Greetings. Welcome to the Equifax Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I would now turn the conference over to Trevor Burns, Senior Vice President of Corporate Investor Relations. Thank you. You may begin.

Thanks, and good morning. Welcome to today's conference call. I'm Trevor Burns. With me today are Mark Begor, Chief Executive Officer; and John Gamble, Chief Financial Officer. Today's call is being recorded. An archive of the recording will be available later today in the IR Calendar section of the News & Events tab on our IR website. During the call, we'll be making reference to certain materials that can also be found in the Presentation section of the News and Events tab at our IR website. These materials are labeled 4Q 2023 earnings conference call. Also, we’ll making certain forward-looking statements, including first quarter and full-year 2024 guidance to help you understand Equifax and its business environment. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from our expectations. Certain risk factors that may impact our business are set forth in filings with the SEC, including our 2022 Form 10-K and subsequent filings. We'll also be referring to certain non-GAAP financial measures, including adjusted EPS and adjusted EBITDA, which will be adjusted on certain items that affect the comparability of our underlying operational performance. In the fourth quarter, Equifax incurred a restructuring charge of $19 million or $0.11 a share. This charge was for costs incurred as we realigned business functions ahead of completing our technology transformation. This restructuring charge is excluded from adjusted EBITDA and adjusted EPS. 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. Now I'd like to turn it over to Mark.

Thanks, Trevor, and good morning. Before I cover results for the quarter, I wanted to spend a few minutes on our 2023 performance. Equifax performed extremely well last year against our EFX 2025 strategic priorities. Our strong performance was against one of the most challenging mortgage markets in the last 20-plus years with our USIS mortgage inquiries down 34% and Equifax mortgage revenue down 17%, which equates to almost $500 million of lost mortgage revenue last year. Despite the significant decline in 2023 mortgage revenue, Equifax delivered. We delivered 2% organic constant currency revenue growth with 7% organic constant currency non-mortgage revenue growth, which was at the low end of our long-term 7% to 10% growth rate. Importantly, we had sequential improvement during the year with 8% total growth and 9% non-mortgage growth in the fourth quarter. We also delivered over 100 new products with a vitality of 14%, which was a record for Equifax and well above our 10% long-term goal. EWF delivered strong 10% organic non-mortgage revenue growth, which allowed them to deliver flat total growth despite mortgage revenue that was down 23%. They delivered sequential non-mortgage revenue growth and exited fourth quarter with strong 17% non-mortgage growth. Verifier non-mortgage revenue grew 14%, led by government that grew over 30% and talent that grew 5% despite the white collar hiring market that was down just under 10%. EWS grew current twin records to $168 million, up $16 million or 11% and grew total records to $657 million or $53 million records. We added 17 new twin partnerships last year, our highest number ever and have a strong pipeline for 2024. And in the third quarter, EWS signed a contract extension to provide income verification to the U.S. Centers for Medicare and Medicaid Services as part of a contract…

Thanks, Mark. As Mark discussed, and as shown on Slide 14, our planning assumes a 16% reduction in mortgage credit inquiries in 2024. 1Q ‘24 is expected to see USIS mortgage credit inquiries down over 26% year-to-year with EWS twin inquiries at similar levels. Sequentially, as we move through 2024, we are assuming overall mortgage activity stays at about these levels with normal seasonality for the remaining quarters of 2024. Slide 15 provides a full year revenue walk, detailing the drivers of the 8.6% revenue growth to the midpoint of our 2024 revenue guidance of $5.72 billion. The blended about 15% decline in the U.S. mortgage credit and twin inquiries is negatively impacting 2024 total revenue growth by almost 3%. Mortgage revenue outperformance relative to the mortgage market at about 24 points is expected to benefit 2024 total revenue growth by about 4.5%, more than offsetting the almost 3 percentage points of negative revenue impact from the mortgage market decline. As a result, the expected about 9.5% increase in total mortgage revenue was a positive 1.5% impact on overall revenue growth. Non-mortgage organic revenue growth is expected to be about 8.5% on a constant currency basis and is driving about 7% of the growth in overall revenue. As Mark referenced earlier, the growth is within our long-term framework and is broad-based across all three BUs and again, the strongest performance in Workforce Solutions. The BVS acquisition completed last August is expected to contribute about 2 percentage points of revenue growth to 2024. Slide 16 provides an adjusted EPS walk, detailing the drivers of the expected 9.5% increase to the midpoint of our 2024 adjusted EPS guidance of $7.35 per share. Revenue growth of 8.6% at our 2023 EBITDA margins of 32.2% will deliver 12.5% growth in adjusted EPS. EBITDA margins…

Thanks, John. The unprecedented 50% decline in the mortgage market from normal 2015 to '19 levels had a significant impact on Equifax moving close to $1 billion of revenue over the past 24 months from our P&L. Against that unprecedented mortgage market decline, EFX's diverse mix of businesses delivered strong growth through outperforming the mortgage market by over 20 percentage points, strong 10% to 20% constant dollar non-mortgage growth, a 13% vitality index from new products and the addition of bolt-on acquisitions. As shown on Slide 19, based on our 2024 guidance, the U.S. mortgage market is on the order of 50% below its historic average inquiry levels. As the market bottoms and moves from a headwind to tailwind and the mortgage market recovers towards its historic norms, that represents over $1 billion of annual revenue opportunity for Equifax, none of which is reflected in our current 2024 guidance. At our mortgage gross margins is over $1 billion of mortgage revenue, we delivered over $700 million of EBITDA and $4 per share that we would expect to move into our P&L in '24, '25 and '26 as the market recovers. Wrapping up on Slide 20. Equifax delivered another strong and broad-based quarter with 14% constant dollar non-mortgage revenue growth, reflecting the power and breadth of the Equifax business model and strong execution against our EFX 2026 strategic priorities. We have strong momentum as we move into 2024. As we look at 2024, we expect to deliver 9% revenue growth and 110 basis points of adjusted EBITDA margin expansion from the revenue growth and our cost savings plans despite our expected about 15% decline in the mortgage market. As discussed on the prior slide, with the mortgage market bottoming, we expect mortgage to move from -- move to a tailwind over the next several years as the market returns to normal inquiry levels. A big priority for 2024 is to complete our North American cloud transformation as well as significant portions of our global markets, which will result in continued margin expansion and reductions in our capital intensity that is a key benefit of our data and technology cloud transformation. Exiting 2024 with 90% of Equifax revenue in the new Equifax cloud is a big milestone, so the team can move towards fully focusing on growth. We are entering the next chapter of the new Equifax as we pivot from building the new Equifax cloud to leveraging our new cloud capability to drive our top and bottom line. We are convinced that our new Equifax cloud differentiated data assets in our new single data fabric, leveraging EFX AI and ML and market-leading businesses, will deliver higher growth, expanded margins and free cash flow in the future. I'm energized by our strong performance in 2023 and the momentum as we enter 2024, but even more energized about the future of the new Equifax. And with that, operator, let me open it up for questions.

[Operator Instructions] Our first questions come from the line of Manav Patnaik with Barclays.

This is Brendan on for Manav. I just want to ask real quick on your -- you guys gave some more detail on the inquiries versus -- USIS versus twin. It sounded like you were saying next year, actually twin will be a little bit better because USIS is actually comping, I guess, better shopping activity. So it will actually be a little bit better than that down 16%. Just want to confirm that. And then why because obviously, this year, the inquiries on TWN have been quite a bit worse than the USIS side?

Yes. So in your question, you gave a big chunk of the answer, right? So we do think what's happening is USIS is comping off of 2023 where shopping activity was extremely high. so that their growth -- their decline rate in 2024 will be less relative to that very high 2023 year because of the shopping activity. And we think that's probably the biggest driver that we're seeing. Also, quite honestly, as we talked about what we do is we take a look at current run rates in the market, what we're seeing in terms of growth rates year-on-year, and we just run them throughout the year. That's when we say we're using run rates. That's what we mean. And we're kind of seeing that as we take a look through the January and the latter part of December. So we think it's both consistent with what we're seeing and also with the description I gave.

Okay. And then just one more on -- could you walk through some of your assumptions on talent like the volume assumptions that you're using?

So I think what we indicated in talent, right, is that we're looking at BLS and BLS currently for the segments that we support is down about 10%. And we’re just expecting that we’re going to significantly outperform the markets we indicated by -- on the -- well over 10 points, right? So we feel very, very good about our ability to continue to grow talent despite the fact that we’re going to see a hiring market that we think is probably going to be down in the order of 10%, which, again, is kind of what we’re seeing so far this year. And in the -- sorry, and in the back half of the fourth quarter.

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

John, could you just tell us how much mortgage revenues was as a percent of revenues in the fourth quarter? And also, could you just give us a sense of how much mortgage revenues have in terms of incremental margins in the '24 guide?

So mortgage revenue in the fourth quarter was 15% of total. And for the fiscal year was 19%, right? And just for perspective, in the first quarter, it's going to be on the order of 20%, we think. A little under 20% based on the guidance we provided. That's driven by our outperformance in both EWS and USIS, that we talked about, Andrew.

Can you ask the second question again?

Yes. What's the incremental margin on mortgage revenues assumed in the '24 guide?

Generally speaking, we've talked about this in the past, right, is that our variable -- let's say, our gross margin on mortgage blended. And obviously, it's heavily dependent on mix because our margin on mortgage solutions, our tri-merge business is very different than our margin in the USIS business overall, which is obviously very different than our margin in EWS, right? With EWS having the highest margins, obviously of the three in general versus the blended USIS margins. But generally, what we’ve indicated is you think something like 65% gross margins for the mortgage business.

Our next questions come from the line of Seth Weber with Wells Fargo.

Just on the guidance for 8.5% non-mortgage growth for 2024. Can you just talk to how we should be interpreting that in maybe just any areas where you think there could be some upside in your mind as we go through the year?

Well, we think the 8.5% is quite good. It's obviously inside of our 8% to 12% range, which is how we want to grow the company. We've talked about some of the pressures on our non-mortgage really in the talent market. And then second is the ERC impact, which that program has been curtailed by the IRS. And John talked about the impact that, that's having, which is on Equifax is a meaningful amount on a year-over-year basis. As far as upsides, I don't think we think about any upsides to that 8.5% because we think it's a pretty good growth rate.

Okay. Fair enough. And then can you just maybe talk to how much is left on the Medicaid determination here for the second quarter? How much is that like or -- sorry, through the first half of '24, how much that's going to contribute?

Yes. So we haven't given specific dollar amounts. What we've indicated, right, is that it continues to be a benefit for us, it was in the fourth quarter, and we expect it will continue to be in the first and the second quarters. But then again, just as a reminder, right, redetermination is something that occurs consistently as part of benefits programs that are funded by the federal government. So yes, there was an accelerated redetermination program following the end of the pandemic freezes that occurred. But the fact is, as we go forward, we'll continue to see redetermination revenue across our government business, and it is -- it will be an ongoing driver of growth once we get through '24 and we get past the accelerated redetermination activity we're seeing right now.

And that's only one lever, obviously, for government vertical growth inside of Workforce Solutions, as we've talked about. As you know, that business was up super strong last year and again in '22, ended the year at over $500 million. So a very big business for us with big growth potential at the state level of continuing penetration. We've got a TAM there that's $3 billion plus against that $500 million. So there's a lot of opportunities to get the states that are not using our solution today. They're still using manual verification of income and employment, which is required for government social services. As you recall, we -- a couple of months ago, we landed a big extension to our CMS contract. It was $1.2 billion. That rolls into 2024. And then the new USDA contract that we signed in September was a new contract that obviously rolls into 2024. So there's a meaningful number of growth levers at government, and we're quite bullish as we talked about. We expect that business to be a big growth contributor to Workforce Solutions and outgrow Workforce Solutions 13 to 15 long-term growth rate, significantly outgrow that again in ‘24.

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

Great. I appreciate you taking the questions. I wanted to touch on the non-mortgage growth that you guys called out in the guide. I think you guys have walked through some assumptions on kind of volume on mortgage and talent really well. I just wanted to see if you could provide any color for your volume assumptions around some other areas such as whether it's auto or cards, auto, consumer just to try to kind of figure out the delta between pricing and share versus volume trends in those markets?

I'd start with -- and I think we tried to be clear about that. We don't see any real change as we go into 2024 from those verticals like cards, auto, p loans, how they performed in the second half of last year. We talked a little bit about fintech was impacted in the second half of '22 and into '23, but that seems to be kind of a, I would call it, a stable level now, meaning it's not declining, which is good news versus the declines that happened last year. Large FIs are fairly consistent as far as they're still originating because consumers are strong. There's some choppiness with some of the smaller FIs that might be impacted by some liquidity stuff. But again, not a real change from what we saw in the second half of last year.

That make sense and is helpful. And I guess just a follow-up on capital deployment and priorities there. Just want to see how -- if you kind of prioritize where some of the near-term priorities are on the capital front, you mentioned leverage and eventually being to potentially buy back stock or increase the dividend. How are you guys thinking about some of those initiatives and priorities versus potential bolt-on M&A and kind of what's the near-term priority between the two?

Yes. So I'll go near term, which is 2024, I think we laid out that CapEx is coming down again this year in 2024. We expect it to step down again next year as we complete the cloud, big cloud completion in our USIS business and some of our international properties in the first half of this year and getting to 90% cloud complete will be a big milestone. So you're going to see our CapEx come down over the short term, meaning in '24 and over the medium term in '25 again as we complete the cloud. Over that timeframe, we expect our margins to continue to expand, which will grow our free cash flow. Our free cash flow this year is up almost 2x.

It's well over 50% this year, yes.

So our free cash flow in 2024 is up substantially. We expect that to continue to grow as we get into '25 and '26. And so as you get over the -- again, back in '24, we have a pipeline of M&A that we're watching. I suspect that given we're already in February here that, that M&A would be in the second half if we do some. We're going to be very disciplined around M&A as we always have been. And we're focused on integrating the large number of acquisitions. We've done 14 in a little over three years that we're integrating like Boa Vista, as we talked about on the call. But when you get look forward to '25 and '26, we'll continue to add bolt-on M&A inside of that 8 to 12 framework that includes 1 to 2 points of revenue growth from bolt-on M&A. So that's clearly a part of our strategy. And we've been crystal clear that as our margins expand and we still have the goal of 39%, and we still have the goal of growing 50 bps a year post 39. As we move towards that 39% and our CapEx comes down, we would expect to have significant excess free cash flow when you get into '25 and '26, where we could look at restarting the dividend and also look at buying back meaningful amounts of our stock, and that's no change in that. We've been very clear in that over the last really three years that that’s the goal we’ve been working towards as we complete the cloud.

Our next questions come from the line of Kelsey Zhu with Autonomous Research.

I think you have raised government TAM numbers, again, from $4 billion to $5 billion. I was wondering if you can give us a little bit more color on where the incremental upside comes from? And just in general, what are some of the major programs that you're targeting or states that you're trying to get in growth into that will bridge to this $5 billion TAM number?

Yes. And it's really around the government social services delivery, which is huge. There's 90 million Americans roughly that get some form of government social services, whether it's food support, rent support, cash support, childcare support, student lending support, all those different programs, unemployment support. All of those programs have to be verified by income and you have to verify employment and there's also an incarceration check on many of them, which is from our APRs data set. We've been growing rapidly there because of the real desire to deliver those social services quickly to those that deserve them and need them. And our instant data really delivers that. And we're competing, as you know, against manual processes and paper paste dogs, which means the recipient who's after the social services generally has to bring in proof of income. We can deliver it instantly. And of course, where our data is accurate, it's one to two weeks old depending upon the time frame because we're getting payroll every two weeks and we have such broad coverage. So our programs are really at kind of three levels at the federal, state and local level. We have federal programs where some of that verification is done at the federal level like with Social Security Administration. That's a large contract for us. We talked earlier in this call about the CMS contract that we extended. It's done at the federal, but then executed at the state level and the new USDA contract. And then we operate at the very state level and the state levels are more complex. There's a large, large penetration opportunity at the states. That's really where a big portion of our growth will come and a big portion of that TAM that you referenced is all the states --…

I think one of the reasons the TAM is growing as we continue to integrate the insights business into Workforce Solutions fully. We're able to now see there's incremental products that can serve portions of that government market that we couldn't serve before. So I think the part of the increase in the TAM in addition to what Mark described is the broadening of our product set because of the Insights acquisition. So we feel very good how that's going to continue to allow us to broaden that TAM even further over time as we generate new products to service government needs.

Got it. Super helpful. My second question is. I'm not sure if it's too early to talk about how you think about pricing for VantageScore 4.0 in the mortgage vertical. I think based on the FHA’s original time line guidance; we should start transitioning towards that two score system later this year. And I think pricing decision for VantageScore is being made at the bureau level. So just curious to hear how you're thinking about setting prices for VantageScore for mortgage?

Yes. I think as you know, there's two pieces to that potential change by the regulator that is still in a comment period. One is to add Vantage to every federally supported mortgage. That's going to be a good guide for Equifax when it happens going forward. And then second is the 3B requirement going to 2B. We've talked before that we expect on the second half of that mortgage originators to continue to pull the three credit files because there are meaningful differences between the three credit bureaus, three credit files. For example, there's 8.5 million consumers that are only in one of the three credit files in the United States. So the value of three is quite important. On the Vantage plus FICO, same thing. It’s still in a comment period. We haven’t put either of those into our framework for 2024 because we’re not sure they’re going to happen or what the impact would be. But you point out that if it’s a mandatory to have a FICO and Vantage score, that’s a positive for our business to sell a second score in every mortgage. And no, we haven’t thought about pricing on it because we really -- it’s unclear if it’s going to happen or when it will happen, if it does.

Our next questions come from the line of Heather Balsky with Bank of America.

I wanted to ask first -- well, I guess two clarifying questions for you. One is the issuance metric for workforce on the mortgage side. I know that's something you guys introduced last quarter. Can you just help us again walk us through what that measure, kind of how you're getting to that number? And there's a lot of data out there around what issuance is. So just kind of helping us think through if we're comparing your number to kind of market data out there, what should we be thinking about? And then my second question is on the incremental margins on mortgage. I think last year, the 80% came up a fair amount, and I realize there's a mix impact, I think you said 65% earlier. Just trying to reconcile that, too.

So I'll do the second one first. And so I think I was asked about what I gave as gross margins, right, so that people should think about gross margins. Incremental margins may be a little higher, right? They're going to be a little lower than the 80% that would have been talked about last year simply because there's been a significant price increase from one of our vendors. We pass it through. We do mark it up, so we can maintain EBITDA margins, but we don't -- we can't mark it up to maintain gross margins, right? So we did see -- we'll see some negative impact on variable margins on the mortgage business overall.

Regardless, incremental mortgage margins are super attractive. And we tried to be clear in including that our view of what normal mortgage volumes are in the 2015 to '19 range versus where we are today at 50% below that. There's a lot of upsides in '24, '25, '26, and we try to frame that in talking about the $1 billion of revenue potential in the future. On the second half of your -- or first half of your question about inquiries. The USIS inquiries because of shopping are different than the EWS inquiries, which generally are more involved in closed loans, meaning on the shopping side, someone will do shopping on two or three different mortgage originators, but close with only one. So that's the difference. And last year, we opted to try to disclose that data. You referenced market volume data that's out there. There really isn't any market volume data out there, except on a very long lag basis. There are forecasts which you can describe as data, I would call those forecasts and that data. And we talked about what MBA is forecasting and some of the others and some of the Street is forecasting improvements later in the year based on rate cuts that haven't happened yet for mortgage volume. We've been very clear, and we've been doing it since I've been here that we forecast mortgage volumes on the way up. We did it on the way down, and we're doing it currently based on our current trends. And as it changes, we'll share it with you. We tried to frame the positive potential impact on us on the top line as well as the bottom line as mortgage returns to normal. And again, we think over time, whether it's ‘24, ‘25, ’26, mortgage volumes will return to normal. It's just uncertain when the Fed is going to make those rate changes and we'll be transparent on what our activity is because we see activity every day. And that's what we talk about when we talk about trends. We have -- we know what the inquiries are we got yesterday, and we know what they were last week and the week before, and we used those to really forecast what we think they're going to be going forward.

I think -- I was curious more on the origination side, but potentially, the answer is kind of the same there.

It's actually, it's a little bit different. Originations, we don't get actual originations and the industry doesn't for until six months after they happen, somewhere in that time frame. It's a complex process for mortgages to close and then those mortgages to be posted in essence, on the credit file is when we see it. So the -- any mortgage origination data is actually on a lag basis. Obviously, there are forecasts that lots of people put together, but those are forecasts and not actual data. You can't determine what -- how many originations happened yesterday, that's just not available. Inquiries, yes, and we're super transparent with you about inquiries that we see on a current basis.

Our next questions come from the line of Shlomo Rosenbaum with Stifel.

First one, John, for you. Could you talk a little bit about maybe quantifying the duplicative cost and migration costs during the first half of '24? That should go away as you start to hit those milestones. And is there a substantial risk of some of this stuff kind of trickling into 3Q and 4Q in terms of just not necessarily getting all the clients to migrate? That's kind of the first question I got.

Yes. So I think in the margin bridge, we talked about this, right? I think what we indicated is the net benefit is about 30 basis points in the year, right? And so what you can think about Shlomo's exactly as described, right, we're incurring incremental costs in the first half of the year. The bulk of which go away by the second half of the year, principally related to the North American migrations to the -- of the consumer credit file to Data Fabric. And so we see those incremental costs mostly occurring in the first half. Some of them continue, right, because we're continuing to do migrations in international, et cetera, but we see a substantial cost reduction or benefit from the elimination of the redundant costs principally and also the elimination of migration costs as you go into next year. So in total, it's 30 basis points for the year. The biggest part of the cost occurs in the first half.

Okay. And then also just going back to kind of those inquiries forecast. I think last quarter, you said that based on what you were seeing in the market, the inquiries would be down around close to 15%. And it seems like that's the same forecast this quarter despite the fact that rates are -- have gone down. And I was wondering, did you kind of hone your forecast a little bit based on changes in shopping activity like -- can you talk about the difference in terms of -- or I guess the reason why you kept that forecast the same despite the fact that rates have gone down?

I think we did highlight that we saw some -- we used the term slight because they are slight improvements in, call it, the net last almost 60 days, which we view as a positive, which is why we're -- it feels like we're at a bottom in the mortgage market, which I think is a positive for Equifax. And when you look at Equifax at -- and again, we're calling a mark-to-market that's down. But meaning said differently, in a flat mortgage market, we grow our revenue because of our outperformance in both businesses through price product, more records in EWS and penetration in EWS. I think the 15, John, is kind of in the same ZIP code even with those slight improvements. But we'll continue to be transparent as we look forward. And we know you and many others on the call, are looking for an improvement in inquiries. We are, too. When it happens, we'll share it with you, and I think that's going to be a real positive for Equifax going forward. But we want to be consistent in how we forecasted for as long as I've been here around -- off of current trends because, look, we're not economists, we can't forecast where rates are going. None of us forecasted the rates last year and the increases. And as recently as this past weekend, I think the Fed kind of pushed out the potential rate decreases that many were expecting in March out to later in the year. So we think it’s prudent to have a balanced forecast that’s consistent with how we’ve done it historically.

Our next questions come from the line of Owen Lau with Oppenheimer.

This is Guru on for Owen. Can you maybe please talk a little bit about the mortgage increased trends in January? Has it been -- was it better or has it trended down 16% full year expectation?

Yes, they're a little bit better than how we thought they would be when we gave guidance in October. That started in December, I said we called it slight improvements. But that's factored into the guidance we've shared with you this morning. So we've included that in the down 15%, and we'll continue to watch that closely. And watch it going forward. And obviously, we all know if, in fact, the Fed is going to take rates down. That's good news for our mortgage business in the future, which is why we tried to frame that $1 billion of potential revenue in the future as mortgage volumes return to more normal levels, and we expect them to return to normal levels. At these high rates, people are sitting on homes that they want to upgrade and move to that 4-bedroom home versus a three and they're waiting for rates to come down. Now what's that inflection point? We'll see. But the positive from our eyes is that it feels like the market has bottomed and with the Fed's managing inflation and indicating rate cuts in the future, that's going to be a good guide for Equifax and a tailwind going forward. The question is when?

Got it. That's really helpful. Also, could you maybe please add some -- a little bit more color on how the 24% outperformance compared to the mortgage market figure was arrived at? I mean I know some of this has already been touched upon, but if you can maybe expand on that a little bit.

Our overall mortgage outperformance lended USIS and EWS, right? So again -- so it's kind of two drivers, right? So we've talked about. We expect in the first quarter, for example, EWS outperformed by on the order of 11 points, and we think that's really driven by price and records, right? And then -- and product, as we said, we're lapping the launch of mortgage 36, which occurred in the fourth quarter of 2022, right, and was kind of fully implemented in the first quarter of 2023. So we don't see the big product benefits that we saw in '23 recurring here in 2024. Over time, we will continue to launch new products. We do it very consistently across the business. and we should see that in mortgage as well, and that will continue to add to the outperformance in EWS. In USIS, obviously, the outperformance is extremely strong in the first quarter, right, on the order of 50 points relative to what we're seeing the market at. And again, it's really two big drivers. We've talked about it already. We've seen a substantial increase from a vendor that we passed through as part of our pricing and we mark it up to try to maintain our EBITDA margins. That is a little dilutive on our overall margins, but it is something that we generate significant incremental profit from. So we do mark it up to maintain EBITDA margins. We're also seeing some incremental growth because in the second half of last year, we saw some -- we saw acceleration in products that are sold very early in the mortgage cycle. And since they accelerated in the second half of last year relative to the first half of last year, we're seeing incremental growth relative to the mortgage market transaction levels in the first quarter of 2023 relative to what we would have seen last year.

On some new products that Equifax rolled out.

And it's also the prequal products that have gone on across the industry. So that's why we're indicating as, as we move through 2024, we would expect the level of outperformance in USIS mortgage to decline as we lap the periods in which those prequal products were launched.

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

I wanted to ask about the comment you made on the delinquencies. It seems like subprime has been getting worse approaching '09 levels, as you called out earlier. Do you see that spreading to near prime or prime? And I guess, so far, it hasn't -- you haven't seen changes in consumer behavior and things like that. But I guess, how do you think that this plays out?

Yes. I've been in the financial services space for a long time. Obviously, here at Equifax for almost six years, but for 10 years, we're in what is now Synchrony. So I know the financial services space well. And personally, I don't. Yes, that's not my view that it's going to spread and primarily because unemployment is so low and employment is so high. As long as people are working, they have the capacity to maintain their financial obligations. And of course, financial institutions like meaning our customers are using data to make sure they're offering credit to those that can pay it back. So we're in an environment where unemployment really drives positives in most of the delinquency bands. Subprime has been pressured primarily because of inflation in what we see. While they're working that demographic inflation, whether it's heat, gas, groceries, all those have pressured that group. And then as a reminder, it's a small part, a small part, an important part, but a small part of the financial services ecosystem, meaning most of the lending that takes place in cards and auto is done in prime and near prime. Subprime is generally done today with fintechs. That's where most of the -- and they've tightened up starting in the summer of '22, almost 18 months ago. They started tightening up because they saw subprime consumers pressured by inflation, and they were getting pressured around their balance sheets because most of them are bank funded or securitization funded. So they had some pressures. So no, I don't see it as long as unemployment stays. The thing that we watch a lot and I watch a lot personally is where's unemployment. And as it stays low and it feels like it's going to stay low. I think we still have something like nine million jobs open with five billion people looking, and we're still generating net new jobs. So that's a good environment generally for the financial services industry.

Yes, makes a lot of sense. I wanted to ask a question on margins in a slightly different way. You talked about the moving pieces, very helpful bridge that you gave. And so the way I'm thinking about it is you have sort of the normal margin expansion from growth, you have the more cost savings than you previously expected. Better mortgage environment in the second half and then you have the redundant -- some of the redundant system costs going away in the second half. So basically, a lot of positives in second half of the year for margins. I guess where -- what kind of ballpark should we be thinking about exiting '24? And obviously, I'm trying to think about my '25 number.

I think it's a little too early for us to begin in third and fourth quarter guidance. But look, we've said consistently, we expect to see nice margin improvements as we move through this year. And that's both sequentially and then relative to what we delivered last year. So we continue -- we expect that to continue to happen. I think you summarized what we talked about very well, right? And we do expect to see very good margin progression as we go through this year. And then obviously, to the extent that there was a mortgage recovery, which we haven’t forecast, we should see accelerated margin expansion as that occurs, right, based on variable to gross profit margins that you apply against our mortgage.

We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Trevor Burns for any closing remarks.

I just want to thank you everybody for joining the call today. And do you have any follow-up questions, please reach out to myself or Sam. Otherwise, have a great day.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.