Hello, and welcome to the Equifax Inc. Q2 2024 Earnings Conference Call. [Operator Instructions] 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 Trevor Burns, Senior Vice President, Head of Corporate Investor Relations. Please go ahead, Trevor.

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 and Events tab at our Investor Relations website. During the call, we'll 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 2Q 2024 Earnings Conference Call. Also, we'll be making certain forward-looking statements, including third 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 our filings with the SEC, including our 2023 Form 10-K and subsequent filings. We will also be referring to certain non-GAAP financial measures, including adjusted EPS 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. Now, I'd like to turn it over to Mark.

Before I cover our strong second quarter results, I want to update you on the significant progress in our cloud transformation. Over the next several weeks, USIS will complete the migration on to the cloud data fabric of all customers and services for their consumer credit and telco and utilities exchanges, which is a huge milestone for Equifax. Along with the EWS Work Number Exchange, which we completed migrating to the Equifax Cloud over two years ago, we will have our three largest data exchanges in the new Equifax Cloud. As of the end of July, we expect over 80% of Equifax revenue will be in the Equifax Cloud, with about 90% of our revenue in the cloud by year-end. The cloud migrations have been a huge effort across Equifax over the four plus -- the past four-plus years. We expect to have a significant competitive advantage as we pivot from building to leveraging the cloud that will allow us to fully focus on growth, innovation, new products, and AI going forward. Completing the USIS cloud and expanding EFX.AI, along with continued expansion of our differentiated data assets, will accelerate innovation and new products at USIS that will drive our top and bottom line. We now have streamlined access to our proprietary data through the data fabric, which will accelerate new product development. We also expect to reduce product development times, resulting in faster time to market for our new solutions. USIS has already begun to see their New Product Vitality Index accelerate. USIS is deploying Equifax proprietary Explainable AI, along with Google Vertex AI across Ignite, our global analytics platform, and Interconnect, our global decisioning platform. For USIS, Vertex AI enables faster and more predictive model development on our Ignite platform. The USIS cloud will deliver always on stability…

Thanks, Mark. Turning to slide 11, consistent with our practice from the first-half of 2024 and the last several years, our guidance for credit inquiries is based on our current run rates over the last two weeks to four weeks, modified to reflect normal seasonal patterns. We have seen 30-year mortgage rates just under 7% for the last five weeks. However, we have not seen meaningful improvement in the run rate of either credit or TWN inquiries, although we continue to expect mortgage market activity to improve as rates come down in the future. Our guidance reflects mortgage credit inquiries to be down about 7% in 3Q24 and 11% in calendar year '24, which for the full-year is consistent with our April guidance. Our guidance reflects TWN inquiries in the third quarter to be down over 7%, and for the full year, down approaching 14%. Second-half TWN inquiries are down about consistent with the decline in credit inquiries, reflecting an expected normalization of the mortgage shopping we saw in the first-half of the year as interest rates remain stable or begin to decline. As a reminder, and as we discussed in April, we expect the level of U.S. mortgage revenue outperformance to moderate as we move through 2024, as we start to lap the growth in new mortgage pre-qual products. We expect 3Q USIS mortgage revenue outperformance to be over 30%, down from the 40% in the second quarter, with full-year USIS mortgage outperformance expected to be about 40%. We expect TWN revenue mortgage outperformance in the second-half to increase sequentially from the new records we boarded in the second quarter. Slide 12 provides the details of our 3Q ‘24 guidance. In 3Q ‘24, we expect total Equifax revenue to be between $1.425 billion and $1.445 billion, with revenue up…

Thanks, John. Wrapping up on slide 15, Equifax delivered another strong quarter with 11% constant currency revenue growth, which was at the upper end of our 8% to 12% long-term revenue growth framework, reflecting the power and breadth of the Equifax business model and strong execution against our EFX2026 strategic priorities. Our very strong 20% EWS non-mortgage verifier revenue growth, 12% EWS active record growth, and strong 12.5% broad-based VI give us momentum as we enter the second-half of 2024. A big priority for 2024 is to complete our North America cloud transformation, as well as significant portions of our global markets, which will enhance our competitiveness, drive margin expansion, reduce our capital intensity, expand our free cash flow for bolt-on M&A, dividend growth, and share repurchases. Completing the USIS consumer cloud migrations in the next few weeks is a significant milestone for Equifax. We continue to expect CapEx to decrease in 2024 by about $100 million to under 8.5% of revenue with further reductions in 2025, allowing us to move towards our long-term CapEx goal of 6% to 7% of revenue as we exit next year. Entering 2025 with 90% of Equifax revenue in the new Equifax Cloud is a big milestone, so the Equifax team can move towards fully focusing on growth. Another significant EFX2026 strategic priority is to drive innovation through our investments in EFX.AI. AI and machine learning are changing the way we develop new products in our single data fabric, the way we -- and allowing us to build higher performing models, scores, and products, ingest and cleanse data, and operate our consumer care centers more effectively. We're on offense at Equifax with EFX.AI. We're entering the next chapter of the new Equifax as we pivot from building the new Equifax Cloud to leveraging our new cloud capabilities to drive our top and bottom line. We're convinced that our new Equifax Cloud, differentiated data assets in our new single data fabric, leveraging EFX.AI and machine learning, and market-leading businesses will deliver higher revenue growth, expanded margins, and accelerated free cash flow that will enable us to start returning cash to shareholders in 2025 and beyond. We remain focused on executing our long-term model, delivering 8% to 12% revenue growth with 50-plus-basis points of margin expansion annually on average over a cycle. Before I turn the call over to the operator, I'd like to thank Sam McKinstry on the Investor Relations team for his significant contributions over the past four years. Good news, Sam's staying with Equifax and is taking a position within the USIS business to further his career in finance. He's been a real asset to the IR team and the investor community. And joining the Investor Relations team from Equifax is Molly Clegg, and we welcome Molly to the IR team. With that, operator, let me open it up for questions.

Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] Our first question is coming from Manav Patnaik from Barclays. Your line is now live.

Thank you. Good morning, and congratulations on getting close to this tech transformation ending. My first question was on that, which is, how much of the cost savings, I guess, have you baked into the third quarter, fourth quarter, and I guess, more importantly, just a run rate of what we should think this is now going to help in 2025 just on its own?

Yes, I don't think we're going to get into 2025 guidance, but in terms of third quarter and fourth quarter, we've baked in the cost savings related to the North American consumer businesses completing transformation in the third quarter and beginning their decommissioning, and we've done the same thing with regard to Spain and some other movements we've talked about in Mark's script in the fourth quarter. So when I talk about...

The savings are really in the fourth quarter and then we'll get the annualization of that next year.

Absolutely. As we talked about in the bridge from third quarter to fourth quarter, a significant portion of those savings, as Mark said, really gets in the fourth quarter, because the transformations and the completion of the transformations and beginning to be decommissionings don't start until later in the third quarter.

And Manav, I think, as you know -- I appreciate you pointing it out, this has been a long road. We started this five years ago and to be close to this finish line with 80% of our rev in the cloud in the next month or two and 90% in the fourth quarter, it's really a huge milestone. It's been a huge effort by the entire organization to run the company over the last number of years, but also do the cloud work. And we're super energized to really be pivoting to leveraging that cloud in the second-half as we complete USIS in Canada in the next couple of weeks and then really go into 2025 in a very, very strong position.

Okay, fine. And then just broadly, I think just from the first-half results, it looks like there's a lot of pluses and minuses across the segments. I was just curious in terms of the way you set the second-half guidance. Like, where would you say you've perhaps left some room for error or being conservative on it?

Yes. We try to be balanced. I think you know that. We want to put forecast out that we know how to meet and we feel a lot of confidence in the forecast we put out. I think John and I in our prepared comments talked about some of the positives we have. We've had some challenges, you always do in a business. I think we highlighted USIS has seen some softening in the first quarter in some of their end markets and also in the second quarter. Mortgage hasn't really come back, and short of rate cuts, we don't expect that to happen in our guide. We've seen some impacts likely from the big focus in the first-half in USIS and cloud transformation. We expect those to obviously mitigate so the commercial team can be fully focused on just commercial conversations versus also commercial and cloud. EWS is performing exceptionally well. You look at the government performance, talent had a very strong quarter. Obviously, we talked about employer impacted by WOTC and some other kind of macros that will solve themselves, but likely later in the year, that will benefit 2025. But putting that all together and -- maybe just finishing with international, strong momentum there and all the businesses performing above our expectations. When we put that all together, we felt like we had the right framework in holding the year in the second-half.

Okay. Thank you.

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

Hi, there. First, I would just want to confirm that second quarter revenue percentage for mortgage was 20%, I know the word about was used? And then the second question is, I want to focus just more on the third quarter guide, and Mark, I know you really talked about the second-half there. And I want to focus specifically on USIS. I surely heard you highlighting that the cloud migration, let's call it, multitasking will be behind us the end of this month for USIS, so revenue acceleration there into August? And then I also heard the comment about CDK, which was a drag to auto revenues and auto dealers in the second quarter. That also seems behind us. So, what other kind of maybe drags have you assumed on USIS in the third quarter guide? Because the third quarter revenue guide for USIS, to me, looks a little conservative. And did you change any assumptions about the health of the U.S. consumer outside of mortgage when thinking about that third quarter USIS guide?

Andrew, to your specific question, it's -- 21% was the exact number.

Thank you.

And to your question on USIS, I think we -- in our prepared comments, Andrew, I know you heard them. We've seen some softening in some of the end markets in USIS late in the first quarter, certainly continued in the second quarter. You talked about the CDK impact obviously, you know, was a negative late in the second quarter. That's obviously behind us. But the end market softening, for example, in auto, while mortgages have been impacted by higher rates, we're seeing some impact in auto where the payments for new and used cars are very high with the higher rates that are being charged. And we've seen some impact in just consumer demand for loans in auto. And then a broader, I would call it slight softening in second quarter. And we carried that forward in the second-half. So that's reflected in the USIS guide. I don't know if you'd add anything else John?

No, Mark's already talked quite a bit about the distraction from transformation that does recover in the third quarter. We start to come out of that right, but again we're just finishing transformation in the quarter. So you're not going to see a lot of benefit in the third quarter. You don't start to see that till fourth quarter and really next year. You are starting to see NPI improvements in USIS. But again, those are not going to really accelerate until you get to the fourth quarter and next year.

Makes sense. Thank you.

Thank you. Next question is coming from Heather Balsky from Bank of America. Your line is now live.

Hi, thank you for taking my question. I wanted to start off with EWS verification -- or verification in EWS broadly into the back half and thinking about the sequential trend from 3Q and what's implied into the fourth quarter. Especially for 4Q, there seems to be some implied material acceleration. And recognizing that the mortgage market has somewhat stabilized and the benefits from that, can you just walk us through the building blocks to kind of what gets you to the trends in 3Q and what's implied for 4Q and where you're seeing the biggest tailwinds?

Yes. So just as an overarching statement, right? It's important to remember that EWS verifier is benefiting in the second-half, really significantly related to record additions, right? They've done an outstanding job with adding new partners. We had a significant partner come online very late in the quarter. And we -- as Mark said, we added four more. We added a substantial number in the first-half. Those records are coming online, and that drives a substantial amount of revenue in the second-half.

And maybe adding to the records point, John, is that we have real visibility as we are in July now and in the third quarter and as we look out to the fourth quarter of meaningful record additions that we're working on, and we haven't closed those yet, so we haven't added them into our discussions with you. But -- and as you know, records, when we add them, when they come online, they turn into revenue that day, because we're already getting the inquiries. That's the beauty of the of the system we have. Sorry, John. Go ahead.

No problem. And as you get into fourth quarter, obviously, what you're seeing from third quarter to fourth quarter is there's some traditional strength generally from third quarter to fourth quarter in talent, right? Just because of seasonal hiring in I-9, because of seasonal hiring where we do onboarding for companies. We generally see some strength in banking and card, around CLIs. And then importantly, in CMS, ACA sign-ups start in the fourth quarter. So we generally see nice growth in government going into the fourth quarter. And then you layer on top of that the strength in records, and that's what gives us confidence that we're going to see good performance as we go through the back half of the year in verifier non-mortgage. Mortgage, we've talked about, I think that's been covered. And employer, what we're seeing is, as we get into the fourth quarter, the significant impact of ERC that we saw through the first nine months of the year, we wrap around the decline that occurred in the fourth quarter of last year. So employer revenue on a year-over-year basis, the growth rate will be substantially better. As we said, we expect to be flat to slightly up relative to the declines that we've been seeing, and that's principally driven by the fact that we saw a big decline in ERC in the fourth quarter of '23. So, I'd say that's why we feel good about the way EWS is trending and the opportunities to drive the revenue growth we're talking about.

Got it. Thank you. And I know you've gotten questions about where there might be a little bit of caution in the guidance and room for upside. There's been a couple of surprises the past few quarters, the WOTC, the transition taking a little bit longer. Do you feel like for the back half, you've given yourself some room for some things that might occur like that, some of the stuff that may be kind of out of your control?

Yes, we're always trying to do that, as you know, and it's often not easy. Like, the WOTC change that took -- went in place last year, we just thought would be implemented by the states more quickly. Government bureaucracies sometimes move at different paces. But we think we have good visibility. We talked earlier about the records. That's one where we have high visibility on. We know who we've signed, we know when they're coming on. We have kind of those schedules. So that gives you a lot of visibility. We -- do what you would suggest or would think we do is, we handicap different macro elements and try to put our best forecast together. And I think, as you know, on mortgage, while there's maybe increased talk about a rate cut in September, we don't have that in our forecast. We wouldn't put it in our forecast. That's not our process. If that happens, that's going to be good news for the second-half. But outside of our forecast and -- as you know, we expect rates over the medium term, call it, into '25 and '26 to come down, and that's going to be a real tailwind for us on the mortgage side. So yes, we've put pluses and minuses that we think we know about into the forecast, and that's why we put it in front of you.

And as Mark referenced and we talked about in the script, right, I mean, obviously, we know third quarter to fourth quarter requires a lot of execution. But we have a lot of confidence in the way the teams are executing right now and it's around completing the transformations. We think we have very good visibility into how that's going to complete and the timing.

Appreciate it. Thank you.

Thank you. Next question today is coming from Kelsey Zhu from Autonomous Research. Your line is now live.

Hi, good morning. Thanks for taking my questions. My first question is on talent. Obviously, we've seen really strong growth this quarter. I was wondering if you can tell us a little bit more about the new products you've introduced year-to-date, how much they have contributed to growth, as well as kind of upcoming product pipeline and how you expect them to contribute to growth.

Yes. And in talent, you have to add to it also the penetration. Remember, that's a large TAM that we have a big position in, but there's a lot of runway for growth of just converting manual -- let's use just employment verification processes. As you know, we have incarceration, we have education data and other data elements, like medical credentialing data. But just the penetration is just a huge opportunity just like government. The -- when you've got a $450 million, $500 million kind of run rate business in talent, operating in a $3 billion-plus TAM, there's just a lot of penetration opportunity. Product is a big lever also. We've got a lot of focus around new products on incarceration, on education, on different depths of employment data. We rolled out an hourly solution for hourly background screens that don't require as much employment history. So, there's a big focus there. And I know the team is working on the next chapter of combining those data elements with our goal being to have a single transaction to deliver all the data that's required for a background screen, which would include employment history, would include incarceration, education, et cetera. We signed and announced a new partnership on education that goes beyond college degrees and into high school and vocational schools. So, that's another depth of element that's a part of our second-half focus on talent.

And in the second quarter, we saw very nice growth out of the insights portfolio -- incarceration, as Mark referenced, helping us drive the talent growth rate. So that was a nice growth area for us in the second quarter.

Got it. Super helpful. And then my second question is on government. We also saw really strong growth this quarter. How much of that is driven by the CMS contract extension? And are there any one-off factors that contributed to growth this quarter? And how should we think about a sustainable growth rate going forward?

Yes, that's a heavy question. Let me take a few parts of that. When you think about government, I think, John and I both mentioned in our comments, the biggest driver in government is penetration into that big $5 billion TAM. That's really at the state agency level. And as you know, we've continued to add resources in our government team in -- at the states in order to drive that penetration. And remember, you've got multiple agencies that are using our data, and in most cases, are not using our data, they're still doing it manually, whether it's for healthcare benefits, food support, rent support, childcare support, education support, income support, there's about a dozen different social services. And I think you know the scale of the U.S. consumer base that -- or household base that receives these services. It's about 90 million Americans receiving those services. And when you think about our business, call it, roughly $800 million run rate today against that $5 billion TAM, you've got over a $4 billion really manual processing of principally income verification that we're penetrating into. So, state penetration is a big driver and we think about that as very sustainable. There's not -- there's no one-offs in there. You get embedded in their workflows and then you become a part of that process. As you point out, we did expand -- extend our CMS contract last September. So, we're still taking the benefit of the price increase that was built in there. And as you know, that's a five-year contract with annual escalators. So that's one with a lot of visibility. So there's not any kind of one-offs in there. Anything else you'd add, John? In government -- you can tell we're quite energized. Government, last quarter and now again this quarter, is the largest vertical in Workforce Solutions and it's the business with, we think, the largest runway. Your question about the long-term growth rate, it's obviously outgrowing. In the last three years, it's had a 50% CAGR. It was up 30% in the quarter, I think 35% last quarter. So it's had very strong above kind of framework growth for Workforce Solutions, in the 13% to 15% total growth. We've been clear that we expect government to outgrow our 13% to 15% framework for EWS over the long-term. So that's clearly a business that we have a lot of confidence in and we're investing a lot in because of the opportunity there. We haven't given any guidance for '25. We'll do that as we get through this year, but we've been clear that we expect it to grow faster than the rest of Equifax and faster than the rest of EWS.

Yes. And in terms of 2024, just looking at sequential trends, right, I think the sequential trends we're seeing in the second quarter were good and strong. And third quarter and fourth quarter, I think, are very consistent with what we've seen in the past. And specifically, the -- as we referenced, the growth we're expecting into the fourth quarter is heavily driven by CMS and the fact that ACA starts in the fourth quarter, and every year, we see a pop in revenue from that agreement with CMS, in 4Q and then again in 1Q.

Thank you so much.

Thank you. Next question is coming from Faiza Alwy from Deutsche Bank. Your line is now live.

[Technical Difficulty]

Faiza, your line is now live.

Faiza, we can't hear you.

Yes, we got you now, I think.

Oh, is this okay?

Yes. That's better, yes.

Okay. Okay. Sorry about that. So, wanted to ask about the USIS acceleration that you're expecting on the revenue line just from cloud completion. Talk a little bit about your confidence in that, maybe what type of new products [Technical Difficulty] talked about potential market share gains. So, just give us a bit more color and confidence around that acceleration.

Yeah. And as John said earlier in one of the questions, we expect to see some benefits perhaps later in the year, but that's really going to be in '25, '26, and '27. There's no question that there's been some distraction for that team. This has been our most complex cloud transformation of the 40-year-old kind of consumer credit -- we call it, ACRO platform that we had. To be finishing it in the next couple of weeks is just a huge accomplishment and it's just taken so much bandwidth from the team to complete that. So, kind of the focus of the team is one positive that we'll have in the second-half, but you should think about that really benefiting as we get into '25 and beyond. You point out a number of really important levers. We believe the always-on stability, the ability to roll out new products more quickly just make us a more valuable partner to our customers. And we do expect to have share gains going forward. We've got some of those in flight and a lot of conversations going on. The feedback from our customers, that we've moved 99% of our customers to the cloud -- I think it's even higher than 99% as I speak today, has been outstanding. The performance, the speed, acceleration of moving the data, just the feedback is super positive. And as you know, that's one of the reasons we invested this substantial amount of money in the cloud four-plus-years ago was we believed it was going to give us a stronger competitive position with our customers. So you -- and we should start to see those benefits really in '25, but the momentum -- there should be some good guys as we get into the second-half on that. New…

The only thing I'd add is, we're also seeing nice growth in the use of Ignite in pre-screening and Ignite by our customers. That's important, because that's also the platform in which we're deploying our proprietary and then also Vertex AI. So we're making that available to our customers, and it allows us to expand and -- expand the use that we have substantially. So we feel very, very good about the fact that we're seeing accelerating adoption of Ignite in the marketplace with our customers using it directly and with us developing products internally.

Great. Thank you so much. And then my second question is on EWS mortgage side. Obviously, we've had a lot of conversations over the last few quarters, even years about TWN inquiries versus outperformance. So, just give us the lay of the land in terms of how you're thinking about outperformance from here. And then I know you talked about TWN inquiries sort of stabilizing maybe or being more in line with the credit inquiries. And I'm sure you saw the HMDA data came out last week. I'm just curious if you reflected on that, and any incremental thoughts around just EWS mortgage?

Just in terms of how we expect EWS mortgage to perform relative to inquiries, right, as we talked about, a lot of our improvement in the second-half is driven again by records, right? So, Mark talked a lot about the fact that we've done a really nice job of adding new partners, and we're adding a significant number of records, a lot of them boarded late in the second quarter. So we are expecting to see revenue benefits in EWS from record additions, from the records that were added at the end of the second quarter and also the record we're going to add throughout the rest of this year. And that's really the big driver.

Yes, I'll just add again. I mentioned it earlier -- in one of the earlier comments. I think you know this, but record additions, we already have the inquiries coming. When we add the records, they turn into revenue. So it's such a powerful lever for us. And as you know, we've had really strong momentum there on records and we've signaled we have strong momentum in the second-half, and also good visibility. We don't have to do anything else, but get the records in our data set and they become revenue, because we already had the inquiries coming in from our customers. We just have higher hit rates.

Yes. We're also looking -- we're also expecting some benefits from new products. I think we've mentioned that in the past, some marketing products that we're trying to put in place earlier in the approval funnel. So, we're going to continue to work on NPI in EWS mortgage, but the big driver certainly in the second-half of 2024 is driven by the strong performance and records in the first-half of 2024, as well as what we expect to continue to do in the rest of this year.

Great. Thank you so much.

Thank you. Next question is coming from Surinder Thind from Jefferies. Your line is now live.

Thank you. I'd like to start with a question just about the innovation cycle. When we think about all of the commentary that you've kind of provided, is the idea that we should be entering a period, especially within USIS, of accelerated innovation? And how quickly will those products come out? And then should we expect, what I would call, well above normal in the near term or -- help us work us through that cycle, I guess?

Yes, it's a great question. As I commented on the last question, they've clearly been dampened with all the focus on completing the cloud. We were really energized with the momentum that they even had in the second quarter in the midst of a very heavy quarter of cloud migrations that their vitality was up 100 bps to 8%. They've been below our 10% goal for five years or six years, pick the time frame, when we increased that goal from 5% to 7% to 10% for Equifax. And we expect USIS to move to that 10% as we get into '25 and the latter part of '25, meaning they've got really good momentum there. I rattled off a whole bunch of solutions that they're working on and that they expect to roll out in the second-half. These new products take time and they were clearly hampered by the cloud transformation, and we expect that with the cloud completion in the next couple of weeks to see some increased focus. And then as I mentioned on the other -- the last question, we're also -- have a big focus. We actually have a dedicated leader and team working on the EWS, USIS products, meaning the product combinations, which we've never done before, and we think will be quite powerful and kind of only Equifax solutions that we can bring to market. We've got a dedicated team in USIS and they're going to be really putting the pedal to the metal as we finish the year. To your question about when you'll see a lot of the benefit, I think that acceleration will happen in 2025 versus the second-half, but you're going to see a positive momentum of products coming out. They may not be revenue in the fourth quarter, but they'll turn into revenue in '25 and beyond.

Thank you. And on the implied 4Q margins, it sounds like there is a tax benefit in there as well. If we adjust that out, is that the right run rate for the firm on a go-forward basis from beyond 4Q?

Yes. So, in terms of 2025 EBITDA margins, we'll give you guidance on that as we get into 2025. But as we've been talking about, and Mark talked about the fact that we expect, on a long-term model, 50 basis points of improvement per year. And we do expect to see nice improvement in margins as we get into 2025. In terms of an exact level, we'll talk more about that as we get into next year.

And maybe I'd just add, John. I think we're all watching to see when the Fed's going to change rates, and we believe the positive impact that'll have on mortgage activity, we've been very clear that as that starts rolling in, that's going to be accretive to our margins in a very positive way, meaning it's going to drop through in very high incremental EBITDA levels, 70-plus, when that happens in -- likely in '25 and beyond as rates move down to some more normal level.

Thank you.

Thank you. Next question is coming from Andrew Nicholas from William Blair. Your line is now live.

Hi, good morning. Thanks for taking my questions. A lot of talk about record count. Obviously, a really strong number, both year-over-year and sequentially. I just kind of wanted to ask about the Gig/1099 and pension opportunity there. And more specifically, how chunky or how big can those kind of record adds be on a one-by-one basis? And part of why I ask is I'm just trying to figure out if it's maybe more expensive from like a sales staffing perspective to acquire those deals, or if they can be comparable to some of the HR technology, software and payroll relationships that you've fostered over the years.

Yes, it's a whole range, as you might imagine. Use pension -- there are pension administrators that manage to find benefit pension payments, almost like a payroll processor for companies. We've signed one or two of those kind of relationships. So you think about those like a payroll processor. Those can be, call it, more chunky, meaning larger. We have direct kind of relationships around pension records and just a long runway in pension. And then there's a lot of pension records, as you might imagine, in federal, state and local government organizations, fire departments, police departments, government agencies, still have defined benefit pensions, most corporations do not, like the vast majority, but some of the legacy corporations still have that. So that's how we're going after pension, we have a dedicated group -- first off, we have a dedicated leader that works for -- our EWS leader that all they work on is records. And you may remember that's a change we made in December, to put a full-time dedicated leader. At the time, he had other tasks in EWS, and we just saw an opportunity to really continue to drive records. So, we asked him to fully focus on records. So, there's a dedicated team on pension and we have a dedicated team on 1099. We have a dedicated team on, call it, W2 or non-farm payroll partnerships, which would be payroll processors, HR software companies and others like that. And then also, remember that half of our records come from our direct relationships that we get through our employer business. So that's another important focus of ours, is we're continuing to invest in new products and capabilities to have those direct record relationships. On 1099, kind of we have a dedicated team. It's a different path that's going to some of the big Gig operators. But remember, 1099, income-producing Americans include doctors, dentists, lawyers that are self-employed and very high income. So you've got to go to like tax prep services that do their quarterly estimated taxes as a way to get some indication of their income. So, lots of different avenues that, I would say your question about, are some chunky and some more granular, the answer is, yes, it's a mix of all of the above across really all three kind of areas for focus on records. The positive we have is our scale, so we can focus on really going after those in so many different places. And we've got a big focus on it for the obvious reason because of the benefit we get. We're already receiving the inquiries. So, as we add records, we're able to translate those into revenue and give higher hit rates for our customers, which is what they're after.

Very helpful. Thank you. And then for a very quick follow-up for John, I believe. On the -- you've talked about the outperformance in mortgage for EWS. Maybe kind of underlying that, is the expectation that the EWS inquiry number more closely tracks kind of the overall mortgage inquiry number in the back half, or is your expectation that that gap persists as, I guess, mortgage lenders and buyers don't get all the way through to the final stages of the purchase process?

Now, in the second-half, we've assumed it narrows and that they tend to trend -- they're going to trend together. Now, again, that's based on our expectation. It's also based on the trends we're seeing today, right? So, as we just run out the trends for the rest of the year and apply seasonality, separately, it looks like the movement in USIS credit inquiries and in TWN inquiries, should move on a percentage basis year-on-year similarly, right? So we'll have to see, right? I mean, we have been surprised in the past, where sometimes the shopping behavior continues longer than we expect. But right now, it looks like it's starting to narrow and we can also see it analytically.

Great. Thank you.

Thank you. Next question today is coming from Jeff Meuler from Baird. Your line is now live.

Yes, thank you. Good morning. So, just when you had an Investor Day a few years ago, there was going to be kind of like an outsized margin expansion period after the cloud transition was complete. I just -- what's the current thinking on flowing through the tech transformation savings into margin versus any change in thinking on reinvesting that to, I guess, best harvest the increased revenue opportunity from the cloud transition?

Yes, no change, Jeff. We're going to flow that through. We're investing and we have been, and you've followed us for a long time, you know as well. While we were doing the cloud and putting outsized investment in our tech transformation for the obvious long-term strategic reasons and competitive reasons, we've been making the right investments in '21, '22, '23, '24, in new products and other resources, commercial resources, et cetera. So we're investing the right amount to grow Equifax today, and those incremental savings from the cloud will flow through to expand our margins. Same way that we've talked about is, when the mortgage market returns, we'll let that flow through. We're not going to reinvest that. We're investing the right amounts to grow Equifax at 8% to 12% and deliver that 50 bps of kind of what I'll call ongoing operating leverage from running the company. So, as we have like mortgage market recovery or, as you point out, the cloud cost savings, those are going to flow through and they're going to allow us to not only expand our margins, but as John pointed out, with our leverage coming down, we're getting closer to that stage, which we've been after for, as you know, quite some time to start returning cash to shareholders.

Got it. And then when you were describing, I think it was OIS, you mentioned the ID and fraud softness this quarter. So, I'm guessing that's Kount and Midigator, correct me if I'm wrong. But what drove that? How quickly can it recover and how is international doing for Kount and Midigator?

Yes. So if we take a look at Kount and Midigator together, what we saw actually was, let's call it, the fraud part -- portion of the business performed better. We continue to see growth. We saw a little bit of weakness in chargeback management, which is, let's call, the Midigator part of the business, right? So we're expecting -- we've launched a lot of new products and platforms now in Kount, right? Kount 360 is now live. We're expecting to see that platform take hold. So we're expecting to see improved performance as we move through the rest of this year around Kount. And then around chargeback management, as we integrate chargeback management into the Kount 360 platform, we would expect to see some improvement there as well. So -- but I'd say that what we're seeing -- and it's a good news on the margin front, because the fraud business has better margins. We're seeing a little bit of performance in fraud, and given the launch of new products, our expectation is that the area will see improved performance first as we go through the rest of the year.

Okay. Thank you.

Thank you. Next question is coming from Scott Wurtzel from Wolfe Research. Your line is now live.

Great. Good morning, guys, and thanks for taking my questions here. Just wanted to go back first to the Vitality Index in EWS, and pretty notable sequential acceleration there. It seems like there was a decent amount of contribution there from talent, but just wondering if there were any other kind of notable positive outliers there that were contributing to the sequential acceleration in growth. Thanks.

Yeah. As you know, EWS has been really outperforming our 10% kind of vitality goal for, gosh, almost three years now, principally after they completed the cloud, and it was a real step-up. So they've had -- really broad-based in all their verticals, focused on innovation and new products. You point out talent, where they've rolled out some products and they've got more in the pipeline. And so, there was clearly some benefit there from products that were put in place late last year and in the first-half of this year. Mortgage has got products that they've rolled out. So there's probably some benefit there. We -- while we lapped Mortgage 36, they've got some other solutions that they're bringing in. Employer, we've got a new I-9 solution called I-9 Virtual that's in the marketplace. So, that vertical is focused on new products. And government is also -- got some focus there. So we've been quite energized about EWS, call it, above framework, ability to execute on innovation. We'd expect them, over time, to move back towards the 10%, but they've been well above it for the last three years. And as we talked about, international had a good quarter on innovation and so did USIS in -- even in the midst of their cloud work.

Got it. That's helpful. And just as a quick follow-up on the international side, I mean, one of your peers recently had called out some headwinds to growth in Brazil during the past quarter as a result of some flooding. And just wondering if you guys had any impact from that at all in second quarter here.

We did. We have the -- it's -- it was in Brazil, right? And there's -- there was a substantial flooding in the South of Brazil and it certainly impacted our business, although our Brazil business has actually performed fairly consistently with the plans we put in place when we started the year. So...

Yes. No, we're pleased. We're pleased with Boa Vista's performance. We talked about a bunch of the solutions that we're bringing there now that should benefit the second-half in '25 as we complete the integration. We're just lapping -- getting close to lapping the 12-month mark from acquiring the business, but we're well down the path on integration and rolling in our new products and bringing in our platforms, like Ignite and Interconnect and some of the other new product solutions. So, we're quite optimistic about our Boa Vista acquisition and the opportunity for growth going forward.

Great. Thank you, guys.

Thank you. Next question today is coming from Kyle Peterson from Needham & Company. Your line is now live.

Great. Thanks, and good morning, guys. I wanted to start off on the records growth. It seems really strong there. Just want to see if you guys could unpack kind of what drove kind of some of the new additions. I know you guys have been talking about Gig and such, as well as some of these HR software partnerships. So, I guess, like if you kind of rank order what some of the bigger contributors were to the net new records this quarter, that'd be really helpful.

Yes. I would say, similar to earlier question, it's broad-based. I think you're seeing the benefits of having a fully dedicated team and leader reporting to the leader of EWS, reporting into Chad. Joe Muchnick is the leader who's driving that. And I think we made that change in December and you've seen just the ability to just drive more of those strategic partnerships, which has really been quite positive. It is broad-based. We add records from individual relationships when we're doing employer solutions like I-9, UC, WOTC and other things with them. We've -- as we point out, we added four new partnerships in the quarter. We see a pipeline of those, and those partnerships are with pension administrators, they're with HR software companies, as you point out, and they're with the traditional payroll processors. And remember, when you think about the TAM, if you will, for records, there's roughly, the way we think about it, 225 million working Americans. We're north of 132 million individuals in our data set. Just a long runway for growth going forward. And we've clearly, gosh, over the last three years, five years, six years, seven years been outgrowing our framework for records over the long-term, which is kind of three points, four points of record growth per year is what we think about over the long-term. But there's just been a lot of momentum, given our focus and resources we've been putting on it.

That's really helpful. And I just wanted to follow-up on auto, some of the moving pieces that you guys have seen there. I know you guys called out kind of the CDK issue. It seems like that's, I guess, largely resolved itself, but I guess, should we...

Yes.

Think of that as kind of a late 2Q, maybe first week or so of 3Q impact? And I guess, if so, how are you guys thinking about auto, ex that impact for the -- at least for the balance of the year?

Yes. I think we tried to highlight that we've seen really for the last, call it, couple of quarters some impact from higher interest rates on auto loans dampening some of the auto credit underwriting. So -- and I would say, we don't expect that to change in the second-half and we've reflected that in our framework until rates come down.

Got it. That's helpful. Thank you.

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

Hi, good morning. Thank you for taking my questions. Hey, Mark, I just want to get a little beat on the overall consumer credit environment. I mean, it sounds from your comments that there's some deterioration sequentially. And what I'm trying to understand, is it deterioration from the bank side of things? Is it deterioration from the consumers just saying, hey, I can't afford some of the loans? And what are you seeing over there? And some of the financial and marketing area, the area that has portfolio review, are you seeing some impact over there with the growth in revenue moving up to 7%? If you could just give us a little bit of color? And then I have a follow-up.

Yes. I think there's been some slight softening of, I would call it, consumer demand. Like, the consumer is still strong, outside of the subprime consumer, which we know has been impacted by inflation, which -- while it's coming down on a two-year basis, what they're buying is still a bigger part of their disposable income, whether it's groceries or fuel, it's clearly impacted the subprime consumer. It's really around the rates. We saw it in mortgage, obviously. Mortgage, we've seen the impact of higher rates really impacting the mortgage market meaningfully over the last couple of years. And I think in the last six months, we've seen that flow to a less -- much lesser degree, but obviously, a negative impact in auto where you've got payments on a car with the higher rates are just substantially higher than they were a couple of years ago, and that's impacting some level of auto purchases. I think you've seen the inventories by the car dealers increase, which is probably an indicator of consumer demand there because of higher rates. And until we see some reduction in rates, I would expect that auto would be somewhat dampened. It's a -- it's probably the one that we've seen the most of. Outside of that, I think the other verticals are kind of continuing to move along. It's not a customer impact. Our customers are still strong. Our customers are still focused on growing their businesses. I think it's more of an end user demand on the consumer side.

Okay, great. Thanks. And then you made a comment about the impact to margins, the reason margin guidance was lowered was just the timing of the cutover and some of the transition, but shouldn't impact 2025 outlook. Just trying to understand if things go out a quarter, why doesn't that snowball into 2025? Why wouldn't I kind of think about that as a 2025 number, also being kind of a quarter behind?

Yeah. So I think John commented that we're at the finish line with a lot of these transformations. But when we move all our customers, there's a couple of months of overlap before we shut down the legacy infrastructure as we complete decommissioning those infrastructures. And that's still in our run rate, meaning we're still paying for those duplicate infrastructures, the new cloud and the legacy infrastructure. That will come out of '24. So we'll have full run rate in 2025, but it's delayed a couple of months because of some of the final work we're doing to complete, principally USIS, and I would say, yes, Canada is the other one that we're a few weeks behind and that pushes out those savings. So we have less benefit in '24, but we get the full benefit in '25.

Okay. Thank you.

Thank you. Next question is coming from Owen Lau from Oppenheimer. Your line is now live.

Good morning, and thank you for taking my question. So, going back to Mark's earlier comments about rate cut, the market currently expects the rate -- to cut rate by, I think, 50 basis points to 75 basis points this year, and it may even start in September. Let's say, if the Fed cuts by 50 basis point, how much incremental benefit do you think Equifax can capture? And how do you think about all these for this year? Thank you.

Yes, that's a tough one to actually put a point estimate on there. It's obviously going to be good news when the Fed cut rate -- cuts rates, principally in our mortgage vertical. I think you saw the chart in the deck that inquiries are down 50% from what we would call normal levels. We would expect that activity to recover as rates come down and you've got the kind of the macro challenges of consumers -- homeowners, better term, in a home at a 3% or 4% mortgage and likely want to upgrade or change, but are waiting to see rates come down from kind of the high-6s or that kind of range before they make that move. So, there's not a lot of inventory on the market. We would expect that to be positive going forward. And we've tried to frame for you that if you look at where we are today versus what we characterize as normal, that's $1.1 billion of incremental revenue, which is a huge number that -- we would expect, over time, that activity to go back towards normal. We'll see how it goes and, of course, how does the Fed move rates. The interest rates in the United States from the Fed are the highest, I think, pretty much in the globe today and they're 25-year high for the United States. It's -- we all believe, or we certainly believe that they will come down over time and then we'll have a big positive from the mortgage market recovery that we've been clear that will flow through our P&L and drive our margin expansion and free cash generation substantially as that comes back into our financials.

Got it. That's helpful. And then I remember, last quarter, talent revenue was down 4% and you saw some recovery in March and continued in April. In the second quarter, it was up 13%. Was it because of some pent-up demand from January or February, or high market has actually improved that you see the growth will be more sustainable? Thanks.

I think the biggest driver -- John, you can jump in also, in talent is just continued penetration in that TAM, meaning customer wins, getting to top of waterfall, meaning they're using our solution first, kind of position some of the new products. What would you add on that, John, for talent?

Well, we also saw really nice performance in some Insights products...

Yes.

Meaning incarceration that's used in background checks, and we also started to see some growth around some education products. So, generally speaking, as we talked about last quarter, January and February are very weak in terms of hiring. What we saw was weaker-than-normal and then we saw a recovery in March and we got a little better performance in the second quarter because of that recovery also in our normal income and employment products, but also because we saw nice performance from some of the other products that we use that support the talent market.

All right. Thanks a lot. I appreciate it.

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

Great. Thank you. Can you discuss, if you would, your AI spending here? I'm just curious, the dollars you're spending on that and going forward here, are you doing that within the context of, say, your normal technology budget, putting aside the cloud and stuff, within -- inside your normal technology budget here or it's just displacing other spending that you normally would do on the technology side…

No, no, there's..

Incremental.

Yes.

That it's actually hurting margins?

Yes. And it's -- well, I don't know. We don't -- I don't think about it's hurting our margins, but we're investing for obvious reasons in what we believe is a very important growth lever for us of enhancing our scores, models, and products using AI and ML. This isn't new at Equifax, but we've been consistently increasing our focus and spend around resources and capabilities for AI. The tech transformation provides a big lever there with our own AI capabilities and then leveraging that with Google's Vertex AI. So, being in the cloud is a big positive for us. And then we've been investing in more resources and people. I mentioned that we brought on a really strong leader from the industry -- it was actually from one of our customers, that we're excited to have in the business to lead AI and ML for us. You've seen the use of AI expanding. We had a goal of 80% of our models and scores this year to be using our new AI and ML. And I think we're at 89% in the quarter, so north of our goal, which is a good thing. As we move forward, we will move to 100%, right? That's where we're heading. So this is a big lever, and it's one of the pillars of our EFX 2026 strategic priorities, is to really leverage. And what it's going to deliver for our customers is just higher-performing solutions. They're going to be more predictable. They'll help them drive higher approval rates at lower losses, or higher identity validations in our identity businesses. We're super energized and the ability to have all of our data in a single data fabric and to have the Equifax cloud substantially complete as we finish up in the next number of weeks in the USIS, that gives us big, big opportunities to really take our product capabilities and really charge them with AI and ML. So we're super-excited about this as a priority going forward.

And when you think about spending, like a significant amount of our capital spending is around getting data into fabric to make it available easily across all of our businesses, which dramatically accelerates AI and ML. So, compare our spending to what other companies talk about in AI and ML, you would probably need to include a bunch of the transformation spending we're doing, because we're doing data normalization in a way that other companies have to do, but we're doing it as part of our ongoing process improvements. So we're spending substantially on AI and ML.

And then my follow-up question, please. On credit cards, you just touched on your outlook there for the rest of the year-on a year-over-year basis. Just refresh us what happened again in the first quarter and second quarter there.

Yes, no change in the second-half from the first quarter. As you know, there's a small portion of the credit card space that's in subprime that's went through a cycle in, really, '22 and '23, where there was some dampening there because of credit risk exposure with the subprime consumer. That's flattened out, meaning they're kind of at a run rate level. So, that is behind us. And then in the prime/near-prime, it's still a good business for us and we don't see any real changes there.

Yes. Banking and lending, we said, has been growing kind of mid-single-digits, a little higher in the first, a little lower in a second. But that's what it's looked like in the first-half. So we think relatively good performance there.

You expect it to continue like that in the second-half, you're saying?

We do. Again, you go from -- kind of take second-half, take 2025, the consumer is strong, they're working. If you think about prime/near-prime consumers, they're -- have -- they have wage growth and they have balance sheet growth from the equity markets. We've all seen the spending behavior from, broadly, the U.S. consumer base kind of post-COVID is very strong. So, that's a good outlook, and our customers are strong. They have strong balance sheets and these are important businesses for them that they want to keep growing. So they're spending money on marketing and they want to originate. And then for us, if we can continue to deliver differentiated solutions that help them grow their businesses faster, that's going to be a good thing for USIS in the card space and along the rest of FI.

Great. Thank you.

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

Thanks so much. I wanted to go back to the mortgage outperformance in Verifier. I think it was just slightly lower than last quarter, and I know you had expected it to be up slightly. Could you just give a little bit more color on what's going on there? Is there a mix component like last quarter that was unfavorable? Just any sort of drivers that maybe led to a little bit of a worse expectation?

Yes. Toni, we would characterize it as much consistent with the guidance we gave, right? Slight up to slight down is pretty close to the same thing. So we think we were very consistent with the guidance we gave. I can't point to anything specific, right, as to why there would be a small variances between where it came in and what we said. But overall, it was fairly consistent with what we expected, which is what gives us some comfort that as we go through into the second-half of the year that we're going to see the improved performance that we expect because, again, we talked about it multiple times because of records, right? So we feel good about that.

Okay. Great. And then I wanted to ask another on International, just very strong organic growth this quarter. It looked like LATAM was really the standout there with 30% organic growth. Have you seen share gains there? Or is it still a little bit too early? And just how are you thinking about LATAM for the rest of the year?

Yes. In LATAM, the principal driver in there is outside of Brazil. Brazil had a good quarter, and we do expect over the medium and long-term to continue to grow that business well, but it's still early days in Brazil. But strong performance in really most of the markets in Latin America, driven by new products and innovation, Argentina, Chile, a lot of the markets where we have strong leadership positions in those markets. But if you go across the rest of International, U.K. CRA was very strong. U.K. debt management was very strong. Those are growing kind of above market in U.K., particularly CRA, had another very good quarter and likely some share gains in that market. Canada was just above mid-single-digits, which was a very good performance. Australia, below where we would like them to be, but we expect them to recover as it moves forward. But product -- new products, a very positive driver across International as they're driving innovation.

And we -- gave full-year guidance. So again, I think we gave a perspective on where we expect the year to come in. We expect International to perform well. We expect LATAM to perform well, not quite as strong as the second quarter, but still the rest of the year should be good.

Thank you.

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

Hi, thanks. Good morning. I wanted to go back to an earlier point, which was in the USIS nonmortgage business, you saw a continuation of tight credit conditions that impacted the auto market and...

That's not what I said, George. But go ahead.

Yes. I guess how are you thinking about the broader credit conditions in the second-half of the year?

Just to clarify, I did not say that there were tight credit conditions in auto. There are in subprime, but that's old news, right? That happened a year ago, two years ago, in '22 and '23, as I think you know. What I talked about was our view that the high rates in auto are impacting end-user demand for financing automobiles, meaning buying automobiles in the last couple of quarters. And it's really a follow-on of what we see in mortgage. The payment levels now for a new car for someone who's financing it are substantially higher than they were a couple of years ago. So we think that's impacted consumer demand, not credit underwriting. So just to clarify that. And I'm sorry, the second-half of your question was what?

In the second-half of the year, how are you thinking about broader credit conditions, not just in auto, but just broadly.

Yes. So from a credit conditions, we see the consumer continuing to be strong. Employment is high, unemployment is low. That's always a positive for underwriting when the consumers are working. Broadly, credit scores are still strong. I think we've talked before with you and others about the impact of subprime, but that's kind of flattened out from the declines we saw in '22 and '23. And another thing that we think a lot about on credit conditions is the strength of your customers, meaning other financial institutions, and they're broadly very strong. So those elements are very good. The one area -- two areas, obviously, we're seeing impact on consumer demand because of rates is clearly mortgage has been substantial, which we've talked at length about, and then we're seeing some impact in auto.

Got it. And then in EWS non-mortgage, a lot of the growth is linked from record additions and volumes. Can you talk a bit about how much pricing is contributing to growth, particularly in Verifications?

Yes. As you know, we have four really principal levers in EWS, records is one. And as you point out, it's been very strong, which we're pleased with. Price is one. As you know, we don't disclose price but it's one lever. You should think about, George, that we have substantial benefits from penetration, meaning penetrating into new verticals. I think we've talked about that in Government and Talent and others. And then product is a big deal, bringing new solutions that deliver more value to our customers, meaning whether it's multiple data solutions or more historical data, those are generally at a different higher price point because they're bringing more value. But those four levers over the long-term, we think about as being equally weighted in the 13% to 15% and then add some market on top of that, meaning market growth. That's how you get to the 13% to 15%. So we're really energized to have those strong levers. When you think about EWS, clearly, the records -- ability to add records is very unique to that business and most data businesses. So it's a lever that we don't have in other businesses. I would argue penetration is also one that we don't have in other businesses. We don't compete with manual in other businesses. We generally compete with competitors like TU and Experian competing with manual is one that gives us the opportunity to add real value from a productivity standpoint, as well as the speed and accuracy standpoint of instant data that comes from EWS.

Got it. That’s helpful. Thank you.

Thanks, George.

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

Yes. Thanks, everybody, for their time today. And if you have any follow-up questions, just reach out to me -- Look forward to catching up throughout the quarter. Thank you.

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