Equifax Inc

NYSE:EFX

Hello, and welcome to the Equifax Inc. Q1 2024 Earnings Conference Call. [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.

Good morning. Thanks. 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 in our IR 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 1Q 2024 Earnings Conference Call.

Also, we'll be making certain forward-looking statements, including second quarter and full year 2024 guidance, to help you understand Equifax and its business environment. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from our expectations. Certain risk factors that may impact our business are set forth in filings with the SEC, including our 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 on our IR website.

Now I'd like to turn it over to Mark.

Thank you, Trevor, and good morning. Turning to Slide 4. We're off to a strong start in 2024. First quarter reported revenue of $1.389 billion was up 7% and at the high end of our February framework. Adjusted EBITDA margins of 29.1% were slightly above our expectations. And adjusted EPS of $1.50 a share was well above the high end of our guidance.

Total U.S. mortgage revenue was up 6% in the quarter, stronger than expected. The strength in mortgage revenue was in USIS, where mortgage revenue was up 38% against credit inquiries that were down 19% and 700 basis points better than expected, and continued strong performance in our new mortgage prequal products.

EWS mortgage revenue was down 15% and consistent with our expectations. Credit inquiries at down 22% were slightly better than expected, and this was offset by slightly lower-than-expected revenue per inquiry principally driven by product and customer mix.

Our global non-mortgage businesses, which represented about 80% of total revenue in the quarter, had strong 9% constant currency revenue growth, which is well within our 8% to 12% long-term revenue growth framework. This was slightly below our expectation of 9.5% non-mortgage revenue growth. Non-mortgage organic constant currency revenue growth was 5% in the first quarter.

At the BU level, EWS Verifier non-mortgage revenue was up a strong 15% and stronger than expected, driven by a very strong 35% growth in government and good growth in auto and debt management, slightly offset by some weaknesses in talent. Employer revenue was down 10% and weaker than expected. This was principally driven by a more rapid decline in ERC revenue than we expected and delays in state and government processing of WOTC claims. ERC is now at a run rate of under $3 million a quarter and should stay at about that level for the rest of the year.

For WOTC, the federal requirements for states to validate WOTC clients changed late last year, and most states have not yet completed the changes required to process claims, which dampened our revenue in the quarter. This impacted the WOTC revenue in the first quarter, but we expect this to be a timing issue. And this essentially creates a backlog of WOTC submissions that have to be completed by the states that will begin turning to revenue as state processing accelerates in the remainder of 2024.

Offsetting these declines in the quarter, we saw mid-single-digit growth in I-9 and onboarding revenue. And going forward, we expect employer revenue, including ERC, to be up low single-digit percentages for the remainder of 2024.

In total, EWS non-mortgage revenue was up 7% and overall EWS revenue was up 1%. And adjusted EBITDA margins at EWS at 51.1% were over 50 basis points stronger than our expectations from strong operating leverage and strong performance.

USIS had a very strong quarter with revenue up 10%, its highest quarterly revenue growth in 3 years, even against the 19% mortgage market decline. As I referenced earlier, mortgage revenue was up 38% and stronger than expected from market and pricing pass-through and our new prequal solution.

Non-mortgage revenue was up 1% and was weaker than expected. Although we had very strong double-digit growth in Kount, in Consumer Solutions and mid-single-digit growth in banking and lending, we saw a double-digit decline in third-party bureau sales and low to mid-single-digit declines in telco and auto. And USIS adjusted EBITDA margins were up -- were 32.7% in the quarter and up about 70 basis points higher than our expectations.

International delivered 20% constant dollar revenue growth and 6% organic constant currency revenue growth, excluding the impact of the BVS acquisition, both of which were above our expectations. Very strong growth in Latin America and Europe was partially offset by lower-than-expected growth in Asia-Pacific. International delivered 24.3% adjusted EBITDA margins, up slightly from our expectations.

As you can see from the right-hand side of the slide, we added a new strategic priority this year to focus on driving AI innovation. As mentioned in February, 70% of our new models and scores were built last year using AI and ML with a goal of 80% this year. In the first quarter, we exceeded this goal with 85% of our new models and scores being built with Equifax AI and machine learning. EFX.AI, leveraging our proprietary data, Equifax Cloud and NPI capabilities, is a big area of focus and execution for Equifax in 2024 and beyond.

We're maintaining our 2024 guidance with revenue at the midpoint of $5.72 billion and adjusted EPS of $7.35 a share. Our strong first quarter, with revenue at the top end of the range and EPS above the top end of the range, gives us confidence in our ability to deliver the full year guidance we provided in February. We expect strong constant dollar non-mortgage revenue growth of over 10%. And our full year guidance is based on the assumption that the U.S. mortgage market continues at levels consistent with current run rates with U.S. credit inquiries down about 11% from 2023.

Before I cover our business unit results in detail, I want to provide a brief overview of what we're seeing in the U.S. economy and with the consumer. Broadly, outside of the bottoming of the mortgage market, there's not a lot of change from our view back in February. U.S. consumer and our customers remain broadly resilient. Employment remains at historic levels with low unemployment, which is a positive for consumers and customers. Employment turnover and hiring at lower levels entering 2024 than last year. Hiring levels in January and February were at their lowest levels in 3 years. This is more pronounced for higher-salaried roles than lower-salaried or hourly jobs.

Credit card and auto delinquency rates for prime consumers, which represent about 80% of the market, are stable at historically low levels of less than 1%, but above prepandemic levels. And subprime credit card and auto delinquency rates continue to remain above pre-pandemic levels with auto subprime delinquencies above 2009 levels. As we've discussed before, it's our view that, when consumers are working they largely have the capacity to keep current on their financial obligations, which is good for our customers and good for Equifax.

Turning to Slide 5. Workforce Solutions revenue was up 1% in the quarter, slightly below our expectations. EWS mortgage revenue was down 15% as expected. TWN inquiries at down 22% were slightly better than expected, although weaker than USIS credit inquiries as homebuyers continue to have difficulty completing purchases while shopping behavior continued to be fairly strong.

Our revenue outperformed inquiries by 7%, which was below the about 11% we have guided into February. Relative to our February guidance, the benefit of the mortgage price increase se implemented in January by EWS, and stronger fulfillment rates due to the growth in TWN records, were as expected. However, these were partially offset principally by a shift in product and customer events.

As we look to the remainder of 2024, we expect TWN record growth to result in improved mortgage outperformance with the second quarter up slightly from first quarter levels and the second half of the year at about 14% outperformance. For the full year of 2024, we expect mortgage outperformance to be about 11% at EWS, which is down significantly from the 20% we saw last year as we lapped the late '22 launch of our higher-priced Mortgage 36 trended data solution.

Non-mortgage Verification Services revenue, which represents over 70% of Verifier revenue, delivered a very strong 15% growth, at the top end of the EWS long-term revenue growth framework of 13% to 15%, and was also above our expectations.

Government, which is now our largest Verification Services vertical, had another outstanding quarter and was stronger than our expectations with 35% revenue growth. Government revenue benefited for both our new CMS and SNAP contracts, continued expansion of state contracts, continued TWN record growth, and pricing. We expect continued growth in government throughout 2024 with stronger growth rates in the first half as post-COVID CMS redeterminations principally complete in the first quarter.

Talent Solutions revenue was down 4% in the quarter, which was weaker than expected as we saw very slow volumes through both January and February. March saw about flat revenue, which was more consistent with our expectations, and which we expect to continue into the second quarter.

Consumer lending revenue was 6% in the quarter as we saw strength in our auto and debt management businesses, slightly offset by declines in card. This is the second consecutive quarter of consumer lending revenue growth as we're lapping headwinds from the fintech lending pullbacks in '22 and '23. Auto and debt management revenue growth was principally driven by strong record growth and our pricing actions in the first quarter.

As I referenced earlier, Employer Services revenue was down 10% compared to the about 4% decline we discussed in February for ERC and WOTC reductions. Going forward, we expect employer revenue, excluding ERC, to be up low single digits for the remainder of 2024.

Workforce Solutions adjusted EBITDA margins of 51.1% continue to be very strong from non-mortgage revenue growth, good cost execution, while we continue to invest in new products; expanding to high-growth verticals, like government and talent; and grow our TWN records. As a reminder, EWS first quarter margins are seasonally lower from a higher mix of Employer Solutions revenue, principally from ACA and W-2 in the first quarter.

Turning to Slide 6 and expanding on our discussion of EWS TAMs in February. We provided additional details on our fast-growing government vertical. On the left side of the slide, we outlined some of the federal agencies we're supporting with Workforce Solutions, digital income, employment and incarceration data that accelerate the time to deliver needed social service benefits to over 90 million Americans and help government agencies ensure program integrity, a win-win for all parties.

And in the middle of the slide, you can see the substantial progress our EWS government vertical has made in a short period of time, penetrating the $5 billion TAM with a 3-year CAGR of over 50%. We expect EWS to continue making significant progress penetrating the government vertical from additional sales resources to federal and individual state capital level, strong TWN record growth, new product rollouts with our differentiated incarceration data, and system-to-system integrations enabled by our cloud-native technology that makes our solutions easier for our government customers to consume.

Our SSA contract, last year's $1.2 billion CMS contract extension and the new $190 million SNAP contract are examples of how EWS is helping various government agencies improve the consumer experience and their own operating efficiency from the application of authentication phases to redetermination and recovery processes. The strength of the EWS government vertical was clear again in the quarter, and we expect strong future growth in this business in '24 and beyond.

Turning to Slide 7. EWS had another strong quarter of new record additions and signing new payroll processors. During the quarter, EWS signed agreements with 2 new payroll processors, including one large payroll processor that will contribute over 6 million current records to the TWN data set. This adds to the 6 partnerships we signed in the fourth quarter that are coming online in the first half of 2024. And this brings the total number of payroll providers added to the TWN database to 35 since the beginning of 2021, and the pipeline for new records continues to be strong.

Both of these wins in the quarter are a testament to EWS' ability to deliver the highest level of client service from a technology, data security and accuracy, operational excellence, as well as the highest level of record monetization as EWS participates in a broad range of verticals, including government, mortgage, talent solutions, talent screening, card, auto and personal loans. And given our advancements in AI and cloud-native capabilities, the time to board new records from payroll processors has decreased over the past few years. We expect these new record additions in the first quarter to come online and begin generating revenue in early third quarter.

In the quarter, EWS added 4 million current records, growing the TWN database by 10% over last year. At the end of the quarter, the TWN database had 172 million current records on 126 million unique individuals. Total records, both current and historic, are now about 670 million and were up about 8%. These are very strong results given the typical churn in holiday season hiring in the first quarter.

In terms of coverage, we have current employment records on about 75% of U.S. nonfarm payroll and over 55% coverage on the estimated 225 million income-producing Americans. At 126 million unique active records, we have plenty of room to grow the TWN database towards the TAM of 225 million income-producing Americans.

As shown on Slide 8, USIS revenue was up 10%, stronger than our expectations and well above their 6% to 8% long-term growth framework principally due to stronger-than-expected mortgage revenue. As I referenced earlier, USIS mortgage revenue was up 38% and stronger than our expectations. Mortgage credit inquiries are down 19%, were still down substantially but 700 basis points above our February guidance. We also continue to see very strong performance from our new mortgage prequal solution. The strong pricing environment, along with the strength in our prequal product, drove the very strong mortgage outperformance of 57%.

At $145 million, mortgage revenue was just over 30% of total USIS revenue in the quarter. Non-mortgage revenue was up just over 1% and weaker than the above 3% growth we had expected. Third-party sales to credit bureaus, including Experian and TransUnion, were down double digits in the quarter. Excluding the impact of third-party bureau revenue, USIS non-mortgage revenue was up about 2% and closer to our February guidance.

B2B non-mortgage online revenue growth was down less than 1% and below our expectations, again driven by lower third-party bureau sales and to a lesser extent declines in auto and telco. Offsetting these declines was strong double-digit growth in Kount and very good mid-single-digit growth in banking and lending. Commercial revenue growth was up low single digits in the quarter.

Financial Marketing Services, our B2B offline business, was down 1% and slightly below our expectations. Marketing revenue was down 4%, principally due to a 10% decline in IXI revenue versus a difficult comp in the first quarter last year. We expect IXI revenue to grow for the full year. Prescreen marketing was down less than 1% and at similar levels to the quarterly revenue we had in 2023. We continue to see declines of smaller FIs, principally -- or partially offset by growth in larger FIs. Within risk and accounting reviews, we did see limited growth in our portfolio review business, but not to the levels we would typically see if our customers were expecting a weakening economy. And fraud revenue was up a strong 8% from new business.

USIS Consumer Solutions D2C business had another very strong quarter, up 10% from very good performances in both consumer direct and our indirect channels. And USIS EBITDA margins were 32.7% in the quarter and higher than our expectations from stronger mortgage revenue growth.

Turning now to Slide 9. International revenue was up 20% in constant currency and up 6% in organic constant currency, excluding the impact of BVS, and above the 18% growth we guided to in February due to better-than-expected revenue in Europe and Latin America.

Europe local currency revenue was up a very strong 10% in the quarter from strong growth in our U.K. CRE, CRA, B2B, consumer, and direct-to-consumer channels, as well as our debt management business. Latin America local currency revenue, excluding Brazil, was up 31% versus last year, driven by strong double-digit growth in Argentina and Central America.

Brazil revenue in the quarter on a reported basis was $41 million. We expect to make good progress on the BVS integration as we expect to implement InterConnect, our end-to-end decision platform this summer, for small- and medium-sized businesses and by year-end for large businesses; and implement Ignite, our advanced analytics platform, by year-end. The combination of our Ignite and InterConnect platforms will bring significantly enhanced capabilities to our Boa Vista business and to the Brazilian market.

Canada delivered 4% in the quarter, as expected. And Canada is on track to complete their migration to the Equifax Cloud in the second quarter. And similar to USIS, we expect to see accelerating NPI as they complete the cloud. Asia-Pacific revenue was below our expectations with revenue down 10% due to lower market volumes principally in our Australian commercial business. We expect Asia-Pacific to have declining revenue in the first half due to the softer market conditions and the near-term impact of long-term contract extensions we signed with several large customers. We expect Asia-Pacific to return to revenue growth in the second half of this year. International adjusted EBITDA margins of 24.3% were above our expectations due to revenue growth and continued strong cost management.

Turning to Slide 10. We continue to make very strong progress with new product innovation, launching over 25 new products in the quarter with a 9% up Vitality Index from broad-based strong performances across all of our BUs.

As a reminder, our VI measure includes NPIs for the last 3 years. And on January 1, drops out NPIs -- or on January 1, dropped out NPIs from all of 2020. While our first quarter VI is slightly below our long-term goal of 10% as we lacked a large EWS Talent Solutions product launched in 2020, we expect our quarterly VI to accelerate throughout the year leveraging our EFX Cloud capabilities to drive new product rollouts for a full year 2024 VI of over 10%.

Consistent with the fourth quarter of last year, USIS delivered another strong quarter with VI of 7% as we're closer to cloud completion and able to leverage our new cloud-native infrastructure for innovation and new products, such as our suite of Ignite solutions including Ignite for Prospecting and Ignite for Financial Services.

EWS delivered VI of over 10%. We expect EWS VI to accelerate throughout 2024 with new product introductions focused on incarceration data, mortgage prequal and I-9 and onboarding products. As I mentioned earlier, EFX.AI is a pillar of our EFX2026 strategic priorities enabled by our EFX Cloud.

In the middle of the slide, you can see that we're accelerating the pace at which we are developing new models, scores and products using AI and machine learning. In the first quarter, 85% of our new models and scores were built using AI and ML, which is ahead of our 2024 goal of 80% and last year's 70%.

NPI and AI are a clear focus for Equifax, which will drive innovation that can increase the visibility of consumers to help expand access to credit and create new mainstream financial opportunities as well as drive EFX top line growth and margins.

Before I turn it over to John, I want to spend a few minutes on our progress on 2 of our critical EFX2026 strategic priorities that support our long-term growth framework of 8% to 12% top line growth and 50 basis points of annual margin expansion. Completing the cloud and inhibiting from building and leveraging our cloud capabilities is a big 2024 priority, which is fundamental to accelerating NPI and execution of AI and more broadly analytics as well as substantially strengthening system response time and resilience of our technology for our customers. Completing the cloud also frees up our team to fully focus on growth and expanding innovation, new products and new markets.

Our progress towards completing the cloud is gaining momentum with over 70% of our total revenue in the New Equifax Cloud at the end of the quarter. And we're focused on executing the remaining steps to reach 90% with Equifax revenue in the cloud by year-end.

USIS expects to complete their consumer credit, mortgage and telco and utilities exchange customer migrations to the New Equifax Cloud data fabric principally in the third quarter, which will allow them to decommission legacy systems in the second half of this year, as planned. Customer feedback from the thousands of customers that we've migrated to Equifax Cloud year-to-date has been very positive.

Canada is progressing as planned to complete their consumer credit exchange migrations to the data fabric in late second quarter of this year with their data center decommissioning planned for the third quarter. Europe continues to make significant progress with the goal of completing Spain's consumer credit exchange migration to data fabric and the decommissioning of their legacy systems in the third quarter. And U.K. is on schedule to complete cloud migrations, decommissionings of their technology and data centers in the first half of 2025.

In Latin America, we completed the Argentina and Chile cloud migrations and expect to make substantial progress on the remaining Latin American countries throughout the rest of 2024.

And lastly, as planned, we expect Australia to make big progress this year towards completing their consumer credit exchange migrations to the Equifax Cloud in 2025.

Second, driving AI innovation is an important EFX2026 strategic priority that leverages our cloud-based data fabric and application architecture and global Ignite analytical and InterConnect decisioning platforms. We're making great progress in embedding these EFX.AI capabilities across our global footprint. Ignite and InterConnect are now broadly available worldwide. And during 2024, we're deploying both Equifax proprietary explainable AI along with Google Vertex AI across Ignite, InterConnect and our global transaction systems.

For Equifax, Vertex AI enables faster and more predictive model development on our Ignite platform. And for our clients, Ignite, which combines data analytics and technology into one cloud-based ecosystem, customers can connect their data with our unique data through our identity resolution process to gain a single holistic view of consumers.

We now have 100 -- access to 100% of the U.S. population through our data sets in our Single Data Fabric. This is expanding the scorable population of consumers for our customers -- cases by over 20%. And we're driving faster data ingestion and analytics with greater than 5x the processing power of our legacy applications tied into our clients' existing campaign, account management and business platforms.

Completing the cloud and expanding EFX.AI, along with continued expansion of our differentiated data sets, will accelerate innovation and new products at Equifax that will drive both our top and bottom line.

In the first quarter, we're also off to a good start on our broader operational cloud restructuring plan across Equifax, reflecting cost reductions from the closure of North American data centers and other broader spending controls against our $300 million goal. These actions are improving operating margins and lowering the capital intensity of our business. We're entering the next chapter of the New Equifax as we pivot from building the New Equifax Cloud toward leveraging our new cloud capabilities to drive our top and bottom line.

And now I'd like to turn it over to John to provide more detail on our first quarter financial results and to provide our second quarter framework. Our second quarter guidance builds on our strong first quarter performance from new products, record growth and pricing. John?

Thanks, Mark. Turning to Slide 11. First quarter mortgage market credit inquiries were down about 19% and TWN mortgage inquiry volumes were down 22%. We believe homebuyers continue to have difficulty completing purchase transactions, resulting in a continuation of shopping, which generally results in credit inquiries, which occur earlier in the purchase process, being stronger than TWN inquiries.

Consistent with our practice from the first quarter and the last several years, our guidance for both credit inquiries and TWN inquiries based on our current run rates over the last 2 to 4 weeks modified to reflect normal seasonal patterns. For both credit and TWN inquiries, we saw some weakening in trends in late March and early April as mortgage rates increased over that period. Mortgage credit inquiry run rates remain somewhat better than the guidance we provided in February.

Our guidance reflects mortgage credit inquiries to be down about 13% in the second quarter of '24 and 11% in calendar year '24, about 600 basis points and 500 basis points better than our February guidance, respectively. Our guidance reflects TWN inquiries at about the levels in February with TWN inquiries down about 19% in Q2 and down about 14% for the year. This reflects the continuation of mortgage shopping we saw in the first quarter.

As a reminder, and as we discussed in February, we expect the level of USIS mortgage revenue outperformance to moderate as we move through 2024 as we start to lap the growth in new mortgage prequal products. We expect 2Q USIS mortgage outperformance to be about 40%, down from the 57% in the first quarter, with full year USIS mortgage outperformance also expected to be on the order of 40%.

We expect TWN revenue mortgage outperformance in the second quarter to be up slightly from the 7% we saw in the first quarter. As Mark indicated, second half 2024 mortgage outperformance should be about 14% with full year about 11% and at the low end of our long-term 11% to 13% framework.

Slide 12 provides the details of our 2Q 2024 guidance. In 2Q '24, we expect total Equifax revenue to be between $1.41 billion and $1.43 billion with revenue up about 8% at the midpoint. Non-mortgage constant currency revenue growth should strengthen to about 11%. Mortgage revenue in the second quarter is expected to be up about 3%. Mortgage revenue will be just over 20% of Equifax revenue. FX is negative to revenue about 2 points.

Business unit performance in the second quarter is expected to be as follows. Workforce Solutions revenue growth is expected to be up about 3%, with mortgage revenue down about 12.5%. EWS non-mortgage revenue should grow over 9% in the quarter. Non-mortgage Verifier revenue will again be up about 15% in the second quarter, driven again by government and a return to growth in Talent Solutions. And Employer Services revenue is expected to decline about 4% in the quarter due to declines in ERC revenue. Excluding ERC, Employer Services revenue should be up slightly. We expect Employer Services to return to revenue growth in the fourth quarter of 2024 as we lap ERC headwinds.

EWS adjusted EBITDA margins are expected to again be about 51%. USIS revenue is expected to be up over 8% year-to-year despite the continued decline in mortgage market inquiries. Mortgage revenue should be up over 25%. Non-mortgage year-to-year revenue growth of over 2% should be up from the 1% we saw this quarter. Adjusted EBITDA margins are expected to be up strongly to about 34.5%.

International revenue is expected to be up over 20% in constant currency due to the addition of BVS. Revenue is expected to be approaching 10% in organic constant currency. EBITDA margins are expected to be about 25.5%, reflecting revenue growth. We expect Brazil to deliver revenue of over $40 million in the second quarter.

Equifax's 2Q '24 adjusted EBITDA margins are expected to be about 32% at the midpoint of our guidance, an increase sequentially of about 300 basis points, principally reflecting the higher equity compensation expense we saw in the first quarter. Adjusted EPS in 2Q '24 is expected to be $1.65 to $1.75 per share, about flat versus 2Q '23 at the midpoint.

Capital expenditures in the first quarter were about $125 million and consistent with our expectations. We expect capital expenditures in the second quarter to be at levels consistent with the first quarter. And we continue to expect CapEx to be about $475 million for the year, which is a year-to-year reduction of over $100 million.

As we discussed in February, one of our capital allocation priorities in 2024 is leverage reduction from free cash flow expansion. As of the end of the first quarter, our leverage ratio was just over 3x with a goal by year-end 2024 of about 2.5x. We believe these levels of leverage are nicely within the levels required for our current BBB, Baa2 credit ratings. As we achieve these levels, we will have significant flexibility to begin to return cash to shareholders through dividend increases and share repurchases as well as to continue to do bolt-on acquisitions.

As Mark covered earlier, we are making very good progress on completing migration of our U.S. and Canadian consumer credit exchanges to cloud, which will enable the shutdown of significant legacy systems in 3Q and 4Q. These actions enable significant cost benefits in the second half of '24, which will allow us to deliver sequentially higher EBITDA margins and adjusted EPS in 3Q and 4Q.

Slide 13 provides the specifics of our 2024 full year guidance, which is overall unchanged from the full year guidance we provided in February. Consistent with our February guidance, constant currency revenue growth is expected to be about 10.5% with organic constant currency revenue growth of 8.5%, at the center of our 7% to 10% long-term organic growth framework.

Total mortgage revenue is now expected to grow over 10%, reflecting USIS mortgage revenue that is stronger than our February guidance. Total mortgage revenue is expected to grow more than 20 points better than the about 13% reduction from the average decline in USIS and EWS mortgage inquiries in our framework. Non-mortgage constant dollar revenue should grow over 10% with organic growth of over 8%. This is solidly within our long-term framework, although slightly below the levels we discussed in February. FX is about 190 basis points negative to revenue growth.

We have also slightly adjusted BU level guidance. We expect Workforce Solutions to deliver revenue of about 7% in 2024. This reflects mortgage revenue down slightly, about 11 points better than underlying EWS mortgage transactions.

EWS non-mortgage verticals are expected to grow about 10%. The slight decline from February guidance is due to the expected weaker revenue performance in employer driven by the more rapid decline in ERC and deferral of WOTC revenue Mark referenced earlier. Excluding the expected significant decline in ERC revenue as that pandemic support program completes, EWS non-mortgage revenue growth is about 12%.

We expect USIS to deliver revenue growth over 9% in 2024, above the high end of our long-term growth target of 6% to 8%. Mortgage revenue is expected to grow over 25% on the order of 40 points stronger than the expected over 11% decline in mortgage credit inquiries. Non-mortgage revenue is expected to grow about 3%, down from the 4% in our February guidance.

We continue to expect non-mortgage growth will be driven by strong consumer services, commercial, identity and fraud and FI. As we saw in the first quarter, the overall auto market is weaker than our expectation, impacting our auto-based revenue. And our D2C revenue, the business in which we sell credit data to other credit bureaus, was weaker than we expected and down substantially.

We continue to expect International to deliver constant currency revenue growth of over 15% in 2024 with organic constant currency growth of about 10%. As we discussed in February, the high levels of inflation we are seeing in Argentina are expected to benefit overall International revenue growth by about 5 percentage points. Although uncertain, we have assumed the currency devaluation in Argentina will more than offset inflation in our 2024 planning. We believe that our guidance is centered at the midpoint of both our revenue and adjusted EPS guidance ranges.

Turning to Slide 14. And as we discussed in February, the U.S. mortgage market is on the order of 50% below its historic average inquiry levels. As the market bottoms and moves from a headwind to a tailwind and the mortgage market recovers towards its historic norms, that presents over $1 billion of annual revenue opportunity for Equifax, none of which is reflected in our current 2024 guidance. At our mortgage gross margins, this over $1 billion of mortgage revenue will deliver over $700 million of EBITDA and $4 per share that we would expect to move into our P&L.

Now I'd like to turn it back over to Mark.

Thanks, John. Wrapping up on Slide 15. Equifax delivered another strong quarter with 9% constant dollar non-mortgage revenue growth, which was well within 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.

As I mentioned at the beginning of my comments, a big priority for 2024 is to complete our North America cloud transformation as well as significant portions in our global markets, which will result in continued margin expansion and reductions in our capital intensity and is as a key benefit of our data and technology cloud transformation.

As we complete the cloud, we expect CapEx to decrease in 2024 by over $100 million to about $475 million or under 8.5% of revenue with further reduction in 2025, allowing us to move towards our long-term CapEx goal of 7% of revenue as we exit next year. And exiting 2024 with 90% of Equifax revenue in the New Equifax Cloud is a big milestone so the team can move fully towards focusing on growth.

Aligned with completing the cloud transformation is our strategic priority to drive innovation through our investments in EFX.AI. AI and ML are changing the way we develop new products in our Single Data Fabric, build higher-performing models, scores and products; allow us to ingest and cleanse more data; and operate our consumer care centers more efficiently. We are on offense with EFX.AI.

We are entering the next chapter of the New Equifax as we pivot from building New Equifax Cloud to leveraging our new cloud capabilities to drive our top and bottom line. We are convinced that our New Equifax Cloud, differentiated data sets in our Single Data Fabric, leveraging EFX.AI and ML, and market-leading businesses, will deliver higher growth, expanded margins and free cash flow in the future.

We remain focused on executing our long-term model, delivering 8% to 12% revenue growth with 50 basis points of annual margin expansion annually. I'm energized by our strong performance in the first quarter and momentum as we begin 2024, but even more energized about the future of the New Equifax.

And with that, operator, let me open it up for questions.

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

I just had a broader question on just the visibility that you have because unlike the prior years, mortgage was actually much better than what you guys guided. But still there were, I think, a lot of moving pieces that didn't allow you to beat by more, I guess. So just curious, I think this quarter obviously ERC was exceptional, but auto, APAC. Like just can you just help us understand how much visibility you have in these other areas?

Manav, I think we have good visibility. We typically do, as you know, but there's still a lot of uncertainty. As you know, you go back using your comment on mortgage, 60 days ago, I think a lot of us were looking forward, as well as most of the experts, that we have multiple rate cuts in 2024.

As recently as 2 weeks ago, there was still people thinking there was going to be a June cut. And I think as you know, that's kind of pushed out. Rates went up 3 weeks ago, 2 weeks ago, mortgage rates went up 20 basis points to 7%.

So while there's a lot of visibility, there's still a lot of uncertainty around, I would call it, principally the mortgage market. And given we're in the first quarter, we thought it was prudent to be balanced in the framework we put forward. As you know, we beat in the first quarter. We had some things to manage in ER spend -- EWS like the ERC decline or the WOTC deferral because of the change in forms, and there's always things we're managing as a company.

But we thought it was prudent to be balanced, given where we are in the quarter and kind of the macro of mortgage. Outside of mortgage, we're pretty comfortable with the economy. And we held the year, and we'll take another look at it as we go through second quarter.

Okay. Got it. And then just the 7% mortgage outperformance in EWS, I know you guys had said that you expected 1Q to be the low end or the low point. Was 7% kind of in line with your expectations? And then just thinking about the 11% for the year and beyond, is that going to be the new norm, then?

Yes. So as you know, we've had very strong mortgage outperformance in EWS over the last couple of years. Records are a big driver of that. Obviously, we take price up every year, which we did in 2024. We've also had, in the last couple of years, what I would call outperformance in EWS mortgage from some of the new product introductions, principally Mortgage 36. So that's kind of the delta from '24 outperformance call it in the high teens to 20%, down to the kind of double digit or low single digits. So we were kind of focused on that.

As we look forward to the balance of the year, you heard us talk about the record additions which are going to benefit all of the EWS verticals, including mortgage, including the large payroll processor that we signed that's going to come online kind of midyear that's going to add 6 million records. So those higher hit rates will benefit all of the EWS businesses in the second half as we continue to grow TWN records, and also will benefit mortgage.

Relative to our expectation for the first quarter, 7% was a little lower than we expected, as we said in the script. It was really driven a lot by customer mix and channel mix, right? We saw some shift in our customers into some of our customers that had lower pricing than others, and that impacted our first quarter outperformance levels.

Going forward for the rest of the year, we basically assume that level of mix is going to continue. And as Mark said, the growth is really driven by records. Long term, I think we've said before that we're expecting mortgage outperformance to look pretty much like the level of outperformance, excluding the economy that we're talking about for EWS in general, which is something like 11%, 12%, 13%. So I think long term, that's the type of level we're thinking about.

Our next question is coming from Andrew Steinerman from JPMorgan.

John, could you go back to just Slide 11? And the 500 basis point better assumption on USIS mortgage credit inquiries for '24, does that translate into 500 basis points better mortgage revenue growth for OIS? And if not, why?

And I'm going to give you my second question. Also make a comment about Mortgage Solutions trajectory for the year.

So it translates into better mortgage revenue for USIS in total, not necessarily specifically for OIS, right? So you need to look at both -- at both OIS as well as core mortgage. But yes, inquiries translate fairly directly, yes.

And the other part was, could you just talk about Mortgage Solutions' trajectory for the year?

So again, what we're talking about is just mortgage in total, right? So -- and I think the trajectory for mortgage in total is what we talked about on the call, right? So we didn't really split Mortgage Solutions and OIS. We manage it as one -- kind of one single business. I understand it's on 2 different line items when we report, but we tend to focus on mortgage in total in trying to drive the mortgage performance overall up for the year. And I think we gave very specific information about what we expect for it to do.

Overall mortgage, quite strong.

Very strong, up over 25% for the full year, right, outperformance on the order of 40 points. So we think it's going to be very strong in total.

Our next question today is coming from Kyle Peterson from Needham & Company.

Just wanted to get your thoughts. If we do kind of end up being higher for longer outlook for the year, how do you guys think about this impacting some of the different business lines? Obviously, mortgage could see some pressure. But how should we think about some of the puts and takes in areas like card and auto, at least how you guys are seeing things today?

I missed the first half, Kyle. Is the first half of your question about if rates stay higher for longer, how does it impact Equifax?

Yes.

Yes. Got it. Yes. So mortgage, I think you get. Mortgage, obviously this year, we're still expecting mortgage to be down. But like if rates stay where they are, we would expect in 2025 mortgage market to be fairly flat in 2025 until rates come down.

And I think John outlined again what we believe, whether it's '25, '26 or '27, as rates get down to what I would call a more normal level, as you know, we're at a 20-plus year high right now. Over that longer time frame, there's a big tailwind in mortgage.

For the rest of our businesses, we haven't really been impacted by rates. There's a little bit of impact in auto. Those higher rates are pressuring some of the payments, if you will, for that lower end consumer in subprime and near-prime. But broadly, we're performing well where rates are from a non-mortgage standpoint, and we would expect that to continue.

So when we think about kind of the long term of Equifax, we're still committed and confident in our 8% to 12% kind of long-term framework for the company, including a point or 2 of M&A in that long-term framework, and that's at kind of current rates.

And then we've got the benefit, as rates come down to some level, whether if they're going to come down to 4 or 3.5 or whatever over the long term, I don't think any of us expect them to go back to where they were kind of during the COVID pandemic. But as they come down, we're going to have, we believe, a real tailwind if the mortgage market recovers from its levels of 50% below what we would characterize as normal.

And just as a reminder. For 2024, right, as we said in the script, our guidance reflects current activity, current run rates, which is at current rates, right? So effectively, our guidance assumes rates stay where they are.

Got it. That's helpful. And then just a follow-up. I know we've seen some consolidation in the background screening space. I know some of that's at least pending right now. But I just wanted to get your thoughts on, if we do see some consolidation there, is there any change in your strategy or outlook on talent within Appriss and some of your -- the TWN products? Or is everything just pretty much dependent on hiring volumes?

Yes, I wouldn't say it's all dependent on hiring volumes. Obviously, hiring volumes have had an impact on us. We've been able to navigate through the hiring volumes which are still quite low. Most companies are keeping a tight belt as they think about where the economy is going as far as hiring on the white collar side. Obviously, blue collar is super strong. There's -- I don't know what it is, 9 million-plus open jobs right now. So there's still a very vibrant economy from the hiring side.

As far as talent, we just see a big TAM there with lots of opportunity to grow. We have strong relationships with all the top players, including the 2 you mentioned. And we expect to continue those relationships.

We've got a very aggressive pipeline of new product additions that we're continuing to roll out in the talent base. There's a lot of white space for us to penetrate, meaning background screeners that are still using manual, if you will, employment verifications. So that's an opportunity for us. So we remain very optimistic around the future for the talent vertical.

And as you point out, when hiring, I would call it in the white collar side, stabilizes or perhaps when rates come down and there's some increase in economic activity, we'll get the -- some tailwind from the market side as people are expanding their businesses.

And then we'll have the things under our control, to continue to adding records. The additional records result in higher hit rates there. The 4 million records we added in the quarter are 4 million jobs that are now going to be able to be monetized. And the hit rates we're delivering talent. I talked about new products. And of course, we took some price up in January, and we'll do that again in 2025. So we're optimistic about talent. We're super optimistic about government. As you know, with the 35% performance in the quarter, which is -- we see a lot of opportunities there, too.

Your next question is coming from Heather Balsky from Bank of America.

I wanted to go back to the EWS outperformance versus the volume. And you talked a little bit about customer shift. And it's something, I guess, that hasn't come up in the past. And curious if you could just dive in a little bit more in terms of kind of what can drive a shift in the sort of mix of customers that you're working with. And how you're thinking about that for the rest of the year. And is it a function of how the mortgage market is performing? Or is it new customers that you're bringing in? Just help us understand that better.

It's a little bit of all of the above, but it's really the mortgage market now at the low levels of activity, down 50% from where it was. There is some changes that happen on how much volume specific customers are completing in a quarter or a month.

And we see shifts in that, that are, I would call it more pronounced when the numbers are smaller. If you have one mortgage originator that perhaps is being more aggressive at one point in time on the originations they want to do, their marketing, their spending. As you know, a lot of this is -- most of it's done digitally. So there's ebbs and flows on particularly in this market from what we've seen, ebbs and flows of kind of the activity that a mortgage originator will put into it.

I don't know, John, what else would you add?

I would just add, just got to remember, a point of outperformance is not a large number, right? So we can see shifts of outperformance of several points, and it isn't a really large number on our mortgage revenue.

And that's why you saw that we had a little bit of outperformance in inquiries. And yes, we had some -- we had some underperformance and outperformance, but we ended up with revenue on, right? So I think, unfortunately, what we're talking about here is really small percentages that can be impacted by not large movements in revenue, and that's what you're seeing here, right?

So -- but overall, Mark covered it already, right? The real driver here of this business is consistent large growth in records which makes the products more valuable, which is why we expect to see continued improvement in the level of mortgage revenue as we go through the year, relatively speaking. So we feel very good about what's going on with the products we're offering because of the fact that we're adding records so rapidly.

That's helpful. And as a follow-up question, shifting to margins. You did take your inquiry number up on the mortgage side. So just curious how to think through. But I guess you maintained your EBITDA outlook for the full year, just -- so the give and take there in terms of the flow-through on higher inquiries and what might be offsetting that.

Yes. I think I'd start with the comments I had earlier. I don't know if you heard my response to Manav's question. Look, it's first quarter. There's still a lot of -- we have a lot of visibility in lots of parts of the business. I think the mortgage side is less visible, as was pointed out.

60 days ago, all of us thought there'd be -- at least the world thought there would be a bunch of rate cuts in the second half, including one in June. Two weeks ago, the June one felt like it disappeared. So given it's the first quarter, we were very pleased with what we saw as revenue being at kind of the midpoint of our guidance, which is very strong, and then EPS outperformance.

We thought it was prudent to hold the year and give you a good outlook of what we think second quarter is. And as I said, we'll look at it again as we get through second quarter and have what I would characterize as more visibility. I don't think any of us expected inflation to so-called spike up a little bit in the last couple of months when we set that guide earlier in the year. But we're confident in delivering the full year guidance that we laid out, and we'll give you an update as we get through second quarter. We'll have more visibility at that time.

Yes. As you look through the year, we are expecting margins to go up. It's obvious in our guidance, right? I talked a little bit about the fact that we have meaningful cost reductions coming as we decommission major systems in our consumer businesses in North America. We feel good about executing against those, as Mark talked about.

We also just -- you've got to remember, we generally have an improving mix of revenue as we go through the year, especially in the fourth quarter as mortgage declines as a percentage of our revenue. It happens every year. It's just market right? So as that happens, that tends to be margin-accretive for us.

So executing against our plans. And quite honestly, the addition of records in EWS is very accretive for us as we go because obviously that's very high margin revenue that doesn't draw with it expense below variable cost. So we feel very good about our ability to deliver on our full year numbers.

Our next question today is coming from Owen Lau from Oppenheimer.

I want to go back to talent. I think you mentioned the Jan and Feb volume was, I think, below expectation, but March number is better and you expect that trend to continue. I just want to understand the driver of that weakness in Jan and February and what makes you confident that the volume would be similar to March level, maybe in the second quarter or so?

Yes. As you know, we attribute -- when we talk to our customers which are background screeners, the kind of softer January, February, just kind of a very tight operating environment that most companies are operating on. Again, we overskew to white collar workers versus blue collar. Blue collar is still, I would call it, red hot, meaning there's more jobs open than people looking for them. That's not the issue.

Most companies are really watching the economy, and we saw that in January, February. We did see an uptick in March, and we try to operate off current trends we see, and that's still continuing in April. And we expect that to kind of stay at that level. But I wouldn't call it like a big recovery, just back closer to what we thought the year was going to be as we exited 2023.

Got it. That's very helpful. And then for your cloud migration, from I think 70% revenue to 90% cloud revenue by the end of this year, can you help us again? How should we -- how can we quantify the uplift and translate that to revenue growth and margin expansion? And how much of that you have baked that into your full year guidance already?

Yes, certainly in our guidance. Obviously, we haven't given guidance for 2025 yet. We'll do that as we get through this year. We expect those cloud completions this year to benefit 2024. We -- that's built into our margin expansion assumptions in 2024. And then there'll be some carryover of the second half decommissionings that we have as we complete like the USIS cloud transformations in the kind of middle of the year. And some of the international cloud transformations, same kind of time frame. Those start layering in on kind of a monthly basis as we go through this year. And those will provide some benefits as we go into 2025.

So I think we've given and we're happy to share some more around the margin side. The top line side is one -- there's multiple layers of how the cloud is going to benefit us from a top line standpoint. We're going to be a differentiated partner to our customers with the always-on stability from the cloud. You've already seen the uplift in new product innovation coming from our differentiated data in the cloud. So that's going to continue. And businesses like USIS that have been constrained by their cloud migration efforts over the last year and change, as they complete the cloud, we would expect that to accelerate their new product rollouts going forward.

So we have a lot of optimism of what it's going to do from a competitive standpoint as we complete the cloud. And as I said in my prepared comments earlier, the other big benefit is the ability for the team as we get towards the second half of the year and into 2025 to fully focus on just growing the business.

Over the last almost 4-plus years, we've been growing the business, operating the business and doing this cloud transformation. It's a heavy, heavy lift. Getting that completed is a big, big milestone for the company so we can really take advantage of all of our differentiated data to cloud, our increased focus on AI and ML, that's going to benefit us as we go into the second half and into '25 and beyond.

Our next question today is coming from Shlomo Rosenbaum from Stifel.

Mark, can you talk a little bit about the mortgage outperformance in USIS? There's obviously the FICO pricing increase. And then you mentioned the new prequal product. Given the magnitude of the outperformance, could you kind of parse that a little bit for us? Is it like overwhelmingly FICO with some prequal? Or how should we think about that in terms of the impact the new products happening there? And then I have a follow-up.

Yes. The pricing pass-through is a very, very big piece of the mortgage outperformance. We haven't broken down the 2. But the new solution, the prequal that's used in the shopping stage, is a meaningful piece, and we're very pleased to have that on top of the price action. You should expect us to continue to bring new solutions to market. And this is an example of that as we go forward.

And as we look forward to '25 and '26 and beyond, we'll continue to focus on new solutions from our standpoint. And I think all of us will have to see what that pricing looks like as we get into '25 from our FICO partner there and what they decide to do next year and as well as beyond 2025.

Okay. And then maybe this is for John. Could you just go over the puts and takes on Workforce Solutions 2024 guidance going to 7% from 8% despite the fact that the mortgage market inquiries are expected to be better? Some of the stuff that were mentioned sounds like there would be more delays rather than permanent impacts. And I'm just hoping you can just parse that out a little bit more because that's kind of surprising to people, I'd say one of the most surprising in what we saw in kind of the earnings report.

Sure. So I think the full year is down a point principally because of employer, right? So that some of the items we talked about, certainly WOCT assets deferral, but it's lower for the year, right? It doesn't all turn in 2024. And ERC is lower for the year, right? And so generally speaking, the reduction is principally related to employer.

On mortgage, we did indicate we're seeing slightly better performance in mortgage on inquiries, right, that we said we had expected shopping when we gave a guidance back in February to kind of -- to be not as substantial in 2024. What we saw in the first quarter is it was. So we're now assuming it will continue for the entire year.

And that even though they're made -- the inquiries are similar to, we're expecting a little weaker level of performance in terms of outperformance, right, that we just talked about. So that's affecting mortgage revenue overall.

Non-mortgage Verifier revenue really strong, right, continues to be very, very good. Government is performing incredibly well, outperforming our expectations overall. We expect talent to recover. We actually had fairly good performance in kind of the non-mortgage financial services portion of the P&L. So we felt relatively good about that. So overall, non-mortgage in Verification Services is very good.

So the real movement relative to the 8% we gave before, the biggest driver is Employer Services. And then also mortgages is -- even though maybe you have a little better overall inquiries in total for the year, they're being offset by the weaker level of outperformance that we talked about. Principally driven by mix, right? Principally driven by customer mix which we saw in the first quarter.

Your next question is coming from Faiza Alwy from Deutsche Bank.

Yes. I wanted to ask about the third-party sales to credit bureaus that you mentioned that was weak and down double digits in the quarter. What exactly is that? And what's driving it? And how should we think about this in the -- for the rest of the year?

Yes. We sell our credit reports to a number of companies that provide credit monitoring to consumers in the U.S. We have our own business, including we sell to Experian and TU, to lots of others that provide credit monitoring.

And we've seen some softness, particularly with the other 2 credit bureaus in the first quarter and actually late in the year. That's really what we referred to. And I don't know enough about what's driving that, whether they're cutting back on marketing or it's just a more competitive market. But that was an element that we just sold less credit reports that are passed through in credit monitoring solutions.

Yes. And we basically assume it's going to continue into the second quarter, right? So we're seeing it to be at lower run rate, so we're assuming those run rates are just going to continue.

Okay. Understood. And then just to follow up on the question around EWS revenues. I know you said that you still expect, I think, government revenues to be up 15% for the year. Curious how we should think about the second quarter, sort of where we are in terms of redetermination. So basically, what's left in 2Q? And then if you could also just comment on -- I know you're talking about a recovery in talent, but give us a sense of how we should think about talent revenues for the year.

Yes. So I think that the number you're quoting for government was that we talked about back in February. And what we're seeing is government is outperforming that. So we feel very good about our government revenue, very strong in the first quarter.

Yes, redeterminations are technically completed by the end of March. So yes, that revenue should decline, but we're seeing really good performance across government, strength in CMS, strength in other areas, strength within the states. Really good progress as we continue to do -- to expand SNAP, both through FDA and then also directly with the states. So we feel good about our ability to continue to grow government at a stronger pace than we had previously expected.

In talent, what we're indicating is we expect it to get back to growth, right? I mean, we saw some weakness in January and February, a nice recovery in March. We're expecting that to continue. We're going to get back to growth as we go through the year. And as I just mentioned, we do feel relatively good about what we're seeing overall in our non-mortgage financing structure. So that, we feel relatively good there as well.

So overall, non-mortgage and Verification Services looks like it's performing very, very nicely. And again, just like with mortgage, as we move through the year, the substantial growth in records, the tremendous growth that we're seeing in adding new payroll processors, now large and small, is going to add to the strength in all 3 of those areas that I just talked about, right?

Government directly, talent also because it not only adds hit rates but also deepens the historical file that we're able to deliver to our customers, what makes our product even more valuable, and then obviously also in non-mortgage financing.

Next question is coming from Andrew Nicholas from William Blair.

I wanted to ask about the FHFAs and the latest timeline for its credit score requirements. I think they put that out at the end of February. Just wondering how you think about, kind of now with that out there, the timing of the impact to your business? And if a couple months later or even a couple quarters later since I think you last spoke on it, what your expectations are in terms of the impact to Equifax broadly.

Sure. Yes, I think the latest on that has pushed out to late this year or early next year. It's still in a comment period. There's a lot of inputs coming in that don't support the 3B to 2B, from what we understand, including congressional inputs on that. There's also the -- what's on the table is to add a Vantage score in addition to the FICO score.

With regards to our view of timing, we don't expect anything to happen in 2024. And that's not in our guidance. It's not in our framework. And everything we see and hear, it's going to be in 2025, if at all.

Got it. And then just for my second question, I wanted to go to Slide 14. I know this isn't a new slide, and you've talked about the 2015 to 2019 inquiry level relative to where we are today. I'm just wondering if there's any additional color you can give to that average inquiry level from 2015 to 2019 as it relates to kind of the mix between refi and purchase.

And I asked because, obviously, it would seem like refinance, after the wave of refinancings in 2020 and 2021, would be potentially subdued for a longer period of time than '24, '25, '26 if we don't get back to those kind of interest rates. So is there any other context you could provide with that number? I guess more succinctly, how much of that 2015, 2019 inquiry level is purchase versus refi?

Yes. So if you go -- if you look at originations during that time period, right, because obviously, that -- in historical periods, that detail is available. It's like average 7.5 million a year. And it was something like something under 60% would have been purchased, and something over 40% on average would have been refi. That was kind of the mix that you saw during that period on average.

Your next question today is coming from Surinder Thind from Jefferies.

Just a bigger-picture question here. You talked about elevated activity in terms of rate shopping. Is that universal across like cards, auto, mortgage? And then how much of an incremental benefit is it at this point in the cycle relative to maybe historical? So just some color would be helpful to understand as we think about longer-term trends here.

Yes. The place we've seen that is really in mortgage. I suspect there's some level in auto, but it's probably harder to see. And as you know, the phenomena to change, if you go back 5 years ago, it was just digital.

Consumers 5 years ago, where there was more face-to-face activity around a lot of big-ticket transactions, like a mortgage, and now it's virtually all digital. So it's easy for a consumer to shop around. So we have seen the increase in the shopping behavior as we went into COVID. That still continued.

We believe that that's just an element that will continue going forward, that consumers have the ability to easily look at alternatives kind of digitally. And I think that's going to be an underlying element of the mortgage market going forward, which maybe to your question, if you look back to '15 to '19, there were some elements of shopping in there, but it's clearly increased. We don't think it's going to decrease as rates go down in a meaningful way.

And rates aren't going down to where they were before, right? During the COVID time frame, it's hard to imagine that rates are going to go that low. So let's say rates go from 7% towards 6% then towards 5% and maybe they end up at 4% or something, that's still a significantly higher rate from what people perhaps were used to during the COVID time frame when rates were so low. There will be an element of shopping going forward.

That's helpful. And then it sounded like marketing spend, I realize this is not a large part of your business, but just conceptually seems to be down a little bit more than you were anticipating relative to last quarter. Any color you can provide there? And should that be concerning in the sense, that if marketing spend is down, that potentially is a negative for volumes down the road?

Yes. I would say that was de minimis. The change -- the way we think about it on a sequential basis, again, we -- our customers are still kind of operating what I would call normally. So there's that -- like they're not pulling back because they're worried about the economy or the consumer. And that's where you would see marketing or prescreens or digital marketing to consumers around financial products, which is where most of our businesses, cut back. We just haven't seen it.

Next question is coming from Kelsey Zhu from Autonomous Research.

On mortgage Verifier, Fannie announced last month that lenders will now be able to use a single 12-month asset report to validate and comment on assets on one stack utilizing bank data. So just curious to get your view on whether this will have any impact on Mortgage Verifier volume?

We don't think so. And we haven't seen it. There's been -- there's various alternatives that can be used in a mortgage process. They generally have more friction and they typically have less data. And the mortgage originators are -- work hard to make sure that they're getting the full picture of the consumer.

And then the other element is the instant nature of our data. So we haven't seen a change there, and we don't expect one going forward. We saw a very wide utilization of our TWN income and employment data in the mortgage vertical, and we expect that to continue. And then as we add records, we're already getting the inquiries from our customers, we're going to have higher hit rates as we continue to grow our records.

Got it. And my second question is still in EWS. I was wondering if you can remind us when renewals are coming up for most of your exclusive contracts with payroll providers. Correct me if I'm wrong, but I was under the impression that a lot of these contracts had a 3- to 5-year term and they were mostly signed around 2021. So I was just wondering if that means they're up on renewals this year or next year.

Yes. We've never talked about the term of any of our contracts with our partners. Those are confidential for obvious reasons. We have said, and it's the way they're structured, they're generally structured with auto-renewals and they auto-renew. And those are happening as we speak.

There's none that are like -- there's not like a cliff of these coming. If you remember our dialogues over the last 1 year, 2 years, 3 years, 4 years, 5 years, we're adding partnerships every quarter. As you add those, those have a term to them, but they're on auto renewal.

And we deliver so much value to that partner, And not only from the integration, which is very complex. It's not a simple integration. As you heard earlier, we signed a large partner in the quarter that's going to add those 6 million records. It's going to take us 2, 3, 4 months of very intense technology and data work in order to bring those records into our environment so then they can be normalized to be delivered in our TWN report.

So there's a lot of work that goes into that integration that makes our relationships quite sticky. And then, of course, from a monetization standpoint, as we keep growing our business, our partners' monetization grows every quarter. So there's a very strong relationship there.

And as you may know, beyond just income employment with partners like payroll processors, we're increasingly doing our other services, like I-9, unemployment claims and WOTC, in partnership with those kind of companies. So we have multiple relationships.

So maybe said differently, we've got a lot of confidence in the long-term nature of our partnerships around TWN records.

Our next question today is coming from Jeff Meuler from Baird.

You addressed the customer mix headwinds in TWN mortgage, but I think you also said there were some product headwinds, and it wasn't clear to me. Is that just lapping kind of the Mortgage 36 adoption and losing that tailwind? Or is there some trade-down effect? If you can...

Yes, you got it, Jeff. That's the Mortgage 36. We've got for the second half some other innovation coming out of mortgage in EWS that we would hope will benefit the second half or certainly in 2025. So we're always focusing on kind of new solutions that will add value. But Mortgage 36 was just a very powerful solution. And as you point out, we are lapping past that.

Okay. And then can you just comment to kind of share dynamics on the nonexclusive records for TWN mortgage? And just remind us how you monitor that.

Yes. So just as a reminder for everybody that's still on the call, half of our records come from individual relationships through our employer vertical, where we have delivered those regulatory services like UC, I-9, unemployment, et cetera. So we -- or you, I say you tend to talk about our partner records. But a reminder that half of our records are individual relationships. And we're growing those every month as we grow our employer business.

And as you point out, we've got partnerships. And we tend to talk -- or you tend to talk about payroll processors, but they're HR software companies. Software platforms is another way for us to partner. We've got a number of relationships there and a pipeline of additional relationships.

We have pension administrators is another one, which is like a payroll processor but for the pension space. As you know, we're chasing that 20 million to 30 million of defined benefit pensioners is a big pool of data assets that we have. And those are all multiyear in nature, and we have strong relationships with all of those partners that we have.

Our next question today is coming from Craig Huber from Huber Research Partners.

First question, in your U.S. Online Information Solutions area, can you size for us in dollars your credit card and your auto exposure there? And I'm curious also what your outlook is again for revenues this year -- reach.

Yes. So we haven't broken down all of the different markets that we have in USIS. FI and auto are 2 of our largest segments. So certainly the case, but we haven't specifically given dollar values within our online services for auto and card. But they're large within our total OIS revenue.

And how about the outlook there for the revenues for each of those auto and credit card for this year, please?

I think what we did is we've given a view specifically as it relates to total non-mortgage for USIS. And we talked about that in the call, both for the second quarter and for the year, right? And I think that's the level of granularity we're going to talk about.

We did indicate that we expect to see very nice performance in U.S. consumer, very nice continued growth above our long-term averages, right, with commercial, good performance also within ID and fraud, right? Those we expect to continue to perform very, very well. We had very good performance in FI in the first quarter. We gave specifics on that as well. But in terms of specifics by segment, no, we don't give guidance at that level.

Next question is coming from Simon Clinch from Redburn Partners.

I wanted to just jump to the government vertical, please. And of the growth -- the excellent growth that you delivered this quarter, are you able to break out how much of that growth actually came from redetermination? So that we can get a sense of what the actual underlying growth rate is to start with.

Yes. And thanks for bringing up government. It's the first time we've gotten a question on that this morning. And as you know, that business is really performing exceptionally well. And as we talked about in the quarter, it's actually now our largest vertical inside of Workforce Solutions for the first quarter in Workforce Solutions history.

So it's a very powerful business for us in that $5 billion TAM. We exited the year at roughly a $600 million annual run rate in that business, which obviously is well north of -- slightly north of 10% of overall Equifax. So it's a vertical we like with lots of growth opportunity.

There are -- there's multiple levers that I think John and I both talked about in our prepared comments in government. Redeterminations are a piece of that. I wouldn't think about that as like disproportionate from the other levers that we have inside of government.

You may remember, back in September, we signed a big extension with CMS. It was over $1 billion that had a price increase in it. So that's rolling through. It's a 5-year contract. You can make your own assumptions on the impact that had in the fourth quarter. And again, the first quarter as that price increase goes into effect, and that has annual escalators post when we lap it in September of '24.

We signed a brand-new contract in September with USDA for SNAP, TANF benefits. That's a $190 million contract over 5 years. So that's rolling into the P&L and positive in both the fourth quarter and the first quarter. And then we've also tried to be pretty deliberate about sharing that the state penetration is also a very strong lever for growth. And we should probably think about how we can better articulate that for you.

But as you probably know, we have a lot of penetration opportunity primarily at the states. Government social services are delivered at the state level. And we've put more and more resources at the state capitals to really drive usage of our solutions. And as a reminder, a state is not an entity. Each agency within a state is really the entity that we work with, whether it's food stamps, rent support, childcare support, health care benefits, all the different social services are kind of different organizations in all 50 states. So that's had a big positive for us. So maybe a bit long winded, but it's multifaceted, all of those levers.

And then price, right? Price is inherent in our contracts. We don't do 1/1 price increases in our government contracts. Those are all built in as multiyear contracts with escalators in them, but we have a lot of visibility as we enter the year with when those price actions are going to lay into our P&L as we roll through the year.

Expect strong growth in the second quarter, right? So we're going to continue with strong growth in the second quarter despite the fact that the redetermination after the pause is over. Again, as a reminder, redeterminations happen continuously. It's a requirement of government programs that you redetermine that the participants are still eligible. The difference was they were on pause during the health emergency.

Yes. Okay. And as a follow-up question, I guess it's more of a high-level question here on the mortgage market and EWS' position within it. The industry is going to be going through an evolution over the next decade, becoming more automated, reducing costs, but also shrinking, hopefully, the time it takes from origination to closing a mortgage.

And I'm wondering how does that impact your business in EWS in terms of the pricing power you have, but also the number of pulls you might get per inquiry and all that kind of stuff. So how is that factored into your long-term framework?

Yes. So first off, you hit all the right points. And it's not new. It's been happening as we speak, and it's been happening over the last 5-plus years. As more and more consumers are shopping for mortgages online, it's actually very rare that they go into a mortgage broker's office now. So that's been a huge change.

And as you point out, the fact that they're not seeing the consumer results in the value of instance as well as digital data being more valuable. And then the second half of that is every vertical will focus on mortgage, but auto is the same case, cards, et cetera. They want to shorten the time between, call it, inquiry or application or shopping through to closing.

And mortgage is very precarious for a mortgage originator because they're spending $3,000, $4,000, $5,000 of COGS on that closed loan. And the reason they need instant and accurate data is they need to make sure that they want to continue to invest in that application over what could be a 60-, 90-day time frame.

And a lot can change for the consumer around their credit. They could take on more credit and then no longer qualify for the loan. It can change about their employment. They could lose their job, change their job, et cetera. So that's why instant data is very valuable.

And so digitization and focus on shortening the time to complete a process plays to Equifax when we have instant data in the case of mortgage, on income and employment, in background screening for employment history, in government social services around income. Those all play to us.

And there's also an element of productivity because if they're not using our solution in the case of mortgage, there's still a large number of mortgage originators that do all of their verifications manually. There's a lot of labor involved in that. As labor costs go up, you have the double benefit of both speed -- actually triple: Speed, accuracy, and productivity. So those macros play to us in mortgage and more broadly across Equifax.

Our next question is coming from Toni Kaplan from Morgan Stanley.

I wanted to ask a question on the guidance. It implies a strong second half improvement in workforce. And you talked about a number of the drivers in this call, including lapping the ERC headwind. And you mentioned adding records among others. I was hoping you could talk about the pipeline with regard to records, if that's a big driver. And also just maybe directionally, the importance of what starts to go a little bit better as we go through the year.

Records is certainly one that is important. We were pleased with our record additions. As you know, we added 4 partnerships in the fourth quarter. We added a bunch last year. But those 4 are coming on in the first half of the year.

And then landing this large payroll processor with 6 million records. That's a lot of records to add. When you think about 172 million or 126 million individuals, that is a real positive to have that. And now we have visibility of where we expect that to come on. And as you know, the power in our business model is that when we add a new record or these 6 million records, we monetize them the next day because we're already getting the inquiries from our customers for them.

So clearly, records in the second half is a positive. And there's a -- ERC is kind of what it's going to be. The WOTC piece is a little -- is kind of a timing impact. As the government forms didn't get fully implemented in the first quarter, that's going to be a benefit from that small backlog as we go through the second half.

What else would you add, John, around...

I think talent moves back to growth again, which we think is very beneficial. You asked upfront about the pipeline for new contributors. We think the pipeline is very strong.

What we've talked about is who we've closed. The pipeline is also strong, and there's opportunities for it strengthen as we go through the year, and we would expect that it would, right? So we feel very good about the pipeline of new contributors, and it's growing as we continue to add more.

And maybe, Toni, I shared this earlier, but if you think about the 126 million individuals we have today in our data set for TWN, there's 225 million out there. So we got about 100 million to go. So there's a long runway for record growth. And as John pointed out, we have a very active pipeline for second quarter, for third quarter, for fourth quarter. There's still a lot of momentum and enthusiasm for those that are not monetizing their records with Equifax to do so.

And we have some exciting new products in EWS, some of which we've already talked about, which we think should drive growth, again, in the non-mortgage segments generally in Verifier, right? So again, we feel very good about the trend that you should be seeing as we go through the year and that we'll deliver.

Yes. Great. And just as you think about the first 4 months of this year, basically, when you think about what you've seen in terms of consumer demand or lender appetite, you mentioned the strong employment persisting. And that's obviously good from a consumer credit standpoint. But like just any sort of changes or trajectory that you've seen that either make you more constructive? Or just this is something worth watching?

So far, what we've seen, I think, in terms of the broader market other than mortgage, right? Obviously, mortgage we guided assuming a market that was consistent with run rates that we were seeing. As Mark said, I think expectations in the market were very different than that. And we've seen probably the market expectations move toward where we started. Maybe not quite to where we were, but moved in that direction.

Other than that, right, I think the only market we've talked about where we've seen a little weakness is in auto, and we have seen that was a little weaker than we expected. Other than that, generally speaking, I think the markets don't look that different than when we started the year. FI looks fairly good, right?

So I think we feel fairly good, and we think things are operating consistent, generally speaking, with where we started the year, right? The big impact on USIS non-mortgage that we've already talked about is our sales to other bureaus, right? And that was weaker than we thought, and we've now assumed that, that will continue.

Our next question is coming from Arthur Truslove from Citi.

So I guess the main question for me was you're obviously saying that mortgage origination volumes were down 22%. I guess if I look at sort of data from elsewhere, whether it's Fannie Mae new acquisitions or MBA forecasts, it looks like they think volumes might have been up, certainly in January and February and maybe in the first quarter and certainly not down very much. I guess my question is, sort of how do you explain that gap between what these people seem to be seeing and what you've seen in terms of those originations?

Yes. So what we quote, right, is our inquiries. So we quote actual inquiry data on the credit bureau, right? And as a reminder, mortgage transactions require a tri-bureau pull. So we and our peers see every transaction, right? We know there's third parties that estimate originations. They don't know what they are. They're doing surveys and estimating a number. And we don't use that number or try to explain the difference between inquiries which are actuals as of the day that we give them, right, and what you're seeing from third-party groups that are doing estimations, right? So when we're talking about mortgage inquiries in the first quarter and our estimation of mortgage inquiries for the year, it's based on actuals and what we can see transacting.

But just following up on that. So if -- obviously, inquiries are earlier in the process than originations. So I was referring more to the origination side within the Workforce Solutions business. And I guess my question was is, essentially, are you losing share there, whether to manual activity or to other participants in the market? Because on the sort of origination side, it looks like the third-party data providers are forecasting significantly better trends than what you printed. So I guess I'm just trying to understand whether you...

Maybe a couple of things is that the data, I think, you're looking at and we look at, too, we found historically to be too optimistic. And as you know, mortgage originations, we don't see and the industry don't see except on a 6-month lag, right? That's how it's reported. It doesn't show up.

And what you're looking at is surveys. These are surveys where MBA and others will go out to some of the participants and say, "What do you think mortgage originations are going to be?" And some of those were done probably back in February or March when the expectation was of Fed rate cuts may be in second quarter, which obviously doesn't feel like that's how the Fed's signaling today. So there's a lot of change in that.

When we look back historically at actual originations, which again are on a 6-month lag compared to our inquiry activity, there's a strong alignment with it. So we don't see it's differing. And what we've done for a decade is use our mortgage inquiries as a proxy for the market, because that's what we see, and then trying to share with you how we're doing versus the market, which is our mortgage outperformance typically and what it has been -- not typically, but it has been, meaning, how far do we grow above the market from price product in the case of EWS records or penetration into either USIS or TWN customers.

And if you take a look at the TWN inquiries that we discussed as well as compare them to credit, somewhat similar. And they tend to be moving directionally together. So that's something we look at closely to see how they're moving together because we know in one case, credit, we see all the transactions because it's mandated, right? So when we think about looking at trends and trends in EWS, we try to compare them a little bit to USIS so that we can -- that's our best judge for how things are trending across both businesses.

Our next question today is coming from George Tong from Goldman Sachs.

Within your Workforce Solutions business, can you talk a little bit about what you're seeing around customer price sensitivity and overall competition in the quarter, and the impact that these might have had on EWS growth?

Yes, 2 different questions. On the first one on so-called price sensitivity, and I would say universally nobody likes price. Nobody likes a price increase. So from a sensitivity standpoint, there's always challenges in any of our verticals when we go out to take price up. But our customers understand the value of our data and the uniqueness of our data. So those are conversations that we work through.

And we work hard to try to be balanced around what we do on price. And as you know, price is only one lever that we use at Equifax. Product is a big part of how we go to market. And product, for us, you got to think about is really bringing more ROI or value to our customers. Penetration into our verticals. We have big white space in lots of verticals, particularly in Workforce Solutions, where we're converting from manual to our instant solution. And then, of course, price.

Competition maybe is a different question. We think we have a very strong market position. We don't feel an impact from the 1 or 2 participants that have much smaller businesses in income and employment. Frankly, we think about our biggest competitor in EWS and income and employment is manual verifications. That's really the white space. And when you see the TAM, we had a TAM chart for government this quarter, and then we had a TAM for the whole business in last quarter's deck. That white space between our revenue and the TAM is all manual verifications. And our focus is on delivering our digital solution and driving penetration in there.

Got it. That's helpful. And then wanted to go back to your medium-term mortgage outlook. At this point, what proportion of mortgages have rates below 5% based on what you see? And how much would rates need to fall for mortgage volumes to go back to pre-COVID levels?

That's a very hard question to answer. The second half, in particular. First half, I don't have at my fingertips. We have that. And you can reach out to Trevor or Sam, and they can help. I think there's public data out there on that. It's very available on the number of mortgages below 5%.

When we think about a mortgage recovery, we think about it being multifaceted and actually mostly driven by purchase. The purchase activity has come down dramatically as what I would call as normal refis.

And as you know, there's 2 types of refis that happen. There's rate refis when there's a rate decrease, which I think is your 5% point. So there's going to be some level of consumers when rates go down to 5% to 4% or whatever the rates go to of rate refis.

There's also a large number of cash-out refis. There's something like $29 trillion or almost $30 trillion of untapped equity in consumers' homes. And there's typically a fairly steady amount of cash-out refis that happen. Those have been pulled back. There's still some happening, but they've been pulled back meaningfully from what we would characterize as normal because of the rapid increase in rates.

And then purchase is a very big part of the mortgage business, and that's the one that's been curtailed more. There's just not a lot of housing stock for sale. Consumers are not putting -- although it's starting to pick up. But consumers are holding off upgrading from that 2-bedroom condo to the 3-bedroom house or going from a rental property into an owned home.

We would expect, as rates stabilize, which they really have in the last -- outside of the increase of 20 bps in the last couple of weeks, but they've kind of stabilized at this higher level. But the combination of stabilization and then some level of reduction as the Fed takes rates down, is we think will be the stimulus for activity moving forward. Over the medium term, pick your -- you can call it long or medium term, but meaning '24, '25, '26, '27, we would expect inflation to get under control. We would expect the Fed to take rates down likely not to where they were during the COVID time frame, but back down to more historic normal levels in order to boost economic activity. And we think that's going to be a stimulus to start driving our mortgage revenue into that $1.1 billion of opportunity as we return to 2015 and '19 levels.

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

Yes. Thanks, everybody, for your time today. If you have any follow-up questions, you can reach out to me and Sam. We'll be around today and tomorrow to discuss. Thanks a lot.

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