Equifax, Inc.

Welcome to the Equifax Q3 2026 earnings conference call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. You may be placed in the question queue at any time by pressing star 1 on your telephone keypad. We ask that you please ask one question and one follow-up and return to the queue. As a reminder, this conference is being recorded. If anyone should require operator assistance, please press star 0 on your telephone keypad. It's now my pleasure to turn the call over to Trevor Burns, Senior Vice President, Investor Relations. Trevor, please go ahead.

Thanks, and good morning. Welcome to today's conference call. I'm Trevor Burns. With me today are Mark Begor, Chief Executive Officer, and John Gamble, Chief Financial Officer. Today's call is being recorded, and the archive of the recording will be available later today in the IR Calendar section of the News and Events tab at our Investor Relations website. During the call, we will be making reference to certain materials that can be found in the presentation section of the news and events tab at our IR website. These materials are labeled 3Q2026 earnings conference call. So we're making certain forward-looking statements, including fourth quarter and full year 2026 guidance to help you understand Equifax and its business environment. These statements involve a number of risks, uncertainties, and other factors It could cause actual results to differ materially from our expectations. Certain risk factors that may impact our business are set forth in our filings with the SEC, including our 2025 Form 10-K and subsequent filings. During this call, we will be referring to certain non-GAAP financial measures, including adjusted EPS, adjusted EBITDA, adjusted EBITDA margins, and cash conversion. which are adjusted for certain items that affect the comparability of our underlying operational performance. All references to EPS, EBITDA, EBITDA margins and cash conversion are references to non-GAAP measures. These non-GAAP measures are detailed in reconciliation tables which are included with our earnings release and can be found in the financial results section of the financial info tab at our investor relations website. Now I'd like to turn it over to Mark.

Thanks, Trevor. During this Land 4, Equifax delivered solid results in the third quarter in a challenging mortgage market driven by strong diversified markets revenue growth of over 8% that exceeded our mid-single-digit guidance with strong broad-based performance across all three business units. This included improved performance in the AWS government, which grew mid-single digits in the quarter. Even time margins were up a very strong 130 basis points, excluding FICO versus last year, from operating leverage, AI productivity, and good cost management, even with the $20 million of mortgage market headwind in September. EPS grew 11% and at $2.26 per share was above the high end of our guidance, even with the negative mortgage market impact. A very strong broad-based quarter for Equifax against a challenging mortgage market. This strong performance was delivered despite the significant weakening in the U.S. mortgage market as 30-year fixed mortgage rates increased about 75 basis points since July, which negatively impacted overall mortgage market transaction volumes and Equifax revenue versus our expectation by about $20 million in the quarter for over 100 basis points versus our July framework. Equifax revenue of $1.693 billion was up 10% on a reported basis and 9% in constant currency and was slightly below the midpoint of our July guidance due to the negative $20 million of mortgage market impact. Exchequer mortgage revenue growth of 7% was at the midpoint of our July guidance. Excluding the negative impact of the $20 million of U.S. mortgage market decline in September relative to our July guidance, total Equifax revenue would have been above the top end of our guidance range for the quarter. U.S. mortgage revenue was up 15% in the quarter and up 1% ex-FICO, both below our expectations from the higher rate environment in September. John will provide context on the impact of the significant weakening in the U.S. mortgage market on the fourth quarter and in 2027. Equifax returned $158 million of cash to shareholders in the quarter and about $850 million year-to-date. Share repurchases moderated in the quarter at $92 million, with the Circulo deal expected to close in the fourth quarter, bringing year-to-date repurchases to about $650 million on 3.6 million shares, or 3% of shares outstanding. Since launching our $3 billion share repurchase program in April of 2025, We've used our excess free cash flow to repurchase $1.6 billion of Equifax stock. We continue to expect strong free cash flow over $1 billion in 2026 and cash conversion over 100%. With our financial capacity of over $1.5 billion, we can execute the circular to credito acquisition in the fourth quarter and continue to repurchase shares while maintaining a strong balance sheet. Turning to slide five, workforce solutions delivered delivered solid results in the third quarter with total diversified markets revenue up 9% and total verified diversified markets revenue up a strong 13%. Mortgage revenue is about flat in the quarter versus last year, reflecting a significant weakening in the U.S. mortgage market. EWS mortgage revenue outperformance was high single digits and consistent with the first half from record growth, new products like Mortgage Qualify, and pricing. Terminal Workforce Solutions revenue was up 7% in the quarter as the strong diversified markets revenue performance was partially offset by the weakness in the overall U.S. mortgage market. Third quarter government revenue was up mid-single digits. I'll discuss government in more detail shortly, but we are very pleased with the trajectory of our government revenue growth given the new state wins and our strong deal pipelines and their big $5 billion TAM. Talent Solutions revenue grew a very strong over 20% in the quarter and continues to outperform a soft white-collar hiring market with growth in new products, increased product penetration across our incarceration and education data assets and pricing. The talent team continues to execute very well in their big $5 billion TAM. Consumer lending also had another very strong quarter with high double-digit revenue growth led by Card and Consumer Finance principally due to penetration and record growth. This is increasingly an important growth vertical for workforce solutions as they roll out new solutions in the Auto, Card, and P-Loan verticals. Employer services revenue was down 5% in the quarter and, as expected, due to the suspension of the Work Opportunity Tax Credit, or WOTC, program. Workforce Solutions EBITDA margins of 51.4% were in line with our expectations despite the revenue impact from the weaker mortgage market. Twin record additions continued to perform well again in the third quarter with 223 million total active records of 12% and 125 million total current active records up 11%, which represent 110 million unique individuals or SSNs. We expect strong record growth as we exit 2026 and in 2027 from W2-based records as well as alternative record sources like Pension, Gig, and 1099 with significant potential for record additions with 250 million income-producing Americans against our 110 million unique SSNs in the twin dataset at the end of the quarter. Coming to slide six, in 2026, we've made excellent progress with government customers converting our large commercial pipeline with renewals, extending existing relationships, and adding new principally state government customers. As a reminder, we operate in a $5 billion TAM at the federal, state, and local level of principally manual income verifications for delivery of social services. New to date, the EWS government team has signed agreements with state agencies for the provisioning of income and employment data supporting principally SNAP and CMS, totaling over $550 million in annual contract value, including about $150 million in new business and $400 million in renewals, an extremely strong result that will principally benefit our workforce solutions government vertical in 2027. Our discussions with state agencies continue to be robust and productive, given the strong value proposition from TWIN on speed of social service delivery, caseworker productivity, and accuracy of income verifications, which drives a reduction in improper payments and helps states get benefits to those who need them more quickly. Further, we've seen strong engagement from states converting to subscription-based contracts that provide more certainty of spending levels as well as adding new solutions from workforce solutions. For example, continuous evaluation for SNAP is a new EWS solution that identifies changes in recipient incomes above program levels to reduce SNAP error rates. Our new CE solution has been added to several recent state contracts. We're having active discussions with states to support verification of hours worked for new OB-3 Medicaid work requirement obligations beginning in January 2027. And our EWS Complete Income solution supports states' ability to validate income through a single integrated solution that includes the work number and other sources of income such as gig work, self-employed wages, and non-earned income through applicant permissioned services. We also have several large new federal opportunities in our deal pipeline. Our strong wins and renewals this year, along with continued strong deal pipelines, reinforces our confidence in the medium and long-term growth opportunities for EWS government, supporting states in meeting requirements regarding accuracy and frequency of income validation in Medicaid, SNAP, and other social services. The EWS government team is clearly on offense supporting federal, state, and local customers with their social service program requirements and has significant opportunities for long-term revenue growth supporting government programs in their big $5 billion TAM. Turning to slide seven, USIS also delivered a solid quarter with diversified markets revenue growth of 6% consistent with a solid performance in the second quarter and within their long-term framework. B2B revenue was up 5% with high single-digit online growth in FI from stronger volumes, new business, and pricing, and mid-single-digit online growth in auto from pricing and new business wins. We also saw improved growth in commercial and insurance. Within financial marketing services, our offline batch business, revenue was up over 10%. led by very strong broad-based growth across marketing, identity and fraud, and account reviews, principally from new business. Our consumer direct business continued to deliver strong growth of 9% in the quarter from good subscriber growth in our direct channel and new business wins in our partner channel. US IRS mortgage revenue was up 28% and up low single digits ex-FICO against the slowing mortgage market late in the quarter. Relative to the underlying mortgage market, RevenueX FICO outperformed the underlying mortgage market by high single-digit percentage, driven by share gains in prequalification and preapproval products and pricing. USIS EBITDA margins were 35.4% in the quarter. Excluding FICO royalties, USIS EBITDA margin was 42.4%, up over 320 basis points versus last year, and an outstanding performance. The improvement was driven by improved diversified markets revenue growth, strong cost management, and AI-driven productivity. During slide 8, in September, the FHFA accelerated the use of VantageScore for conforming mortgages to all U.S. mortgage lenders. With score choice now available to all U.S. mortgage lenders, we're seeing a rapid adoption of Vantage4 with about 2,000 mortgage lenders using VantageScore in their Underwriting Processes, up 7x since April. And since April, our Mortgage Vantage Score volume is up over 230%. Through September, the bulk of mortgage lenders continue to purchase both the FICO Mortgage Score and obtain a free Vantage Score from Equifax, and therefore our Mortgage Vantage Score revenue continues to be small. However, we now have over 200 mortgage lenders exclusively using Vantage Score, and expect more lenders to move to the paid Vantage Score model as we move through the fourth quarter and into 2027 to take advantage of the higher approval rates and the $1 cost of Vantage Score from Equifax. As Vantage Score mortgage revenue increases, we will share the positive financial impact on Equifax margins and adjust our revenue and margin guidance accordingly. The strong adoption of VantageScore is driven by the substantial $1 billion annual savings opportunity for mortgage originators and consumers, as well as VantageScore's ability to score more consumers supporting homeownership. Equifax plans to maintain the $1 VantageScore price through the end of 2028 to continue driving the adoption of the lower price and higher performing VantageScore. To further provide lenders and brokers with greater flexibility and cost efficiency, two weeks ago Equifax announced our new Mortgage Score Select product. This new offering enables the mortgage industry to pull an Equifax mortgage credit file without a credit score or pull the mortgage credit file with the credit score they select for their mortgage banking needs, whether that score is Vantage Score 4, Classic FICO, or FICO Score 10T when it is approved. If the lender or broker wants a second look at the mortgage credit file after the initial pull, they are now able to pull the Equifax mortgage credit file again within 24 hours for just $1, along with the cost of their selected mortgage credit score, or without a mortgage credit score as a part of that offering. With Mortgage Score Select, we're helping lenders and brokers achieve two key objectives. First, cost-effectively gaining access to more data to support the lending process, and second, qualifying more borrowers based on these expanded data sets. Turning to slide nine, there have been discussions from the FHFA about eliminating the tri-merge credit report requirement and moving to a two-bureau mortgage credit report. We and the vast majority of industry participants strongly believe the tri-merge credit report is essential to expanding consumer access to credit Lawyers Mortgage Rates for Consumers ensures the safety and soundness of mortgage underwriting. We believe TriMerge is the right solution for consumers, the mortgage industry, and government agencies. We thought it would be helpful to provide more detail on our USIS mortgage revenue and to size the potential impact of a BiMerge change on Equifax if it were to occur. We expect the impact of GSE-related originations moving to buy merge would be manageable for Equifax with roughly $80 million of potential annual revenue impact based on 2026 revenue, which includes the FICO score being delivered with each credit file. We have multiple levers to help manage a potential $80 million revenue and $38 million margin impact given Equifax's unique solutions and assets, including Only about 40% of current originations are GSE-related and would be subject to a potential change by the FHFA to buy merge. We expect FHA and VA, which we estimate participate in about 25% of originations, would retain the tri-merge requirement based on their consistent statement supporting the value of tri-merge. Mortgage lenders would have the option to pull a three or two bureau file in the mortgage underrating process, and we expect many would continue with 3B to gain the approval rate lifts from the additional data. And of course, any implementation would take a long time. And Equifax will be advantaged with our unique solutions, including the Twin Indicator or Income Qualify, and our NCTUE telco utility data that we deliver today with the Equifax mortgage credit file at no charge that our competitors cannot match. And of course, our tri-merge go-to-market business will advantage Equifax in this environment. And last, full conversion to Vantage scores and mortgage delivers about $35 million of incremental margin to Equifax. And once rates moderate, there's a big $1 billion revenue and $700 million margin upside in a full mortgage market recovery. The brochure provides an approximate breakdown of expected 2026 USIS mortgage revenue. As indicated, about 45% of that revenue is FICO royalty pass-through with no margin. and about 10% is passed through revenue from the resale of TransUnion Experian Trended Credit Files to our TriMerge business, which is also no margin. This means about 55% of our USIS mortgage revenue is at zero margin. About 30% of revenue is from the sale of Equifax Trended Credit Files sold principally to resellers that create the TriMerge reports. but also directly through the Equifax tri-merge report business, which we refer to as hard pull. The turned in credit files sold for this purpose have rich data on the consumer and are used for the mortgage approval process. The remaining about 15% of revenue is principally from the sale of EFX credit files for pre-qual or pre-approval products used early in the application by mortgage originators. These principally one bureau products assist in early evaluation of applications and are defined as soft pull products. Equifax generates very high variable margins from the sales of credit files in these hard and soft pull products. Pre-slide 10, international revenue was up about 7% in constant currency with a strong 12% Asia Pacific revenue growth, including Australia, up 11% and 8% Latin American revenue growth. Canada and Europe both delivered 4% revenue growth, with market headwinds in both the Canadian and the UK market impacting overall growth rates. In Latin America, we saw double-digit revenue growth in Peru and Central America, with high single-digit growth in Brazil. An international EBITDA margin was 30.9% in the quarter. Turning to slide 11, in July we signed a definitive agreement to acquire Circulator Credito, the fastest-growing credit bureau in Mexico, for an enterprise value of $750 million. This acquisition will expand Equifax into the fast-growing Mexico market, the second-largest economy in Latin America, and offer Circulator Credito customers access to industry-leading Equifax cloud-native capabilities, decision and analytics capabilities, patented EFX.AI technology, and award-winning identity protection and fraud prevention offerings for the development of solutions designed to help customers grow and expand financial inclusion in Mexico. For the last 12 months, including September, Circulo's revenue is up a very strong 24% and delivering 47% EBITDA margins. We expect Circulo to be accretive to Equifax's adjusted EPS in the first full year of ownership, and since 2020 Equifax has invested our strong excess free cash flow and strategic bolt-on acquisitions to drive our financial results and shareholder returns. Including Circular and Accredito, we've invested nearly $5 billion in 17 bolt-on acquisitions since 2020 with a proven track record of integrating these acquired businesses like our acquisition of Boa Vista in Brazil three years ago. We are energized to be entering the fast-growing Mexico market with our Circulo acquisition that we expect to close in the fourth quarter of this year. Turning to 2012, Equifax is executing a broad AI and energetic strategy that leverages EFX.AI along with our cloud-native technology, our Ignite analytics platform, and our unique proprietary data to deliver higher performing EFX.AI powered scores, models and products to our customers. In the third quarter, we delivered a record over 17% new product vitality index, leveraging the Equifax Cloud and EFX.AI capabilities, which is a bump with our 15% 2026 Vitality Guide and our 10% long-term framework goal for Vitality Index. Year to date, Over 80% of our new products are leveraging EFX.AI capabilities that drove our record 17% vitality index. We're seeing double-digit performance lists from these EFX.AI-enabled new analytical products, which is driving strong market adoption. This includes the rollout of Ignite AI Advisor and Equifax IQ on our integrated Ignite analytics and interconnect decisioning global platforms. We are leveraging Equifax IQ capabilities across multiple credit risk fraud and collection solutions in several countries consistently seeing very significant improvements in customer outcomes for these use cases. In Brazil, Equifax IQ is powering collection solutions from multiple large banks driving an improvement in their collections recovery. Similarly, Equifax IQ is powering credit risk solutions in Latin America driving risk reduction. We are continuing to build out the platform capabilities to scale Equifax IQ capabilities and expect Equifax IQ will be commercially available in the U.S. early next year. We are also seeing strong adoption of new products based on differentiated proprietary Equifax data, including our twin indicator solution for mortgage and continuous evaluation and public safety solutions in EWS government, which are having support at the EWS Sequential government revenue growth in the quarter. Turning to slide 13, we continue to see strong execution by the operations technology teams across Equifax towards our $150 million AI for EFX productivity goal, which is delivering margin improvements across the business. In July, we reviewed with you the expanded deployment of AI tools and agents across internal Equifax Product and Model Development, Operations, Technology, and our G&A Functions, which is driving cost efficiencies across the entire business. Given our strong ex-FICO third quarter EBITDA margin performance of up 130 basis points from operating leverage, cost management, and AI productivity, we are raising our full-year EBITDA margin guidance from up 75 basis points to up 100 basis points, or double our long-term framework of 50 basis points, despite the negative about $80 million impact on revenue from the weaker U.S. mortgage market versus our July guidance. We are energized by the rapid deployment of AI tools across Equifax that's driving productivity, and we believe we are still in the early innings at the potential for AI-driven productivity across Equifax. And now I'd like to turn it over to John to provide our fourth quarter and full year framework.