All right. Good morning and welcome. I'm very pleased to be joined by John Gamble, CFO, and Mark Begor, CEO of Equifax. Very pleased to have you both with us today.
Thank you, George. Great to be here.
Yes. Okay. So to begin, if you look at the broader U.S. consumer credit environment, it appears relatively stable. You're seeing some modest growth in lending volumes. Given these conditions, how would you overall describe the health of the U.S. consumer from a credit perspective? And are there any emerging risks or shifts in consumer credit quality that you're watching?
Yeah. I think no change from third quarter. When we had our earnings discussion a few weeks ago, there's a, I would call it a bifurcation of consumer kind of credit strength. Broadly, the fact that consumers are working, that's a good thing. As you know, the low unemployment and high employment is a real positive. I've been around financial services for a long time, and that's the indicator I watch very closely, and I think our customers do too. When you see unemployment changing, that's when you want to watch quite quickly. You've written about for quite some time, and we've talked about for quite some time, the impact of inflation and lower wage growth on the lower-end consumer. It's clearly been more challenging. So you've seen delinquencies increase in that area.
We haven't seen that really impact our business, meaning our customers are still investing, whether it's a fintech or some of the institutions that are focused on that demographic are still investing to grow their business, and in some cases, spending more money on data because of the complexity of that consumer. And the other thing that is one that we watch a lot outside of employment is consumer confidence. And what's that going to do to the consumer spending? And the consumer spending generally has an impact on how they think about credit and what they're going to do with credit. And the other thing that I think is a positive and no change from the third quarter, and we don't see a change going forward, is our customers are broadly quite strong. The banks are obviously well-organized, well-run. They've got strong balance sheets.
They've got strong regulations now around the capital they have to maintain, and so you've got a strong customer base focused on broadly a solid consumer base because they're working, but you've seen in some asset classes like auto, because of the higher prices of auto, as well as some consumers in the subprime and near-prime being impacted by inflation pressures, some delinquency increases there, so that's an area that we continue to watch, but again, overall, I would say it's an environment that's much like the first three quarters of 2025, and as we look forward to 2026, we see a similar environment.
Right. Makes sense. And if you drill into the subprime piece, any shifting trends, any changes in the second derivative that you're noticing with respect to delinquencies or charge-offs?
I think same thing, no. We haven't seen any real change in our customers' behavior around how they're approaching, except they continue to focus. And generally, the consumer base you're talking about is generally addressed by fintechs. And they're continuing to accelerate their use of data. Their focus on more data in order to do a better decision, meaning approve more at lower losses, is clearly a focus. And we're trying to respond with a lot of solutions that take our differentiated data set versus our competitors where we have more alternative data and really surfacing that for our customers to help in their higher-performing underwriting, meaning higher approval rates at lower losses. And I think you know we're also rolling out the TWN indicator on our credit file. We started in mortgage.
We're rolling it out in auto, and we tended to use it in other asset classes because we think that differentiates our credit file first against TU and Experian. But as importantly, it adds more value to our customers in the underwriting process because if you're just using the credit file and a credit score, you have a visibility around Mark's credit score, but you don't know if I'm working. And if you add that Mark's working with that TWN indicator, we have some other attributes we're adding there. We think that helps in the underwriting process, meaning having a more complete picture on that consumer. And then it also differentiates Equifax. We can offer that as a unique solution.
Right. Makes sense. If you look at white-collar hiring, the trends appear somewhat squishy and weak, which has an impact on background screening volumes in the talent solutions business. What are your expectations for hiring volumes over the next couple of quarters, and what would be required for a more meaningful recovery there?
Yeah. It's a loaded question. It's a complex one. There's a lot of factors there that are playing in. And I think the group here knows that the hiring market is quite large. In a good market, there's 70+ million people a year change jobs. And most of those require a background check. And then, as George knows, and I think everyone in the room knows, we provide data to the background screeners around employment, job history, education data, incarceration data, some other data elements. So in a good market, you're in that kind of 70 million. In a softer market, you'll be below that, which is where we are now. And what we've seen is the blue-collar element, which is frankly most of the 70 million, has been fairly strong, meaning there's more open jobs than people looking for them. So that's a good environment for the background screeners.
But the white-collar jobs, you've got a number of factors taking place. I think, one, you've got most corporations being prudent around hiring while they're waiting to see where's the economy going to go, where are the Trump tariffs going to go, how's that going to be sorted out. So I think there's that element that's taking place. And you've seen large companies making some pretty large layoff announcements, principally of white-collar jobs. Amazon and others that you've seen quite deliberate, others saying that they're going to have flattish headcount going forward. And then so you've got that element of the uncertainty around the global kind of environment. And then you've got the whole AI push and what's going to happen with AI. And we're seeing in our company, it's going to deliver, we think, real productivity, first in the more hourly areas.
We've got multi-thousand people in what I would call the back office call centers and operation centers managing paper that comes in from consumers in our businesses. We think we're going to get some real productivity there. But I think there's also going to be white-collar productivity. And you've seen announcements from some prominent CEOs saying, "Hey, we're going to have flat headcount going forward with AI, even though we're going to keep growing." So that impacts the hiring market. I don't think we're going to change that one. But when you say what could change is getting the tariff thing resolved. And again, that's outside my pay grade of what President Trump's going to do and how fast he's going to do it. But getting that resolved, I think, would be beneficial. And then bringing inflation down, I think, would be beneficial, which would come with that.
And then some rate reduction might stimulate investment and activity in the hiring market. For us, in our business, which is about $400 million, our data business that we sell to the background screening space, we don't do background screens. We sell the data to the background screeners. And that's our intent, is to be the data provider to them. Really, the biggest asset we have is the job we get every pay period, the job title from all of our payroll records. And one of the things you verify in a background screen is work history. So we have a digital resume on the average American. So we monetize that. And it's real value for the background screener. They get it instantly.
They can complete the background screen more quickly versus calling around to Goldman and saying, "Hey, does George work there?" and getting someone in HR to confirm that. We can do that instantly. So we've been able to outgrow the underlying market. But I think, as you point out, the market is clearly softer in that white-collar area. And most of our business and most of the background screeners' business is in white-collar background screens because you're just doing a lot more data. It's a much more valuable space to be in. Although we're investing in new products in what I would call the blue-collar hourly space because we see an opportunity to maybe penetrate down. The TAM for us of the data to background screeners is $3 billion-$4 billion versus our $400 million. So we have room to grow by penetrating more of our customers using our different solutions.
As I said, we have the work history. We have education data. We have incarceration data. These are all used in background screens. We also have medical credentialing data that's very important in the healthcare space and that's done kind of annually as opposed to just on job change so we're working to either partner or, through our M&A strategy, acquire more data around this business.
Makes sense.
Consistently outperform the underlying market quite substantially, right? We did in the third quarter. We did all this year. We expect to do that going forward, right, through, as Mark said, new products from new data and then also continuing to broaden our coverage within background screeners. And then also, we've increasingly built contractual relationships with them where they're almost like subscriptions in some cases, right? And that incents them to purchase more of our products, but it also gives them an opportunity to get better pricing on all of our products. So we get to grow together. And we think that's something that's beneficial to both of us. So we're seeing nice outperformance relative to the underlying hiring market. And we've seen it pretty consistently over the years.
Yep. Makes sense. Staying at a high level, if you look at your long-term target for organic growth, it's 7%-10%. What macro conditions are most conducive to landing in that target? And how do you think about the sensitivity to that outlook versus consumer credit health and various macro drivers?
Yeah. The 7%-10% is intended to be a long-term framework in a normal economic environment. Frankly, we haven't been in one in the last three years because of what's happened with mortgage. So I'll come back to that one. But in the 7%-10%, we think about a couple of points of GDP growth underlying that. So a normal economic environment. As you know, and George, you know well, and I think the group here knows that that's not been the case in the mortgage market over the last three years. While the rest of the market has been, I would call it, fairly normal from an economic standpoint, the mortgage market's down 50%, meaning there's less originations. There's less purchase homes. There's less refis from what we would call a normal market.
So we've been going through what I would characterize as a mortgage recession over the last almost four years. Mortgages down kind of high single digits this year and 50% from kind of 2015- 2019 levels. And as we look forward to the future, we would expect that mortgage, even though it's down this year, we expect that we're in kind of a bottoming mode. If you don't think rates are going up and if you think rates are either flat or down, kind of in a base case scenario, we've got a flat mortgage market kind of going forward. But we also have really a very large opportunity or optionality in the Equifax stock because we're kind of double-weighted to mortgage versus our peers.
We have the credit file that we sell, just like TU and Experian, but we also have the income and employment data that we sell. So combined, it's roughly 20% of our revenue that's down 50%. So we've incurred about $1 billion over the last three years of revenue decline while still growing the business because the rest of the business has been growing. So as we look forward, we see a very large opportunity as rates tick down. I'm not an economist. I'm not sure anyone in the room is. I think if we were calling interest rates, we'd probably be sitting somewhere else than at this conference.
But if you believe inflation's going to come down at some point to where the Fed wants it to be, you can see a scenario where rates are going to come down 50 basis points, 100 basis points, and then mortgage rates would come down with it. We think that will stimulate demand. And we've seen that. You may remember the 10-year got just under 4% for a while a month and a half ago. We saw an uptick in refis. And we saw an uptick in purchase activity. So there's no question that there's a pent-up demand from the consumer that wants to upgrade or downgrade their home on the purchase side. And then on the refi, you've got ARMs that are maturing. And then you also have, John, what's the number? What, $15 million?
Yeah. About, yeah.
Consumers that are at.
5.5%.
5.5% or higher over the last three years because mortgages are still happening, even though they're down 50%. There's still a lot of mortgage activity, even in this environment, that as rates come down 50 basis points, 100 basis points, they'll want to refi. And George knows this. We've quantified for our investors that the opportunity as the mortgage market recovers towards that normal level of 2015 - 2019. And again, if you look at 2015 - 2019 mortgage activity and go back 20 years, it's fairly flat. It goes up a little bit with population growth and with GDP, but it's fairly flat. It's never gone down 50%. So I'm a big believer from my economics 101 classes that you revert to the mean over time.
And so we've quantified that as the mortgage market recovers, there's an incremental $1.2 billion of revenue that could come back to Equifax at today's pricing. We'll update that $1.2 billion in February when we give guidance because it's a bigger number in 2026 with price increases and everything going forward and $700 million of EBITDA and $4 a share. And just going back to your 7%-10% long-term framework, I wanted to make the point that 7%-10% doesn't assume the mortgage market recovery. It just assumes a couple points of GDP growth. And then what we do on price, product, record additions, penetration, and all our different verticals gets you to that 7%-10% organic. A mortgage market recovery would sit on top of that and obviously accelerate that quite substantially. So we're obviously prepared for that when it happens.
It's just a matter of time when inflation comes under control.
Yes. Big drivers for us, obviously, are new product innovation, right? So our Vitality Index, which is how we measure new product innovation, has been very high this year, running well over our target of 10%, right? So if you think about 10%, that's defined as the amount of revenue we get from products introduced over the last three years. So you're looking at 300 basis points plus or minus of growth per year that adds to the 200 basis points 300 basis points of GDP. We get price every year. We're adding records in EWS every year, which drives higher growth as we continue to build out our Work Number database, right? And then obviously, we continue to drive penetration. We haven't talked about government really yet, but we have real opportunities in government, in background screening, and as we look around the world in other markets.
We think we have a very clear path to delivering that 7%-10% in a normal market, as Mark said, with all of our markets, including mortgage, only growing 2%-3%.
Right. Okay. Makes sense. Sticking with the mortgage market, the FHFA now allows lenders' choice. So VantageScore is in the mix. You've suggested in the past that VantageScore adoption could be slow to start. What are the main hurdles to adoption and what are some of the things that you're doing to help accelerate VantageScore adoption?
Yeah. It's one and just maybe a little context. I think everyone is probably versed in it. It seems like our one-on-one meetings are 70% FICO Vantage. So thank you, George, for saving this to your fifth question versus your first. But I think, as everyone knows, for 50 years, FICO had a mandate that their only score that could be used in federally guaranteed mortgages. That ended in July. And then FICO today charges $4.95 to us for the algorithm that we deliver the FICO Score. TU and Experian does the same thing. They announced about a month and a half ago they were going to go to $10. So take it from $5 to $10. And for the industry, that delta is multi-hundred million dollars of costs in 2026 versus 2025, higher costs. So very substantial.
We came out pretty quickly after the FICO announcement and said we were going to offer the VantageScore, which, if everyone in the room knows, the three bureaus own and independently distribute it. It's a score that's been around for 20 years. It's one that's broadly used outside of mortgage because you weren't allowed to use it in mortgage for federally guaranteed loans, but it's broadly used in auto, cars, and there's big lenders that have been using it for a long time because the view is it performs better at a lower cost. I believe that there's a catalyst now that doubling of price on 01/01 from FICO. We came out and said we're going to offer the VantageScore at $4.50. Think about half of the $10.
We're also going to really fix the price for a couple of years so our customers know that we're not going to increase it in 2027 the way the FICO Score has been increasing. And then we are also offering a free VantageScore with every paid FICO Score so our customers can, in mortgage, they understand it outside of mortgage because it's been adopted in many places. But in mortgage, they really understand the performance is quite similar, the VantageScore. So to your question, the complexity is around change. And what's the catalyst for change? Until July, there was no option because the FHFA only allowed the FICO Score to be used with the three credit files. That was relaxed. And using your words, lenders' choice was assumed allowed in VantageScore.
So the big milestone now is when the FHFA and Fannie and Freddie open up their underwriting engine from a technical standpoint to take in the VantageScore. That's not ready yet. That's one. It's one that's going to be sooner versus later. We think months, but that's certainly a milestone. The dialogues with our customers are quite active. Customers have the option now in mortgage to use whatever score they like in shopping. Historically, they've used FICO just for the consistency. But we have a lot of dialogues with customers that are thinking about using Vantage because of that cost differential. And as you know, that's where all their breakage is. One in seven, one in eight, one in nine, one in ten loans close in that shopping funnel, meaning consumers will go to multiple originators to try to shop their rate and shop their mortgage or their refi.
So having a cost advantage there is something that could be attractive. But the momentum of dialogues is very, very strong, really because of the big cost impact. And remember my earlier comments, the mortgage industry is down 50%. Mortgage originators are struggling broadly. And to have to take on this incremental cost is quite challenging. We think it's just a matter of time. We think there's a real catalyst of $10 versus $4.50. And as you know, TU and Experian came out similar places, kind of around that $4.50, not identical. They also kind of committed to the same kind of program we had of fixing it for a number of years and offering a free VantageScore with the FICO Score. So we think it's just a matter of time. And for Equifax, if there's no conversion, we're not disadvantaged.
We're still going to deliver our credit file, which is really the data from the credit file is what's used in the mortgage origination. That's what goes into the underwriting system of our mortgage originators and our customers. And the Fannie and Freddie systems is the mortgage trade lines are used for the origination, not the score. The score is really an indicator for early shopping behavior of what kind of consumer we have. Is this someone who's going to qualify for the kind of loan they're thinking about? And then also for pricing. But we think it's just a matter of time for that conversion to unfold going forward. And from an Equifax perspective, if there's no conversion, we'll still have a higher price credit file in 2026 than 2025. We've already rolled that out to our customers.
We have modest price increases that really align with that 7%-10% long-term framework. And we'll continue to do that going forward. If there is conversion to Vantage, we obviously get the benefits of $4.50 of profit from the VantageScore because we own it with no COGS versus a $10 cost with a FICO Score. And at current mortgage rates, that's about $100 million of incremental margin to Equifax in a full conversion. And then in mortgage market recovery, that $100 million is $200 million in a full mortgage market recovery. So my view is that there's a catalyst that's been created with the $10 price versus our $4.50 that's going to drive change. Change takes time in financial services. You've been around it for a long time, and you know that well.
But there's clearly momentum because of the big dollar impact that the originators really are going to absorb in 2026.
And we're providing a lot of resources to the industry to let them do the evaluation faster. We have data panels back to before the pandemic. We have analytics that they can use. And as George said, we're providing the score for free if you buy a FICO Score. So we have a very large number of customers in the evaluation process today.
And maybe I'll just add, George, just to complete kind of the FICO Vantage. There's broad adoption in non-mortgage, using that term, auto cards and P loans, although FICO is still very prominent there in that vertical. We're offering the same kind of benefits to our customers: a fixed Vantage price that's below the FICO price, free VantageScore reports or scores with every FICO Score. And then the other thing that I think about is that if you're a, as you know, in mortgage, there's a lot of pure-play mortgage originators. But then also most of the big banks have mortgage operations. And they're predominantly FICO, meaning like 99% in the mortgage space. Once a bank moves their mortgage business to Vantage, they're likely going to move, if they haven't already, their non-mortgage business to Vantage.
Because if you're a CRO and you don't have to, you're not going to run two different scoring systems inside of your environment. So I think that's another positive for us over time is the ability to drive a non-mortgage card auto P loan kind of Vantage penetration. And the VantageScore is very high performing. That's one we, as an industry, and Vantage probably needs to do a better job of talking about the conversions. You look at some large auto originators, card originators that moved to Vantage years ago. They did it because the score performs better for them at a lower cost. That's a pretty good equation.
Yep. In the mortgage space, in addition to lenders' choice, FICO's changing things up by going direct to resellers and bypassing the credit bureaus. Can you help frame what the impact to USIS growth might be given this change?
Yeah. It's one that we don't see a lot of traction there. There's a lot of complexities, and I don't know if the group understands well enough that a reseller is, when you do mortgage, you have to use all three credit files, so there's a group of organizations like Factual, IR, Xactus, Cotality, which used to be CoreLogic, and Equifax actually has a mortgage CRA or reseller business where we take our credit file, we buy from TU, Experian, we put it together in a tri-merge and sell it into the marketplace. As a part of FICO's announcement, they said they were going to authorize not only Equifax, Experian, TU to calculate the FICO Score, and remember, it's an algorithm. We code it in our environment. They validate it, but that's how we create the FICO Score.
As a part of their announcement, they said they were going to allow these other resellers to also calculate the FICO Score. There's a lot of tech involved in doing it. There's a lot of incremental liability that goes really from the three CRAs to the, sorry, the three credit bureaus to the CRAs. If they're going to calculate the score, they're going to be responsible for disputes. They're going to be responsible legally for the calculation of the score. And they're also going to invest a bunch of costs. And I think the industry is struggling to find out what's the incremental margin. How are they going to make incremental money for taking on risk? That's how business works.
If you're going to do something new, you got to get a return on it because we have to sell them the credit file to calculate the score, just as TU and Experian do today when they deliver to us the credit score and the credit file for tri-merge. It's hard to see where there's going to be incremental margin to be created. So I think there was, at some point, FICO was saying that this is going to happen in the first quarter. I don't think that's going to happen in the first quarter. I think that's broadly understood. And I think the industry is still thinking through, "Why would I want to do this? Why would I want to calculate the score? What's the advantage for me commercially to do that? Am I going to make more money or not?
Or am I going to take on disproportionate risk for what return?" So I guess I would say stay tuned. From an Equifax perspective, if that happened, they can't calculate the credit score without our credit file. And we're going to sell our credit file to them at, I'll use words, full price, meaning we're not going to discount it to them. If they're going to calculate the credit score, we would sell it the way we sell it to others. There's no reason we would want to discount it. So said differently, we're somewhat indifferent because today, when we calculate the FICO Score, we have $10, it's $5 today, next year $10 of incremental revenue, but there's no margin on that.
If tomorrow, in a scenario, which I don't think is going to happen, but tomorrow, in a scenario where the CRA resellers calculate all the FICO credit scores, they'd have that $10 cost. We'd have high margins on our credit file, right? So our margins would go up from a percentage standpoint. Our revenue might come down a bit, but it wouldn't change our margin dollars.
Right. Right.
That's what you and I all care about is margin dollars and free cash flow and growth rates.
Makes sense. Let's touch on government, which we touched on a little bit earlier. Big catalyst next year in terms of the OB3 bill that requires really cracking down on fraud and higher recertifications. Can you talk about the opportunity and where you see Equifax benefiting from that?
Yeah. And just for the room, I think you know this. In Workforce Solutions, our largest and until this year, our fastest growing business has been our government vertical. And so remember, we have payroll data on roughly 60% of the working population in the United States. And we use it in mortgage. We use it in auto loans to verify income and employment. I talked about how we use it in background screeners. We use it in personal loans. It's also used in the delivery of government social services. So there's roughly 100 million people in the United States that get some kind of government social service. Think about rent support, food support, SNAP, TANF, which has been in the news lately with the shutdown, Medicaid, Medicare is income verified, fuel support.
There's actually like 100 different social services at the federal, state, and local level that are all needs-based and income verified. It's about, by our calculation, a $5 billion TAM for us if the manual efforts that are done predominantly to verify income and employment were moved to our solution. Today, we have roughly an $800 million business. Over the last five years, it grew 20% CAGR. There was a bit of an air pocket in the last 12 months when the prior administration changed the cost sharing for Medicaid and Medicare data usage. It used to be the federal government paid 100% of the costs. Last July, the Biden administration moved that to 75%/25%. Some of the states struggled with budget dollars, which impacted our revenue in 2026 predominantly as they kind of got to their new budget cycles where they could get the dollars reauthorized.
We expect this business and that $5 billion TAM to grow strongly. We expect Workforce Solutions to grow double digits. We expect this business in Workforce Solutions to outgrow that double digit, meaning being at the high end of that kind of teens growth rate over the long term. So that's kind of the underlying $5 billion TAM, $800 million business. We deliver speed. We deliver accuracy. And we also deliver productivity to the caseworker because they can do it more quickly. What George was highlighting was the current administration passed OB3 on July 4th, and they put a lot more teeth into the delivery of social services. There's been a big focus by the Biden administration. It started really with DOGE right as the administration came into form earlier this year around lower government spending.
And one thing they identified was the $160 billion of improper payments that are made to social service recipients. And you read every week there's another story around some version of that, the improper payments. And I think whether you're a Republican or Democrat, you want to give social services to those that deserve it and meet the requirements. And broadly, I think what happens is someone goes in and applies for social services, they qualify, but then their income changes, meaning it goes up and they no longer qualify, but they keep getting the benefits. So OB3 put a lot of new requirements in. One of them is an error rate threshold for the states. And they put teeth into it for the first time: if a state's above the error rate, they're going to have to pay for a portion of the social services.
Today, the federal government pays for all that. And in our third quarter earnings call, we talked about there's roughly half of the states today are above the error rate. And there'd be roughly a $14 billion transfer really in 2027 from the federal government to the state budgets if they don't get the error rates down. And so post-July 4th, we've seen a real uptick in dialogues, conversations with the states. It was always very active, right? Remember, we were growing this business 20%. And we expect it to grow with or without OB3 very strongly going forward into that $5 billion TAM. OB3 just put a lot more teeth into it. So one is that error rate. They also changed the redeterminations from 12 months to six months.
So the way social services work is if you get social services today, you get authorized. They'll use our data or manual verifications. Think about for the most of those verifications will be done with paper pay stubs or state wage data. That will be done today. The current law is that 12 months from now, you check again to see if you still qualify. And because of that income variability, they're moving that to every six months. That's another transaction for us. So instead of 12-month redetermination, now it's every six months. And then for some of the healthcare services, they've added a work requirement for certain individuals, which we've never had before. That's been something the Republicans have wanted to do for quite some time that you have to try to work if you want to get social services. In the case of Medicaid, they've added that.
We have hours worked in our database. The work requirement is you have to either work 20 hours a week to get that social service, you have to go to school 20 hours a week, be enrolled in school, or you have to volunteer 20 hours a week. We have the hours worked. We have the education data so we can verify someone's enrolled in an institution. We also have the ability. We're building a product we're going to roll out next year so you can upload that data. We also have some interesting programs at the federal level, like the Earned Income Tax Credit is done centrally by the IRS. That's $15 billion a year fraud that's quantified by the IRS.
So we're in dialogues with them to use our data to check the income before you make that payment under an income tax credit. So we're quite optimistic about government as a vertical. We believe it'll be our fastest growing vertical in all of Equifax. And certainly in EWS, as I mentioned earlier, going forward, given the big TAM and the big value we deliver. And as you point out, George, OB3 just puts more teeth into it.
Right. Okay. We're just at time. Mark and John, thank you so much for the great insights and discussion. Please join me in thanking them both.