Hello, and welcome to the Equifax Q4 2021 Earnings Conference Call and Webcast. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Dorian Hare, Senior Vice President, Head of Corporate Investor Relations. Please go ahead, sir.

Thanks and good morning. Welcome to today's conference call. I'm Dorian Hare. With me today are Mark Begor, Chief Executive Officer; and John Gamble, Chief Financial Officer. Today's call is being recorded. An archive of the recording will be available later today in the IR Calendar section of the News and Events tab at our IR website, www.investor.equifax.com. During today's call, we will be making reference to certain materials that can also be found in the Presentations section of the News and Events tab at our IR website. These materials are labeled Q4 2021 Earnings Conference Call. Also, we will be making certain forward-looking statements, including first quarter and full year 2022 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 our filings with the SEC, including our 2020 Form 10-K and subsequent filings. We will also be referring to certain non-GAAP financial measures, including adjusted EPS attributable to Equifax, adjusted net income and adjusted EBITDA, which will be adjusted for certain items that affect the comparability of our underlying operational performance. These non-GAAP measures are detailed in reconciliation tables, which are included with our earnings release and can be found in the Financial Results section of the Financial Info tab at our IR website. In 4Q 2021, Equifax incurred a restructuring charge of $8.6 million or $0.05 a share. This charge was for COGS principally incurred to reduce technology development expense as we complete the Equifax data and cloud transformation. This restructuring charge is excluded from adjusted EBITDA, adjusted income and adjusted EPS. As we have previously discussed, in July 2019, we entered into a settlement agreement to resolve the U.S. consumer class action litigation arising out of the 2017 cybersecurity incident. That settlement agreement has been the subject of numerous court appeals. On January 10, 2022, the U.S. Supreme Court denied the last remaining petitions seeking to appeal, and the settlement agreement became effective as of January 11, 2022. In January, we deposited the remaining $345 million into the consumer restitution fund, and the claims administrator will begin to validate consumer claims. As a result, in the fourth quarter, we eliminated – excuse me, as a reminder, in the fourth quarter, we eliminated our GCS operational segment and moved its lines of the business into Workforce Solutions, USIS and International in Canada and Europe. As a result, Equifax now has three operating segments. In our remarks today, we will discuss 2021 and fourth quarter results as well as our 2022 guidance focused on this new structure, unless we indicate otherwise. For your reference, we have included in our 4Q 2021 earnings release Q&A reconciliations of our 2020 and 2021 prior business unit operating segment results to this new structure. Now I'd like to turn it over to Mark.

Thanks, Dorian, and good morning. Before I get to our strong fourth quarter results, I'd like to spend a few minutes discussing the tremendous progress and outstanding results we delivered last year. As shown on Slide 4, our financial performance in 2021 was very strong and built off an equally strong 2020. Revenue was up 19% with organic local currency revenue growth of 15% and core non-market growth of 22%, all well above our new 8% to 12% long-term financial framework, reflecting the strength of the new Equifax growth model. Adjusted EPS at $7.64 was up 10% and adjusted for the change in treatment of transformation expenses in 2021 was up a strong 24%. This is truly an outstanding year, substantially stronger than we expected when we started 2021 and despite a U.S. mortgage market that was down more than we expected at 7.5%. We delivered eight consecutive quarters of double-digit growth and 2 years of strong above-market performance with 17% growth in 2020 and 19% growth last year. Workforce Solutions delivered a milestone with revenue over $2 billion for the first time, up 39% with organic revenue growth of 34% and the business is up 2x from their 2019 revenue of $915 million. This was again driven by very strong performance in Verification Services with revenue up 46% and organic revenue growth of 41%. Active records on the work number grew by a very strong 22 million records or 19% to 136 million records at the end of the year. Mortgage revenue was up 41%, almost 50 percentage points stronger than the underlying market. And non-mortgage revenue in Verification Services had organic growth of 41% driven by talent solutions with organic growth of over 100%. USIS also had a strong year. Non-mortgage revenue was up 16% with organic growth…

Thanks, Mark. Before we discuss 2022, I’ll share a little more detail on 4Q 2021. In 4Q 2021, items below operating income, specifically net interest and other expenses and effective tax rate, came in combined slightly weaker than expected. Net interest and other expense was slightly weaker than we expected, and our 22% effective tax rate was very close to the guidance we provided. As Mark referenced earlier, Equifax EBITDA margins came in as expected in the fourth quarter at 32.2%. The factors resulting in the year-to-year decline were considered in the guidance we shared in October. Specifically, two-thirds of the decline was driven by the treatment of cloud technology transformation costs in 2021, including them in our adjusted results. Remaining one-third of the decline is driven by the items Mark discussed earlier, specifically the impact on Workforce Solutions and USIS of the acquisitions completed in 2021 and the increased royalty costs. As Mark discussed, regarding the acquisitions, we expect to deliver synergies that will support higher EBITDA margins as we move through 2022 and 2023. And the higher royalties at Workforce Solutions were partially driven by cost related to the start-up of the significant new payroll partners launched in the second half of 2021. As I will discuss in detail in a moment, we expect 1Q 2022 Workforce Solutions margins to return to exceed 55% and overall, Equifax EBITDA margins to return to approach 35.5%, up about 325 basis points sequentially. Let’s start with more detail on our assumptions for the U.S. mortgage market. As shown on Slide 11, in 2022, we are expecting a 21.5% year-to-year decline in the U.S. mortgage market credit inquiries. With a more rapid increase in the U.S. mortgage market rates we have seen in the first quarter, reaching 3.6% last week, consistent with…

Thanks, John. As highlighted on Slide 20, we remain laser-focused on our EFX2023 growth strategy to leverage the new EFX Cloud with innovation new products. EFX2023 is the foundation of our new 8% to 12% long-term growth framework and the foundation of the new Equifax. We continue to make significant progress executing the Equifax cloud data and technology transformation. We now have about half of our revenue being delivered from the new Equifax cloud. This will build meaningfully in 2022 as we expect to substantially complete our North America cloud migrations. We’ve now completed almost 112,000 B2B migrations, over 10 million consumer migrations and 1 million data contributor migrations. In North America, our principal consumer exchanges are in production in the new Equifax cloud-based single data fabric and delivering to our customers. Our International transformation is also progressing and is expected to be principally complete by the end of 2023 with some customer migrations continuing into 2024. We remain on track and confident in our plan to become the only cloud-native data analytics and technology company. We’re in the early days of leveraging our new EFX cloud capabilities, but remain confident that it will differentiate us commercially, expand our NPI capabilities, accelerate our top line growth and expand our margins from the growth and cost savings in 2022 and beyond. At our Investor Day in November, we discussed how the execution of our new EFX2023 strategic priorities, including the Equifax data and technology cloud transformation, will lead to stronger revenue growth, faster margin expansion and higher adjusted EPS growth. We introduced the new Equifax long-term financial framework shown on Slide 21, with total revenue growth of 8% to 12%, including 100 to 200 basis points of growth from bolt-on M&A. We also expect to deliver margin expansion, as John mentioned…

Thank you. [Operator Instructions] Our first question today is coming from George Mihalos from Cowen. Your line is now live.

Good morning. This is Allison on for George. Congrats on the strong results and outlook. And thank you for taking my questions. I was hoping to drill in a bit more into the mortgage market estimate. Given how rates have been moving, I was curious if you can comment on how the 21.5% decline in mortgage market increase estimate was derived in terms of the 10-year yield in mortgage rates? And how comfortable you are with that estimate?

Yes. I’ll start, and John, you can jump in. As you know, forecasting the mortgage market is quite challenging. The good news is we have a lot of history which we rely on, and we have a lot of data that we rely on. But I would – you make the point that it’s obviously challenging. But we look at all of our data elements of the track record of new home purchases in the marketplace, the refi market. John went through some detail on the still sizable population of homes in the United States that will benefit from a refinancing. He also highlighted the significant increase in HPA or home price appreciation, which is I think 30% for most geographies across the United States. So the availability for consumers to access equity in their homes through a refinancing. Those certainly weighed in. And of course, offsetting that, as you point out, is the higher interest rates, which reduced the number of homes available for refi. So those were all the factors that we put into our models and our analysis. And we thought 21.5% was the right place, given everything we see today, obviously, down dramatically from the minus 15% we were using for really the second or the last portions of 2021 as we were looking forward to 2022. And then, of course, we’re pleased that the core performance of Equifax is strong. And we can offset that with our core growth, particularly from Workforce Solutions from the momentum in the fourth quarter, the strong addition of records, which helps power their business and broadly the strong performance of Equifax.

We also look closely at run rates. So really through January through early February, the run rates are consistent with what we’ve talked about in our first quarter – the first quarter estimate down 24% wasn’t changed that really materially from the estimate we gave in October. So we look closely at those run rates. We think they’ve been relatively predictive. And we’re also, as Mark said, we try to be very open about what we’ve assumed. So that if you have a different view on mortgage, at least you’ll have a very good view as to what we put into our numbers, and you can obviously act accordingly.

Okay. Thank you for that. That’s helpful color. And then just as a quick follow-up, shifting to EWS. How should we be thinking about pricing as a driver for 2022?

Yes. As you know, we don’t talk about specific pricing actions, but all of our businesses use price on an annual basis to offset inflation, of course, but also reflect the value of the solutions that we’re delivering. And we’ve been quite clear in prior discussions with you and our other investors that Workforce Solutions has more pricing power because of the uniqueness of the assets they deliver and the scale of the database. So it’s clearly one of the levers. But as you know, that’s only one. They’ve really ramped up their new product rollouts in the last 12 to 18 months, leveraging the cloud, particularly in the second half of 2021. And we talked about new solutions that we’re bringing to market in the mortgage space, for example, where we have mortgage solutions that provide more history at a meaningfully higher price point than the single solution that we have or the co-borrower solution that we now have called Mortgage Duo that is priced over $175 per poll because it provides real value on co-borrowers. So those are examples of leverage that Workforce has. And of course, the other levers, the adding of TWN records, our TWN records being up 19%. The new relationships that we’ve signed exclusively in the latter part of the year that we’ll be adding to our records in 2022. As you know, because of the very large volume of inquiries that we get on a system-to-system basis or through the web, as we add new records, we’re able to monetize those really instantly. So that 19% is another very meaningful lever for Workforce Solutions as we move into 2022.

Great. Thank you.

Thank you. Our next question is coming from David Togut from Evercore ISI. Your line is now live.

Thank you. Good morning. Appreciate all the helpful detail. If we start with the 136 million active work number records from Q4, add the three agreements you signed with payroll processors, you had additional work number records, how should we think about active work number records estimated for year-end 2022 and then the associated hit rate?

Yes. As you know, we don’t give detail around kind of guidance on the records that we’re adding during the year. We try to be very transparent about current period record additions. And as you know, those were added at different points if you think about 2021 during the year, so you get a year-over-year benefit in 2022 for the record. So the 19% increase will benefit the Workforce Solutions in 2022. And then, of course, these new agreements that we mentioned that we’ve signed with major – some of the larger payroll processors on an exclusive basis, we’ll be adding at different points during the year. It takes time to build the system integrations and to bring those into our data set. And then, of course, as you know, close to 60% of our records come from individual company relationships that we have from our Employer Services business. And that’s a very active area for us to add records, which we do on a – kind of on a daily, weekly basis. Actually, John and I get a report every Friday of records that are added. And those are – we’re really strengthening our ability to add records from individual companies as we build our Employer Services solutions, whether that’s I-9, Work Opportunity Tax Credit, HCA, W-2. And as you know, we did three acquisitions last year that add to that space, including one this week, that grow our solutions and Employer Services business, but they also bring records. So we have a really a multisided approach and really scale focus on adding records. And just back on the payroll processors, we still have a pipeline of the relationships we don’t have. We’re in active dialogues with those as we’ve talked about. We have real momentum. As you know,…

Thanks for that. Just as a follow-up, John, for the first quarter, you’re guiding Workforce Solutions revenue growth over 25%, which is well above the 15% guidance for the full year. Can you talk through the cadence of expected Workforce Solutions revenue growth throughout 2022? And what puts Q1 so far above the full year guide?

Yes. The big – one of the biggest factors would be the fact that we did the large acquisitions in the second half of this year. So you wrap around the addition of that revenue as you get into the third quarter, but principally the fourth quarter. But overall, we expect Workforce Solutions to continue to perform extremely well and drive very high organic growth throughout the year.

Thank you.

Thank you. The next question Is coming from Kevin McVeigh from Credit Suisse. Your line is now live.

Congrats. On the Vitality Index, it seems like you’re clearly outpacing that. And if I heard you right, it’s about 10% in 2022. Maybe help us understand that. Is that just a function of some of the more recent product that’s been brought to market or broader acceptance? Just what’s driving that outperformance?

Yes, and yes. And I think you know, and I hope you get a sense that it’s a huge priority of ours. We really ramped up our focus on new products, I’d call it, two years ago when we added significant resources, meaning new people. I think as you know, we have for the first time now in the last two years a Chief Product Officer, who is on my leadership team. We’re really driving, leveraging our differentiated data and the Equifax cloud. And what you’re seeing is the – I would call it the early days or early innings of our ability to leverage the cloud. Of course, while we’re more than halfway as far as kind of cloud complete, that will substantially accelerate in 2022, that half that is complete is starting to take hold, where what’s happening is what we thought would happen is we’re able to combine data assets, bring new solutions to market much more quickly. So it’s a combination of resources and focus. We have a monthly deep dive, John and I with the product team around their pipeline and then the ability to leverage our new capabilities. This is why we invested in the cloud, why we invested in a single data fabric was our ability to ramp up new product introductions. And as you point out, going from 5%, 6% a couple of years ago vitality to we started last year hoping to do 8%. We ended at 9% vitality. And then as you point out, to be – have a goal in 2022 of 10%, that’s $0.5 billion of new products introduced in the last three years. And we’re very deliberate about how we define a new product. It has to be new-new. And we view that as a very attractive growth lever for us. As you know, new products and incremental revenue are very high incremental margins for our business. And it’s inherent in our long-term framework that we rolled out in November, where we increased the low end of 100 bps and the high end 200 basis points of our total growth going forward that NPIs will be a meaningfully part – meaningful part of that. And when we talked in November, we said our long-term goal is to get to 10% vitality, and we’re chasing that this year. And we – as we talked a few minutes ago, our goal is to deliver 10% vitality in 2022.

That’s great. And then just one quick follow-up. If you said this, I apologize, but what mortgage rate do you have embedded in the assumptions for 2022?

So, I don’t have a specific forecast for mortgage rates, right? What we do is, I think we have an earlier question, right? We look at the current forecasts that are out there for the 10-year. And we try to consider those in the decisions we make, right? So right now, I think if you took a look at the Bloomberg average, you’d see an expectation that we’re going to see the 10-year go up, say, somewhere between 35 basis points and 50 basis points. So, we make an assumption that probably you’re looking at mortgage rates moving in a similar direction. To be fair, as Mark said, forecasting the mortgage market, incredibly hard and actually tying the movement in the mortgage market to the 10-year, also incredibly hard. But that’s basically what we’ve assumed in the practice.

Thank you very much.

Next question is coming from Andrew Steinerman from JPMorgan. Your line is now live.

Hi, John, I was just hoping you could provide mortgage revenues as a percentage of total revenues in the fourth quarter. And if you could give mortgage revenues again for fourth quarter for USIS and EWS as a percentage of revenues?

So I can get – the first one I have, it’s 27%. I think we did give in the script some detail on mortgage revenue for EWS and USIS, specifically. But for Equifax, fourth quarter mortgage was 27% of total revenue. And for the full year, it was 32%. And Andrew, just as an FYI, a little later today, we’ll post the supplemental deck. And in that will be the updated pie charts that show revenue by segment for Equifax in each of the business units.

Right. And I think the pie charts are annual, right?

Yes, sir.

Okay. Thank you very much.

Thank you. Our next question today is coming from Manav Patnaik from Barclays. Your line is now live.

Good morning, Manav.

Good morning, Mark. I just wanted to focus on – obviously, EWS is going well, et cetera, the mortgage market. Can you just talk a little bit about the USIS non-mortgage businesses and some of the trends and stuff you’re seeing there? It sounds like the consumer is healthy, but just was hoping for that outlook on your end.

Sure. I can start, and I’m sure Mark will jump in, right? So, we had nonmortgage organic growth of about 6%. We had total growth of about 12%, right? I think as Mark mentioned in the script, we’re seeing very good growth continues in insurance. We said up double digits, up high single digits in commercial, high single digits in identity and fraud. So again, we think very good performance.

Strong growth in marketing, which we translate as we go into 2022 into online.

Absolutely, right. So with FI, obviously, we saw very strong growth, as Mark said, in FMS, which we think is going to translate into strengthening growth as we go through all of 2022. We’ve also had, as Mark mentioned in his comments, really nice new business wins in USIS, a lot of that around FI. And then we’ve had actually some several significant wins with larger FIs that should ramp as we go through 2022. So, we think we’re going to see nice increases on organic growth as we move through 2022, both in total organic growth, but organic growth specifically to FIs. And as we look at identity and fraud, we saw really nice growth in, let’s call it, our new identity and fraud products, our identity foundry and really Kount-based products. As we got into the fourth quarter, growth there was well over 20%. We are going through a little bit of a transition. We’re transitioning off some of our older legacy based products under those new products. So you see some choppy growth, although up high single digit, certainly isn’t bad. And – but we’re seeing very good growth in the Kount-based products and the products that are based on the new identity foundry that we’ve talked to you about in the past, which is all built on data fabric. So, we feel like the 6% that we talked about in organic in the fourth quarter was relatively good performance. As we indicated, it’s probably going to be about similar to that in the first, but we’re expecting to see nice improvement as we go through next year.

I’ll just add, Manav, that we’re also pleased with the traction we’re starting to see and we have been seeing around kind of our competitive positioning with the cloud, the capabilities of the cloud that we deliver that we think differentiate Equifax. Of course, we think we have data our competitors don’t have. And those discussions around competitive takeaways or competitive wins are continue to pick up momentum by Sid and his team. So, we think that’s another positive going forward as they get closer to being cloud-native and fully delivering those differentiated service levels and capabilities to our customers. We think that’s going to be a positive for them going forward.

Got it. And Mark, just on the International workforce expansion, the new countries that you had announced, can you just help us in terms of time line what we should be expecting? I’m guessing your new tech and cloud infrastructure perhaps will help it get to a size faster than what we witnessed in the U.S.? Or should we be thinking differently?

No. It’s – you and I talked before, and we’ve talked with our investor base many times about our goal of expanding workforce globally. We paused International expansions while we were building out the tech stack, and that’s now built. UK is our first move there. The technology is live. We’re, I believe, close to ingesting records, meaning starting to have contributors contribute into our UK, TWN database. So that’s happening as we speak. That was kind of built up over the last number of months. And as you point out, we now have the ability to go into international markets more quickly, more economically with a cloud-based technology stack. Of course, this adds to our Australian business, where we’re ingesting and actually delivering solutions in the marketplace, same in Canada and same in India. And we do have a strategy to expand to other markets globally. We’re – we haven’t announced anything yet, but we see that as an opportunity. Maybe to close that point is that the financial impact of it is it will be de minimis in the scale of workforce and Equifax in 2022. Meaning it will be small, but we expect it to grow over time. Where it will be meaningful is going to be a couple of years probably when you think about those international expansions. But in each of those markets, what it does for our credit file business, think UK, Australia, India and Canada, is it makes them more competitive because we bring a solution now of not only the credit report in Canada or the UK, but then we can couple in, just like we’re doing in the United States, an income and employment verification. So that’s another positive of going into markets that we’re already in. And of course, as you know, in a number of those markets like UK and Australia, we have very large market positions. So the addition of the income and employment data is positive for us. So it’s clearly a part of Workforce Solutions growth strategy going forward is to U.K. is our – is the move we announced a couple of weeks ago. And we’ll look for other markets to expand our workforce business into, because we believe – we view it as a global franchise, of course, which is anchored quite strongly in our very, very large U.S. business.

Got it. Thank you very much.

Thank you. Our next question today is coming from Toni Kaplan from Morgan Stanley. Your line is now live.

Hey Toni.

Good morning. Workforce margins really stepped down this quarter. Mark, you were clear on the three pieces. The acquisition dilution dissipating and cloud transfer transformation being over, that makes sense to me as to why those won’t continue. But around the ramp of new contributors, that was really strong this quarter, which is a great thing. And it’d be great if that continues. So I guess, how much was that record ramp impacting the margins? And next year, can you still achieve mid-50s if that ramp sort of continues to grow? I just want to make sure also that there isn’t anything competitively changing that impacted.

No, no, no. I think we said two or three times in our earlier comments that we have clear expectations that workforce will in 2022 achieve their kind of historical margins or I think we said it or above. It’s not unusual, and you followed us for some time. You may remember in, I think, third quarter of 2020, going back maybe to – was there in 2019, we also had maybe an instance like this, there’s a little bit of lumpiness when you’re adding a bigger payroll processor. And there’s a lumpiness in some in-quarter costs to complete those integrations. Sometimes we help support partner, meaning we help pay for some of those integration costs, we have some incremental costs on our side. But you’ve seen in the past that those quickly are dissipated, meaning they are onetime. And we – we’ve factored into what is going to happen in as far as record additions that we can see now in 2022 in kind of the comments we had earlier around our expectation that workforce margins will kind of return to that mid-50s.

Yes. And we indicated they’ll step back to 55% in the first quarter, right? So, I mean – so we feel very good about the fact that these each of those three factors that Mark talked about, we can address, and we will address them very quickly. And they were all substantial, right? So, you can think about them all being relatively consistent in size and significant to what affected us year-on-year, but we expect to be back at 55% in the first quarter.

Okay. That’s great. And my follow-up is also on workforce. I was hoping you could talk about just competition there, if anything has changed with regard to sort of more players coming in or some of your large bureau competitors are looking at this as an area that they can expand in. So can the market – is market growth going? Can that lead to you and others being successful? Or is this really going to come down to plating to retain market share? And just talk about sustainability and exclusivity and stuff like that.

Yes, it's a great question. We talked about it many times in prior calls. We got a lot – we have a lot of confidence in the scale of our underlying business model. And as you pointed out, there are some others that are trying to enter this space. We think it's going to be quite challenging to obtain records, start with that, think about the tens of thousands of integrations that we have. Remember, the integration of income and employment data is a separate integration from existing credit file integration. So those have to be built. But just start with records. The 19% growth that we had, the 135 million, 105 million uniques. We added a large payroll processor last year in the third quarter that was exclusive. We've added three more – we’re adding three more that are all exclusive. And of course, exclusive means they're only going to work with Equifax and Workforce Solutions. So that's quite challenging. And remember, too, that the 60% of our records we've accumulated over 15 years of building up those relationships through the very large Employer Solutions business we have or providing all those services to HR managers and companies for W-2, I-9, Work Opportunity Tax Credit, HCA, et cetera, those solutions, that's a very long-term scale kind of business to build out. So while we know there are others in the space, we think our market position is quite strong, and we got a lot of confidence in maintaining that position going forward. And it really starts with the ability to build out a data set that looks like Equifax's we think that's very, very hard to do.

The other thing I'd just add is that if you think about the markets we're addressing, our penetration in those markets still has a long way to run, right? As Mark mentioned in his comments on mortgage, which is where we're the most highly penetrated, it's still just over 60%. And when you go into talent solutions and government, and it's important to remember in both of those segments, right, it's not just current record, it's depth of records, so that's extremely important, right? History makes an extremely – is extremely important in both our government services and importantly, our talent solutions businesses. There, our penetration is, in most cases, well under 25%, right, and growing very rapidly. And the reason it's growing rapidly again is because of the depth of records we're now able to provide, which we couldn't provide two-years ago. So we think there's huge opportunity in those nonmortgage businesses to substantially grow our share. And right now, we're competing against, in many cases, pay stubs or more manual processes to collect the information. So we feel very, very good about the opportunities to grow within the market segment by basically providing instant verifications within those market segments where they're not available today.

Toni, maybe to add one more point on it. We hear more about competitors from these calls than we do in the marketplace, if you understand that point meaning, we hear that from our investors and so on, but we really don't see them in the marketplace. They just don't have the scale to play either on the record additions or on delivering solutions to our customers. We've been in this business for 15 years. We've invested $1 billion – actually, more than that, we're up to like $3-plus billion probably in the business since we owned it when you add M&A. And then on the technology side, think about it, we put $300 million into the business incrementally in the last three years. It's a massive investment, and you have to have real scale to be able to play at the level we're playing at.

Perfect, thanks. Congrats, and welcome back to Trevor.

Thanks.

Thanks. Your next question is coming from Kyle Peterson from Needham Company. Your line is now live.

Hey, good morning. Thanks guys. Just one quick one for me. Just I want to see if you guys could provide a little more color and thoughts on the impact of buy now pay later now being kind of included in your credit reports. Do you think the opportunity there is more on the volume side of kind of increasing the pool of customers out there that are being scored particularly upgrading kind of thin-file customers to more kind of standard and thick file? Or do you think it's more of an opportunity to potentially have some pricing leverage down the road just as you get more data points and just more data that can be used by some of these potential lenders?

Yes, it's a great question. It's really all of the above. We have a relationships all over the globe with the BNPL players. As you know, they're growing rapidly. We're selling them identity data, think Kount or other identity because you got to verify a consumer before you offer that for payment loan, for the blue jeans or whatever they're buying. We're also selling them some credit data in different markets, including the United States, particularly as they go to bigger-ticket transactions. If you're financing a pair of blue jeans for $100, over four-payments, there's a credit exposure to that. It's very different than you're doing a refrigerator. That's a $1,000 refrigerator or something. And so there's a trend there where you're seeing more credit data being used for BNPL players as customers. On the data side, it really follows our focus on just building out our data assets. And there are a lot of data elements, as you point out, in BNPL players. And actually, with all credit fans, it's very popular, for example, with millennials, which typically have thinner credit files. They may be good credit, but they have thin credit files. Meaning they only have one bank card or two bank cards or whatever. So that BNPL data will be very valuable. We're also going down the path of adding rental data. So we're accumulating rental payment data. That's another valuable asset. And of course, in the alternative data side, meaning outside the credit file, we have really scaled data assets at Equifax that we're putting in our single data fabric and bringing to market as new solutions like our NCTUE cellphone utility payment data, which is very valuable as another trade line for thin or no hit – thin file or no hit customers. And then on the pure alternative data, we bought DataX a couple of years ago in 2018. And then we acquired last year, Teletrack. And we'll now have the largest data set at something like 80 million Americans outside of the credit file their data from rent-to-own companies, their payment data from auto lenders, subprime auto lenders, sales finance companies, furniture companies, payday lenders. So a very, very rich data set that's additive to the credit file, just like this BNPL data, just like our NC+ data, just like rental data. So it's a broad focus for us. And the cloud capabilities we have in the single data fabric really allow us to bring these new data sources into our environment, into our database. And of course, as you know, we have – we've built out and now are adding to our single data fabric where we're going to have data keyed and linked for an individual. Every data element that we have will be put together that way, which is, again, as a part of the benefits of our big cloud investments that we're making.

Great, that’s really helpful. Thanks guys.

Thank you. Our next question is coming from Ashish Sabadra from RBC Capital Markets. Your line is now live.

Thanks for taking my question. I just wanted to follow up on an earlier comment around the expansion of Workforce Solution into nonmortgage. I was wondering if you could give some color on the pipeline for new clients and government sector, talent solution as well as auto, personal consumer loans. Any color on those fronts on the pipeline, how does that look for new clients? Thanks.

Yes. As you heard from our comments earlier, that's a very fast-growing space for us, which I think you were broadly talking about our nonmortgage portion of Workforce Solutions, which is growing very, very strongly. Government is a big vertical for us. We've been expanding there. Appriss makes us stronger. We signed and launched the SSA contract last year. That's ramping. So that's another new solution. We see a lot of potential in government. Talent is a very big space for us with big potential. In my comments earlier, I shared the point that we only today see one in 10 inquiries around the hiring process. So big runway, and that business has been growing strong, strong double digits in the hiring space. And we see big potential when you combine some of the Appriss data, the National Student Clearinghouse education data and of course, as John mentioned, the work history we have. We have a history on individuals because we've been accumulating records over the last 10-plus years, and we average something like 5.5 jobs for every American. So that work history is extremely valuable in that hiring process for 75 million people a year were hired. So that's a big growth area for us. We talked about Employer Services or Employer Solutions, where we're delivering HR compliance generally solutions to HR managers to do that work for them. A lot of those – a lot of that work today is in-sourced. We pick up the outsourcing of it either directly or through our partners. And that's another area that's been growing. And of course, we've done a bunch of M&A there that strengthen us. And the three bolt-on acquisitions last year of HIREtech, i2verify and Health e(fx) and then the acquisition we announced and closed this week of…

That’s great color. Congrats on that. And maybe if I can just ask kind of a follow-up question. You mentioned significant competitive wins on the core credit bureau side as well. I was wondering if you could provide any color on that front. How much of that is being driven by the differentiated income verification that you have using that as a land-and-expand strategy? And any other color where you’re seeing this competitive win, traditional FIs, fintech? Any color will be helpful. Thanks.

Yes. We didn’t talk about specific wins, but we did talk about when I used the term momentum by our USIS team competitively. And that’s really driven by areas that you talked about. It’s our differentiated data, which, of course, we’re expanding. It’s the build-out of the single data fabric, which makes our data more accessible. We have more data than our competitors and then we have it in a way that’s more easily utilized and then the cloud capabilities and cloud functionality that is increasingly in the marketplace. We’re seeing that give us a leg up in those competitive discussions that we view as positive going forward for USIS and for Equifax.

Thanks and congrats once again on a strong quarter.

Thank you. Our next question today is coming from Andrew Nicholas from William Blair. Your line is now live.

Hi, good morning. First question, I wanted to follow up again on talent solutions. Mark, you mentioned a few times now that you get an inquiry on one in 10 hires in the United States. I guess I’m wondering what drives that number higher or the factors that could drive that higher? Is it primarily adding client relationships? Is it adding records and increasing hit rates? Or is there a component of that is dependent on employers themselves increasingly including income and employment verification screens in their onboarding process? Just trying to get a sense for drivers and maybe what falls within Equifax’s control?

Yes. Just to clarify, we don’t do income verification. It’s really employment history that we deliver there. And the one item we just wanted to point out there’s a lot of runway in this. We have a large business. It’s growing very rapidly in the talent solutions space as we continue to grow. And the drivers are really driven by first, it’s our work history that we have. We have well over 0.5 billion total records, which is – think about that 5.5 jobs on the average American. So if you don’t come to Equifax, you’ve got to go manually to each of those companies in order to verify that. So the one-click instant kind of data element for Equifax is from Workforce Solutions is what’s driving the growth. We’re also productizing it. We’re in the early stages of bringing new solutions to market that really solve our customers. In this case, it’s either a background screener typically, but it could also be an individual company. But it’s really how do we help them complete their job more quickly. And speed is really important. It always has been in the hiring process. You think about it, when someone’s being hired for a new job, there’s typically an open job there. And the hiring manager wants them to start quickly because there’s work to be done, whether it’s in a fast food restaurant or in a warehouse or a white-collar job, speed is very important. And if we’re able to deliver that instant decision that shortens that time between offer of employment and start of work, it’s really a big opportunity. So we’re going to in 2022 bring new solutions that will likely be more job category based. Meaning we’ll combine our work history, which is the foundation of that, meaning…

What’s happening in talent feels a lot like what happened in mortgage. If you look back over time in mortgage as the depth of the database increased substantially, our penetration went up very, very rapidly. And that’s what drove a lot of growth. And as Mark described, the depth of TWN but also all these other data assets has now made our ability to respond with a more complete response and talent, which is obviously harder because there’s more information there has improved dramatically over the past two to three years. And so that’s why even before acquiring Appriss, we were talking about organic growth rates that were on the order of 100%, right? So we feel like we’ve hit an inflection point in talent as well.

That’s helpful. Thank you. And then for my follow-up, just on international opportunity within Workforce Solutions. I know you asked – or a question was asked on that earlier. Just wanted to ask on kind of the mix between organic and inorganic growth there. I know to this point, it’s been limited in terms of M&A, but is that part of the strategy? Or in the near to medium term, is that primarily an organic effort adding to kind of the UK and Australian capabilities? Thanks.

It’s definitely an organic focus. We’d love to do some M&A, but there’s really nothing out there. There are others that do this that we’ve seen or found. And that’s why we’re leveraging our core technology. It’s now cloud based. We also have relationships with multinationals, where we’re doing their income employment verification here in the United States, and they have operations in other countries, so they want us to do it there. So that’s kind of a base load that we can add to the data set organically. And then same thing with either leveraging our existing payroll partnerships here in the United States are working with new HR providers or payroll processors in those markets to add records. That’s all the approach. So it’s definitely organic.

Great. Thank you.

Thank you. Our next question today is coming from Simon Clinch from Atlantic Equities. Your line is now live.

Hi, everyone. Thanks for taking my question today. Just on that last question. I wanted to follow on with the international opportunity Workforce Solutions. Could you talk about the ability or necessity for you to sort of establish the same kind of strength of competitive moat you have in the U.S. in international markets to make this work? Or is it – is the environment sort of different in terms of how you need to build this?

Well, our goal would be to have a similar competitive strength globally. We think that we have a lot of opportunities to do that. In many of our markets that we’re in today, we’re really the only one doing it. The couple of markets, I believe in the UK, Experian has talked about trying to do something like what we’re doing but not in other markets. But we think we have a lot of competitive strengths. We’ve got a technology stack that we’ve invested hundreds of millions of dollars, and it’s now cloud-based. We have the relationships that I talked about, and we have the know-how. So we’re going to approach it. These take time to build. It takes time to build out the records and the record contributors. Remember, it took us over a decade to get Workforce Solutions to some level of scale in a big market like the United States. We’ll likely be able to do that more quickly in these other markets because of the leverage we have in our technology and relationships in the marketplace. But it will definitely get built out. And we’ll likely do other markets beyond the four that we’re in. That will be a part of our growth strategy.

Understood. Okay. And just as a follow-up, just going back to the mortgage market and the outlook you provided. I guess I’m quite interested in what – maybe we could explore the levers you have to pull within your mortgage franchise in periods if the mortgage market were to be significantly weaker than you anticipated in your guidance? What are the things you can do to try and mitigate some of that downside within?

Yes, sure. I would argue it already, at least our outlook is significantly weaker. We, a few months ago, thought it’d be down 15 for 2022, and now we’re down 21.5. That’s meaningfully different than – I think it’s quite powerful that Equifax has the momentum from the fourth quarter and the strength to offset that. We’re very pleased with that. It shows the strength of the underlying business. We finished the fourth quarter quite strongly and had momentum coming into the year. We would look to continue to outperform going forward. We can’t predict that at this stage because we are working with it down 21.5. But when you combine the down 21.5 with the decline in 2020, the mortgage market has moved substantially at least in our forecast towards the normalization. And then we think a lot, and I’m sure you do too, about there’s obviously the interest rate impact, which is primarily what factored into our reset of the mortgage market. But still offsetting that is a very sizable home price appreciation that we’ve never seen in kind of the last 20 years that is a positive that we think could dampen at least further declines. It's hard to forecast what's going to happen with interest rates, but there's a lot of equity for consumers to access. And historically, when consumers have that ability to do cash-out refis, they will do that to do home improvement, to do vacations or other things they're going to do. So those are some of the elements that we think about. But just on our so-called updated guidance with mortgage down meaningfully from where we thought a few months ago and then the ability to offset that, we think that shows the strength and breadth of the underlying Equifax business.

And we're like most companies, right? We run a broad group of risks and opportunities against our plans. And we wouldn't – we try to cover our risk across the entire company, right? And obviously, mortgage market is a risk that everyone is dealing with in our industry. And we work across Equifax to drive growth through more MDI, everything Mark's already talked about, to give us opportunities to cover additional risk.

That's great. Thanks very much.

Thanks, Simon.

Thank you. Your next question today is coming from Hamzah Mazari from Jefferies. Your line is now live.

Hi. This is Mario Cortellacci on for Hamzah. Just my first question, I know you guys already talked about some of the competition within EWS. But just, I guess, we're also hearing that new entrants are getting into that verification space. And just wanted to get your thoughts on, I guess, other competitors getting D1 certification and maybe then getting access to records at cheaper costs. Does that hold any water from your perspective? And then also, could you just talk about the consent mechanisms and how your business could be different from some of those new entrants again around consent?

Yes. I think you're talking about versus what you would call our traditional competitors. I think you're talking more about some of the fintechs that are doing consented data kind of acquisitions. And we have solutions there, too. We have a partnership with Yodlee here in the United States. We have in other markets where we do consented data. There's a lot of friction involved in consented data. And it starts with you have to disrupt the process as a mortgage process or a credit card process or an auto process to ask the consumer to give their user ID and password for their bank account or their user ID and password for their payroll processor or their user ID and password for their employee benefits site at their company. And there's just a lot of fallout of consumers that aren't willing to do that. And we've just seen – it's certainly a niche that we're playing in, but it's one that we haven't seen real traction in. And then second is the fact that most of our customers, actually all of them, want instant verifications. Meaning just pinging our database and we send back the element, you don't have that friction and time. It could take hours, days, who knows dependent upon a digital process, to have that consent process take place. So that the instant verification is when we're in a workflow with our customer, meaning they're processing a mortgage, it gets to a certain point, they ping our database. And we deliver in milliseconds the verification of that. So I think it's a niche, but we really don't view them as competitors. As John pointed out earlier in the conversation, we still think about our biggest competitor being paper paystubs. That's the one that we continue to…

Understood. And then – so it sounds like these new fintech entrants are, like you say, more of a niche. But you guys are also, I guess, pursuing M&A opportunities. You did the Efficient Hire deal as well. And I guess just maybe you could talk about some of the other Workforce Solution, M&A deal that you could pursue? And do those new fintech entrants pose any competition that could help – that could drive up valuation for those deals?

We don't think consumer-consented income and employment verification is an M&A target for us. We already have the ability to do it ourselves through other partnerships we have. And we view it as a niche, although we bought a consumer-consented business in the U.K. really because of open data. But that was one that really is more U.K.-centric. The other acquisitions we've done were really to strengthen our Employer Services or solutions business, where we provide compliance and regulatory services to HR managers. And that's a big business for us. It's one where they typically do that themselves and then outsource to someone like Equifax because we can do it with a higher degree of accuracy, privacy, efficiency. And that's W-2 management. It's I-9 verification. It's Work Opportunity Tax Credit, Employee Resource Credit, HCA, et cetera, those compliance services, I-9 verification. So we provide those services. And the three and now four acquisitions we've done with Efficient Hire that we did this week really strengthen us in those services elements to the HR manager. And then as a part of that solution, we also get TWN records. So it's another way for us to obtain records. So that's really our M&A focus there. There aren't a lot of those opportunities. Of course, we acquired another very attractive one this week in Efficient Hire and of course, three last year, as we pointed out. And then the other M&A focus for us is around our talent data hub. And that's the Appriss acquisition that we closed on in October, really attractive team and business that we brought in and brought in unique data at scale around incarceration and criminal justice and also medical credentialing data. And that's an area where we've been very clear that we'd like to do more M&A both in Employer Services, like Efficient Hire this week. We'd also like to do more M&A around data that's used in the hiring process like Appriss to build out the Equifax data hub.

Thank you very much.

Thank you. Our next question is coming from George Tong from Goldman Sachs. Your line is now live.

Hey, George.

Hi. Thanks. Good morning. As you think about your TWN database, approximately what portion of records there are covered by exclusive relationships with payroll processors and software providers? Just trying to get a sense for if a competitor were to try to replicate a portion of your scale in verification, could they quickly scale by also partnering with some of the payroll processors or software providers that you partner with?

Yes. And George, I would add to the question maybe to complete it. Also the records we obtained directly through individual companies to kind of complete the equation. Now you can decide how you define those. We think of those as they're not exclusive, meaning individual companies which is 60% of our records, but they're very sticky to Equifax and our view is HR managers aren't going to share those records with two companies. And remember, we generally obtain individual company records because we're providing unique services to that HR manager, whether its unemployment claims, W-2 management, et cetera. With regards to the 40-plus percent from partners, we've been very clear that the vast, vast, I'll say vast twice, majority of those relationships are exclusive, and exclusive means exclusive there. And our intention is to have them all be exclusive over time. They're not all exclusive. And as you know, the relationships – all the relationships we've added in the last two years have been exclusive, including the three that we signed in December. And it's our intention for them to be exclusive as we sign them going forward. Does that help?

Yes. Very helpful. Thank you. And then secondly, on margins, you're expecting up to 200 bps of margin expansion this year. And part of the flow-through on margin performance assumes reinvestments back into the business. So you talked a lot about new product innovation. Any other areas of investments, maybe specific areas around cloud or tech or infrastructure, et cetera, that you're putting money back into the business in order to support the growth?

Yes. You're always making investments. I think you pointed out one is clearly our priority of ours is to continue to invest in product capabilities and resources, and new products require some investment. And of course, the 200 that you mentioned is net of those reinvestments that we're making this year, which we're continuing. And you know that we've been investing in product capabilities really for the last couple of years as we've been growing out that capability. Data analytics is another area that we're investing in, whether it's new data being contributed like the BNPL data that requires some investment or new contributors to TWN, rental data, et cetera. So that's a priority of ours as we're investing. We've got some commercial footprint investments that we're making in 2022, as you would expect, to continue to grow our commercial coverage, which is quite strong but are intended to make it stronger. And then, of course, we're continuing to complete the cloud transformation that underlies that investment and also receive the net benefits as we decommission some of our legacy infrastructure during 2022, which will be a positive for us and reflected in that 200 bps. Anything, John?

No.

Okay. Thanks very much.

Thank you. Our next question today is coming from Shlomo Rosenbaum from Stifel. Your line is now live.

Hi, good morning. Thank you for taking my questions. I have two questions. I think one probably for John and one for you. Maybe just starting with John. Just in terms of the growth, there was an improvement in the expectations from the core non-mortgage from the 3Q to the 4Q, and it's very helpful in terms of maintaining the guidance. I wanted to ask, is there a part of the non-mortgage business that accelerated materially over the last 3.5 months or so? Or is it that we're kind of further into – closer to delivering on the 2022 numbers as you're already getting into the year? Or do you have more visibility? Do you feel more comfortable with that? Maybe you can comment on that first?

Sure. So I think Mark talked about it, right? And we saw a real acceleration in record additions and product launches, right, at EWS specifically, right? So I think that's where we saw acceleration. Certainly, as you get closer to a period, right, you get more visibility, and that's part of it. But no, we really did see very nice improvement in growth as it relates to record additions and things that would be very beneficial in 2022 in Workforce Solutions that affects not only mortgage, but also all the other non-mortgage areas that we talked about and also those three substantial payroll providers that we indicated we signed that have not gone into production yet. So it gives us more comfort in the pace of new record addition as well, which also adds to new products, right? I mean, as we get deeper data sets, more history, new product launches accelerate. So all of those things work together to give us confidence, that we can that cover that 6.5% incremental decline in the mortgage market.

Great. Thank you. And then just overall, how are you guys thinking about inflation impact beyond like the very near term? The impact on the consumer in terms of higher cost of living for just basic staples and things like that, how do you think that's going to interact with kind of the view of the banks on credit and their willingness to lend? Right now, things are pretty loose. But if this kind of continues for the two, three more quarters, do you think that, that's going to have a longer-term impact in terms of just kind of the credit cycle on the consumer side and how that would impact that side of the business?

I think you got to kind of layer another leg on that is how might it impact the economy. But as you know, while inflation is up, wages are up also. And job growth is up, people are working. During the last 24 months, they've strengthened broadly their credit position, meaning that a lot of the stimulus money has been used to make men pays and pay down credit card balances. So as we enter 2022, you've got a consumer that broadly is much better positioned than they were two years ago when we entered COVID. So I think that is a positive for our customers and a positive for us. The other thing that, again, going beyond the consumer is that a lot of our customers have experienced deleveraging, meaning customers paying down balances. So they're focused, and you've seen that in our FMS marketing revenue, they're focused on going after new customers that generally are more creditworthy. I think on a – over the last two years, credit scores have gone up something like 20 points on average because of the stimulus money and now increasingly, people are working. So that's how I would think about it that we're still in a pretty attractive environment. Now how long does inflation hold up? What happens – what does the Fed do with interest rates beyond what they've kind of indicated? I think those are all different factors. But my expectation is 2022 should be pretty good for the consumer, meaning they're strong and then good for us because our customers are going to be looking to grow their business with those consumers.

Great. Thank you.

Thank you. Our next question is coming from George Gregory from BNP Paribas. Your line is now live.

Thank you very much for taking my question. I wanted to dig in a little bit, please, to the verification non-mortgage trend, please. I think, Mark, you called out Q4 non-mortgage organic growth of around 30%. When I compare that to the second quarter, I think in the second quarter, it was total growth of around 65%. I don't think there was a great bit of nonorganic growth in that. When I look at the two year stack, that would seem to suggest that maybe a little bit of deceleration despite presumably the SSA contract, which has been ramping up into the fourth quarter and – the growth from the new records. Just wondering if you could maybe elaborate on that sort of sequential trend? And if there was anything that would have held the fourth quarter back relative to that very strong second quarter, please? Thank you.

Let me just – I know Mark jump in, but let me just give you some background rate. So the – so I think we're seeing very, very good growth in talent solutions and government, organic and inorganic. And part of what you're seeing is just a year-over-year effect. If you went back and looked at our results last year, you started seeing accelerated growth in talent solutions as you got into late third quarter and really fourth quarter of last year is my recollection. So I think part of what you're seeing is just a year-over-year effect. And it was – we started to see – really see the acceleration in the growth of some of those non-mortgage businesses. As records grew, it's kind of everything we talked about before. So we feel very good about the growth of non-mortgage across verification services and its direction and pace.

I would add, these numbers are quite exceptional, right? Those kind of growth rates. And as we look at quarter – year-over-year kind of growth on a quarterly basis, they're growing over kind of exceptional performance. And just adding to it, clearly, outperforming the long-term framework we put in place in November for Workforce Solutions of 13 to 15, which is kind of how that – their piece of our 8 to 12 going forward, they're clearly outperforming that. And there's a lot of factors there, whether it's records, penetration, new product rollouts. They've been performing very, very strongly. And then we expect that to continue to have a very strong 2022 from workforce.

Thank you, John. Thank you, Mark.

Thank you. Our next question is coming from Craig Huber from Huber Research Partners. Your line is now live.

Thank you. My first line of questions, I apologize if you already covered this, your sort of outlook for your business for credit cards, autos, and personal loans. I mean given the higher rates this year of inflation, what is sort of your outlook for those three segments for you guys?

You're talking about the market growth versus our growth?

Why don't we talk on your growth, what I mean. Credit cards, auto loans. How do we think about that this year?

Yes, we typically don't give actual segment growth like that as a part of our guidance, but let me just give some color about how we think about those verticals is that there's a couple of questions ago, I talked about cards and so on. We think card growth will be positive for us and for the industry in 2022 as card issuers are looking to rebuild their balance sheets after they come down. P loans is another one that should be positive in – for the industry in 2022. There was some real tightening in 2020 as we went into COVID. That started to relax as we got into the mid parts of 2021. So that should be a benefit. Auto is broadly strong from a consumer demand standpoint, but you've got the supply chain issues, meaning there aren't available autos, which have dampened some of that. Whether those supply chain issue's sorted out is hard to see, not my strength. But there's underlying consumer demand there that's quite strong.

The only thing we did say is in our 2022 guidance for USIS non-mortgage, which includes more than the three segments you just referenced, it includes identity and fraud. It includes commercial and some other segments, we had said basically high single digits, up 6% to 8%. So consistent with our long-term framework.

And my follow-up question, you guys have obviously talked a lot about new businesses you guys keep rolling out here to your credit and stuff. How do you think about margins for those businesses when you roll them out? Are they almost at the segment level pretty soon, given your infrastructure you have in place, the data you already have? Or said differently, how long does it generally take when you roll out new products for it to get to the segment level margins? And how should we think about?

Generally, we think about new products is generally being quite accretive to our margins because they're generally – think about our Vitality Index of $500 million of growth over the last three years. Those are generally incremental revenue, and they have high incremental margins. So that's kind of how we think about it. So they deliver margin pretty quickly that are accretive to our historical growth rates. And that's why we're so focused on new products because they drive our top line and then the incremental nature of that growth is expanding our margins.

Great. Thank you guys.

Thanks.

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over to Dorian for any further or closing comments.

Thank you for joining today's call. We look forward to engaging with you further in meetings and conferences during the quarter. And of course, we look forward to convening again when we report our Q1 earnings in April. This does conclude the call.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.