Greetings, and welcome to the Equifax Third Quarter 2021 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce Dorian Hare, Senior Vice President and Head of Corporate Investor Relations. Thank you. You may begin.

Thanks, and good morning. Welcome to today's conference call. I'm Dorian Hare. With me today are Mark Begor, Chief Executive Officer; and John Gamble, Chief Financial Officer. Today's call is being recorded. An archive of the recording will be available later today in the IR Calendar section of the News & Events tab on our IR website, www.investor.equifax.com. During the call today, we will be making reference to certain materials that can be also found in the Presentations section of the News & Events tab at our IR website. These materials are labeled Q3 2021 Earnings Conference Call. Also, we will be making certain forward-looking statements, including fourth quarter and full year 2021 guidance as well as a framework for 2022, to help you understand Equifax and its business environment. These statements involve a number of risks, uncertainties and other factors that could cause actual results to material -- to differ materially from our expectations. Certain risk factors that may impact our business are set forth in our filings with the SEC, including our 2020 Form 10-K and subsequent filings. Also, we'll be referring to certain non-GAAP financial measures, including adjusted EPS attributable to Equifax and adjusted EBITDA, which will be adjusted for certain items that affect the comparability of our underlying operational performance. These non-GAAP measures are detailed in reconciliation tables, which are included with our earnings release and also posted on our website. Now I'd like to turn it over to Mark.

Thanks, Dorian, and good morning. We had a very strong third quarter and first 9 months of 2021, a continuation of our strong outperformance last year with record revenue in the quarter of $1.223 billion, which was up over 14%, with core non-mortgage market and non-UC, ERC claims revenue growth of 20%. We are executing extremely well against the critical priorities of our EFX2023 strategy, as we highlighted on Slide 4. Our focus on leveraging the new Equifax cloud for innovation, new products and growth is clearly driving our strong financial results. Our revenue growth has accelerated from 3% in 2019, as we were recovering from the 2017 cyber event and investing heavily in our EFX Cloud transformation to 17% last year. We are on track to deliver 19% core growth this year at the midpoint of our revised 2021 guidance. More importantly, our core growth, which excludes the impact of the mortgage market, unemployment claims and ERC-related revenues is expected to accelerate to 21% this year, a powerful figure that reflects the strength of our underlying business model and EFX2023 growth strategy. Not only is our core growth accelerating above historical levels during '20 and '21 in challenging COVID markets. And more recently, in a declining mortgage market, we are also expanding EFX beyond our traditional credit bureau routes to a more diverse data analytics and technology company with our investments in the Equifax cloud, new data assets and NPIs, along with reinvesting our outperformance in bolt-on M&A in areas such as talent, government and ID and fraud. We are quickly pivoting from building the Equifax cloud to leveraging it for innovation of new products that will position the new Equifax for stronger and more diversified growth in the future. Our EFX2023 growth strategy remains our compass for the…

Thanks, Mark. As Mark discussed, our 3Q results were very strong and much stronger than we discussed with you in July, with revenue about $50 million higher than the midpoint of the expectation we shared. For perspective, the strength was driven by our U.S. B2B businesses, principally Workforce Solutions and also USIS. Workforce Solutions Verification Services was stronger than discussed in July, principally in non-mortgage and talent solutions, card and auto as well as, to a lesser extent, in mortgage. Workforce Solutions employee retention credit and unemployment claims revenue was stronger than we discussed in July. We expect the strength in ERC to continue in the fourth quarter. USIS was also somewhat stronger than we discussed in July. The strength in mortgage relative to our discussion in July was partially a reflection of the mortgage market being down 21% versus the down 23% we discussed in July. Workforce Solutions' outperformance relative to the mortgage market was also stronger than we expected. This strong revenue drove upside in adjusted EPS relative to the expectations that we shared in July. Before discussing our increased guidance for 2021 and providing a framework for you to consider for 2022, let's briefly discuss our assumptions for the U.S. mortgage market. As shown on Slide 14, we are expecting the 21% year-to-year decline in U.S. mortgage credit inquiries that we saw in the third quarter to continue in the fourth quarter, with the fourth quarter down about 20%. This results in 2021 U.S. mortgage market credit inquiries being down just over 7% from 2020, slightly better than the down somewhat under 8% we discussed with you in July. For 2022, based on trends we are seeing in new purchase and refinance that I will discuss shortly, our 2022 framework assumes the U.S. mortgage market as measured…

Thanks, John. We hope this early view of our framework for 2022 is helpful and reinforces the power of the new Equifax to deliver 14% growth and 8% total growth at the midpoint of our range of thinking, assuming the mortgage market and UC and ERC declines impact our revenue growth by almost 6% in 2022. Stepping back and reviewing the macro trends outlined on Slide 22. These macros have been driving information services for the last decade. Over the last 24 months, we believe most of the macro factors have substantially accelerated. And through our 2021 acquisitions of Appriss, Kount and Teletrack and our EFX Cloud investments advantaged Equifax to benefit from these macro trends. We believe we also have unique levers at Equifax to deliver strong future growth, including Workforce Solutions above market and EFX growth and margins and our expanded focus on new data assets like Appriss Insights, the USIS recovery and non-mortgage growth and Kount ID and fraud growth; the new Equifax Cloud, which is driving our competitiveness NPIs top line and cost savings; and NPIs leveraging Equifax Cloud and our expanded resources and focus on new products; and then, of course, M&A to broaden strength in Equifax. These attractive market macros along with the broad Equifax growth levers and our strong core outperformance in the past few years give us the confidence in our ability to deliver above-market growth in the future. Wrapping up on Slide 23. Equifax delivered another strong and broad-based quarter. We had strong momentum as we move into the fourth quarter to 2022. We now delivered 7 consecutive quarters of strong, above-market, double-digit growth, reflecting the power of the new Equifax business model and our execution against our EFX2023 strategic priorities. Equifax is on offense. We remain confident in our outlook…

Thanks, Mark. I'm energized to announce that our Investor Day will take place on November 10 at 8:30 a.m. Eastern Time and will be held virtually. We've opened up online registration as of today, and the link to do so on Slide 24 is live. We are very excited to have the opportunity to update you on the progress we have made in making and executing our EFX2023 growth strategy; share with you our long-term financial framework and also our capital allocation plan; speak with you about how we are and will continue to leverage our EFX Cloud capabilities, including by continuing to accelerate our new product innovations; and provide you with overviews of the state of affairs of our business units relayed by their respective leaders. Investor Day will be an important day for our company and stakeholders, and we look forward to speaking with you then. With that, operator, let me open it up for questions.

[Operator Instructions]. Our first questions come from the line of David Togut with Evercore.

I appreciate the helpful detail in the initial 2022 framework. It appears that you're guiding above consensus for fourth quarter 2021 revenue and for 2022 revenue but somewhat below consensus on earnings per share for both the fourth quarter and for next year. John, you walked through some of the sources of pressure on margin for 2022. But I'm wondering if you could talk more broadly about headwinds and tailwinds so we can understand the variance. Is it really the $50 million, for example, of tech transformation savings that you're reinvesting in the business next year?

Yes. Happy to. So again, as a reminder, right, we're talking about increasing EBITDA margins by -- on the order of 200 basis points, so a substantial increase in 2022 versus 2021, yes. And I think the drivers are what we've been talking about all year, as I mentioned in my prepared remarks. We are reducing substantially tech transformation costs, but we are taking a significant amount of that in the order of $50 million and reinvesting it in NPI and other initiatives to drive growth and to deliver the higher revenue growth you're talking about, that you referenced in your question. Also, we do expect now to start seeing benefits, so net reductions in costs from decoms exceeding our cloud costs, and that will ramp as we go through 2022. And then -- but we are seeing some increased costs related to -- related -- in our COGS, as you would normally expect, related to increased costs for people and increased cost for some systems costs that are reducing 2021 EBITDA margins to a degree. That's not actually that unusual, generally speaking. Generally speaking, we see increased cost every year that we manage through high growth. Next year, part of what's happening, obviously, right, is we're seeing substantial negative impacts on our revenue from the weaker mortgage market as well as the reductions in EC -- sorry, in the UC and ERC markets. So that negative drive in revenue is also somewhat negatively impacting our margin expansion. But overall, 200 basis points of margin expansion next year, we think, is really an outstanding performance, especially given the fact that we're seeing such large declines in the mortgage market and then also the declines in the UC and ERC revenue that we talked about on the order of 30%.

Just as a quick follow-up. In your initial 2022 financial framework, you're guiding to 11.3% core organic revenue growth. Within that number, what is your expectation for EWS organic growth? And how do you think about headwinds and tailwinds for EWS next year?

Yes. So I think in terms of the details around how the BUs are going to perform next year, we're going to have to ask you to wait until November 10. But Obviously, we expect EWS to continue to perform extremely well.

You should obviously -- we've been quite clear that we expect Workforce Solutions to grow above the rest of Equifax. So I think you should think about it that way in 2022. I went through -- we've been through many, many times, the multiple levers that Workforce, for example, has as they finish up the year and go into 2022, and records starts at the top of that list. Adding substantial records in the third quarter, those become a benefit through the next year, their new product introductions, continued penetration. There's a lot of levers in that business. USIS, their new deal pipeline is a positive lever going forward. But Workforce is clearly going to be above that -- the rest of Equifax for really as long as we can see in the future from a growth rate standpoint.

Our next questions come from the line of Kevin McVeigh with Crédit Suisse.

Great. Mark, you talked about the vitality index up over 8%. Any sense of where you think that can go to? I mean, obviously, there's been a really significant step-up in the new product innovation. And what that can mean to the organic growth longer term?

It's clearly a priority, Kevin. As you know, since I joined almost 4 years ago and really in the last, call it, 24 months, we've really stepped up our focus on new products. As you know, we've expanded the team. John and I both talked about it in our comments this morning about continuing to invest there. And of course, the cloud transformation is central to that. That's really -- we're going to get great benefits from the cloud around cost, but we really did it to change our competitiveness. And the big piece of that is the ability to bring new products to market that we couldn't do before through multi-data solutions. And that's really where our focus is, and we're in the early days of really leveraging that. So we see real opportunities going forward. We'll certainly talk in depth in our Investor Day in a couple of weeks around our longer-term outlook for new products. But it's an area that we've invested heavily, foundationally in the cloud. You add to that our existing differentiated data assets, which we've expanded substantially this year with the addition of new data solutions from Appriss, from Kount, from Teletrack and then our focus on new products. We believe it's an important lever for delivering strong future growth going forward, and we'll give you much more detail during our Investor Day.

And then just real quick on the customer migrations, it seems like you made a lot of progress on that. Where are you in that process? And then are you seeing any incremental step-up in revenue as these customers have cut over? Like is there any way to think about what the revenue impact has been? Just -- I know it's a hard question, but just like what percentage step-up you're seeing as these customers have converted?

Yes. First on the progress, this is a big undertaking. I think you know that. We talk to you about it every quarter. We try to be quite transparent about the efforts. 2018, '19 and parts of '20 were building the technology. In '20 and '21, we've been heavily focused on implementing that with our customers, the migration. You've seen the great progress. We still got more to do. And we were clear that we expect North America, which is Canada, U.S. and EWS and USIS and, of course, TCS to be substantially complete as we get in 2022 and really complete the migrations next year. So we can see the finish line, but there's still plenty of work to do in the coming months to complete that. With regards to our impact commercially, there's a number of layers on that. And this is another area -- our intent is to go in substantial detail about how we think about that, what we're seeing during our Investor Day. We'll have our Chief Technology leader and product leader, Bryson Koehler, as well as the business unit leaders will talk about that. But you're starting to see some of the early days of that, in our view. The strong core growth, the ability to roll out new products are driving our competitiveness and driving our ability to drive our core growth. And there's no question, when we sit down with customers, we believe we're advantaged having a new tech stack that's in the cloud that can deliver 9-9s of stability, meaning very high, always-on stability, deliver data more quickly to our customers. We can deliver new products to them more quickly. It just changes who we are as a company, and it allows us to be a different company. So it's quite central to how we think about the new Equifax going forward, and it will be central to our long-term growth framework that we'll share with you in a couple of weeks.

Our next questions come from the line of Kyle Peterson with Needham & Company.

Just wanted to touch on the U.S. auto market. I know there's been a lot of concerns over chip shortages and supply constraints potentially impacting auto credit. Thinking out [indiscernible] that it's been a little bit of a headwind to Canada, but what are you guys seeing in the U.S., particularly in the USIS segment for auto credit?

Yes, similar, we could have and should have commented on that in the U.S. also. There's no question that the supply shortages are impacting the ability for consumers to identify cars or get cars, new and used and then, of course, the financing that comes with that and the business we get from that. What's been offsetting that to some regard, not fully, but is our continued penetration of new products and new solutions, like Workforce Solutions continuing to grow the use of TWN data in the auto space has been a positive. Would you add anything, John?

No, I'd say that covers it. And we're -- the good news is we're continuing to grow in USIS and auto on an organic basis even in the headwinds of the difficult market. But yes, it certainly isn't at the pace that we expected when we started the year.

Got it. That's helpful. And then I guess just a follow-up on EWS. Obviously, good to see really strong record growth in TWN and continued share gains. Moving forward, how should we think about records growth? I know you guys mentioned a few additional payroll processing partnerships in the pipeline. But how should we think about records and kind of a greenfield between some of these alternative data sources like gig workers and pension versus traditional W-2 records that you guys are going to see as prospects?

Yes. It's obviously an important focus of Rudy and the Workforce Solutions team. You've seen continued success there. And remember, we've got 2, really, levers for growth. First, our Employer Services business, which is large and comprehensive as we've delivered new solutions to HR managers around I-9 or HSA or W-2 or WOTC, all the other services. We access payroll records. So that's a very powerful engine for us to go to individual companies to obtain records. And of course, we feel like we have some real momentum in adding the payroll processors that are not with us and going after the traditional nonfarm payroll. There's still 60 million-plus consumers or individuals that are available for us in the traditional nonfarm, and we're chasing that. So that's one. And of course, with records being up 12% in the quarter, that is a very strong lever for growth that translates pretty directly into revenue because of higher hit rates. As you point out, there's also a larger universe, the nonfarm payroll, the 160 million, 170 million that are in nonfarm payroll, the gig workers as well as pension recipients. Those are 2 big areas. There's 40 million to 50 million gig workers. So we're working different strategies to obtain those records and then the same with pension recipients. So there's a long runway from our roughly 60% of nonfarm payroll. If you include self-employed and gig in there, it's much less than the 60% to continue to grow our records, which is a very unique business growth lever for our business to continue to add new data assets because, as you know, in our system-to-system integrations in Workforce Solutions, we're getting the inquiries. We can only fulfill those that we have records on. And as we grow our records, they become…

Our next questions come from the line of George Mihalos with Cowen and Company.

I appreciate you're willing to go out to 2022 in this environment. Very helpful as always. I guess, first question for me, John, if we can kind of circle back to the first question, just as it relates around margins for '22. I think you had said previously savings from redundancies and obviously, the tech transformation, we're going to be about, call it, $150 million. You're reinvesting $50 million of that now, it sounds like, so net $100 million. That roughly, by my math, gets us to kind of the 36% margin at sort of the high end, the 200 basis point increase. Is the reason why margins aren't expected to be higher than that, that the natural margin expansion within the business is being offset by some dilution from M&A and just sort of higher inflation-related expenses as it relates to wages? Is that roughly the way to think about it?

Yes. So George, as I walked through in my comments, right, so you're absolutely right. So we indicated we were going to -- we would improve our cost structure by -- on the order of $100 million by taking down transformation costs. And then we also said we'd improve our cost structure as we drove net savings, right, as decom and other cost reduction efforts drove us -- or exceeded cloud. And so we absolutely have indicated we're going to deliver on those savings, and we're still committed to delivering substantial savings in both of those areas in 2022 and beyond. But you are correct. Also, as I mentioned in my comments, we're reinvesting a substantial portion of that $50 million in new development and new development-related activities. Also, if you think about what's going on, given the fact that we're seeing a 600 basis point headwind, like the natural growth that you'd see in our underlying business that has the very high variable margins, that's somewhat lower than you would see in a period in which mortgage is not as negative as you're talking about. And you're correct, right, we're getting a nice bump from growth in acquisitions next year. But the EBITDA margins on those acquisitions in their first year is substantially lower than the contribution margin we get by growing our internal data assets. So when you kind of line all that stuff up and you include the fact that we are seeing cost increases as we do every year, right, that's certainly something we see every year, but there is a tighter labor market, so there's an expectation that some of those cost increases will be greater. When you line all those items up, you end up at about a 200 basis point increase is where we're comfortable talking about right now. Also, I just want to remind everybody, 200 basis points, right, and again, a 6% reduction in mortgage and UC, ERC is really a substantial improvement. We feel very good about delivering that. And so hopefully, the investment community can look at it in that vein.

And George, I would add to that, we'll obviously talk about a long-term framework for revenue and margins in a couple of weeks. And we've been quite clear that we see a lot of ability to grow the top line -- or we're confident in our ability to grow our top line long term at above-market level as well as expand our margins. And we've also been very clear that while we have the ability to expand margins over the long-term basis, we're also going to invest in the business. We have the ability to invest in new products. And obviously, the tech transformation, which we're completing, it has really high leverage in driving the top line. So we'll continue to have that balance going forward of expanding margins while investing in the future of Equifax.

Okay. Great. I appreciate that because I think that's what's weighing on the stock this morning. So really, really appreciate you are breaking it down like that. And then just quickly, Mark, I think if I caught it correctly, you talked about as it relates to record growth going after some more of these -- what I think of as more unbanked individuals, gig workers and the like. Can you talk about the challenges or how you go about sourcing data from that constituency as opposed to traditional W-2 worker and the like? Is it going to require sort of a different effort in terms of going after like fintechs to partner with? Or how are you thinking about that?

Yes. First, our primary focus is to continue to grow W-2 income kind of payroll records, and you see that we've had strong success in that over the last couple of years. And certainly again in the quarter, we're continuing to add to that. There's still a long runway there. When you think about 60 million, 70 million of additional individuals that are not in our data set that are inside of that, so that's kind of a primary focus. And then as you point out, we're expanding into gig. Some of the same relationships we have, companies process on their own contractor payroll, we'll be able to pick that up. Some payroll processors have kind of self-employed solutions where there's an ability to pick up data that way. There's other HR software providers that will help us through partnerships lead to some of those kind of records. And of course, the pensioner income at 20 million to 30 million comes from individual companies that process their own pension income or other companies that do that for companies. So we've got a multifaceted approach on that. Really, the point we make in identifying that is that our lens is wider now, and there's still a long runway of this important lever to grow records Workforce Solutions. As you know, we don't talk about adding data assets in our other businesses. What's unique about Workforce is that it's only a decade old, and it only has 60% of nonfarm payroll, so there's a ton of room to grow. And then that gets bigger, as we both pointed out, as you add gig and pension into that space.

Our next questions come from the line of Toni Kaplan with Morgan Stanley.

I wanted to start with Appriss. At the time of the acquisition, you had talked about strong accretion in '22 from that deal along with the Health e(fx) and Teletrack acquisitions. I guess, how much is embedded in your '22 EPS expectations from the deals? And maybe you could help with some of the assumptions behind the significant accretion because I think some investors and myself were getting a little bit more neutral.

So it's absolutely accretive in 2022. Certainly, I'm not going to give a specific number for the level of accretion for the acquisitions. But kind of similar to the response I just gave with regard to margin movements, so we do expect good EBITDA margins from those acquisitions. And the level of margin that we're generating from that certainly exceeds the cost of the interest expense, which we also detailed in our revenue book. So we're seeing nice accretion, and so -- which would be consistent with strong from what we talked about back in August. But just in general, right, the level of margins we look at from an acquired company like Appriss or anybody else in the first year out, the incremental margin we generate from those companies isn't anywhere near the level of incremental margin we generate from incremental organic sales at Equifax. So the reason why they're somewhat dilutive to our EBITDA margin in total is because of the fact that the variable margin we achieved on our direct sales is certainly substantially higher than the level of margin we generate from the acquired company in its first year out.

Got it. And then just looking at the revenue trends in the appendix, look like non-mortgage online info in U.S. was good at positive 15%, but it did decelerate relative to last quarter. Is that because of the auto softness? Or are there other verticals that are impacting that as well? And it does seem like the banks are talking about the lending environment getting better. Are you expecting that in the fourth quarter or next year? It did look like in your levers page, your macro levers page that maybe it gets better. But I'm just trying to understand sort of how much that is going to be a driver and what you're seeing in the lending environment.

I think the biggest driver of the growth rates that you're looking at really is the fact that in 2020, we saw a meaningful improvement in the third quarter relative to the second, right? So the growth rate in the second quarter of 2020, as we talked about when we did the release, was elevated partially because of the fact that it was such a weak quarter and we saw some improvements in the third quarter last year, right? So that's part of what's driving the fact that the -- that's a significant driver of what's driving the growth rates to be down. But in terms of overall performance, I think as Mark referenced, we feel good about banking and lending. We have a nice growth there in the quarter, again, as we -- we had nice growth in insurance, nice growth in commercial. Identity and fraud was strong. And importantly, Financial Marketing Services was very strong, right? So -- but again, as you look into the fourth quarter, similarly to what I just talked about the fourth quarter of last year was a nice improvement from the third quarter. So we'll have some of the grow-over effects that we talked about in the third quarter. But we continue to believe we're going to see nice non-mortgage growth in USIS in the fourth quarter.

Our next questions come from the line of Andrew Nicholas with William Blair.

My first question was just going to be on the talent solutions business. Obviously, as it gets to become a bigger and bigger piece of Workforce Solutions, I think you said 30% of non-mortgage. Just wondering how you think about the cyclicality of that business. We've talked about the tight labor market. But as you're thinking about '22 in particular and embedding that type of growth or some level of growth for that business, how do you think about new product innovation relative to existing client growth or hiring activity and how that impacts performance in that business over a shorter time frame?

Yes. First, I think the underlying macro of 75 million people changing jobs every year, that macro doesn't really change much over time, meaning lots of people change jobs, and that may go up or down at some. But underlying that is that there's some level of data used in each of those job moves. So that's a macro that's quite good. The other thing that's changing that we think is going to be a permanent change is the desire by companies to complete that process more quickly. Meaning they've made an offer to someone getting them on the floor in the warehouse or the factory or in the retail establishment or in the restaurant in hours or days versus weeks. And the only way to do that is through instant decisioning. So I think that's the fundamental structural change in the business, the ability to use data to speed up the processes. For us, what we're really having the growth in is building out this data hub, which remember is only a year old or whatever. We're starting to leverage the 4.5, 5 jobs we have in the average American from our TWN database. Remember 0.5 billion of historical records and then adding to it new data elements like Appriss Insights, like medical credentialing, the National Student Clearinghouse of Education, that's all new turf for Equifax. As we combine those, you're going to see products coming out. You already are. We're rolling out new products quite rapidly for talent solutions where we have different solutions of more or less historical data. And we'll move to, in the coming year, solutions that are more targeted to specific jobs, a job that requires what was your last employer, what was your last 2 employers, verifying your licenses, verifying where did you go to school. Some jobs require that, some don't. So we'll come up with solutions that will be packaged to speed up that process for the background screeners and the hiring managers in order to speed up the ability to hire that individual more quickly. So we see a lot of opportunity for growth in that. That's a $5 billion TAM. Our business is quite small when you think about $5 billion worth of data. And that's why we're investing through new products and through innovation and, of course, through the acquisitions that we've made or the new partnerships like the National Student Clearinghouse.

Great. That's helpful. And then just 2 quick modeling questions. The first was, I think the legacy system savings that you had outlined in prior investor presentations was $85 million year-over-year. I just want to make sure that's still the number to think about. And then also, if you wouldn't mind speaking to whether or not the SSA contract was fully ramped this quarter.

Yes. So in terms of modeling, again, for 2022, what I'd ask you to focus on is the guidance we just gave, right? So what we try to do is give you a fairly detailed walk from this year to next year. And obviously, there's a lot of moving parts in what's driving our EBITDA margin movement, which was some of the questions we had earlier. So I ask would be a focus on the walk we gave in the 200 basis points of margin expansion when you think about 2022 relative to 2021.

And on SSA in our comments, we -- I noted that we launched the program. We started delivering data to them at kind of early levels. And we expect that to ramp as we go through the fourth quarter and into 2022 and get to run rate sometime in 2022. It's a substantial and positive contract for us, but it's in the start-up mode now, which is positive to have it started after a lot of years of building this new solution and getting it integrated with SSA.

Our next questions come from the line of Hamzah Mazari with Jefferies.

My question is just around the integration of the M&A you've done. You kind of talked about 2022 seeing synergies roll through. Could you just give us examples maybe what integration is yet to come? What's behind you? And then when do you reengage in the M&A market? Is it more of a -- can you do that next year? Or is sort of we wait until this integration is done and then you get back more aggressive on M&A? Just any thoughts on that.

Yes. No. We're actively -- as you know, we have completed 8 acquisitions this year and a couple of them substantial, particularly Kount and Appriss. We're much further along on integrating Kount, as you might imagine, because we completed that deal in the first quarter. Appriss was only completed a couple of weeks ago, so we're still early days of starting that integration. The cloud allows us to integrate more quickly. And as you know, our focus is to bring their unique data into our single data fabric. So that's underway with all of the acquisitions in order to drive their growth going forward. And we're seeing in Kount early positive days of top line synergies and very pleased with the plan on that acquisition. And we're very energized about Appriss and, of course, all the other acquisitions that we completed. The synergies from these acquisitions, I think we've been very clear when we announced the acquisitions, come in over multiple years. They start in year 1, like in 2021, there's some early synergies, they build. And year 2, in this case, 2022 for those 2 acquisitions and then they'll continue. And we've talked about kind of year 5 synergies in some of the acquisitions being quite substantial, and those build over time as you roll out the new solutions, the new products and fully integrate the business into our cloud capabilities and our single data fabric. With regards to your second question, we were clear when we announced Appriss a couple of months ago that we were going to pause on substantial M&A for a number of quarters, number one, to focus on integration; and number two, to bring our leverage back in line. So to answer your question, we would expect to be back doing M&A in the latter half of 2022 or somewhere in that time frame. We haven't stopped our corporate dev team of continuing to be in the market to look for M&A that would be a meaningful and accretive. And I hope you get a sense that we're quite disciplined about the kind of M&A we want to do. We've been very clear for a number of years about acquisitions we want to do around differentiated data, identity and fraud and broadening and strengthening Workforce Solutions. And the deals we've done this year have checked all those boxes, and you should expect the deals going forward to do the same. And also with the financial discipline that over the long term, they're accretive to our long-term growth rates and into our margins. We want to do deals that strengthen Equifax, broaden Equifax, but also enhance our financials and drive shareholder value.

That's very helpful. And just a follow-up question. Just on the International business. I know you flagged your expectation of Australia GDP for 2022. But any -- do you expect to see benefits from the tech transformation on the International business as early as next year? Or does that come a bit later?

Most of it comes later, although Canada is well down the path of their tech transformation. They should get some benefits in '22. And there's some early benefits in U.K. and Spain and Australia as we get into 2022. But the bulk of that is going to really come particularly in Latin America in the latter parts of the year as we get into 2023.

Our next questions come from the line of Andrew Steinerman with JPMorgan.

Two questions. The first one, could you just tell us how much mortgage revenues as a percentage of total third quarter Equifax revenues there was? My second question is about tech transformation expense. I want to know if you can indicate what the tech transformation expense drag on '22 EPS is compared to the $1.01, the $1.01 for '21, which is referenced on Slide 7, Footnote 5.

Yes. So in terms of the mortgage as a percent of total, it's just under 32%, and that's obviously down significantly from where it was last year, and it will go down again in the fourth quarter. So in terms of tech transformation expense, I think what we've indicated is that this year, we expect to incur about $165 million, and that's how you get to the $1.01. And we've indicated that we expect to reduce by about $100 million. It's not a perfect number, right, but by about $100 million next year. So that would be on the order to -- on the order of $60 million to $65 million next year. But obviously, we'll refine that as we move through the fourth quarter and give you a really formal guidance as we get into early next year.

Our next questions come from the line of George Tong with Goldman Sachs.

Your 3Q revenues beat guidance by about $50 million, while your full year guidance increased by about $130 million at the midpoint. I know Appriss is adding $150 million in annual revenue. But how much of the increase in the guide above the 3Q outperformance is due to contributions from Appriss and other acquisitions versus improved assumed performance in 4Q with the underlying business?

Yes. I think we indicated in our prepared remarks, it's about $45 million.

In the fourth quarter.

In the fourth quarter. Sorry.

Acquisitions, George.

Okay. Got it. And the remainder from performance -- outperformance in the underlying business?

Correct.

Okay. And then in your slides, you mentioned that USIS non-mortgage is expected to outperform the underlying margins in 2022. How much of that outperformance is due to M&A? And how much is due to organic outperformance versus underlying markets?

You're breaking up, but I think your question, George, was in 2022, our mortgage outperformance, how much is from M&A versus the core business. Is that right?

Yes, versus organic. Yes.

Yes, it's substantially all organic.

Yes. So if the question was non-mortgage in USIS, then our statement was intended to be organic, right? So we're expecting them to outperform their core market on an organic basis.

And the Workforce Solutions acquisitions are -- really don't have an impact on their outperformance in mortgage.

Our next questions come from the line of Jeffrey Meuler with Baird.

Yes. On '22 margins, are you viewing '22 as a year where it's still pretty depressed by onetime expenses? Or are you viewing it as a good kind of underlying baseline where there's always going to be some puts and takes? I guess there's still $65 million of TTI on top of that. I think even though the net cloud costs are going down, there's still probably some fairly material duplicative systems cost that you can work down over time. Not trying to ask if you're at peak margin because I know you can increase margins at the acquired businesses, you have good incrementals on organic. But just trying to understand if you're viewing '22 as still a fairly depressed figure or if it's a good underlying for us to consider how we go forward from thereon.

Well, I'll start on that one, and John can jump in. We'll -- in a couple of weeks in our Investor Day presentation, we'll certainly give you our long-term framework around top line and margin growth. And we've been very clear, you should expect that to include our ability to grow our margins going forward. And '22 is clearly -- I don't know if you want to call it still a transitionary year. There's -- you've got the mortgage market impact, obviously. And then as you point out, we still have substantial cloud transformation costs in 2022. So we're not at a normal run rate in 2022. John?

No, you covered it, right? So we just -- I think we just had an earlier question about how much transformation expense was still -- investment was still in 2022, and we gave a number of -- we're at $165 million this year, and we said we'd reduce by about $100 million, so that's still in the P&L next year. And then also, we are delivering cloud savings. So our net cloud cost over decommissioning is a positive next year. But we've given a long-term model where we expect to deliver substantial savings when the cloud transformation is complete. We're still committed to that, right? So the exact timing as you move through any given year, obviously, moves around a lot based on decommissionings and the pace of ramp of individual systems. So it's hard to be specific in any -- about any specific number as far as 15 months out. But we are absolutely committed to delivering a net savings next year versus the net cost this year. And then also there's substantial savings still to come as we get through 2022 and then -- and into '23 and '24. Obviously, those don't complete until we complete the International transformation.

Very helpful. And then we get asked a lot about BNPL and if it's cannibalistic to card, including from a bureau transaction or underwriting perspective. I would expect you to have a pretty unique view into that given Australia is a more developed BNPL market, plus you obviously have a nice bureau share there. So would just love your thoughts on BNPL and over time, if you'd expect it to be cannibalistic to card or not.

That's a different question about cannibalistic card. As far as a card issuer, I think some card issuers are probably seeing some pressure from BNPL, meaning consumers are using that instead of using their credit card to make purchases. When it comes to Equifax and our industry is providing data, BNPL, we sell a bunch of identity data to BNPL players around the globe. And increasingly, they're starting to use alternative data as a part of their underwriting, even in some -- many cases, credit data, meaning credit file data going forward. So I think if you look at the total pie on consumers using cash or debit versus BNPL and credit, the pie is growing, meaning consumers are using this as another way to finance their purchases, which from an Equifax perspective, we view as a good thing. And we've got discussions with all of the BNPL players about using our data and our identity data because you have to verify the identity of the consumer before you offer them financing even on a pair of jeans, so going forward. So we view it as a net positive for the credit bureaus and Equifax.

Our next questions come from the line of Manav Patnaik with Barclays.

John, I agree the 200 basis point margin expansion is obviously strong given all the headwinds. But I was hoping you could just help us maybe with some order of magnitude. I heard 3 things that are the tight labor market and that increase in cost, the acquisition impact and then the 600 basis point decline in EC and UC revenues or whatever. So like how much of a headwind were each of those?

I would start with number one is that, Manav, we're continuing to invest more next year than this year. We're intending to around new products innovation, DNA, customer growth. We see real leverage in doing that. So John talked about that. Go ahead, John.

Absolutely. Look, Manav, I'm not going to size them specifically, right? But we referenced them because they're all meaningful to us, right? So they're all impacting margins. But again, 200 basis points increase in a market where there's 600 basis points of headwinds from mortgage and then obviously UC and ERC, which is we think is a very good outcome. So we think we're delivering substantial savings from reduction in transformation. And as we indicated, we will start delivering savings on net -- sorry, net cloud relative to decom and other cost savings. So we feel good about the direction we're headed, and we feel good about delivering 200 basis points of growth.

Got it. Okay. And then maybe just some modeling items, just so that we get the directional numbers right. Could you just give us what the 2021 EC and UC revenues were so that we can model that 30% decline? And then the same thing, I guess, the D&A, interest expense and CapEx, please?

For the third quarter? I think we gave it in the script. I think we...

No, for 2021, like what is the number? Just so that we can do the 2022 modeling, you gave us some changes.

So I understand the question. So we'll think about that. Obviously, we're going to be together again in a little over 2 weeks, and perhaps we can provide a bridge. But we gave -- I think we gave details on a 30% reduction. We said the 30% reduction was 1.25% of revenue. so I think between those 2 numbers, you'll get pretty close to the exact number, but we haven't disclosed it yet. But -- and I apologize, I don't have it at my fingertips. But I think with those 2 pieces of information, you can get really close to the UC and ERC revenue in '21 and 2022.

Our next questions come from the line of Ashish Sabadra with RBC Capital.

Two questions. First one is on pricing. You obviously have a very strong pricing power, and there were some pretty good pricing increases in the verification business. How do we think about pricing increases going forward? And then just second one, on the $50 million of investment, how do we think about that investment? I know you talked a lot about it. But is this like a onetime investment? Or should we think about having this like $50 million investment every year over the next several years? So color on both fronts.

Yes. And so on the investment one, we will continue to balance as we have, since I've been here, balance growing our margins while investing in the business. And the $50 million that was referenced is areas where we see opportunities to continue to grow our investments in new products and DNA in order to drive our top line, and that's really around leveraging the cloud. I'll leave the long-term discussion until a couple of weeks on November 10 during Investor Day, where we can talk in more detail about that balance. But we've been very clear that we expect our margin -- we expect to expand our margins going forward while investing in Equifax. And there'll be a balance there that we think is the right thing for Equifax and for our shareholders over the long term. John, do you want to take the first question? Your first question was around verification revenue, and you want...

That's right, the pricing power.

Pricing, yes, yes. The pricing is one lever that we use across Equifax. Workforce clearly has more pricing power than our other businesses. And we expect to have price be a positive for us in 2022, and that's inside our early framework. And of course, we've got many, many other levers that we focus even more strongly on. New products is a big one in verification. Of course, the number of polls penetration, those will all drive the business and, of course, records underlie driving verification.

Our next questions come from the line of Craig Huber with Huber Research Partners.

Maybe if you could touch on your personal finance area and the credit cards area within your traditional credit bureau business. How did that do in the quarter? What's your near-term outlook for that, please?

Yes. I don't think we gave any real specific details on it. I can give you some color is that as we expected coming out of COVID, we expected cards and P loans to see some positive momentum, which we have, particularly around marketing. As you know, the card issuers and P loan issuers in 2020 really stopped a lot of the marketing because of the uncertainty around where the consumer was going to be. And now as you got into 2021 and certainly through the third quarter, we've seen an increase in marketing. You've seen that in our numbers. A lot of our marketing performance in USIS is from cards and some from P loans. And we expect to see issuers continue to try to acquire more customers and build up their balance sheets, which have come down as consumers have been paying down a lot of balances. So there's quite a bit of marketing activity going on, and we expect that to continue in the future.

The bulk of our -- the bulk of that business for us, obviously, is in banking and lending. And Mark talked about the growth we're seeing in banking in the third quarter and second quarter, right? So we've seen double-digit growth both quarters.

I appreciate that. My follow-up question on the Global Consumer Solutions area, maybe just touch on your outlook there, the next couple of quarters, if you could, in the direct versus the indirect side. I think you just sort of touched on a little bit right there but just go a little further detail on that.

Yes. I think we talked in our comments that we expect the partner business to return to growth in the fourth quarter. It was clearly impacted by the tightening of originations by a lot of their customers, and on the direct business, we expect the same.

Our next questions come from the line of Gary Bisbee with Bank of America.

I wanted to go back to records growth for a minute, and you've had tremendous success with the payroll channel. And it sounds like you've got maybe at this point, the three major players. I know there's some reasonably chunky players after that, but then it fragments my understanding pretty quickly. Is that enough to continue to deliver double-digit records growth? And I guess, how meaningful at the moment or over the next 12 to 24 months or some of these other opportunities like the 1099 workers or pensions? And are there other sort of types of players beyond payroll that have data that could further -- you could do deals with to further support growth of records? Look, we get why it's been unbelievable. I guess I'm just not certain if payroll being a big piece of that can drive the next few years like it has the last few.

So Gary, as we've talked about, we get the bulk of our records through our Employer Services business, and that's a steady increase in records, and 60% of our records come from that. So that's clearly a base area of focus where we have a dedicated team on the partnership side. They can be a little bit lumpy when you bring in a larger payroll processor. But there's still a lot of runway in that vertical, if you want to call it that, of continuing to expand those partnerships. And as we said, we've got continued momentum there and very active dialogues about them wanting to join. Another area for records is around HR software partnerships where they have access to records because of the software being embedded in an individual company. Both companies, as you know, process their own payroll. Some use their own systems, but most use some third-party systems. So that's another avenue for us in order to access records. And then we talked about our focus on gig and pension to go even further as far as our record addition. So we see a lot of runway in our ability to continue to grow records, which is, as you know, is a very valuable lever for top and bottom line growth at Workforce Solutions.

And then just one more on that topic. You mentioned new products a lot. And I know a few times in the past, you've talked about substantially higher-priced products like $100, $150, $200 versus $10 and $20 or whatever the typical. But can you give us just maybe an example of one that is in the market driving revenue, what the price point is or what is unique about the new offering versus the traditional levels of income and employment? I just would love...

Yes, sure. There's a bunch of them. I'll give you a couple in mortgage. In mortgage, our typical solution is a report that shows current income and employment, and it verifies that. And that might sell for $20 to $40, somewhere in that range. And as you know, because we have the 0.5 billion of historical records, in some mortgage applications, the complexity of the consumers' income, let's say, that they've changed jobs recently, so they don't have a lot of job history. Or let's say, that they get a lot of incentive-based income, he's either a salesperson or some other incentive-based income, meaning it's lumpy when the income comes in. They get it at the end of the year. And many of those solutions, you require more history. So we have it. So instead of selling that, call it, $20 to $40 solution, we'll sell a solution that has 24 months or 36 months or even 48 months, all different products, and those price points are in the $100, $150, $200 range, meaning substantially higher, and again, leveraging our historical data. Another mortgage solution is Mortgage Duo, which we rolled out in the last couple of months. Some mortgage applications have 2 income owners on it, a husband and wife using that example. And in the old solution, and it's still used, the originator would pull on the husband for $20 to $40 and then on the wife for $20 to $40 using that kind of a couple. We have a solution now that's priced between, I think, $175 and $200. It provides both reports at the same time. It also allows, I think, in that solution, a second poll somewhere in the mortgage application process. So substantially above the price point and again, delivering value to the originator because they're looking for speed and looking to complete it quickly. That's really the solution there. Turning to I-9, we've got an I-9 solution that typically, John, the I-9 traditional is in the $10 to $20 range?

More like $30 to $40.

$30 to $40.

I-9, sorry, you're right, $10 to $20.

$10 to $20 range is I-9, and we've got a new solution we've talked about the last couple of quarters that we rolled out that's an I-9 anywhere that allows the applicant to complete it on an Equifax app, the I-9 process, and then go verify it at a couple of thousand different sites across the United States that we do through our partnership. And that solution instead of being in, call it, that $10 range is in the $75 to $100 range, providing real value. Now the value is to that applicant and the employer to speed up the I-9 process so that individual can get on the job, on the floor, in the factory, in the restaurant. So a couple of different solutions in talent, same thing. We're starting to have solutions instead of just pulling a where does Mark work now solution, having more history because some employers want that. Some employers want where is Mark working now or the job that he's leaving. They want to verify that. Others will want to verify employment for the last 2 or 3 or 4 jobs. And as we mentioned earlier, we're going to be productizing a more comprehensive solutions that combine not only work history from our TWN database to 0.5 billion records that we have or the average 4.5 jobs on the average American. That work history, we're going to be adding to it incarceration data from Appriss, medical licensing and credentialing data from Appriss, university, secondary education college degrees from National Student Clearinghouse. Those will all be productized in a solution that will deliver more value, deliver more speed and at a higher price point than the individual solutions because of the value that it adds in speeding up that process. So those are all some examples of where we're focused on. And these are all driven by the new Equifax Cloud. These are things that would have been very challenging to do with the pace that we're doing it. In this case, we're talking mostly about Workforce Solutions, but the same across Equifax.

There are no further questions at this time. I would like to turn the call back over to Dorian Hare for any closing remarks.

Thank you for joining today's call. Looking forward to joining you again for a robust discussion when we have our Investor Day on November 10. Once again, the registration is currently open, and there is a link to the Slide 24 where you can register for our Investor Day. We'll also be releasing a press release later today with those details. This does conclude the call.

Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great day.