the floor back to Trevor Burns for closing remarks.

Thanks, everybody. And if you have any follow-up questions, please reach out to Molly and myself. Otherwise, have a great day. Thank you.

This will conclude today's conference. We may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

Everyone else has left the call.