Greetings, and welcome to the Equifax Inc. Third Quarter 2024 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Trevor Burns, SVP, Head 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 and Events tab at our Investor Relations website. During the call, we will 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 3Q 2024 earnings conference call. Also, we will making uncertainty forward-looking statements including fourth quarter and full year 2024 guidance as well as certain 2025 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 2023 Form 10-K and subsequent filings. We will also be referring to certain non-GAAP financial measures, included in 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 in our earnings release and can be found in the Financial Results section of the Financial Info tab at our IR websites. In the third quarter, Equifax incurred a restructuring charge for cost reduction actions aligned with the completion of the migration of significant data exchanges and applications in the United States and Canada in certain countries in Latin America to the Equifax Cloud as well as cost taxes to streamline our workforce globally. These charges totaled $42 million and are expected to be -- and expected to deliver ongoing savings when completed in early 2025 of over $70 million a year. We expect to generate greater savings as we complete cloud migration in Europe, the remainder of Latin America and Brazil and Australia and New Zealand, principally over '25 and '26. Now I'd like to turn it over to Mark.

Thanks, Trevor and good morning. Before I cover our strong third quarter results, I want to update you on the strong progress of our cloud transformation. In the quarter, USIS completed the migration onto the cloud data fabric of the remaining customers and services for their consumer credit and telco and utilities exchanges, which is a huge milestone. Along with EWS, the work number exchange, which we completed migrating to the Equifax Cloud over two years ago, we now have our three largest data exchanges in the new Equifax Cloud. As of the end of September, we have about 80% of Equifax revenue in the Equifax Cloud and expect to approach 90% of our revenue in the Equifax Cloud by year-end. The cloud migrations have been a huge effort across Equifax over the past four plus years, requiring a ton of focus by the entire Equifax team. We expect to have a significant competitive advantage as we fully deploy our new cloud capabilities and pivot from building to leveraging the cloud in 2025 and beyond that will allow us to fully focus on customers' growth, innovation, new products and AI. Leaving the USIS consumer and telco and utility migrations to the Equifax Cloud allowed us to begin decommissioning legacy on-prem systems and software in USIS in the third quarter supporting our goal of cloud spending reductions in 2024, which expand our operating margins and are lowering the capital intensity of our businesses -- our business in 2025 and beyond. In the third quarter, we also made substantial progress in our international technology transformation activities with Canada completing migration of all customers off of their consumer and commercial credit exchanges onto the new EFX Cloud Data Fabric. This is another big accomplishment for the international team with cloud migrations in Argentina,…

Thanks, Mark. Turning to Slide 11. As Mark discussed, we started to see an improvement in the run rate of USIS credit inquiries in late September as mortgage rates declined to just over 6%. We believe the improvement principally reflected higher refinance activity in late September. New home purchase activity does not appear to have increased meaningfully at this point, likely reflecting continued low home inventory levels, home prices at near all-time highs and respective homebuyers waiting for further mortgage rate reductions. As a reminder, the normal mix of mortgage originations and defined as the average over the 2015 to 2019 period is about 55% purchase and 45% refinance. In the first two weeks of October, we have seen mortgage inquiry volumes for both credit and twin slow versus September as mortgage rates have increased to above 6.5%. The run rate over the last two weeks of both credit and twin inquiries is relatively consistent with the expectations we had when we provided guidance in July. Consistent with our practice in 2024 and the last several years, our guidance for credit inquiries is based on our current run rates over the last two to four weeks, modified to reflect normal seasonal pattern. This effectively assumes market conditions will continue for the quarter. Our fourth quarter guidance reflects mortgage credit inquiries to be up about 9% versus 4Q '23 and down 16% sequentially. Calendar year '24 mortgage credit inquiries are expected to be down about 7%. For the fourth quarter, we expect USIS mortgage revenue to be up over 4% and much stronger than the underlying mortgage market, reflecting both strong performance in mortgage pre-qual products as well as vendor pricing actions. Our guidance reflects TWN inquiries in the fourth quarter to be up about 6% versus 4Q '23 and down…

Thanks, John. Turning to Slide 15. An important part of our long-term financial framework is delivering strong free cash flow and returning cash to shareholders. We're adding a new cash conversion goal for our long-term framework of 95% or greater, with cash conversion defined as free cash flow as a percent of adjusted net income. During the cloud technology transformation over the last four years, we saw elevated cloud capital expenditures which impacted our free cash flow and cash conversion. Our cash conversion ratio is expected to improve significantly in 2024 to about 80% and as we reduce CapEx and drive higher relative levels of free cash flow. We expect our free cash flow to accelerate in 2025 post our cloud investments as CapEx reduces to 6% to 7% of revenue, supporting cash conversion of over 95%, while strong margin expansion and growth in net income from our underlying operating leverage and cloud cost savings. This strong cash generation positions Equifax to continue to invest in growth with CapEx and bolt-on M&A and begin returning excess free cash flow to shareholders from dividend growth and share repurchases in 2025 and beyond. It's energizing to be approaching this important milestone for our investors as we complete the new Equifax Cloud. Turning to Slide 16. 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 Equifax.AI and machine learning and market leading businesses will deliver higher revenue growth, expanded margins and accelerating free cash flow. In the middle of Slide 16, we've added the new cash conversion metric to our long-term growth…

[Operator Instructions] Our first question today is coming from Manav Patnaik of Barclays.

I just had a question around kind of the guidance philosophy. So in the prior years, every time you had lowered guidance, I guess, it was mainly due to the mortgage weakness, so we all got wrong but there were some other non-mortgage areas that were weak. And this year, even though mortgage is getting better, you're still lowering guidance. So I'm just curious, is there something about the philosophy in not being conservative? Or is it execution? I was just hoping you could help us clear that up.

Yes, Manav. So there's no change in our philosophy. Our goal is to be super transparent with you and our investors about what we're seeing in the marketplace and what the growth levers are and where we're taking the company. We work to provide guidance that we know how to meet and beat. That's our -- no change in that goal. I've been here six years. And I think as you point out the mortgage decline in '22 and '23 was really quite unusual. But if you look around that, I think we've been pretty consistent about meeting and beating. And if you look through our non-mortgage performance during that '22 and '23 time frame, we think we were pretty consistent. With regards to the third quarter, I think -- I don't think that's your question. I think it's more around the fourth quarter. And we highlighted in our earlier comments that there is some volatility in the marketplace that we're certainly dealing with in some of our verticals. We're really pleased with our third quarter performance. We're pleased with the guidance that we have for the fourth quarter, which is super strong. And as you point out, it's slightly below the guidance that we had last quarter. principally from the EWS employer business. I think we've talked for the last couple of quarters about the impact of the employee retention credits that were really stopped by the IRS earlier this year. We thought there'd be some activity there. There's none. So that's obviously impacting that business inside of Workforce Solutions. And then we also talked over the last couple of quarters about the change the federal government made around work opportunity tax credit and the state's response to getting that in place, we thought the states would be responding…

Okay. Fair enough. And just on the tech transformation, I think we're all looking forward to the benefits that can provide to USIS. Can you give us some maybe early signs or examples of what maybe you did with tech transformations in other divisions that give you confidence that we should see some outperformance outside of just the macros on the USIS side?

Yes. it's a great question. We talked about in the last quarter, we did this much on this call, but it's obvious that USIS was clearly impacted in '23 and in the -- really through the third quarter in many regards around all the effort they had to put in the cloud transformation. Canada is in the same boat. These are big, big projects, very intrusive with our customers. The good news is it's done. What we're really encouraged by when we think about USIS, even with that in the second quarter and third quarter, you saw their vitality go up, meaning they were able to start taking advantage of being in the cloud to start moving forward on innovation in new products. That's going to benefit USIS in the fourth quarter, but really principally in 2025. And as you know, they increased their vitality in the second quarter, 100 bps and then again in the third quarter, 100 bps. So we would expect them to move towards that 10% vitality as we get into 2025 and which is really going to be a positive. The cost savings, John already talked about, you saw the charge we took that was expected. That's -- we're executing that, and that's a real positive for our margins, which we've committed to and we're executing on. And the other benefit is two other benefits actually, we'll start to see now that they're in the cloud, as those share gains that we expect to have, we have the close in flight. Those will start showing up in the P&L, some in the fourth quarter, but I think principally in 2025 of being always on and being a cloud-native provider. And then the last one is one that we'll talk more about in February during our…

The next question is coming from Kelsey Zhu of Autonomous Research.

Have you sized the incremental record additions from the Workday partnership? And can you talk a little bit more about the time line for those new records to come online? Is it more towards kind of Q1, Q2 next year? Or is it towards second half of next year?

Yes. So maybe a couple of points on that. I'll respond to your specific Workday question, but maybe just make it a little bit wider because Workday is one of many partners we added during the quarter. I think we added a total of six in the quarter. Workday, obviously, a very significant one, a very strategic partnership, but all six of them are. I think we sized that we expect from the other $5 million to something like 5 million records coming on over the coming quarters. It takes time to make those integrations. They're super complex for really our partners side. You've seen very record growth. We're up 12% in the quarter. So you can see that we're executing. We talked about the sizable number of partners we added this year as well as last year and over the last couple of years. And with every partner we have is they add new clients and they're all growing their business every quarter, if you think about an HR software company or payroll processor, when those new clients come on board, they're typically boarded to TWN. So there's growth that's happening with one of our clients. Most of our clients have records going back to clients we added even two, three, four years ago that we haven't fully deployed into Equifax, meaning we're working with them through their technologies through the different databases they have, they're typically not a single tech stack to bring those records in. So we have a lot of opportunity both with current new partners use Workday and the others we added this quarter as well as those we've had over the last couple of three years to add records. And Workday specifically, we haven't sized that except to say it's sizable. I think it's…

Also curious to hear a little more about what's driving the reacceleration of growth in consumer lending vertical within Workforce Solutions, especially because of against the backdrop of a pretty soft end market. So just curious, is it really to new product launches? Is it the pricing? Is it increased customer penetration? Yes, I appreciate your thoughts on this.

Yes, it's really the value of the data set. When you think about consumer lending and I'll use P loans, you could use auto, the value of someone's credit score is super important. It's really, as you know, is a reflection of their past payment behavior of other loans they have and it's really a prediction where they keep paying going forward. So very valuable. When you add to that someone's ability to pay, which means their income and their employment, meaning they're working. Because remember, if you pull a credit report, you have no idea if that individual is actually working today. Did they lose their job last week? Did they retire? What's changing? So the combination of income in employment from EWS with the credit file is very, very valuable. And we have increasing numbers of our customers. As you point out, we roll out new products as well as we drive penetration of customers understanding the value of pulling the credit report with income and employment, they can approve more consumers and approve more consumers with lower loss rates. So that's a really strong combination and very positive for our customers. So that's what we're really seeing in the outgrowth of the underlying market. As you point out, there is in some of those verticals, some end user, meaning consumer demand pressures primarily because of higher APRs, particularly in bigger ticket transactions, think about P loans or cards, we have a solution between -- by combining credit with income and employment that allows our customers to approve more of those applicants with a higher degree of confidence around their ability to repay the loan when you add the income and employment data to it.

Those segments are also benefiting substantially just by record growth, right? So since records are up over 10% that drives their hit rates higher, so it's a direct benefit to those segments.

The next question is coming from Andrew Nicholas of William Blair.

I wanted to first ask on SSNs really good order. And I'm just curious if there's anything for us to read into that. It sounds like it was primarily batch. Is that kind of customers thinking about being more aggressive with marketing is that portfolio review? Just help me understand if there's anything to read into that strength?

Sure. It was a very strong quarter. And stronger than we expect to see when we gave guidance part of it was because we signed -- we executed a couple of large transactions with new customers in the payments industry. And we think that's very important to us, not just in the fact that it delivered a strong quarter, but also because we think it's an ongoing revenue source, not just in batch but increasingly in our mind. So we're very excited about the fact that we signed those partnerships and delivered revenue in the quarter, but also we think it bodes very well for us across the payments industry as we continue to grow the use of our data in payments.

So it doesn't sound like anything major sort of like a macro read-through perspective, more often?

No, not a read through at all. It was really just great execution by the team on winning new customers and delivering in period.

And then maybe changing gears a little bit on the mortgage business and the mortgage business within EWS in particular. If I heard you correct, John, you said you expect 16% growth in mortgage there in the fourth quarter on 6% growth in inquiries, 10% outperformance, certainly better than what you saw in the first half, but I think a little bit lower than what you had messaged earlier this year. So just curious about the puts and takes there, what if anything, has changed in terms of record growth relative to your expectations, pricing, new product development, anything like that, that would help bridge that gap?

Look, I think the big thing we were talking about as we started the year, we were expecting very good progression in terms of the outperformance with EWS mortgage that would happen as we went through the year. And I think we saw it consistently every quarter. We saw improvements in second, third and now we would expect to be stronger in the fourth than we were in the third. So we feel very good about that progression. And again, it is driven by records. So record growth has been extremely strong. And given the partnerships that were signed this quarter, and I'm sure more they'll be signed in the fourth quarter. And then boarding those partnerships, we would expect to see very good record growth again next year. So I think overall, a really nice job by the team in driving that number back into the long-term framework that we expect, which is around 10%, right? That's kind of a level we talked about 10% to slightly above 10% as the long-term growth algorithm or the way we should outperform the mortgage market at EWS, and I think we're back to delivering in that level.

The next question is coming from Faiza Alwy of Deutsche Bank. Please go ahead. We'll move on to the next question. Our next question is coming from Surinder Thind of Jefferies.

Following up on the mortgage question here. Any color on how important the mix is in terms of the revenue recovery when we think about the $1.1 billion in terms of purchase versus refinance? Do we have to kind of get back to the historical average? Or are there other considerations that we should be thinking of?

Yes, that really assumes historical averages in that 2015 to '19 level. As you know, purchase is generally a very large part of the underlying market and it was in that 2015 to '19 level. That's super depressed now. As we pointed out, there's a lack of inventory. People are sitting on those lower interest rate loans and not upgrading from the condo to the three bedroom home with the yard that should. We believe that's going to loosen up and there'll be more activity on the purchase side. And then we should see both a combination of rate refi and cash-out refis as rates come down. We saw just that blip, I would call it, for a couple of weeks until the 10-year went up, where I think John mentioned in his comments that the bulk of that increase was rate refi. So you can see just a very small think about 20, 25, 30 basis points change, some consumers that had taken out mortgages, say, a year or two years ago, at higher rates, and now are looking at picking up that rate arbitrage. So there's clearly pent-up demand that as rates come down, gives us still a lot of confidence in the framework of that $1.1 billion plus of kind of tailwind in the mortgage market. And I think as John said in his comments, just as a reminder, we'll reset that number in February next year, but the $1.1 billion is based off today's pricing, meaning 2024, ‘24 product mix, ‘24 record hit rates. That will be a higher number likely when we get to 2025 and kind of reset what that opportunity is going forward in 25, 26, 27 as the market moves back with rate declines.

And then as a follow-on to that I believe in the prepared comments, you mentioned that additional pricing benefits in 2025. And any color you can provide there in terms of the strength of the pricing benefits that you expect maybe next year relative to what we've got -- what we saw this year?

Yes, it's really early for that. We're not providing any '25 guidance. We tried to give you some kind of what we're seeing that we would expect to happen where we maybe have some confidence in it for next year. But I think it's too early on that. Just as a reminder, we will be doing increases on January 1. And we'll give some visibility to that when we have our February call and we laid out a framework for 2025, but you should expect price increases for EWS and from USIS as we've done over the last number of years. We think that there's a lot of value in the solutions we deliver. And you should expect and we plan to increase prices.

Just as a clarification, I think is the commentary that you'll try and do pricing consistent with historical without talking about guidance. Is that the idea that pricing?

I think we're trying not to give any framework on what the level of pricing is, but just reinforcing that there will be price increases as this customary in our industry, given the value of the data we have. And we'll give you real clarity on that when we get to February and our 2025 guidance.

The next question is coming from Kyle Peterson of Needham & Company.

Just wanted to see if you guys had any color I know on kind of some of the thoughts on purchase mortgage still being pretty subdued kind of partially due to rates and pursuing prices and affordability. Do you guys have any thoughts on how much rates would need to fall before purchase starts to improve? I know I know some of the inventory and home price issues are a little tougher to piece together. But at least on the rate side, I guess how much do you guys think rates need to fall before there would be some relief at least from that end of the market.

That's a tough one. As you know, we've never -- I'll say it in our lifetime, maybe it's a little shorter than that. But we haven't seen in 20 years a rate increase at this pace and at this level ever. So the shock of the where mortgage rates have gone from the, call it, super low levels during COVID timeframe to where they are today is unprecedented. So I think it's hard to correlate that back. I think what we saw in late August is just a great indicator of even a very small change in rates down, stimulated the market. In this case, our view principally in refi but there's clearly some purchase activity. There's purchase activity even at these higher rates. People are buying homes at either variable or a 30 year fix rates. It's just that there isn't a lot of inventory. The real question, I think, is when will it stimulate those that are, call it, 3% or 4% mortgages that want to upgrade to a larger home. That's a normal part of the housing economy. And when -- how -- what's the gap have to be from where they are today at call it 3% to 4% versus 6% plus, is it 50 bps? Is it 100 bps? It's clearly lower. And I think we'll see that as it goes forward, we'll be super transparent with you. But I think you should be encouraged that when rates come down, the market responds pretty quickly, which we saw in late September, yes.

And I guess just a follow-up on capital return. You guys can tease the potential for buybacks and dividends -- potential dividend increase in 2025. How do you guys think about priority and balanced between the two whether it's the firms you guys kind of want to do some of both. I know it's been a while since you guys have raised the dividend. But yes, just some more thoughts on how you guys are thinking about capital return and what the relative priority is?

Yes. And no change to how we've communicated since I've been here. We've always been working towards a goal to return cash to shareholders. And as you know, the last four, five years, we've invested really substantial parts of our excess free cash flow in CapEx with the cloud transformation, we're getting at the finish line on that. So that's really good news. And our CapEx is going to come down meaningfully, which will free up more cash for available to return to shareholders. We've also, as you know, as a part of our long-term framework, plan to continue a bolt-on M&A strategy, very disciplined on the financial returns and very disciplined around the strategic swim lanes that we're focused on, whether it's differentiated data, strengthening EWS or growing in identity and fraud. And I think as you know, we've done a sizable amount of bolt-on acquisitions, while we were doing the cloud. And we would expect to continue to do those bolt-ons. Most recently, we did Boa Vista last August. We're continuing to build a pipeline of strategic and financially attractive acquisitions, but we try to frame for you that we would expect over the long term to have 1 to 2 points of revenue growth from that bolt-on M&A. So you think about 1 to 2 points of revenue growth annually, that's $50 million to $100 million, Boa Vista delivered north of that. But in that kind of a range, and if you think about the cash required for buying the kind of companies that would be financially attractive to us that fit that $50 million to $100 million of revenue, obviously, at attractive margins and returns that's somewhere in the $500 million a year roughly of capital or cash bolt-on M&A. And your model, I'm sure looks…

And just as a reminder, free cash flow is strengthening and very strong but also we're delevering. So we had to not only execute what Mark's talking about through free cash flow we generate, but also we'll have significant leverage available to us. given the substantial growth we're seeing in EBITDA.

The next question is coming from Kevin McVeigh of UBS.

I just want to circle back to the mortgage revenue opportunity. It's been pretty consistent in framing $1 billion plus, but that's based on kind of current pricing more to your point penetration and TWN records, things like that. if I go back, right, to kind of the '15 to '19 time period, you had 71 million records as opposed to 182 million today. So what I'm trying to understand is, is there any way to think about kind of what your yield is to get to that number today as opposed to what the inquiry or interest rate number has to be? So I guess said another way, you've got a lot more product and higher records, things like that. So do you need the same level of interest rate to kind of drive that revenue? Or is there any way to think about that aspect of it?

Yes, that's a tough one. We've worked hard to try to model that. It's just so unprecedented what's happened in the last three years with rates we've never seen it before. And we've picked you can agree or disagree with what we've been using, but we pick 2015 to '19 as being a normal level. But if you go back like a decade, go back the last time there was really a kind of an unusual mortgage environment was '07, '08, '09 during the global financial crisis, and that was more an underwriting crisis from a consumer mortgage standpoint versus a rate on. And I think it's just -- it's been very consistent. There's just so much scale in the United States of consumers that want to move from an apartment to that first condo that apartment to a home. They want to upgrade their home and then there's a flip side when consumers age out and they start retiring, they sell their big home, they buy a smaller home on the mortgages with all that. So it's just such a large market, and we've never seen a 50% decline. So we've tried to just lay out that's the anomaly in the market. Our view is that as rates come down, we'll move into that $1.2 billion of market opportunity, as we pointed out, will be a larger number next year. And we're just convinced that it's going to happen over time, which will be additive to our P&L and our framework. In our long-term framework, of 8% to 12% revenue growth, we really just have GDP in there. And think about a couple of points of market expansion underlies our 8% to 12%. And we've also been very clear that there's going to be very high incremental margins as that mortgage market comes back, meaning we're not going to reinvest those dollars in more people. We have the right cost structure in Equifax today grow our business and really to make the right investments. So as that market tailwind flows into our P&L, we would expect it to be incremental, which obviously will drive our top line but also our margins and our free cash flow and give us more free cash to return to shareholders.

And then just real quick on the ERTC, ERC rather. What percentage of the revenue was at today? And where was that? Maybe at peak? Just trying to dimensionalize what that headwind has been?

John can jump in on that. Equifax quite small, but in the employer vertical, it was a large number and now it's going down to nothing.

But you can just give you orders of magnitude right now, ERC is think on the order of $1 million a quarter. And it was probably in the order of 10-ish, maybe a little higher $1 million per quarter as you go back two and three quarters, right, even the third quarter last year. So that's the type of change you're talking about. And in an employer business that's $95 million a quarter. Obviously, that can be a significant change.

The next question is coming from Scott Wurtzel of Wolfe Research.

Just wanted to ask on the government vertical. I know we've talked about sort of the penetration story in terms of the amount of state local federal agencies that are out there. But I guess I would love to kind of hear your thoughts on when we look at sort of the different buckets of benefits of security, SNAP, ACA, Medicaid like where you kind of see most sort of white space for penetration over the near to medium-term here?

Yes, it's a great question. Thanks for bringing it up. A 29% growth, you're the first analysts to bring up that vertical. So we appreciate that. And as a reminder, government is moving to be our largest vertical in Workforce Solutions. And as you know, you've got that large $5 billion TAM against around a little bit, roughly an $800 million run rate business now. I wouldn't think about specific services. I'd really think about the TAM itself and the biggest opportunity in the TAM is penetration at the states and the state agencies. An agency deploys typically not a state. And if you think about, call it, $800 million versus $5 billion that $4 billion plus of potential revenue for us in the government vertical, are social service verifications that are still being done manually. So that's really the focus. We've been adding resources and people. We're investing in new products and technology to enable our ability to penetrate those states. There's -- when you meet with a director of an agency at a state there's -- they all want to use it because it's accurate. It adds productivity to them. They're always challenged with how do we deliver the specific services, whether it's food stamps or health support how do we deliver that more quickly. And as you know, the federal government that pays for the bulk of those social services requires the states to verify eligibility. And that's where we come in, eligibility is around income and verifying the source of that income, which is the employment. So for us, the big opportunity is really at the state level. As you now know, we have some large federal contracts. Last year, we extended our CMS contract, which was a big $1 billion plus contract extension. We announced…

And just as a follow-up on the mortgage side. I guess when looking at some industry data, it looks like maybe the gap between sort of USIS mortgage inquiries versus some of the application data in terms of kind of maybe widened during the quarter. I'm just wondering if there were anything to sort of call out with that? Was it due to maybe mix dynamics between purchase and refi? Any information on that would be helpful.

No, I don't think there's anything specific, right? I think it continues to be. We still think we have the same penetration and share that we have consistently. Obviously, with hard inquiries, it's still required to pull a tribunal. So I'm not sure what you're specifically looking at, but no, we don't see any changes that are meaningful in hard inquiries in the industry.

And I think as you saw, we expected that to happen. We told you in July, we thought it would happen, but you saw the outperformance from record growth that really moved up positively in EWS. So that's -- we were pleased with that.

Pre-quals continues to be a big part of our business. And obviously, that's something that is shared amongst the three players. So sure could move between those. But overall, we're happy with the way the business is performing.

The next question is coming from Jason Haas of Wells Fargo.

Maybe sort going back to talent verifications. I'm curious if you have any insight into which industries you're seeing that slowdown in hiring. Then I'm also curious if you're seeing any increase in competition or any more in-sourcing by some of the large background screeners.

Yes. I think we -- what we heard from the background screening customer base that we have is that they saw some slowdowns kind of in mid late September in white-collar. Even though we had a good quarter, there were some slowdowns there. So we took that run rate rolling forward. And I think you've seen enough layoffs over the last announcements over the last month or two from different companies that perhaps tightening up, you're waiting to see where the election goes and what's going to happen in Washington. So I don't think it's anything different than that, John.

No. And we haven't really seen any movements in share. We continue to work well with our partners, and we just think it's a matter of we happen to be focused in white-collar and you've seen some slowdown in white-collar specifically in September.

And then as a follow-up question, I was curious if we look at the EWS mortgage increase versus USIS, they're still under pacing. My understanding is that the function of people shopping around by not closing. So I'm curious what's your expectation for when that gap closes looks like what you said maybe probably a little bit of a narrower in fourth quarter. Does that -- do you expect that would converge in next year, sometime next year?

We actually don't. If you go back to really in history, there's always been more mortgage pulls for the credit file than income and employment. On average, we get five plus credit file polls, a closed loan, where there's two to three income and employment pulls per closed loan. So that hasn't changed. We don't expect that to change. What did change as rates went up, was there was a consumer behavior of just more shopping to try to find another 25 bps off on the loan, meaning they're going to multiple mortgage originators for either their refi or for their purchase loan and every time they go to a different originator, there's a credit file fold. That's a shopping process because the originator wants to figure out is someone that has the credit score that would support the kind of loan they're going to pull. They typically don't pull income and employment there. Now we're trying to innovate to help that shopping process. And I think you heard us talk earlier on this call in July also. That we're piloting in the marketplace in Equifax credit file with an income and employment flag on it to really indicate that this consumer not only has this credit score, but they also are working today, you don't know that in the shopping process if you're an originator. We think that should advantage our credit file, which should drive some credit file share. And in the shopping process, where three credit reports are universally pulled in the application process in shopping, many originators pull three, some pull two, simple one. So we want to differentiate ourselves in the shopping process on the credit file side. But no, we don't expect them to converge. And as John said earlier, I think on an earlier question, they've been fairly consistent in '24 and '23.

Earlier this year, we had thought perhaps shopping might start to slow. And when we gave guidance back in February, what we indicated that we thought we might see that start to narrow or shopping might slow or said another way, the percentage of applications that are initiated would actually result in a loan but we just haven't seen it happen, right? And so the pattern that we've seen over the past two to three years just continues to occur. And so I think as Mark said, we -- at this point, our expectation is it will just continue to occur.

The next question is coming from Jeff Meuler of Baird.

I just want to circle back to the Q4 guidance. I get it, $15 million is not that great in the grand scale of Equifax. But if I also consider the 9 point better mortgage market assumption, which impacts almost 20% of your revenue run rate, it does seem like a fairly sizable adjustment. So just, I guess, any other callouts of size beyond the industry gross hiring volumes? And maybe if I could just hit it head on, like, was there any sort of sizable client loss or meaningful reduction in client relationships that also contribute just so we don't have to wonder about.

Yes, you don't have to wonder about that. Go ahead, John, and I'll jump into.

First, on mortgage, right? The difference in the -- change in guide in the implied guide in the fourth quarter from back in July to the actual guide now, the change in mortgage isn't very substantial at all, right? What you're talking about is credit inquiries. I'm not quite sure it's 9 points. I think that's an estimate that you're providing. But yes, credit increase are slightly stronger and that's making USIS revenue slightly stronger, but that read through for the question we just got doesn't really apply to EWS because of the fact that what we're seeing is shopping behavior not closing behavior. So the impact on our mortgage revenue between the guidance we provided in October and the implied guide back from July is really relatively small, right? So that's why what we're talking about here is specifically related to non-mortgage revenue. And as Mark said in his remarks and I reiterated the biggest trucker is employer, right? And also, there is some impact from talent because we saw weakness in talent in September that we carried through in our run rates in terms of our guidance. But the biggest driver is employer and that's really the driver, but mortgage wasn't a substantial improvement in the guidance in October relative to the expectations in July.

And then sorry to get the weeds on this. I get the typical methodology in terms of run rating forward recent mortgage. But just given the volatility in the last few weeks, I want to know what period specifically you're run rating forward because you're calling out the late September improvement. And then I think you said subsequently it reduced back to maybe like July, August levels in October. So just what period are you extrapolating forward given the recent.

Yes, Jeff, no change in how we do it. We always do it through like early this week, right? So we're kind of in the mid-October. So this is no change from last quarter to the quarter before that, whether it's mortgage or any other parts of our business. But to your point, mortgage or in this case, we saw the hiring impact late in September that continued in October, same with the impact of mortgage. So we try to use the most current run rates we typically use the last -- we'll look at how is it the last week. How is it the last two weeks, how is it the last three weeks, four weeks, something like that and try to see where are those trends? Is it stronger in the last week than the last weeks. Is it weaker in the last week and try to put that together and use our best estimate around where that -- we think that trend is and use that for the current quarter guidance. That's no change, right? John.

No change at all. What we've seen in October, right, is obviously inquiries came down and they kind of stabilized in October, right? So that's kind of the basis that we're using going forward.

The next question is coming from Owen Lau of Oppenheimer.

Could you please add more color on insurance and commercial vertical? It grew double-digit and looks pretty strong there. What are you seeing there?

Yes. John, you can jump in, too. So the commercial vertical is our small business -- data business that is had -- if you look at '22 and '23, actually '21, '22 and '23, that business was up very strong, high singles and for many quarters, double digit. We had some execution issues earlier this year, but it's not back to that similar levels, which we're really pleased with. We would expect that business to grow at the high end of the USIS 6 to 8 range over the long term because of the unique data that we have. And remember, we made the PayNet acquisition with the leasing trade lines. We're onboarding now merchant data to enhance the picture around small businesses and obviously bringing in the entrepreneur from our consumer data set. So we think that's a business that will continue to have positive growth going forward, and we're pleased to see it back in that range where we expect it to be.

Insurance for us is relatively small in the broader scheme of USIS, but we did see nice growth, and it was principally online. So we just saw higher online transaction volume across the insurance vertical.

And then going back to your cloud migration, could you please give us an update on how we should think about incremental top line revenue contribution in 2025 and maybe 26%. Any time line of product launches you can share over the next few quarters or so?

Yes. We talked earlier, you're seeing already some of the impacts of the cloud transformation. If you go back, our long-term framework for Vitality is 10%. We increased it from 5 to 7 pre-cloud. We've been delivering north of that 10% for the last couple of years, including in 2020 4. As you know, we increased the guide for this year. And we think that's directly attributable to our cloud investments, the benefits from the cloud investments are focused on innovation products as well as our focus on AI. So that innovation, we think, is a very good metric around the benefits of cloud. We think we'll also see share gains in USIS in some of our international markets as we complete the cloud and deliver always on stability and move into either secondary or primary positions when we're below that today. So that should get into the P&L. And specifically, I think maybe your question is around USIS since we talked about the USIS cloud completion. We would expect their vitality, which has been increasing this year from 8% in third quarter -- second quarter into 9% and the third, you had to move towards that $10 million. And we would expect to allow them to deliver solidly inside of that 6% to 8% long-term framework going forward.

The next question is coming from Craig Huber of Huber Research Partners.

You talked about a long-term outlook for your vitality index at 10%. I think you said you're 11% right now. Can you give us some examples that you're quite positive with new products out there today, but particularly outside the U.S., I'd like to hear something you have already touched on today. That's my first question.

Yes. That's a -- there's a lot of them. I guess you're asking me to tell you something we're excited. But I think broadly, you should be excited and we are too about vitality. International vitality is still below 10%, but I think it was 9% in the quarter. So very, very strong. We would expect them to move towards that trend, as they complete cloud like in Canada in some of the other markets. So that's a real positive. We've got some identity solutions in the marketplace internationally and in the U.S. that we're excited about, some new solutions using alternative data that it has real traction that adds to the credit file that we think are quite positive. We talked about earlier on this call, some of the solutions we're doing here in the U.S. between EWS and USIS that are really unique that we think will benefit both USIS and EWS using the income flag on some of our credit files, which we think is very positive. We've rolled out in the U.S. someone score solutions that combine our cell phone utility data as well as our other alternative data that's having big lifts in performance. It differentiates really our score using our credit file and other alternative data versus our competitors. So we're excited about that. Did you add anything, John?

I think we have some USIS solutions on the FMS side where we have customers usually Ignite to generate analytics that they can use to improve marketing campaigns and conversion, all of those driven by fabric.

My other question, if I could. When you think about costs for next year, I know you want to give formal guidance at this stage when we think about costs for next year given all the cost savings initiatives you guys have put in place here. You're going to be at 90% through the cloud transformation at the end of this year. And so for the cost next year that you guys can control and assuming the economy holds together, mortgage rates come down as you're talking about and stuff. I'm assuming you have a very strong flow-through down to the EBITDA line if you have strong revenue growth here. But I'm curious on your cost side, do you have to step up any investment spending next year? I mean how should we just broadly think about your cost outlook for next year in your two main segments?

I think you saw we took a charge this quarter that was planned to execute the cloud cost savings, principally from USIS and some of that from Canada that will benefit the fourth quarter, but that also benefits 2025. So that benefit is a positive. As you point out, we're at 90% cloud complete, which is a big milestone at year-end but we still have 10% to go. So as we complete those last pieces of the cloud, there'll be additional decommissioning of the legacy infrastructure for that tail of our cloud completion. So that's going to benefit '25 and '26. And John, you also not cost, but it's -- depreciation, you talked about being higher next year because we're bringing on more of the new platforms into our operating mode and starting to depreciate those. So we framed for you that depreciation will be up next year. But I think you said it's -- we're kind of peaking in depreciation in 2025 with CapEx coming down.

And in terms of -- you mentioned investment, right? So investment is actually coming down on capital. So we've talked about the fact that we're moving down substantially on capital spending in 2024 versus 2023. You'll probably see us continue to drive down as a percentage of revenue, our capital spending in 2025 relative to 2024 as we move toward our 6% to 7% long-term framework. And as you know, investment spend in terms of capital expense move together. So we don't see an increase in investment spend that would be expense because we're continuing to bring down our investments and spend as capital.

The next question is coming from Toni Kaplan of Morgan Stanley.

My first question actually picks up on the last part of the last one. You mentioned the 6% to 7% CapEx in the long-term framework. This year, obviously, a really big move with USIS going on to the cloud there. So a lot of I imagine a lot of spend being spent on that. So I guess, should we see a big step down in '21 on the CapEx side or should we expect the move towards the 6% to 7% to be more gradual since you still have 10% of revenue left and maybe there are some other things that you're working on? And maybe just a follow-up, what's the next step in the technology plan from here now that you have most of this done.

Yes. So a couple of different questions there, Tony. First, we're not intending to give '25 guidance this year, but we're happy to give some kind of indication. So I think we said we expect CapEx to come down next year again. You use the term big -- it's hard to find big. You may think about differently than I do, but CapEx, we will bring CapEx down next year as we move closer to cloud completion. What's left to be done is outside the U.S., principally Australia, a few Latin American countries. We're partially through on U.K. We'll finish a lot of the U.K. next year. Spain will be done by year-end. So it's really those kind of elements so you should expect to see a reduction in CapEx as a percent of revenue again in 2016, as we get kind of that next stage. We framed the 6% to 7% over the long-term is what we expect to do. And as a reminder, as we move into kind of a post cloud environment, that CapEx is increasingly used for innovation in new products versus cloud transformation or maintaining legacy infrastructure. So we think we're going to be advantaged in having what I would call growth as we move into '25, '26, '27 versus kind of building cloud CapEx we've had for the last number of years, which we think will be a positive.

In terms of the benefit to cash conversion, I think certainly as we get into 2026, you're going to see depreciation probably likely be higher than capital spending. So again, helps cash conversion significantly.

And this one sort of touched on a few times, but just hoping you could give any sort of update on like green shoots that will make you more optimistic in the consumer credit environment about 2025, if you're seeing any, if you're not, that's fine, too. But just anything that makes you more or less optimistic about 2025 with regard to consumer credit?

I think we talked about consumer credit, some end market consumer demand softening like in auto, but it's still okay. It's not like it's depressed. You go back to two years ago, we had the fintech kind of was really impacted. That's now normalized, I think it's a positive, meaning and we're growing in fintech. So as we -- with cloud and new products going forward. So when I think about green shoots, from where we sit, 2025 feels like certainly the first half of '25 going to be much like we're seeing today. I think the green shoot really would be in rate reductions. We talk a ton around the impact of rate reductions in mortgage, but rate reductions in auto for auto loans are going to be helpful to that end market, in my view, and in P loan, lesser degree in cards, consumers tend to be less sensitive to rates and cards because most consumers don't think they're going to revolve with a credit card. But when you're taking out a P loan, you're taking out an installment loan when you're buying a car on credit and those rates are higher, too. So if there is any potential green shoots that we haven't seen yet, is does the Fed take rates down? Does the 10-year come down? And does that not only benefit mortgage but also benefit a couple of the other end-user markets.

Our next question is coming from Ashish Sabadra of RBC Capital Markets.

I have two clarifying questions. First one was on that $70 million savings in 2025 from cost actions. Just wondering, is that all OpEx? Or does it also have CapEx saving and does that include all the cloud savings? So that's my first question.

Yes. So the $70 million is total spending savings, so it would have some CapEx as well.

That's helpful color. And then maybe just a clarification on the inquiries for 2025 expectation for a 5% growth. I was just wondering, is that largely just based on as Mark explained, the near-term dynamic? Or are you also baking in the Fed rate cuts going in 2025 or those could be incremental upside?

Yes. So we weren't trying to give that as an expectation for 2025. We were just trying to provide it as a piece of information. But if you take the current run rate we're seeing now in the first half of October, and you just assume that they don't really change and then apply seasonality to them for 2025 that we would end up with inventories up something over 5% in 2025 and inquiry something up over 5% in the first quarter. We weren't trying to indicate that was guidance from us in any way. We were just trying to give people perspective on what the current run rates would look like. We know you and many investors have their own perspectives on what the mortgage market is going to do and how it will change over the rest of the year. And we weren't trying to indicate we expect it to be flat. It's just -- that's where it is right now.

And we don't forecast rate changes. We never have. We try to find for you what the impact of a potential rate change could be like in mortgage, but we don't forecast rate changes. That's just not our guidance philosophy.

The next question is coming from George Tong of Goldman Sachs.

Mark, can you talk a bit more about what you're seeing broadly with consumer credit health, particularly across prime and subprime consumers, data seems to suggest that delinquency rates are continuing to go up year-over-year across lending categories.

Yes. I think it's still, in our view, a pretty good market. That's what our customers are saying. There's -- I don't think there's any alarm, George from our customers around where delinquencies have gone. I think most of our customers believe with the low unemployment or high employment rates, meaning consumers working that even with delinquencies up that's manageable and they're generally at delinquency rates that are inside of how our customers think about growing their business. So we haven't seen that impact -- we haven't seen delinquencies be a reason that people are tightening up outside of subprime. Subprime that's already happened. Subprime tightened up a couple of years ago. But from our perspective, if employment is going to stay at this fairly low level, we don't see that impacting our volumes in the fourth quarter in the early parts of 2025 unless there's a change in the employment levels -- and unemployment goes up.

And then, John, can you talk about the puts and takes with your updated EBITDA margin outlook for the year, 32.4% at the midpoint compared to 32.6% previously.

Yes. So obviously, we gave our revised guidance for the full year. We gave a for the first time for the fourth quarter. And I think what you're just seeing is the -- is a very strong improvement in EBITDA margin in 4Q versus 3Q, which we're very happy with, a 4Q adjusted EPS and an EBITDA dollar level, which are at record levels, as we said in the call, and Marc reiterated over $500 million in EBITDA in the fourth quarter. So I think what you're seeing is very strong delivery in the fourth quarter. A lot of the improvement in EBITDA driven by cost reductions and actions that are being taken now that we've completed cloud transformation -- sorry, customer migrations on the consumer side in USIS and then obviously, Canada as well. So we feel good about the improvements we're talking about, about the higher margins we're talking about in the fourth quarter and we think that bodes well for next year.

The next question is coming from Andrew Stein of FT Partners.

So my first question, I just wanted to shift to the international segment. I realize the Boa Vista acquisition lapped its one year marker in , I guess, and LATAM had a really strong quarter. So can you help us understand the run rate organic growth trends between Boa Vista and LATAM ex Brazil? And then what is Boa Vista’s market share now compared to the 15% at the time of acquisition. I'm just wondering what opportunities you have to gain market share over the next year.

Yes. So we're still excited -- very excited about Boa Vista. As you know, we just lapped the one year mark of ownership of the business. We're still in the thick of integrating the business and bringing our new products and technology down there. Serasa Experian has a very strong business that they've executed very well on. But the feedback we're getting from all the big banks and customers there is that they welcome a global competitor and that's where we're going to. We're pleased with the performance of Boa Vista through 2024, and we expect it to be continued strong and we do expect some share gains going forward. It's too early to see that in the business after just 12 months. And we haven't really fully deployed a lot of the Equifax technology of Ignite and interconnect, but those are getting in place as we exit the year and into 2025. So we'd expect some more traction there going forward. Latin America had a very good quarter. We're performing well in that market, really in all geographies, all the countries that we participate in and really big focus by that team as well as the international team on innovation and new products, which is really helping their effectiveness in the marketplace.

And then just a follow-up on the international margin expansion. That was also a really strong this quarter. And just wondering if you could help us understand the remaining potential for margin expansion in LATAM and Europe as the cloud transformation is completed for those segments?

Yes. We're expecting, obviously, very good margin expansion again in the fourth quarter. And then we're expecting them to continue to grow margins as we get into 2025. Part of it obviously driven by continued good revenue growth, organic revenue growth in international with again very high variable margins. And they do -- and we do have more opportunities, as Mark talked about, because we're completing cloud transformation in the U.K. in 2025. You'll see it more in Australia, New Zealand in terms of 2026 and pieces as we go through 2025 in Latin America. So we expect to see that be beneficial to margins in Latin America as we go through 2025. But again, just a general trend of improving margins in LATAM -- sorry, in international as we look over the next several years.

And John, we also -- we just completed Canada two weeks ago or 10 days ago. So those benefits will roll into the fourth quarter and into 2025 and then we complete Spain later this year in a couple of other Latin American countries. So that cloud completion, as you point out, which is principally that 10% we have left to go is going to benefit principally international because that's where the work of the cloud complete is going to take place.

Thank you. At this time, I would like to turn the floor back over to Mr. Burns for closing comments.

Yes. Thanks, everybody, for your time today and if you have any follow-up questions, please reach out to myself or Molly and look forward to interacting with everybody throughout the quarter. Thank you.

Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off webcast at this time and enjoy the rest of your day.