Hello, and welcome to the Equifax Q2 2022 Earnings Conference Call. At this time, all participants are in listen only mode. A question- and- answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. 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, sir.
Thanks, good morning. Welcome to today's conference call. I'm Trevor Burns. With me today are Mark Begor, Chief Executive Officer, and John Gamble, Chief Financial Officer. Today's call is being recorded. An archive of the recording will be available later today in the IR Calendar section of the News and Events tab at our IR website, www.investor.equifax.com. During the call, we will be making reference to certain materials that can also be found in the Presentation section of the News and Events tab at our IR website. These materials are labeled Q2 2022 Earnings Conference Call. We'll be making reference to certain forward-looking statements, including third quarter and full year 2022 guidance, to help you understand Equifax and its business environment. These statements involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from our expectations.
Certain risk factors that may impact our business are set forth in filings with the SEC, including our 2021 Form 10-K and subsequent filings. We will also be referring to certain non-GAAP financial measures, including Adjusted EPS attributable to Equifax and Adjusted EBITDA, which will be adjusted for certain items that affect the comparability of our underlying operational performance. These non-GAAP measures are detailed in reconciliation tables, which are included with our earnings release and can be found in the Financial Results section of the Financial Info tab at our IR website. Now I'd like to turn it over to Mark, beginning on slide four.
Thanks, Trevor, and good morning. Equifax delivered another solid quarter with record second quarter revenue of $1.32 billion, which was up 7% and at the middle of our April guidance, including the negative impact of 190 basis points or $23 million of FX. Constant currency revenue growth was almost 9% at 8.5%. Adjusted EPS of $2.09 was above the top end of our April guidance range with U.S. mortgage market overall about at the level of our April guidance, with U.S. mortgage credit inquiries down 33% versus last year. As expected, the mortgage market decline increased as we moved through the quarter. In the first half of July, mortgage credit inquiries were down about 40% versus last year.
Core revenue growth in the quarter of 19% and core organic revenue growth of 16% in the quarter were very strong, consistent with our expectations, which allowed us to deliver the 8.5% constant currency growth against a 33% U.S. mortgage market decline. Importantly, non-mortgage constant currency growth of 22% was very strong in the quarter and well above our 8%-12% long-term framework. Of course, this represents about 75% of Equifax revenue. Workforce Solutions core revenue growth of 41% was outstanding and above our expectations. International delivered 11.5% constant currency growth, which was also above our expectations. USIS B2B non-mortgage growth at 6% was up from first quarter, but lower than we expected. B2B non-mortgage online was strong at 9%.
However, our B2B offline business was much weaker than expected, declining 5% in the quarter, and I'll cover this more fully shortly. Second quarter Adjusted EBITDA totaled $461 million, up 7%. Adjusted EBITDA margins of 35% were about in line with our expectations for the quarter. We continued to make strong progress during the quarter on our EFX Cloud data and technology transformation. Year- to- date, we've migrated approximately 14,500 customers to the cloud in the U.S. Since the start of the transformation, we now have migrated about 70% of our U.S. customers. So far in 2022, we've also migrated approximately 13,000 international customers and decommissioned four U.S. data centers. Leveraging our new EFX Cloud infrastructure, we continue to invest in new product resources and accelerate new product innovations.
So far in 2022, we've released 50, over 50 new products, continuing momentum from 2021, where we launched a record 151 new products. In the quarter, our Vitality Index, defined as revenue from new products introduced in the last three years, was extremely strong and exceeded 13%. This is over a 400 basis point improvement from our 9% Vitality Index last year and the highest level in over 10 years at Equifax. For 2022, we expect Vitality Index of over 11%, which is 100 basis points above our 10% long-term Vitality Index goal and 100 basis points above the framework when we started the year. This strong NPI performance will benefit our growth in the second half and in 2023 and beyond.
We continue to invest our strong free cash flow in strategic bolt-on acquisitions with the acquisition of LawLogix that we announced earlier this morning, which will further strengthen our EWS Employer Services I-9 and immigration regulatory service capabilities. This is our sixth acquisition in Workforce Solutions since January 2021 and aligned with our M&A strategy to strengthen Workforce, our largest and fastest growing business. Bolt-on acquisitions that broaden and strengthen Equifax are a strong lever for future growth and are central to our long-term growth framework to add 100-200 basis points to our revenue growth annually from strategic bolt-on M&A. We are very pleased with our strong second quarter results, particularly our strong 22% non-mortgage constant currency growth. This is clearly an unprecedented economic environment with record inflation, strong Fed actions, and the impact from higher interest rates on the mortgage market.
Despite our strong first half performance, we felt it was prudent to adjust our 2022 guidance to reflect expectations for a further weakening of the U.S. mortgage market in the second half beyond the framework we provided in April, as well as the significant negative impact of FX from the stronger dollar. Importantly, our expectations for 2022 core revenue growth remains a very strong 17%, and our expectation for constant currency non-mortgage revenue growth remains a very strong 19%, both unchanged from our April guidance. While our second quarter mortgage results were aligned with our April guidance, we felt there was enough uncertainty between future Fed actions, the impact on interest rates and mortgage activity to further adjust our second half mortgage outlook.
Our updated expectations for mortgage are that credit inquiries will decline by over 46% in the second half, which is down about 600 basis points from our April framework, with mortgage originations declining 200-300 basis points beyond these levels. This compares to the Mortgage Bankers Association forecast for the second half of 2022 mortgage origination units of down 43.5% that was released last night. As you know, USIS mortgage revenue is tied more closely to credit inquiries, while Workforce Solutions revenue is tied more closely to mortgage originations. For the second half of 2022, FX is a headwind of over $40 million, up from an impact of about $7 million in our April guidance from the stronger dollar.
The change in the second half mortgage inquiries and FX impact results in our revised 2022 guidance for revenue at the midpoint of $5.1 billion, down $100 million from our April framework, but still up almost 4% versus last year, or 5% on a constant currency basis. This reduction in revenue is about two-thirds related to mortgage with the balance from FX. Our updated Adjusted EPS guidance is to a midpoint of $7.68, down $0.47 from our April guidance and up about 1% from 2021. As I said earlier, there's no change in our core organic revenue growth framework, which remains a very strong 15% for 2022 and 13% in the second half of 2022.
Our non-mortgage growth framework, which remains up a strong 16% for the year and 12% in the second half as we comp off some strong double-digit results in the second half of 2021. In the second half of 2022, non-mortgage is about 80% of Equifax revenue, consistent with 2019, and up from 68% last year. Turning to slide five, in the second quarter, Equifax core revenue growth, the green section of the bars, grew a very strong 19%, which was in line with our expectations and substantially above our long-term financial framework of 8%-12%. Core organic revenue growth of 16% in the quarter was also substantially above the long-term framework of 7%-10% for organic growth.
Non-mortgage organic growth in EWS International and USIS drove about 12 points of core organic revenue growth in the quarter. Core mortgage outperformance of 13%, predominantly in Workforce Solutions, drove the remaining 4% of second quarter core organic revenue growth. Both were very strong performances. With our strong 19% core growth in the quarter and accelerating NPI roll-ups, we continue to expect 2022 core revenue growth of 17%. This is driven by broad-based strong performance across Workforce Solutions, as well as strength in USIS non-mortgage B2B online and international, which is supported by our accelerated new product introductions. As detailed on slide six, U.S. core mortgage revenue growth in the quarter was up a strong 13%, driven by Workforce Solutions core mortgage revenue growth of 20% and 2% in USIS.
Second quarter mortgage revenue was down only 19% despite the 33% decline in the overall U.S. mortgage market as measured by our credit inquiries and an MBA June estimated decline in mortgage originations of about 37%. Workforce Solutions core mortgage growth of 20% continues to be driven by very strong performance on twin record additions, new products and pricing, system-to-system integrations, and continued penetration. Their 20 points of market outperformance is very strong, particularly in a period of declining market transaction volumes. We expect to see continued very strong core mortgage growth from EWS approaching this level in the second half. As a reminder, we estimate the U.S. mortgage market as the change in USIS credit inquiries. In a rising interest rate environment, we believe consumers tend to rate shop more frequently, thus creating a favorable variance between mortgage credit inquiries and originations.
This trend benefits USIS credit file pulls. In the second quarter, we saw mortgage credit inquiries perform on the order of four points better than the estimated change in the mortgage origination units estimated by MBA. However, income and employment is typically pulled later in the mortgage application process and at closing. As a result, EWS does not benefit as much from the upfront rate shopping trend that occurs in a rising interest rate environment as income and employment inquiries are more closely correlated to mortgage originations.
Turning to slide seven, in 2022, we expect non-mortgage revenues to be 77% of total Equifax revenues, which is up a very strong 900 basis points from the 68% of total Equifax revenues that we saw in 2021, given the above market growth and fast-growing Workforce Solutions verticals such as talent, government, and card, further penetration identity and fraud accelerated by our 2021 acquisition of Kount and accelerated NPIs with a Vitality Index expected to be 11% in 2022, and of course, growth in our international markets. We also expect non-mortgage revenue will benefit from being the only cloud-native credit bureau through always-on system stability, faster transaction processing, and leveraging the data fabric to expand our NPIs. Turning now to slide eight.
Workforce Solutions delivered outstanding 41% core revenue growth in the second quarter, the fifth quarter over 40% revenue growth in the last six quarters, and their tenth quarter of double-digit revenue growth driven by outstanding non-mortgage growth of over 50%. As a reminder, non-mortgage revenue is over 65% of Workforce Solutions and a big EWS growth driver for the future. Rudy Porter and the Workforce Solutions team continue outstanding execution across their key growth drivers detailed on the right-hand side of this slide. As I referenced earlier, we signed a definitive agreement to acquire LawLogix last night, the next in a string of bolt-on acquisitions that strengthen Workforce Solutions' Employer Services vertical and adds twin records. Over the past two years, we've completed six bolt-on acquisitions supporting Workforce Solutions growth, including Appriss Insights last fall and LawLogix this morning.
Turning to slide nine. Workforce Solutions' very strong performance is driven by the team's consistent execution across their key growth levers that will drive their long-term growth of 13%-15%, including first, growing The Work Number database. Since late last year, we've signed four new exclusive agreements with large payroll processors that we started to board in the second quarter and expect to have all of them contributing records by the end of the third quarter. We ended the quarter with 144 million total current records, which is up a very strong 22% from last year and up 6% sequentially. These 144 million total current records represent 110 million unique individuals, representing two-thirds of the over 160 million W-2 employees included in U.S. non-farm payroll.
In addition to traditional W-2 wage earners, we estimate there are approximately 30 million-40 million gig workers and 20 million-30 million pensioners in the U.S. who will also bring valuable insights to lenders, background screeners, and government agencies. We're in the very early innings of collecting records on these 50 million-70 million non-W-2 wage earners, but expect to make significant progress as we move through 2022 and 2023. We have the ability to double our TWN database with a total potential market for income and employment information on about 220 million individuals versus the 110 million we have today. As a reminder, over 50% of our records are contributed directly by individual employers. The remaining are contributed through partnerships, principally with payroll companies.
The vast majority of our partnerships with payroll companies are exclusive, including all the relationships we've signed in the past four-plus years. Second, Workforce is increasing penetration in their key non-mortgage verticals of mortgage, talent, government, and consumer finance, with all four verticals having significant opportunity for continued expansion by new products leveraging our expanding TWN active and historical data assets. Our talent in government businesses have seen average organic growth of over 50% since last year and over 20% CAGRs since 2017. Our strength in talent and government is driven by the depth and coverage of our TWN database, with over 570 million total records, both current and historic, that provide both current and previous employment information on individuals, allowing us to increasingly provide an instant digital resume or employment verification on both current and historical job histories.
The expanding depth of our TWN database and expansion of the Workforce Solutions talent data hub, as well as the increasing ease of integrations as Workforce leverages the API capabilities through our new Google Cloud, is also providing the ability to continue to increase penetration in key verticals. First, Workforce is expanding their system-to-system integrations. Currently, more than 75% of our mortgage transactions are system-to-system integrations versus web access, which is up over 2x from 2019. As you know, we get about a 20% lift in mortgage pulls when we convert our customers from web to system-to-system integrations. In Talent Solutions, system-to-system now represents more than 85% of transactions, while in Government, we have more opportunity with about 65% of transactions on a system-to-system basis.
As a reminder, close to 100% of credit files are delivered system-to-system for originations. From our perspective, it's only a matter of time for TWN to approach these levels of system-to-system integrations with customers, which of course will drive our revenue. Workforce continues to deliver greater value to customers through deepening the database and extending real-time system-to-system integrations and accelerating its launch of higher value, vertical specific new products, average revenue per transaction will continue to grow significantly, both through higher value and price new products and annual price increases. As I said earlier, Rudy and the EWS team have a long runway for growth, leveraging multiple levers in 2022 and beyond. We have a lot of confidence in Workforce's ability to deliver on their 13%-15% long-term framework.
As a reminder, over the past three years, they've delivered 34% CAGR, which of course is well above their 13%-15% long-term growth framework. Turning to slide 10. Workforce Solutions had another exceptional quarter, delivering $609 million of revenue, their second revenue quarter above $600 million. Revenue growth was up a very strong 21%, with organic revenue growth of 11%, despite the significant decline in the U.S. mortgage market. Non-mortgage revenue is now over 65% of Workforce Solutions, with organic growth of 30%.
Verification Services revenue of $505 million, up 28%, was over $500 million for the second quarter in a row, again, despite the decline in the mortgage market. Non-mortgage verticals now represent almost 60% of Verifier revenue and delivered 90% total and 53% organic growth. Appriss Insights, which we acquired late last year, delivered strong 15% growth in the quarter. Growth was strong in their key verticals of risk and justice intelligence. Risk intelligence helps background screeners analyze people risks via background checks and continuous monitoring. Justice intelligence helps channel partners assist law enforcement agencies in their investigations. Increased customer penetration, white space expansion, and strong hiring volumes are driving growth. Their NPI pipeline also remains strong. We are very positive about the future growth and potential of our insights business.
Talent Government Solutions, which now represents 40% of Workforce Solutions and almost 80% of Verifier non-mortgage respectively, both had outstanding quarters. Talent Solutions delivered 134% total and 73% organic growth in the quarter on record growth and strong new product revenue. We also saw strong growth in the government vertical, with revenue up 100% total and 50% organic, with significant new wins at the state level and continued growth of our large SSA contract. The continued expansion of Workforce Solutions' data hub in the fast-growing $5 billion talent and $2 billion government TAMs is driving strong double-digit organic revenue growth in both verticals, leveraging Workforce Solutions' over 570 million current and historical records for new products.
The integration of the unique Appriss Insights, National Student Clearinghouse, and other talent-related data assets strengthens our ability to deliver to these new solutions, leveraging the EWS data hub and drive outsized growth in the future. The non-mortgage consumer lending business, principally in banking and auto, also shows strong growth, up 18% in the quarter, and debt management grew over 70% in the quarter. Employer Services revenue of $105 million was down 3% due to the expected decline in our unemployment claims and employee retention credit businesses. We expect total UC and ERC revenue to be down over 25% during 2022, driven by lower jobless claims and lower ERC transactions, as well as the COVID Federal Tax Credit Program as the COVID Federal Tax Program runs out.
Employer Services revenue, excluding UC and ERC, was up a strong 42% in the quarter, driven by strong base double-digit growth in our I-9 and onboarding, healthy FX, and our tax credits businesses. Workforce Solutions' Adjusted EBITDA margin remains strong at 53.4%. In the quarter, we increased spending relative to our April expectations on both technology and marketing, principally for new products. The strength of Workforce Solutions and uniqueness and value of their twin income and employment data and Employer Services businesses was clear again in the second quarter. Rudy and the EWS team delivered another outstanding quarter with 21% revenue growth and 41% core growth, well above their 13%-15% long-term framework. We're well positioned to deliver a very strong 2022 and continue above-market growth in the future.
Turning now to slide 11, USIS revenue of $421 million was down 7.5% compared to last year and slightly below our expectations. The decline was driven by the reduction in USIS mortgage revenue, which at $113 million, is about 25% of total USIS revenue and was down 29% in the quarter, about 4 percentage points better than the overall mortgage market credit inquiries that declined 33%. Importantly, USIS delivered their sixth consecutive quarter of growth in B2B non-mortgage revenue of $259 million, which represents over 60% of total USIS revenue and was up 6% with an organic revenue growth of 4%. This was at the low end of the 6%-7% growth we discussed in April due to lower than expected FMS, or Financial Marketing Services revenue.
Importantly, B2B non-mortgage online revenue growth was strong at 9%, with 7% organic growth. During the quarter, we saw double-digit growth in insurance, financial services, commercial, as well as Kount, our identity and fraud business. We also saw growth in direct-to-consumer, with auto about flat in the quarter on favorable pricing offset by lower volumes given the continued auto supply chain issues. Kount, which provides unique identity and fraud solution, continues to perform very well. Our core new product growth continues to be strong and the team continues to execute on the development of joint solutions leveraging both Kount and Equifax data, including combining Kount's market-leading Omniscore AI capabilities and digital identity data with Equifax's physical identity into a single score to enhance fraud protection.
Financial Marketing Services, our B2B offline business, had revenue of $55 million, down 5% year-over-year, and although better than the first quarter, was lower than our expectations. FMS is principally comprised of three lines of business, including first, fraud and data services, in which we provide header data principally to providers of identity and fraud services, which is the line of business that's driving the weakness in our B2B offline. Fraud and data services historically represents over 20% of our offline revenue, but has declined substantially in the first half. We saw this decline in the first quarter as customers either decreased frequency of refresh data or shifted to use of their own internal data. This decline continued in the second quarter. Revenue was about 10% of B2B offline in the first half.
We expect revenue at this level to continue through 2022 as the team focuses on bringing new solutions to market later this year. Marketing services, which represents over half of B2B offline revenue in the first half, performed very well, growing about consistent with our non-mortgage B2B online organic growth. This is the business in which we provide data and decision principally to financial institutions for pre-screens, as well as providing our IXI data for marketing activities. Third, risk management or portfolio review represents about a third of B2B offline revenue. This is a line of business in which we provide data and analytics services to financial institutions to evaluate the health of their existing portfolios or, in some cases, portfolios they're acquiring. This business is often somewhat countercyclical as customers perform more risk analytics during weak economic periods.
This business was down slightly in the first half and slightly weaker than expected. We expect this business to be down slightly for the remainder of the year. Overall, for our Financial Marketing Services and B2B offline for the remainder of 2022, we expect to see declines in line with the second quarter as the weakness in the fraud and data services is partially offset by continued good growth in marketing services. As we look to 2023, the completion of the Equifax new cloud data fabric will enable enhanced product offerings in B2B offline, combining U.S. credit file, DataX, Teletrack, Kount, ID and Fraud, and NCTUE data. We believe this will drive growth across all three of our B2B offline lines of business as we get to 2023. For B2B non-mortgage in total, we expect to see continued strong online growth consistent with the first half.
However, declines in Financial Marketing Services are expected to result in second half total B2B non-mortgage growth at or slightly below the bottom end of our long-term framework of 6%-8% revenue growth. USIS Consumer Solutions business, the U.S. D2C business from GCS that we combined with USIS in the fourth quarter last year, had revenue of $49 million, up 3% in the quarter and about flat versus last year. We expect second half growth rates to improve as the team leverages the cloud to roll out NPIs. The USIS sales team had a strong quarter with a number of key wins resulting in a healthy win rate, and their new deal pipeline remains very strong with the overall pipe slightly higher than the first quarter.
USIS Adjusted EBITDA margins were 38.2% in the quarter, 110 basis points lower than the first quarter, but better than our expectations. The decline relative to the first quarter is principally driven by lower revenue from the decline in mortgage. Turning now to international, as shown on slide 12, their revenue was $286 million, up a strong 11.5% on a local currency basis. We're seeing broad-based execution from our international businesses. Europe local currency revenue was up 16%, principally driven by strength in our U.K. debt management business. We've seen significant increases in debt placements from the U.K. government over the past several quarters that we expect to continue.
Our European CRA businesses was about flat in the quarter and below our expectations, driven by declines in consumer, direct, and commercial, partially offset by strong growth in identity and fraud. Asia Pacific local currency revenue was 6%, driven by strong growth in our Australia consumer business, HR services, and identity and fraud. Latin America local currency revenue was up 28%, driven by strong double-digit growth in Chile, Argentina, Uruguay, Mexico, and Central America. The team's strong new product introductions over the past three years and pricing actions continue to drive strong growth across the region. This is the sixth consecutive quarter of growth for Latin America. Canada local currency revenue was up 2% and below our expectations. We saw growth in commercial and analytics solutions, which were partially offset by consumer services, mortgage-related products, and online businesses due to interest rate increases.
International Adjusted EBITDA margins at 24.7% were down 200 basis points from last year, due primarily to the elimination of equity income from our Russia joint venture. As shown on slide 13, we had another very strong new product quarter with our Vitality Index over 13%, which is up 400 basis points above our full year 2021 Vitality goal and 300 basis points above our 10% long-term framework goal and our highest vitality performance ever. Building on the record 151 new products last year, we've delivered over 50 new products leveraging the new EFX Cloud so far in 2022 with broad-based execution across all of our business units. We've detailed some of the more significant new products on this slide.
Leveraging our new EFX Cloud capabilities to drive new product rollouts, we expect to deliver a Vitality Index of over 11% this year, which equates to over $550 million of new product revenue in 2022. We believe our strong NPI revenue generation is an important early indicator of the benefits of the new Equifax Cloud. New products leveraging our differentiated data and new EFX Cloud capabilities are central to our long-term growth framework and driving future Equifax top-line growth. As detailed on slide 14, reinvesting our strong cash flow in accretive and strategic bolt-on M&A is central to our EFX 2023 growth strategy and long-term framework. We expect to add 1%-2% of revenue growth annually from strategic bolt-on M&A, including LawLogix that we announced this morning.
We've completed 11 acquisitions since January 2021, aligned with our strategy to add bolt-on M&A around three strategic priorities. Number one, expanding and strengthening Workforce Solutions, our fastest-growing and most profitable business. Number two, adding unique data assets. Number three, building out and expanding our ID and fraud business. Slide 15 provides detail on our latest acquisition of LawLogix, which further strengthens our Workforce Solutions, Employer Services capabilities, and provides I-9 management and immigration case management solutions focused on removing friction during the employee onboarding experience. LawLogix suite of products supplements Employer Services capabilities by building upon investments made to help clients enable automation, deepen employee insights, and increase efficiency. I-9 Anywhere product has seen very strong 45% growth over the past few years. The LawLogix acquisition is aligned with our M&A priority of expanding and strengthening our strongest and fastest-growing business Workforce Solutions.
With that, I'll turn it over to John to provide some more details on the mortgage market and our third quarter and full year 2022 guidance.
Thanks, Mark. As Mark mentioned, and as shown on slide 16, our guidance now reflects an expectation that the U.S. mortgage market credit inquiries will decline over 46% in the second half of 2022, a continued decline from the down 40% level we're seeing in early July. Our assumptions reflect mortgage originations 200-300 basis points weaker than those levels, with The Work Number inquiries more closely linked to mortgage originations. The reduction in U.S. mortgage credit inquiries of over 46% in the second half is off a second half 2021 reduction over 20%. This level of U.S. mortgage credit inquiries in the second half is over 30% lower than the second half average levels we saw over the 2015-2019 period.
1Q mortgage revenue was 29.5% of total Equifax revenues, and 2Q mortgage revenue was 24.7% of total Equifax revenues. In 3Q, we expect mortgage to make up just over 21% of total Equifax revenues and about 23.5% in the full year of 2022. As we have shared in prior quarters, slide 17 provides a view of both the number of home mortgages that would have a rate benefit from refinancing on the left, and a view of the levels of home purchases on the right. The left side of the slide provides a perspective on the number of home mortgages for which a refinancing would provide a rate benefit, the in-the-money population of mortgages.
The in-the-money population as of mid-July is about 1.9 million homes, below the 3.3 million we saw in April. At the current level, mortgage refi activity is heavily driven by cash out refis that are often executed with no rate benefit or rate increase. For perspective, the most recent available Black Knight data for May 2022, about 95% of refinancings were cash out. As shown on the right side of slide 17, the pace of existing home purchases continues at high levels, but we're down about 7% in May and 14% in June from the levels we saw in 2021. We believe our assumptions for U.S. mortgage market credit inquiries over the last six months of 2022 reflect the trends just discussed.
The 46.5% year-to-year decline in mortgage credit inquiries reflects a continued sequential weakening of the mortgage market, with third quarter inquiries down over 25% from the second quarter and fourth quarter down a further over 15% from these much reduced third quarter levels. The rapidly changing and unprecedented macro environment makes forecasting the impacts on the U.S. mortgage market incredibly challenging. We will continue to be transparent with you about changes in the mortgage market and the impacts on our business. Slide 18 provides a walk detailing the drivers of the 5.2% constant currency and 3.6% total revenue growth to the midpoint of our 2022 revenue guidance of $5.1 billion.
The revenue decline from the midpoint of our April guidance of $5.2 billion is driven by about two-thirds by the decline in the mortgage revenue, reflecting the expectation of a weaker U.S. mortgage market, with a remainder due to a greater negative impact from FX. The over 37% decline in the U.S. mortgage market is negatively impacting 2022 growth by about 12%, about 150 basis points more negative than the levels we discussed in April. When combined with the expected declines in the Workforce Solutions unemployment claims and ERC businesses that we discussed with you in April, total headwinds into 2022 revenue growth are about 13 percentage points.
As Mark discussed earlier, core revenue growth is expected to be 17% and core organic revenue growth to be about almost 15%, consistent with our April guidance, both well above our long-term growth framework and reflecting outstanding growth and execution on new products. Non-mortgage organic revenue growth is driving 11% of the core organic revenue growth. The largest contributor continues to be Workforce Solutions with strong organic growth in Talent Solutions, government, and employee onboarding solutions, including I-9. International and USIS non-mortgage are also expected to drive core growth. Slide 19 provides an Adjusted EPS walk detailing the drivers of the expected 0.4% growth to the midpoint of our 2022 Adjusted EPS guidance of $7.68 per share. The growth in revenue and expansion in EBITDA margins by about 25 basis points drives growth in EPS of about 8%.
Higher depreciation and interest expense and the negative impact of weaker FX are principally offsetting this growth in Adjusted EPS. The reduction of $0.47 or about $75 million in pre-tax income from the midpoint of the guidance we provided in April is at a high level driven by the following. Higher interest expense of about $13 million and weakening FX impacting income by over $8 million negatively impacted pre-tax income by over $21 million. The remaining about $54 million in lower pre-tax income is driven by the reduction in mortgage revenue with high variable margins. Some other factors impacting overall 2022 EBITDA margins in our July guidance relative to April guidance include an increased spending on product technology and related marketing to continue to drive NPI.
International's stronger than expected revenue growth includes strong growth in debt management, which has somewhat lower margins and therefore puts margin pressure on international and lower overall variable compensation benefits margins. As I just referenced, we are continuing our investments in new product development and related marketing and sales, and our data and technology cloud transformation as these are the levers driving our over 10% new product Vitality Index and improved cost structure in 2023 and beyond. We will continue to tightly manage spend outside these critical growth areas. Slide 20 provides the specifics on our 2022 full year guidance, which I also just discussed. At a BU level, our updated view of U.S. mortgage impacted both EWS and USIS.
EWS is expected to deliver revenue growth of around 15%, as strong non-mortgage growth expected to be over 40% is partially offset by the impact of the weaker mortgage market. EWS EBITDA margins are expected to approach 53%, slightly lower than 2021. USIS revenue is expected to be down 8.5%, reflecting the greater than 37% assumed decline in the U.S. mortgage market. B2B non-mortgage revenue is expected to be slightly below or at the low end of our long-term framework for USIS of 6%-8%, reflecting the decline in B2B offline discussed earlier. USIS EBITDA margins are expected to be about 37%, reflecting the impact of the weaker mortgage market. International continues to deliver a strong year and is expected to deliver constant currency revenue growth of about 10%.
International EBITDA margins are expected to be about 27%. International EBITDA margins are negatively impacted by product mix as our debt management business, which is growing strongly in 2022, has somewhat lower margins than our credit business. For the full year of 2022, we expect capital expenditures to be in excess of $500 million. Slide 21 provides our guidance for 3Q 2022. We expect revenue in the range of $1.21 billion-$1.23 billion, reflecting revenue of about flat year-to-year at the midpoint of our guidance, or up just under 2% on a constant currency basis.
Similar to full year 2022, in the third quarter, we are overcoming significant revenue growth headwinds of about 17% from both the decline in the U.S. mortgage market, which is impacting revenue growth by 15%, and the normalization of the unemployment claims in ERC businesses. Core organic revenue growth on a constant currency basis of 15% and about 4% revenue benefit from acquisitions are allowing us to overcome these headwinds and deliver constant currency growth in the quarter. 3Q 2022 EBITDA margins are expected to be flat to slightly down year-over-year.
The flat EBITDA margins reflect the flat year-to-year revenue as well as execution of the planned cost reductions related to transformation, the benefit of which is being principally offset by year-to-year cost increases and the dilutive effect on near-term margins of the 2021 and 2022 acquisitions. This impact on margins will be eliminated with time as acquisition synergies drive these margins higher. We're expecting Adjusted EPS in 3Q 2022 of $1.60-$1.70 per share compared to 3Q 2021 Adjusted EPS of $1.85 per share.
The decline in Adjusted EPS in 3Q 2022 year-over-year is driven by an over 15% per share negative impact on Adjusted EPS of items below operating income, specifically interest expense, lost other income, principally from our Russia JV, and a lower tax rate in 3Q 2021 related to specific discrete items. Adjusting for these items and the negative impact of FX as well as the increased depreciation we are incurring related to tech transformation, Adjusted EPS at the midpoint of our guidance would be about flat to 3Q 2021 and consistent with flat revenue. We believe both our third quarter and full year 2022 guidance are centered at the midpoint of the revenue and Adjusted EPS ranges we provided. Now I'd like to turn it back over to Mark.
Thanks, John. Turning to slide 22, the new Equifax is a much different business today than we were in the last recession. We're more resilient and better positioned for stronger revenue and earnings growth. During the 2008-2009 global financial crisis, Equifax performed very well and exhibited the resiliency you would expect from a data analytics business. In 2009, we saw only a 6% decline in total revenue. Importantly, Workforce Solutions revenue grew throughout the period and showed substantial growth of 17% in 2009 from twin record additions and their other growth levers, which drove higher verification rates and strong unemployment revenue growth from the growing unemployment levels in 2009.
We believe that Equifax business mix is much better positioned for a potential economic event in the future than we were in 2009. Strong Workforce Solutions growth has increased their relative size in Equifax from 16% of revenue in 2009 to almost 50% today, with margins above 50%, about 20 percentage points higher than the Equifax average. EWS is benefiting from strong growth levers that are not directly tied to economic activity, including record growth, penetration into new fast-growing verticals like talent and government, system-to-system integrations, deploying new and higher value products, as well as the measured price actions taking advantage of the scale of the twin database.
Second, completion of the Equifax Cloud will deliver cost savings in 2023 and beyond we expect will drive about half of our targeted 500 basis point margin expansion from 2022 to 2025. The cloud migration cost savings are independent of any economic event and driven by our execution. Third, we're leveraging the cloud to accelerate new product development with a goal of 11% Vitality Index in 2022, which is over $500 million of annual incremental revenue, new product revenue for Equifax. As a reminder, new products rolled out in 2021 and 2022 will drive top line growth in 2023 and beyond as they mature in the marketplace. To estimate the impact of a recession that would have on Equifax, we've assigned our lines of businesses into three categories. First, recession growth or recession resistant.
These businesses have drivers that are not directly aligned with economic activity in recession, and we expect them to grow during a recession. The best examples of this are Workforce Solutions, U.S. Mortgage, Identity and Fraud, and our government lines of business that we expect will continue to grow during an economic event from the uniqueness of the data, including TWN or from low interest rate environments that impact our mortgage business. Second is our countercyclical businesses that typically perform better during recession, and the best examples is our unemployment claims management business, where expect significant growth in Workforce Solutions from growing unemployment in the U.S. or some of our account management solutions. Third, recession impacted. These are businesses that are directly impacted by economic activity and contract in a recession.
They include auto, cards, P loans, where both consumer activity declines or lender activity is contracted for risk containment reasons. We expect these business lines to be flat to negative revenue growth in recession. Today, we believe almost 60% of our global business is recession resilient or countercyclical. This is a big change in a strong position compared to Equifax in the 2008 global financial crisis, where only about 40% of our businesses were either recession resistant or countercyclical. The meaningful revenue growth in Workforce Solutions, U.S. mortgage, and identity and fraud since 2009, as well as the cloud transformation cost savings, position Equifax very well if there is an economic event or recession in 2023 or beyond.
As highlighted in slide 23, we remain laser focused on executing our EFX 2023 growth strategy to leverage the new EFX Cloud for innovation and new products. EFX 2023 is the foundation of our new 8%-12% long-term growth framework. We continue to make significant progress executing the EFX Cloud data and technology transformation. We're now approaching 60% of total revenue being delivered from the new EFX Cloud, and we've completed over 139,000 B2B migrations and over 10 million consumer migrations. Our international transformation is also progressing, and we continue to expect to principally complete the transition by geographic region as we move through 2023 and into 2024.
We're in the early days of leveraging our new EFX Cloud capabilities and are confident that it will differentiate us commercially, expanding our NPI capabilities, accelerating our top line growth, and expand our margins from the growth in cost savings in 2022 and beyond. We remain confident in our plan to become the only cloud native data analytics company. Wrapping up on slide 24, Equifax delivered another strong and broad-based quarter with 7% overall growth and 19% core growth and a 13% Vitality Index, more than offsetting a 33% decline in the mortgage market. Against the declining mortgage market, Equifax is resilient, on offense, and investing for future growth.
Our updated 2022 revenue and Adjusted EPS guidance reflects the impact of the expected accelerated decline in the U.S. mortgage market to a decline of over 46% in the second half of 2022, resulting in a mortgage market decline of over 30% for the year, 37% for the year. Against this unprecedented mortgage market decline, Equifax will deliver constant currency revenue over 5% and deliver growth in Adjusted EPS. More importantly, our core revenue growth of 17% and non-mortgage growth of 16% are both well above our 8%-12% long-term framework and reflect the strength of the underlying Equifax business model today and in the future. EWS continues to deliver above market growth and is our largest, fastest-growing, and highest margin business.
Workforce Solutions above-market 34% revenue CAGR over the last three years is powering Equifax core growth as they approach 50% of our revenue. New products leveraging the new Equifax Cloud are also driving growth. Our 11% vitality from NPIs in 2022 will drive growth in 2023 and beyond. We're in the early days of leveraging the new Equifax Cloud to drive innovation in new products. Our 11 bolt-on acquisitions since January 2021 have expanded our capabilities and are delivering strong top line growth and will deliver synergies in 2023 and beyond. We're in the final chapters of completing our four-year, $1.5 billion transformation to the cloud that will deliver top line growth and cost benefits in 2023 and beyond.
Even in these uncertain economic environment, Equifax continues to be on offense and reinvesting in the new Equifax Cloud, new products, data analytics, and bolt-on M&A to drive future growth. We continue to be confident in our long-term framework of 8%-12% revenue growth, our goal of $7 billion of revenue or by 2025, our ability to expand our margins 500 basis points between 2022 and 2025, and 50 basis points per year margin expansion longer term. We remain energized about our performance in 2022 in a challenging mortgage market macro and even more energized about the future of the new Equifax, a faster growing, higher margin, cloud-native data analytics company. With that, operator, let me open it up for questions.
Thank you. We'll now be conducting a question- and- answer session. If you'd like to be placed into question queue, please press star one on your telephone keypad. We ask that you please ask one question and one follow-up, then return to the queue. Once again, that's star one to be placed in the question queue. One moment, please, while we poll for questions. Our first question today is coming from Manav Patnaik from Barclays. Your line is now live.
Thank you. Good morning. I just wanted to touch on, you know, the strength of the non-mortgage Workforce Solutions businesses and, you know, kind of the sustainability of that business. Maybe if you could just, you know, comment specifically on the Talent Solutions side, you know, just given all the announcements you're starting to see on, you know, hiring freezes or layoffs, et cetera. Do you anticipate any slowdown there?
Yeah. It's a great question, Manav. As you know, we're investing heavily in the non-mortgage, you know, one of our priorities is to invest heavily in Workforce broadly because it's our fastest growing business. As you point out, the non-mortgage businesses in Workforce are really outperforming, you know, the underlying market and delivering substantial growth. You know, I'll touch on Talent first. As you pointed out, a big TAM of $5 billion and, you know, our play there is to help digitize, you know, the background screeners using our data. As we continue to expand our historical data, we can deliver real solutions there, and we haven't seen any impact, you know, from the hiring market. As you know, unemployment is still very low.
There's still, you know, more jobs open than there are people looking for them. Even if that, you know, starts to slow down in the future, there's just so much penetration opportunity for us to really work to help digitize, you know, the background screening environment, both with our core work history. You know, as you know, we have 570 million total records, so we have a digital resume on the average American worker that totals five jobs, you know, for each individual. There's just a lot of data and growth opportunity there. Then we're also, as you know, adding data assets to go beyond just that work history in Talent.
You know, whether it's education, medical credentialing data that we acquired with Appriss Insights, of course, the incarceration data that's used in, you know, virtually every, background screen. We have a stated strategy to look for more either partnerships or, M&A, you know, to really strengthen the Talent Solutions. You know, I don't expect them to grow at the rate they have been, you know, over the last couple of years, which is very, very strong. You know, certainly they'll be a big growth driver, you know, going forward, you know, with double-digit growth, in the future. Government, as you know, is another big, non-mortgage vertical for Workforce Solutions that's around, social services. The $2 trillion government TAM is a big one. We have a lot of penetration opportunities there.
Social services are only expanding, and it's really the same thing. We're able to deliver an instant decision, you know, to that government agency, either at the federal, state, or local level. You know, we've just seen a lot of traction. They have the same labor issues, meaning they're looking for productivity in their, you know, centers where people come in to, apply for social services. We can deliver productivity with the instant decisioning, and of course, it also delivers that social service to that, individual, very quickly. Same thing, you know, the ability now to not only have that income and employment information that's used in, really every social service is needs or income-based, but also adding to it the incarceration data that we have that's used in, virtually all social service, you know, processes.
You know, beyond Talent and government, just touching quickly on kinda non-mortgage financial services. You know, those are newer verticals for Workforce with the data, whether it's in the card space, where we're starting to get penetration to have the income and employment data supplement the credit data in a card origination. Of course, auto, we've seen nice growth in subprime and moving into near prime and of course, it's used in personal loans. Then just jumping outside of verifications into employer services, you know, as you know, we've been making acquisitions.
We've done, you know, five acquisitions in the Employer Services space in the last two years to really build out the capabilities in those regulatory compliance services, you know, whether it's unemployment claims, work opportunity tax credit, you know, ACA or healthcare. Of course, in the work opportunity tax credit and I-9 benefits like LawLogix that we announced this morning. You know, that's a space that has a big $5 billion-$6 billion TAM. In a more challenging economic environment, we expect more outsourcing, you know, by HR managers of those activities that we can perform more efficiently. We see, you know, growth opportunities, for that business, which is why we're investing in technology and to bolt on M&A like LawLogix.
Of course, as you know, as we expand our capabilities and reach there with individual companies, we get more records. Of course, underlying the growth of Workforce and, of course, non-mortgage is record growth, you know, which was up a strong 22% in the quarter. You know, we still have a long runway to, you know, essentially double the size of our database when you include gig and pension income recipients. There's a lot of opportunity there. Lots of levers for non-mortgage in Workforce Solutions.
Got it. Thank you. That's helpful. Maybe just to follow up, like in terms of, you know, the M&A pipeline, you know, a lot of these tuck-ins, I guess they make sense, but just, you know, given, maybe just some comments around, you know, what valuations in the private market look like and, you know, your appetite and capacity for maybe, you know, larger deals than these tuck-ins?
Yeah, I think as you know, we've tried to be very disciplined about, you know, our approach to M&A. We're very. I use the term bolt-on. You can describe how big bolt-on is. Obviously, Appriss was a larger acquisition. Talent was a larger acquisition last year. You know, we see a lot of opportunity to deliver very high return bolt-on M&A that are highly accretive to our cost of capital. You know, it's a. You know, you start with our kinda capital allocation. You know, we see big opportunities to invest in the core of Equifax, and we're doing that. That's really through our cloud transformation, which we're in the, you know, final innings of completing. That was a big project and a big focus of Equifax.
That'll, you know, start tailing off our investment in that over the coming, you know, year or so as we complete the cloud. New products, we get very high return on. Then when you get into inorganic, we see an opportunity to continue to do, you know, bolt-on M&A that adds, very positively. You know, we are very disciplined financially and looking for, you know, businesses that are growing faster than Equifax on the top line. That are accretive to our margins and obviously deliver, you know, high returns. Those are the kind of M&A that we're doing.
We've got a pipeline, you know, going forward of deals that we continue to look at that will really add value in the three areas that I talked about, you know, during my prepared comments of strengthening workforce, adding differentiated data, and strengthening identity and fraud. As you know, as we go into 2023, 2024, 2025, you know, with our margin expansion accelerating and that 500 basis points to 39% in 2025, our free cash flow accelerates dramatically in the coming 12, 24, 36 months. We'll continue to run the play of bolt-on M&A where it's appropriate. We'll look for, you know, acquisitions that might be at the larger end of bolt-on, like an Appriss.
You know, we'll be at a point, you know, in the near future where we're gonna wanna return cash to shareholders. We've been very clear that, when that time comes, you know, that'll be a part of our capital allocation strategy as our free cash flow accelerates, as we get into 2023, 2024, 2025.
Thank you. Our next question is coming from Andrew Steinerman from JP Morgan. Your line is now live.
Hi, John. It's Andrew. I wanted to check if that 24.7% mortgage revenue figure you gave, on the call, was for total revenues in the second quarter. My second question is, again, on a total company basis, what was Equifax's second quarter organic constant currency non-mortgage revenue growth year-over-year?
24.7% was on total Equifax revenue. Then I don't believe we gave an organic revenue growth for the entire company non-mortgage.
Right. You gave all the segments. Can't you total it out for us?
We can certainly follow up with you, Andrew. Trevor or Sam can come back to you on that.
Okay. Thank you very much.
Thank you. Next question is coming from Kevin McVeigh from Credit Suisse. Your line is now live.
Hey, Kevin.
Thank you so much. Hey, Mark. Hey, John. Hey, I know it's hard to kind of project, but any sense of kinda the near-term outlook for mortgage 2022 to 2023? The reason I ask is, obviously it seems like unprecedented declines, but we're in a much stronger macro environment than we were back in the GFC. You know, is there any way to frame. You know, do you think you see continued refi kind of cash outs more near term on the purchase side just as you think about mortgage within kind of the context of a normal recovery, just given kind of where we are from kinda feels like we're bottoming here.
Yeah, I think bottoming is probably in the second half, you know, based on our forecast, Kevin, as you know. It's very hard to really predict what's gonna happen, you know, with the economy, given the inflation rates that we haven't seen in, really, our lifetimes and what the Fed's gonna do to respond to it. You know, I would make a couple of comments on mortgage, which, you know. Look, the mortgage market doesn't disappear, right? You know, there's a core mortgage market that in any economic environment stays there, meaning people move and buy houses. People upgrade and buy houses, you know, on the purchase market. As you know, there's more people still looking for houses in the United States today than there are houses.
You know, there's still quite a bit of demand on the purchase side. You know, we expect there to be, as there is in any economic environment, a continued, you know, purchase market. John gave some views about how we think about that in the second half. As you point out on the refi side, you know, the interest rate refis, you know, are gonna, you know, be lower or less of those, you know, in the second half, you know, given where interest rates are because there aren't that many opportunities for, homeowners to, do an interest rate refi. There's a ton of untapped equity in, homes in the United States.
You know, over the past 24+ months, home price appreciation is up almost 30%, and there's about $27 trillion of untapped home equity. We've seen in economic environments in the past that homeowners will tap into that equity. If you think about a 5.5% fixed rate mortgage in order to refi into that to access your home equity, which consumers are doing or homeowners are doing, we expect that to continue. If you think about 5.5% interest rate on a fixed rate mortgage, that's a heck of a lot less than an auto loan, a student loan or a credit card. That's what you'll see consumers do. There'll be a level of cash out refis, you know, going forward.
I know you get that. I think the challenging part is what's gonna happen, you know, how far is the Fed gonna have to go to slow down inflation with it at 9.1%? That's the harder part for us to, you know, forecast. You know, we did talk about in our prepared comments that we remain confident in obviously the long-term future of Equifax. You know, our goal of $7 billion by 2025 hasn't changed. Our goal to expand our margins to 39% by 2025 hasn't changed. You know, we're still investing in the future of Equifax, you know, as we speak. You know, we're making investments that'll benefit 2023, 2024, 2025, you know, based on, you know, our strong, performance, particularly in non-mortgage, which is exceptionally strong.
Actually that's where I wanna follow up, 'cause it seems like you're still comfortable with those 2025 targets. You know, it's probably mortgage a little bit lighter. Where's been kind of the offset? Is it within EWS or other parts of the business that, you know, continue to give you the confidence to, you know, push towards those 2025 targets?
Yeah, it's certainly, I think as you know, you know, we raised our non-mortgage or core guidance twice this year. You know, once in February and once in April. You know, that gives us confidence. It should give you confidence. If you look at our non-mortgage performance and our core growth performance, you know, which includes, you know, how we're performing, you know, beyond the mortgage market. You know, those are strong numbers. And, you know, those give us confidence, you know, in our ability. Then if you add to it, you know, during that 2023 to 2024 timeframe, you know, in the next, you know, 12 months, we're gonna be completing substantially, you know, the U.S. cloud migration, so we'll be cloud native, and we can take full advantage of that.
We'll finish international as you know we get through 2023 and into 2024. That's another lift for Workforce Solutions. The other thing that should give you confidence and gives us confidence is the M&A that we've done over the last 18 months. You know we've done 11 acquisitions now with LawLogix. Those are in our run rate revenue or will be. And of course the synergies from those acquisitions that we had in our acquisition cases you know really kick in in 2023 2024 2025 you know as they really get integrated into our businesses. Then the last point I'd make that gives us confidence is NPIs. You know the Vitality Index that we're delivering is you know our long-term you know frame on vitality is 10. You know we were 13 in the quarter.
You know, we're expecting to be, you know, north of 11 for the year. Those are big numbers. You know, when you talk about having, you know, $550 million of revenue in 2022 from new products. Remember, new products we introduce in 2022 really benefit 2023, 2024, 2025. You know, they mature as we get into those years. There's a lot of levers that give us confidence around the future of Equifax.
Thank you. Next question is coming from Toni Kaplan from Morgan Stanley. Your line is now live.
Thanks so much. First, wanted to ask about the mortgage performance. Last quarter, you talked about EWS outperforming the mortgage market by about 30 points in the year. For the quarter, last quarter, it was about 27 points above the market. This quarter looks a little bit more like you outperformed by 20 points according to slide 10. Are you still expecting the 30 or has something changed to bring that down a little bit? What are sort of the drivers that, you know, lead to that outperformance delta? Like why would it jump around, I guess?
Sure. I think last quarter what we indicated, we were up 27%, and we thought for the full year we could deliver something south of 30%. The 20 points is very strong, right? What drives the outperformance in general is the new products, the price actions, the record additions and all of those activities that Workforce Solutions is executing extremely well, actually executing faster than planned. The record additions, as Mark already covered, were well faster than planned, as we're up to 144 million records. They're all volume dependent, right? When we get into circumstances where we see the current year volumes decline substantially, it makes it more difficult to outperform the prior year market because of the lower volumes. That's all it really is.
In terms of the drivers that will allow them to outperform the market over the long term, they're actually outperforming the expectations we had when we started the year. We feel very good about how they're performing. I think given the much lower level of mortgage inquiries we're talking about, of mortgage originations we're talking about in the second half, if they're able to outperform at about 20 or I think we just said somewhat under 20, that'll be very, very strong and consistent with the execution against product price records, system integrations that we've been talking about.
Great. In the guidance, it seems like the main delta on the revenue side is really mortgage. You're expecting essentially the non-mortgage expectations outside of FX, you know, largely unchanged versus your guidance last quarter. Just if we look forward, if there is a recession or a tougher environment that comes up, just maybe talk about some of the expense levers that you can pull and how you think about when to pull the trigger on that versus continued investment in the business, because obviously you have a lot of really strong growth opportunities that you wanna capitalize on. You know, maybe just how are you thinking about downturn playbook and when you would pull the trigger?
Yeah, it's a great question, Toni. This is Mark. You know, first off, we don't see that in the second half. You may have a different point of view, but we don't see that in the second half. To be clear, we think about it a lot, obviously, and we do have levers. You know, first off, you know, we think we're gonna outperform, you know, the way we did in the past if there is an economic event. We had a page in there that we talked about it, you know, in the investor deck, and we talked with you about it before.
You know, the difference in the business and levers like continuing to add records at Workforce Solutions and, you know, so many other levers in Workforce, in particular identity and fraud business. You know, we think about that. We clearly have the ability to throttle costs, you know, if we got into an economic event in 2022. You know, while we're seeing the pressure, you know, from the mortgage market macro, and it's also FX, non-revenue, you know, we made the decision to continue to invest, which is, you know, I think you want us to do and our investors do because, you know, our core business or non-mortgage business, which is, you know, a big part of Equifax, is performing exceptionally well and we wanna keep driving that. Investing in things like new products.
You know, investing in, you know, completing the cloud transformation, which of course that'll take a lot of our cost out. You know, as we get into 2023, 2024, 2025, we get, you know, significant margin expansion or cost reductions. As we complete the cloud and decommission, you know, a lot of our data centers, you know, that's kind of a natural recession hedge for us as we execute, you know, the cloud transformation. You know, we've got other cost levers that we could or would pull and, you know, we'll be ready to do that if there is an economic event. At the same time, you know, we have a lot of confidence in how we would perform in an economic event, you know, because of the changing dramatically changing nature of Equifax. Would you add anything, John?
No, I just think outside of the investments Mark's already talked about in NPI and transformations, kind of the product technology and then marketing, product marketing, investments we're making. We certainly are looking at all the other expenses, and we're just gonna manage those very tightly, right? Even though we don't expect a recession to come at this point in time, certainly not in the second half of this year, obviously uncertain about 2023. What we are gonna do is make sure we manage very tightly all of the expenses that don't drive that revenue growth.
Thank you. Our next question is coming from Ashish Sabadra from RBC Capital Markets. Your line is now live.
Thanks for taking my question. Mark, thanks for providing those details around the Financial Marketing Services business. I just wanted to drill down further on the fraud and identity piece and see you talked about new product innovations there which could re-accelerate growth maybe next year. I was just wondering if you could provide some more color on that front or maybe also talk about the pipeline for new deals, particularly on the offline side, and how should we think about that momentum going into the back half but also in 2023 and beyond. Thanks.
Yeah. We've talked about we're obviously doing some work to you know get some new products positioned you know in the second half of this year to bring the FMS you know portfolio review business you know back into a different position. That's clearly a place that we're investing in. I think part of your question was also around broader identity and fraud which is a different business for us. You know that's really under the Kount business which we're very pleased with. That's a business that it performed exceptionally well in the quarter and the half. You know we see big potential and just a massive TAM you know around the broader identity and fraud.
Of course, as you know, we bought Kount, you know, 18 months ago, and we're still integrating that inside of Equifax and rolling out new solutions. You know, that's an area that we're investing in new products for both the e-commerce space, but also for our traditional financial, you know, customers, and also looking for inorganic or M&A to continue to expand. That's one of our three priorities around M&A is to grow in identity and fraud.
In B2B offline, specifically kind of the fraud header business, I think some of the real opportunities we have as we get into 2023 is heavily around data fabric, right? As we're able to more aggressively integrate different data assets, again, it will differentiate our information, our header information that we sell into those markets, and we think we have the opportunity to re-accelerate that growth again. That will happen as data fabric completes for USIS.
That's very helpful color. Then, going back to slide nine and drilling down further on the questions that were asked on the talent and government side, the penetration there is pretty low on talent, just 10%, and on government it's 20%. You talked about some new statements there, but just can you talk about again the pipeline both on the talent and government side, and how do you drive better penetration in both of those markets? Thanks.
Yeah. As you know, these are, I still call them newer verticals for us in Workforce Solutions, both Talent and Government. They're big TAMs. You know, Talent's a $5 billion data TAM for us. Government's about a $2 billion. You know, we've got big teams in Workforce Solutions focused on that. We've made, as you know, some M&A additions to strengthen our capabilities there. We wanna do more. You know, that's an area where we want to expand in either M&A or partnerships, M&A being like Appriss Insights, where we got the incarceration and medical credentialing data that's really helping us in both Government and Talent. The partnership we have with National Student Clearinghouse, where we're bringing education data and, you know, we'd like to do either more partnerships or more M&A there.
The other really lever for us in talent and government is new products, is really bringing new solutions together, you know, combining data elements we have in Workforce. Of course, at the, you know, the heart of, you know, our growth in both of those verticals is our twin dataset. You know, both our 144 million active records or 110 million, you know, active individuals in our dataset, which is a, you know, huge coverage now.
As you know, when we add records, our hit rates go up because remember, in our system-to-system integrations, whether it's talent or government or our other verticals, they're hitting our database for every applicant or individual that they're trying to process, you know, whether it's a mortgage or a background screen or a social service like rent support or unemployment claims. As we grow our records, you know, that grows the business. Then, leveraging our historical data, you know, we just got so much historical data of the 570 billion total records, you know, which equates to about 5.5 jobs for the average American. That's a very valuable instant decisioning dataset for the talent space.
The combination of new products, you know, continuing to grow out our TWN database and, you know, continuing to do M&A and having our dedicated teams of growing, you know, customers. You know, there's still a lot of customers that don't use our data in government, social services and in talent. That's another opportunity. We're pretty energized about the growth potentials in those two verticals.
Thank you. Our next question is coming from Kyle Peterson from Needham & Company. Your line is now live.
Great. Good morning, guys. Thanks for taking the questions. Just wanted to touch on, you know, inflation. Obviously it's, you know, the highest, you know, we've seen in quite some time. You know, where are you guys kinda seeing it on the cost side of your business? And how much have you guys been able to, you know, successfully pass along to clients?
Yeah. I share your concern. When I think about the 9.1% inflation or 9.4% in the U.K. or pick your market, what I spend more of my time thinking about is what the impact gonna be on the consumer, on our customers. With regards to our cost structure, it hasn't had much of an impact. You know, we haven't seen a big impact, you know, in labor. You know, we're still able to attract the people we want inside of, you know, you know, with some slight pressure, you know, on wage rates, but, we're still managing that. You know, a big part of our cost structure, as you know, is technology and, you know, we're really heading more towards cost savings there as we convert from our legacy infrastructure, you know, to the cloud.
You know, we've got long-term contracts in our cloud infrastructure. With regards to passing it on, you know, price versus inflation, we're at a net positive. You know, we put pricing increases in place earlier this year that give us a net positive margin impact versus inflation. You know, that even with inflation where it is today.
Understood. That's helpful. You know, just a quick follow-up, particularly in the unemployment verification, you know, claims part of the EWS business. Now how should we think about, you know, the puts and takes? I know you guys said you aren't currently expecting a recession, but, you know, if we do head into a recession, you know, how much of a potential tailwind could that be, you know, in a more garden variety recession, not with, you know, unemployment kind of where it was in 2020, but just, yeah, a little more run-of-the-mill would be helpful.
Yeah. Yeah. It's obviously a positive for us. You know, that business is a lot bigger today than it was, you know, in 2008, 2009. Obviously, we've got a lot more scale. You know, we're expanding the business, you know, with a lot of the investments in people and technology and capabilities as well as the M&A that we've done. So it'll clearly be a tailwind. Obviously, it's a headwind right now, you know, coming off 2020 and 2021 when there was a lot of furloughs and and layoffs, you know, during the COVID environment. I know, John, would you size it in any way?
Yeah. Just to give you perspective, it's this year it's a $135 million business, right? I think during the COVID recession it increased obviously dramatically. It basically scales directly with unemployment insurance activity. It's about $135 million. However, as you look at what the level of unemployment that could come in a recession, it'll scale pretty directly with that.
That's just one of many kinda countercyclical businesses. As you know, that's one of many kinda countercyclical businesses. Another, if you're focused on countercyclical, you know, the other one is inside of our, you know, credit business. You know, while prescreens will go down, you know, account management and portfolio management activity goes up in an economic event. Now we're not seeing that today because it's, you know, there isn't really an economic event yet, but that's a countercyclical element for our core credit businesses. Of course, you know, we got all kinds of levers in Workforce Solutions. You know, we're gonna keep adding records whether the economy's up, down, or sideways.
Thank you. Our next question is coming from Andrew Jeffrey from Truist Securities. Your line is now live.
Hi. Good morning, guys. Appreciate you taking the time. Mark, I wanted to ask you a question about the TWN database and sort of line of sight to getting to 2x current records. Do you think you can get there with your current payroll agreements? Do you need to add more? I know you mentioned they're exclusive today. Can you talk about your comfort with those remaining exclusive sort of in the long run and just any color in terms of trajectory there would be helpful.
Yeah. Bunch of layers of questions in there. You know, first I think as you point out, it's a really attractive lever for growth and unique to this business, right? No other data business that I know of has the ability to add records the way Workforce has been able to do. And of course, it translates into revenue, you know, day one, quarter one, week one, the minute we add them. 'Cause remember as we're integrated or even through web access, customers are coming to our dataset looking for all of their applicants. As we grow our hit rates, it really drives the revenue. You know, revenue, the records are up 22%, you know, in the quarter. We've had very strong double-digit growth for the last three years of growing the dataset.
You know, now have 144 million actives and 110 million uniques, which is really powerful, you know, in the scale of the dataset. Not only is it driving revenue, but it also drives usage, meaning it's a dataset that's more valuable. You remember, you think about it, our customers want 100% coverage, you know, because the consumers that they can't identify in our dataset, they gotta go somewhere else to do a manual verification or do something else that slows down their process. As we add records to our dataset, we become more valuable to them. As you know, 50% of our records come from partnerships, 50% come from direct relationships that we have through our Employer Services business. We wanna grow both.
On Employer Services, as you know, we've been making acquisitions. We've done five acquisitions in the last two years to strengthen our capabilities in Employer Services, whether it's an I-9, unemployment claims, work opportunity tax credit. That's a kind of a $6 billion TAM, and we've got a, you know, $400 million+ business. The power of that is not only we're growing the outsourcing there, but when we get the contracts for I-9 or unemployment claims or work opportunity tax credits, we also get records. Growing records there is a big lever. The other 50% come from partnerships, so payroll processors.
What I'm referring to is really mostly W-2 or non-farm payroll income, which is employees, which is the 160 million individuals in the United States versus the 110 million we have today. The newer markets for us are gig, which is 30 million-40 million, and pensioners which is, you know, another 20 million-30 million. If you think about the 110 million, you know, there's about 220 million Americans that have some form of income. That's what we wanna grow the database to, and that's gonna take time. You know, if you think about going from 110 million to 220 million, you know, that may take a decade, but there's such runway for growth.
We now have dedicated teams on the pension side, and we expect to be onboarding records, you know, obviously from those. Those aren't typically with payroll processors. They're other entities that are processing those, whether it's a benefits administrator or individual companies. Then the gig records, you know, those are all records we wanna add as we go forward. I think your last question was around our partnerships. The last part of your question was around our partnerships and exclusivity. You know, as I said, the vast majority of our partnerships are exclusive. All the relationships we've signed in the last four- plus years have been exclusive, and all the relationships we intend to sign going forward as well as extend, it's our intention for them to be exclusive.
We think that's good for us and good for our partners, going forward.
Super comprehensive answer. Thanks. Appreciate it.
Thank you. Next question is coming from Andrew Nicholas from William Blair. Your line is now live.
Thanks, and good morning. I think different answers have touched on this already, but I wanna ask a little bit more directly about kinda the health of the U.S. consumer and what you're hearing from customers on the core credit side.
Yep.
Are you seeing any signs of weakness across the USIS business as it relates to core credit? Guidance doesn't seem to imply-
Yep.
... any slowdown there. If you could just kinda talk about what gives you confidence in that part of the outlook and the overall state of the economy. Thanks.
Yeah. To be clear, we're not. You know, the U.S. consumer from our perspective is strong. I think you've heard it from the banks over the last couple of weeks or so, as they talk about, you know, their performance. You know, there's no sign. It really starts with employment. People are working, you know, and there's two open jobs for every person looking for a job, which we'd never seen in, you know, really our environment. You've seen strong wage growth, you know, which is a positive, but it starts with people are working. You know, that's a big deal. There's still a lot of stimulus around, you know, meaning consumers are still, you know, spending some of the stimulus they saved over the COVID environment.
There's still access to a lot of stimulus, you know, social services support in the United States, you know, which is benefiting consumers. That's a, you know, a positive. Obviously, inflation is having an impact on confidence, having an impact, you know, on some spending, and having an impact, you know, in some of the lower, you know, subprime or lower income consumers is having a bigger impact there. You know, kind of broadly, we don't see the consumer, you know, weakening in the second half. We haven't seen our customers thinking about it that way. They're obviously everyone's watching, but you haven't really seen a change in delinquencies. Like, card delinquencies are, you know, lower than they were in 2019.
There's a little uptick in subprime auto delinquencies, but, you know, the consumer is strong. It starts with they're working. Add to it those that are homeowners have a bunch of equity in their home, you know, + 20%, 25%, 30% versus a couple years ago that's untapped. You know, those are all equations that are quite positive around the consumer, which, you know, is gonna make, in my view, you know, taming inflation quite challenging because consumers are still out there spending. You've seen the banks', you know, kinda credit card spends are up strong double digits. Consumers are traveling. They're still spending, maybe not on big ticket transactions, but they're still pretty strong, and we haven't seen any signs of it changing.
Another thing which has happened since 2019 is that the percentage of consumers that are actually defined as subprime is just down materially, right? It's down to be on the order of 20% of consumers and was much higher back in 2019, and that's just the strengthening in credit scores you've seen. That's very material for people's access to credit.
Well, credit scores are up 15-20 points, you know, since 2019 still. A lot of factors supporting the consumer.
Great. Thank you. That’s very helpful. Then switching gears a bit for my follow-up. Mark, I think you alluded to growing The Work Number internationally as part of the three-year 2025 outlook. I understand in the past, you’ve talked about your right to win there, and your relationships with global organizations as being a differentiator. But just kinda curious, can you speak to kind of go-to-market strategies there? Is it any different in these international markets than what you’ve developed here through payroll providers and outsourced kind of HR capabilities, or are there differences in those markets that we should kinda keep in mind that make that go-to-market strategy a bit different abroad?
No, it's very similar. We could spend hours talking about all the things we're working on. Obviously expanding Workforce internationally is, you know, one of the initiatives that Rudy and his team has. As you know, we're in four markets now. We added U.K. in the first quarter. We paused during our cloud transformation to go in other markets. We're in Australia, Canada, U.K., and India. We paused, you know, a couple years ago when we were doing the cloud transformation, but now that we have a tech stack that we've invested $200 million in, it makes it easy to enter new markets from a technical standpoint.
You know, that's an approach that we have and why we, you know, kinda made our first move into the U.K., you know, following our cloud transformation at Workforce Solutions. The market dynamics are very similar. You know, mortgage is a place where you wanna use it, and you think about the markets we're in, they have, you know, mortgage markets, you know, consumer mortgage markets. That would be a priority for us when we think about future markets. The talent side is another one. You know, using the data for the hiring process is similar. As you point out, we have some levers with our current multinationals in the U.S. where we're collecting their records, you know, from them directly or through partnerships.
The direct relationships, they want us to do income and employment verification for them in other markets, so that's a positive. As you also point out, the, you know, the payroll processors we do business with today in the U.S., many of them are global, so they wanna have the same relationship outside the United States. In individual markets, there's, you know, payroll processors or HR software companies that are unique to so many markets, and we're developing partnerships with them. It's clearly a part of our strategy. You know, we've got a lot of needle movers in Workforce Solutions between now and 2025. This will be one of the smaller ones, you know, but it's one that we're investing in.
I think you'll see, you know, more traction out of it, perhaps in 2024, 2025, 2026 than you will see in 2023, 2024. As you would expect us to do, you know, we're investing in it. You know, we think we've got a franchise that, you know, obviously has a strong market position here in the States. It's one that, you know, we wanna take global and take advantage of it because there really aren't other players like Workforce outside the United States.
Thank you. Our next question is coming from Shlomo Rosenbaum from Stifel. Your line is now live.
Hi. Good morning. Thank you for taking my questions. Hey, can you dig in a little bit more on what's going on with FMS and the offline? You said it's like the part where you're doing a fraud and header data. I'm just not clear as to what all of a sudden changed in that business. Is there something competitively that changed in, you know, where, maybe one of the other bureaus are doing better over there? Or is there anything else happening? Typically, in a certain point in the cycle, you guys would see a pickup in some of the FMS business as well in terms of portfolio reviews.
I want to know, are they starting to pick up because banks are worried about that, but you're not getting them, or they're just not happening?
Yeah, no, the portfolio reviews, you know, are a constant part of the business. As you point out, in times of economic, you know, challenges that typically we see some real pickup there. That hasn't happened yet. You know, the financial institutions really don't view, you know, the second half of being economically challenged. It's more in the newspaper than it is in the consumer or their results. John, do you wanna touch on the employer business again?
Yeah. I think Mark covered, Shlomo, really what's going on with the fraud or header business within FMS, right? We are seeing lower volumes, and we're seeing lower levels of activity. For transactions that are occurring, we're seeing smaller volume transactions. What we're doing is what we talked about, which is working to try to enrich our data set so that we can again make it more valuable to drive greater differentiation in that market. We're just seeing it. We're seeing that market slow currently. Given that it has, we just made the assumption it's gonna stay slow for the rest of the year.
As we launch new products, we'll talk to you about them as we do with anything with NPI, and we can give you perspective on how we think that product area may grow.
Great. Thanks. For just the follow-up, the other part of the business that you would start to see slowing down would be the background screening area. Are you seeing anything that's indicating that, you know, given the layoffs and stuff that you're hearing from some of the bigger technology companies, that the polls are really starting to slow?
No.
Significantly changing?
No. We're not. Remember, when you think about our business, you know, is obviously different than the background screening industry because we're so new in, you know, kind of dealing with the industry. We have so much penetration opportunity. It's our view that even if the market slows, our ability to digitize and help background screeners digitize their businesses will mitigate, if you will, or offset, you know, some of that. Add to it new products that we'll be rolling out for the background screeners that include other data elements. When an economic event happens and there is some slowdown there, you know, we think we'll be able to, you know, offset that with some of the new products as well as penetration because we're fairly new.
You know, remember the TAM for that, the talent and background screeners is about $4 billion, and, you know, our business is a couple $100 million . You know, we've got the opportunity to continue to grow into the data elements of that, even in an economic event.
Thank you. Next question is coming from Craig Huber from Huber Research Partners. Your line is now live.
Great. Thank you. Can you talk a little bit further about how you think your verification service business will do if we go into an elongated recession here? About, you know, you guys adding more and more records here. It's a significant part of your business. How do you think it will do in an elongated recession?
Yeah. I think we've been pretty clear. We think it'll do pretty well. You know, as we pointed out in the comments and in prior calls, you know, you go back to 2008, 2009, which was a pretty brutal economic event, you know, the toughest I think we've seen in our lifetimes, it grew through that whole period. You know, I think in 2008 it grew 17% or something like that. Now it's got more levers. Remember back then, it was mostly a mortgage business, you know, and now it's highly diversified into other verticals, government, talent, its Employer Services business, and then non-mortgage verticals inside of financial services.
You know, the ability to add records, you know, is one of many, you know, levers that the business has that, you know, we think is what makes Equifax so different today versus our last economic event, if you wanna call 2008, 2009 that. You know, our ability to grow is significantly enhanced by Workforce, you know, being such a big part of Equifax and having, you know, so many different levers that are either unaffected by a recession or, you know, allow them to actually benefit from a recession like the unemployment claims business.
The 50% or so of records you get from the outside the partnerships. Can you talk about the pitch there that you use to get those records?
Yeah.
from companies, et cetera. If you could just also touch on the historical records that you've built up in your database, which I believe in total is like 25%-30% of your revenues that you get.
Correct.
It's historical records, not the current person's employment.
First on the direct records that we have. Remember, at the core of Workforce Solutions is what we call our Employer Services or employer solutions business, and that's where we deliver regulatory and compliance services to companies through their HR managers. That's where they outsource these activities to Equifax. That's about a $6 billion TAM. We have about a $400 million business there. Where we deliver those services, like unemployment claims management for a company, we do the processing for them. I-9 verification in the onboarding side, Work Opportunity Tax Credit, Employee Retention Tax Credit. We do W-2 management, you know, for employees, meaning if someone needs a W-2, we'll deliver it for them. All those services that are outsourced by an HR manager is what we do as a business.
As you know, as I pointed out earlier, we've invested heavily in our cloud transformation to make those services and capabilities, you know, more efficient, more effective, and just a better service, you know, for the HR manager. The play there is to continue through our commercial coverage, is to drive more outsourcing of those activities to Equifax. You know, for example, like in unemployment claims, we process either one- in- four or one- in- five unemployment claims in the United States that are done by third parties, meaning not individual companies. Most companies still do it today. We have real scale in these businesses. As a part of that commercial relationship where we're delivering these regulatory services to the HR manager at a company, we also do income and employment verification for free.
They will deliver their payroll records to us that then, of course, we monetize. In return, we'll do income and employment verification securely. We'll do it with a high degree of privacy. It allows the HR manager to outsource that activity to us, because if we're not doing it for them, they have a call center inside of their HR shop where they're doing it, and they're fielding calls from mortgage originators, auto lenders, background screeners, government agencies to verify income and employment on their employees. We do that all for free. A very powerful, you know, value prop that we have for the HR manager, which is why we've developed, you know, a bunch of relationships, and that's why we're also expanding through M&A.
Like LawLogix, the company that we announced this morning that we're acquiring strengthens us in the I-9 verification space and delivers records. You know, those are the five or six acquisitions we've done in the last 24 months to strengthen our Employer Services business. It's really at the core of who Workforce Solutions is. We wanna continue to invest in technology and capabilities and bolt on M&A to strengthen that, because not only do we have a very attractive business growing in that $6 billion TAM, it also delivers records we can monetize very effectively. The second half of your question was around our historical records. You're right on. It's a very big part of our business model. A lot of our verifications are around where does Mark work today? How much does he make today?
A lot of the verifications need and want to have historical data in order to complete the process. As you point out, we keep every record every week, every pay period, and we're now up to 570 million records, which, as I mentioned earlier, equates to about, you know, 5.5 jobs from a job history status on the average American. In my case, it would be my Equifax records, my Warburg Pincus records, and my GE records. We have those historical records, and they are incredibly valuable. It's a big part of the you know, the competitive position or moat we have around the business, is those historical records are a big part of that, because the only way you can develop those is over time.
Of course, we've been at this for a decade of building out the data set and maintaining all those records.
Importantly, in non-mortgage verification services businesses, about 50% of the revenue is generated from transactions that involve historical records, either historical records only or historical records and current records. It's 50% penetration of historical records in the transaction. Very high and huge differentiation.
Thank you. Next question is coming from Simon Clinch from Atlantic Equities. Your line is now live.
Hey, Simon.
Hi. Hi. Hey. How is everyone? Thanks for taking my call. My question here. I just wanted to cycle back to the comments you made about the outgrowth of the mortgage in EWS. I was just wondering in terms of how to think about the core growth generally that you outlined for Equifax overall. Historically, my understanding was that we should think of that as, you know, effectively a static opportunity versus the market that each of those various segments play in. It sounds like with the comments around EWS here that actually they should be considered to be at some level of beta, I guess, to the macro or to the cyclical markets. Is that how we should think about things going forward?
John pointed out, and we can hit it again, is that in the mortgage application process, there's a difference in this market than there is in a normal market. You know, John pointed out that there's more consumers or homeowners that are, when they're doing a home purchase, that are doing shopping for rates. Generally, when a consumer does rate shopping, a credit file will be pulled by the mortgage originator, make sure that consumer can qualify for the mortgage that they're rate shopping on, and then they'll deliver, you know, some kind of a response around what rate they can deliver. The consumer will hit a bunch of mortgage companies, in this higher rate environment, in order to check rates.
That results in credit pulls, which is good for USIS and part of their outperformance, if you will, the number of pulls that they have. Conversely, in Workforce, when you're rate shopping, they don't pull income and employment till further into the application process. It might be, you know, when an application is actually filed versus rate shopping. Of course, it's always pulled during the closing, you know, of the application. I think John was pointing out a change from more normal mortgage environment because the rate shopping benefits the credit file and somewhat, you know, doesn't benefit the income and employment data. Now, of course, Workforce Solutions has all the levers to outperform the mortgage market. You know, it starts with, as we add more records, we have higher hit rates.
They get more revenue as they add records, and records are up 22%, so that's a benefit for them in any mortgage environment. It's still benefiting them today. New products are benefiting them. Our prices, we did a price increase in January, so that's benefiting their business. Penetration is still a benefit. Remember, they're only seeing what now? 65% of mortgages.
Little over 60%, yeah.
A little over 60% of mortgages. As they get out there, and remember, the credit file is used in virtually every mortgage because it's been around for 50, 60, 70 years. You know, the ability to drive commercially into those mortgage originators that are not using our income and employment data from Workforce Solutions. As we point out system integrations, which have grown dramatically, but you know, there's still a lot of web access. We know that with web access, we don't get every application for mortgage originator. They're doing manual verification. You've got multiple levers for Workforce to continue to outperform, you know, the mortgage market, be it at a bit lower level than in a normal environment.
Okay. Yeah. I understand that. Just when I'm thinking about the sensitivities to the up and the down here, would it be fair for me to take how you've reduced your guidance for revenues and the subsequent flow through to EBITDA to like, if there was mortgage upside, should I expect that same high level of incremental margin to drop through?
Yeah. Any change in revenue, you know, is high incremental margin up or down. I think as we pointed out earlier, you know, we've opted to continue to invest, you know, in the second half, you know, for the future of Equifax, you know. Meaning as our mortgage revenue came down, you know, we're not taking costs out. You know, we're focusing on redeploying, you know, some costs or still continuing to invest, you know, going forward. I don't know. John, would you add to that?
No. We see very high variable margins on the upside and the downside. They aren't necessarily always exactly the same for the reasons that Mark indicated, but the variable margins on our revenue are certainly quite high.
Thank you. Our next question is coming from Seth Weber from Wells Fargo Securities. Your line is now live.
Hey, good morning, thanks for taking my question. I actually had a similar question on the margin side. You know, I heard the comments about some increased spending as you know, for the second quarter and through the back half of the year. I was just wondering if you could you know, give us any additional color on what this increased spending is, if that's opportunistic or is this kind of the new normal you know, sort of framework that we should be thinking about from a margin perspective? Thanks.
Well, you know, a couple layers in there. You know, we still are confident in our plan to increase our margins. You know, so no change in our outlook for 2025 or 39%. You know, no change in the cost benefits that we're gonna deliver this year, next year, 2023 from the cloud transformation. You know, no change in the broader margin expansion. You know, in the near term, we are continuing to invest in new products. Obviously, we're still investing in completing the cloud transformation. You know, we have some additional investments, you know, on onboarding some of the new partnerships we have for records in Workforce Solutions.
You know, we're continuing to do opportunistic or maybe targeted is a better term, investments that we think will benefit, you know, 2023, 2024, 2025, you know, in 2022, you know. There's no question we're doing that. Would you add to that, John?
Yeah. Just current margins, and we talked about it on the call, right? Are being significantly impacted by the large reduction in mortgage, right? Our very high variable margins. If the question was, is this the new level of your margins? No. As Mark just said, we expect our margins to reaccelerate as the market recovers. In terms of the exact pace of that reacceleration, we'll give you guidance on that as we get into each individual year.
Okay. Then just as a follow-up, the guidance for international margin for the year sort of implies a pretty big step-up in the second half versus the first half. Is there something there? Is it just seasonality? Is there something from lower tech transformation spending or something like that that's happening in the second half versus the first in international? Thanks.
Historically, you've seen international margins are generally higher in the second half than the first. We've seen some of that. We do try to be clear on the call that in terms of the level of acceleration in the margins in international, there is some pressure on that because of the fact we're seeing great growth in our debt management business, but that does have lower margins. We do expect to see the improvement we talked about, but there is a, there is a little bit of pressure on those margins because of debt management.
Thank you. Our next question is coming from Heather Balsky from Bank of America. Your line is now live.
Hey, Heather.
Hi. Thank you for squeezing me in. Just a follow-up on Toni's question earlier regarding outperformance on the mortgage side for EWS. I'm curious, you know, with the softer mortgage market, and it sounds like it's a little bit of a lighter outperformance outlook, where that lightness is coming from? Just sort of what is the toggle in a sort of weaker mortgage market that kind of flows through to that outperformance? Thanks.
Yeah. In terms of the drivers of outperformance, it's actually the Workforce is actually performing better than our expectations. They've added records faster than we thought, and so that's actually a greater benefit to outperformance than than we would've expected when we started the year. They've executed very well on both new products and then the pricing programs they put in place at the beginning of the year, which tend to go in in January. We know about all those, right? The issue is the reason why the outperformance looks lower than what we saw last quarter is twofold. One is because all of those factors I just described are all variable with volume. Since volume is declining, like, that level of outperformance in absolute dollars shrinks. That's why you see a smaller outperformance relative to the market because.
It's just the math and the measurement. The other thing is what Mark talked about, right? We measure the mortgage market. We define it, right, as USIS credit inquiries. Well, since USIS credit inquiries are benefited by shopping and Workforce Solutions isn't benefited by shopping to the same degree, okay, then what we end up having is USIS gets somewhat of a benefit, and so therefore, the market itself is measured as stronger, and that provides a little bit of a greater headwind to outperformance to EWS. We don't think that's in any way indicates they're not performing as well. They're performing extremely well. As I said, the actual drivers they can control, they're actually outperforming our expectations in terms of record additions, products, and then obviously good execution on price.
As Mark mentioned, they're also doing very, very well on system-to-system integration. We feel very good about the execution that's occurring during the year.
Thank you. As a follow-up, just given sort of stock price performance in the market and your expectation next year for much stronger free cash flow and returning cash to investors, what are your thoughts regarding using your balance sheet today to potentially return cash versus waiting for next year? Thanks.
Yeah, it's a great question. We certainly think about it, Heather, but we think the timing is not right for us to do that. As you know, we announced this morning another bolt-on acquisition, which we think will you know benefit Equifax you know quite strongly going forward. We're still you know digesting some of the M&A we did in 2021. It's certainly on our mind you know when the time's right to return cash to shareholders both through you know restarting our dividend and doing a buyback. We don't think the time's right today. It's coming.
You know, as we look to 2023, 2024, 2025, you know, with our margins expanding and our free cash flow expanding, you know, we clearly believe we have ample resources to invest in that bolt-on M&A, but also have excess cash in the future to return to shareholders, and we'll do that at the right time.
Great. Thank you for your answers. Thanks.
Thank you. Our next question is coming from George Tong from Goldman Sachs. Your line is now live.
Hey, George.
Hi. Thanks. Good morning. In the mortgage space, new purchase originations have been declining relatively sharply in recent months. What assumptions around new purchase volumes are you embedding in your 46%+ mortgage volume decline forecast for the second half of this year? And how would you frame the downside risk to your forecast?
Yeah. In terms of the way we structure the forecast, you know, we obviously look very closely at the current trends we're seeing. We obviously looked very closely at the last 14 days, right, what we're seeing in early July, and we saw we're down 40%. We also looked very closely at the trends we're seeing and the movement in inquiries between April, May and June. We think that the forecast that we put together, or the estimate we used in our financial guidance is very consistent with what we're seeing in terms of movements in the mortgage market itself.
We think it's very consistent with the information we shared on new home purchases and the fact that they're certainly weakening as we go through the year relative to what we've seen earlier in the year. We think it's consistent with that. We think it's also consistent with the very low levels of refinance that are currently occurring, and really that refinance is, at this point, almost completely driven by cash-out refi. Also, I think you saw last night that all three of the major parties that forecast mortgage originations refreshed their forecast yesterday evening, Freddie Mac, Fannie Mae and MBA. MBA came out and said they expect originations to be down in the neighborhood of 43.5%, and I think all three indicated that was origination units, sorry.
I think all three indicated that origination dollars will be down on the order of 46% in the second half. We feel like, you know, with us indicating you're gonna see over 46% reduction in inquiries, which would imply a, you know, 200-300 basis points. Think 48%-50% decline in origination units. We think we've given a very reasonable forecast. We think it's consistent with other third-party forecasters. We feel like we've done a fairly good job at encompassing the information we have today. Obviously, to be fair, very hard to forecast the mortgage market. What we'll do is we'll just keep letting you know what we're seeing and then any changes that we're seeing that might drive in our output.
Right now, we feel like we've done a nice job of including all the information available, and we feel relatively good about the fact that other third parties have come out and look to be at or slightly stronger than us.
Got it. That's helpful. Gross margins in the quarter fell 210 basis points year-over-year. How much additional gross margin pressure do you expect with input cost inflation trends and changes in revenue mix?
Yeah. I think the big driver, obviously, for us, what's occurring right now is the impact of mortgage market overall, right, on our,
There really isn't any inflation impact.
Yeah.
George, from our perspective in that margin. It's really the, you know, loss of that mortgage revenue, you know, is just a big impact on us.
That's all.
Got it. Very helpful. Thank you.
Thank you. Next question is coming from Jeff Meuler from Baird. Your line is now live.
Yeah. Thank you. I understand the argument that Equifax on a consolidated basis, including the recession resistant and countercyclical businesses, is relatively resilient. I guess I was surprised that you said that even in your recession impacted businesses, you think they could potentially be flat at the high end of the range in a recession. Could you flesh out the argument behind that for us? I'm guessing the short answer is NPI and the other structural growth drivers and Verifier, but help us understand how you could potentially be flat in those businesses in a recession.
Yeah. I'm not sure when I said that or John said that, Jeff. We didn't intend to say that. When we think about our view of Equifax today versus the last recession, we think we're much better positioned. It starts with Workforce being so much larger than it was before. Kind of broadly in Workforce, as we point out, in 2008, 2009, it grew 17% when Equifax was down 6%, and it was a very small business in the scheme of Equifax, and it's got more levers today. We think Workforce is positioned to grow in a recession because of all those levers. We're very clear on that. With that being approaching 50% of Equifax, that's a big factor.
We talked about Identity and Fraud being a kind of a business that we expect to grow through a recession just because of the digital macro is benefiting there. There's a couple of businesses that are quite uniquely positive in a recession, like our unemployment claims business, which is part of Workforce. You know, so those are kinda 60% of Equifax. Then the 40%, you know, is kind of the rest, which is our credit businesses primarily in international and in USIS. Those are, you know, generally impacted negatively by a recession.
Inside of that negative impact, I think I tried to say that the negative of prescreens and volume coming down and originations coming down is dampened somewhat, not offset, but dampened somewhat, you know, by account management increasing, by credit line actions and line management actions increasing. There's, you know, more volume there. You know, we would expect those, you know, to have some pressure. Now, you also gotta think about the timing of the recession, as you point out, which is different in Equifax today than 2008, 2009. You know, if you think a recession's gonna be in 2023, for example, you know, we've got unique levers we didn't have in 2008, 2009. You know, we're in the throes of completing our cloud transformation, and the cost savings that come from that are not impacted by the recession.
You know, we're gonna execute the cloud transformation and the benefits, you know, that 250 basis points is gonna flow through. As you also point out, new products is a different game at Equifax today than it was in 2008, 2009. You know, the kind of focus, the resources, and the vitality we're delivering, you know, that's gonna benefit us in a recession, having more solutions in market and being cloud native. Those are benefits. The fourth point I hit earlier in our comments was around M&A. You know, the acquisitions we've made in the last 24 months, which, as you know, is well above historical trends, meaning we've done a bunch of M&A, 11 acquisitions, you know, over $3 billion of TEV.
You know, those are in our run rate revenue, but the synergies are kicking in in the latter parts of 2022, 2023, 2024. You know, that's gonna be a positive for us as we think about the recession. Those are all the factors we put together. We haven't done a, you know, a revenue, EBITDA, EPS forecast on a recession, but we've, you know, tried to share with you know, some of the factors we think about that are positive and negative, and there's a whole bunch more positives at Equifax certainly today than there was in the last economic event.
Helpful. Thank you.
Those recession impacted businesses would decline, right? Yeah.
Got it. Thank you.
Thanks, Jeff.
Thank you. Next question is coming from Faiza Alwy from Deutsche Bank. Your line is now live.
Yes. Hi. Good morning. Thank you. My first question, I just wanted to clarify on the margin impact of mortgages and product development costs. Are you able to size the incremental product development cost? 'Cause it seems like your overall EPS guidance is a lot lower than I would have thought, just given, you know, the implied revenue decline from mortgages. I'm curious on how big of an impact their incremental impact there is from product development costs. And are these new products something that you had planned to invest in in 2023? And is that something that you're maybe pulling forward this year?
By far the largest impact in the reduction in our Adjusted EPS, we tried to walk through the drivers, right? In terms of the margin piece, right, outside of interest and outside of the impact of FX, right, by far the largest driver is obviously the reduction in mortgage. Mortgage has very high variable profit, right? That's what's really driving the reduction in our margin dollars and therefore driving the reduction in our Adjusted EPS. Yes, there is some incremental cost that we're investing going forward in as we invest going forward in new products, but that's not the driver. The driver is really the movement in mortgage, right?
What we were trying to do is to give you perspective on. There's a substantial driver and there's some other things that are impacting margins as well. We talked about investments in the development costs. We talked about some mix issues in international as we grow the debt management business. We also talked about the fact that we get a little bit of a benefit because our variable compensation goes down. We're just trying to give you a perspective on the different side levers that are playing within the larger impact of the decline in the mortgage market.
Got it. Okay. Thank you for that. Just as a follow-up, I'm curious if, you know, Experian talked about how they're now Fannie Mae has certified them for Day One Certainty. I'm curious how you think about that. Like, is that relevant or important? Like, are there any considerations for your business at all?
Sure. It's Mark here. You know, we're aware that Experian is, you know, doing some work and investing around the income and employment space. You know, we don't see them commercially yet, meaning that we haven't seen any impacts, you know, from their work that they've done. Our understanding is a very small data set, you know, compared to our 144 million records or 110 million actives. We just haven't seen an impact. You know, that said, it hasn't slowed us down, you know, in our investments in technology and products, in, of course, our M&A focus.
You know, we're one of our priorities, one of our top priorities around M&A is to strengthen Workforce Solutions, you know, to ensure that we, you know, continue to build the moat and the competitive position around the business and, you know, including the acquisition we announced this morning of LawLogix is making that business stronger. You know, we're clearly focused on continuing to build out Workforce, which is our, you know, largest and fastest growing business. In addition to Equifax, there have been multiple companies that have had Day One Certainty for several years. Yeah. For a point. This is not anything new.
Thank you. We've reached the end of our question- and- answer session. I'd like to turn the floor back over to Trevor for any further closing remarks.
Nope. Just wanna say thanks for everybody for joining the call. If you have any follow-up questions, please feel free to reach out and have a great day. Thank you.
Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.