Thanks, thanks for joining us. I am Ashish Sabadra, and I cover business and information services companies here at RBC Capital Markets. Excited to host Mark, CEO, and John, CFO of Equifax. Given that it's a financial conference, I'll kick it off with consumer lending. I was just wondering if you can talk about the current state of consumer lending, particularly talk about what's happening with card and autos.
Sure. Thanks. The consumer is still quite strong. I think as you know, it really starts with their working. Unemployment being so low, wage growth is obviously a positive for the consumer. The consumer still has fairly sizable savings from the COVID pandemic that they're burning down, but still a net positive from 2019, that's a positive. Inflation putting pressure against the lower end, you know, consumer. Broadly, with unemployment so low and delinquencies still fairly low, our customers, being the financial institutions, are still operating, you know, as far as originating and operating fairly normally. I think we're all looking on the horizon for, you know, when will employment change. You know, generally, consumers that are working pay their bills, and delinquencies kinda hold pretty steady.
As unemployment ticks up is when delinquencies go up, and when that happens, you'll see banks start to pull back, you know, a little bit on originations. We haven't seen that, and we don't expect to see that, you know, really for the next couple of quarters. You know, it doesn't happen overnight, is kind of what our outlook is there. You know, on auto, there's been supply constraints that have impacted the ability to, you know, sell cars, both new and used. There's been some uptick in kinda subprime delinquencies, but really at the lower end of the consumer spectrum. I don't know, would you add anything else, John, on the consumer?
Kinda a little bit of a tick-up in card as well in terms of delinquencies. Again-
In subprime.
Oh, in subprime. Again, overall, very strong.
That's very helpful color. Maybe just switching gears, let's talk about the Workforce Solutions, the most exciting part of the business. Even on an ex-mortgage basis, you've guided to 13% revenue growth this year. Can you just talk about the puts and takes there, what's driving that strong momentum even in this kind of a challenging macro environment?
Yeah. You know, again, you called it challenging macro environment. It's really what's challenging us right now is what happened in mortgage last year and is still happening this year. You know, outside of mortgage, our markets are fairly normal. You know, we've seen some slowdowns in some of our European, Canadian, Australian businesses, but broadly, the market is still pretty stable, you know, as far as our customers. Workforce is our fastest-growing, largest and most profitable business. I think as you know, it'll approach 50% of Equifax as we exit this year. You know, if you go back to 2019, it was around $980 million of revenue in 2019. This year it'll be $2.5 billion. Very fast-growing business.
Long term, we expect that business to grow 13%-15% against our 8%-12% long-term framework, so accretive to Equifax. I think as you know, its EBITDA margins are in the 50s versus Equifax in the 30s, so that's highly accretive, you know, with that higher growth rate going forward. Your question about what's driving the growth, there's a bunch of levers that the business has. I'll start with records. Very uniquely, Workforce Solutions has the ability to add new data records and grow its revenue. At the end of the quarter, we had 155 million active records every pay period, which is about 115 million SSNs or individuals. The other 40 million is people with two jobs.
If you think about 115 million or the 155, that was up about 12% year-over-year. That 12% increase in records translates into revenue because we're getting inquiries from our customers for every application they have. If you think about 115 million, there's about 220 million working Americans. We have roughly 55%, you know, coverage that was up 12%. We were up in the 20s, low 20s in 2020 and 2021 of record growth. That record growth is a big lever for Workforce Solutions and quite unique because most data businesses have all the data, and they work to price it, new products, new verticals, you know, new solutions.
We have all those options with Workforce Solutions, we have the ability to add records. Records is a big driver for growth. Again, when you think about, you know, records being up 12% like last year, that's a big driver of the revenue. We take price up every year. Like all of our businesses, Workforce has more pricing power than the rest of Equifax, so price is an element there. Product is a big lever at Workforce and other Equifax businesses. When you think about product, it's new solutions you're bringing to market, generally data combinations or trended data, meaning historical data. You know, for example, in Workforce Solutions, we rolled out in the last couple of months a Mortgage 36 solution that gives 36 months of income history, you know, which is very important.
Some consumers or applicants for a mortgage, you know, may, their snapshot today of their income may not represent what their true earnings power is over the last 12 months.
Sure
... because they have a bonus that they're getting maybe, last August. That 36 solution picks that up. Instead of a $40-$50 solution, which is our snapshot that we sell, and we sell our primary solution is that, how much is Mark making today, that 36-month solution we sell at a higher price point, you know, 3 times that, $150 kind of price point. That drives our revenue as we're rolling out new products. On the new product front, I think as you know, we have a metric we share with our investors and we utilize internally, we call our vitality index.
Our Vitality Index is the % of our revenue from new products introduced in the last three years. We set out a goal in our long-term framework that we reintroduced in 2021, as you remember, of 10% vitality for Equifax going forward. 10% of our revenue from new products over the last three years, that was up from 5%-7% historically. Last year it was 13, so we're way above the 10%. New products is a big lever for all of our businesses, including Workforce Solutions. Penetration's a very unique opportunity for Workforce also. Workforce Solutions is a fairly new business. You know, when you think about it's only been around for 20 years, where, you know, the credit file, the rest of our business is over 100 years old.
The, you know, the credit file's been around for a long, long time. This business has really scaled, and penetration really is around in all the verticals we have, what portion of our customers are using our solution versus manual income and employment verification. Because if you go back 50 years, you know, pre-Workforce Solutions, 50, 40, 30, 20 years, every mortgage does an income and employment verification. A lot of auto loans verify income and employment, particularly in subprime. Is social services the government vertical for us? It requires an income verification for rent support, childcare support. Those all require income verification. Historically, that's done manually. As Equifax has built up its Workforce Solutions TWN database on income and employment, we're digitizing those processes.
For example, in mortgage, when penetration, three years ago, 50% of mortgages were done manually and 50% used our data.
Mm-hmm.
Last year was 60. Over the years, we've grown 200 basis points per year. That grows our revenue. If you go into auto lending, it's fairly penetrated in subprime auto. We're growing into near prime auto now. That's penetration. That's growth opportunities, you know, for us. You go into cards, it's fairly small. That's a big growth potential to combine the credit file with income and employment data. P loans are fairly well penetrated, not as much room there. Go into either Talent, which is a background screening space or government. I'll start government first 'cause it's similar to, you know, mortgage verification. All social services in the U.S. are income-based, meaning you get more services if you make less.
Yeah.
You have to verify that. We can do it instantly.
Yeah.
Government is about a $2 billion TAM, where we have about 20% market share. Last year, we were up 50%.
Yeah
in the revenue in that business, as we digitize those social services. The last vertical for us, you know, around penetration.
Yeah
-is, the background screening space. We call it Talent, as you know. That's about a $5 billion TAM. most of the background screening work on job history-
Yeah
-is done manually. The background screeners have big BPO operations. We have a digital resume on the average American. We keep every record that we have. We've been doing that for 20 years. We have 600 million jobs and individuals inside our data set because one of the data elements we get is the company name and the job title.
Yeah.
We have that digital resume, so we're digitizing the background screening space. Today, in that $5 billion TAM, we have, you know, something like 15% market share, meaning 80%+ is still done manually. Penetration, you know, is a, is a big opportunity for us. A bit long-winded-
No, that's helpful.
Quite uniquely, Workforce Solutions has multiple levers to drive their top-line growth, which is why our long-term framework for them is 13%-15% long-term growth versus our 8%-12% for Equifax. It's accreting in on the top line.
Yeah.
Of course, with its very high EBITDA margins, given the uniqueness of the data set, it's one that accretes into our margins also.
Absolutely.
One thing we should add really is system to system integration.
Yeah. Please, John.
One of the ways we grow share is by building out system-to-system integrations with all of our customer set. It's something that we've done uniquely 'cause we've been working on it for over 15 years. One of the moats around the business, in addition to all the things Mark described, is also the fact that we've built these integrations with mortgage lenders, with in card, in government, in talent. We see their transactions real-time.
Yeah.
None of our competitors have seen that. As we continue to build out those system-to-system integrations, it allows us to grow penetration faster.
Yeah.
That's one of the things that accelerates the growth of the business, especially with historic records, right? It helps us monetize those historic records and new products even faster.
We have roughly 25% of our revenue in most of our verticals is done what we would call through our website.
Yeah.
One at a time, they'll come in. As we move a customer who's doing web access to system to system, as John pointed out, we get a 25% lift in pulse.
One
There's no breakage. They're sending every application to us versus just picking which ones they send to us versus what they do manually. We spend a lot of time converting our customers to system to system. I think we're up to, well, 75% roughly of our volume now is system to system.
That's great. That's very helpful. Maybe if I can drill down further on the government side. As you said, very strong momentum on the government front.
Up over 50% last year.
Up over 50%. There was a large Social Security Administration.
Yep
...that was ramped up. I think yesterday or day before, you launched a new product, Client Insight Case Monitor.
Yep.
I was just wondering, how should we think about that momentum in that business going into not only 2023, but over the next few years?
Yeah.
One of the concerns we hear is, after such a strong growth profile, could the business slow down? Looks like there's a lot.
When you think about the TAM, it's a $2 billion data TAM for us, and you know, we're kinda 15%-20% penetrated there. There's so much penetration opportunity.
Yeah.
As we add new records, remember, they're sending every applicant to us.
Yeah.
As we add new records, that drives growth, penetration. As you point out, new products-
Yeah
like the one we announced, this week, you know, drives growth there. It's really at the federal, state, and local level. It's very multifaceted. You point out we won a contract about 18 months ago with the Social Security Administration. That's a, you know, kind of a $25 million-$30 million a year contract. That was ramping through 2022 and will into 2023. You know, most of our revenue is actually at the state level. What makes the business very complex is that when you go to the state level, each agency is different.
Yeah.
There's not one place to go. If you think about coming here to New York, you know, you're gonna have the food stamp agency, you're gonna have the rent support agency, the child support agency, you know, the school lending support agency, the unemployment agency. They're all different. You have to connect with all those. What we did a couple years ago is put Equifax Workforce Solutions people in each state capital, which is where they're generally headquartered.
Mm-hmm
... as well as a government relations person there to really drive the integrations of each of those. The other complexity is most of the state agency, infrastructures are legacy and old, so it's challenging to sometimes to help them get into the workflow. The value prop we have of delivering instant data-
Yeah
... is so powerful and the productivity benefit. If you've been to any of these social services offices, you know, you think about a wall of people, waiting in line to a counter, and there's people behind there working for the agency looking at paper that they bring in to try to verify their income in order to get that social service. When they use our capabilities, which many of them are and more will, they deliver it instantly. That agency wants to send home that consumer, that mom, with the food stamps capabilities, not send them home to get more documents sent. It also delivers productivity, meaning the line completes more quickly. They can get more people through, and they don't need to have as many people, you know, manning it because they're using instant data.
really strong value prop there that we see a lot of growth potential.
Another tailwind we have in government is in the Affordable Care Act.
Yeah.
Right? When someone signs up for healthcare through the Affordable Care Act, through the federal portal or some state portals, Equifax is used to validate their income to determine the level of subsidy.
That's right.
More and more states are starting to move to the federal portal because there's subsidies from the federal government. When they do that, we get a revenue lift, right? We're seeing that tailwind as we went through 2022. We expect to see more of that tailwind as we go through 2023.
That's very helpful color. As you said, very strong momentum there. Maybe if you could just address one of the concerns that we've heard about just the waterfall and whether EFX is at the top of the waterfall or not, particularly from some of your customers in the mortgage and talent industry. I was wondering if you could help address that concern.
Yeah. We don't see any impact from that. I think, as you know, there's really only one player that's in the space with some degree of scale, which is Experian. You know, if you think about our 155 million records, we think about them having something like 5 million unique records. Those are valuable records, those 5 million. We haven't seen any impact where it's changed our market position. With a lot of our customers, we give them top of waterfall discounts. But the hit rates we have are just so much higher than they can ever deliver. If you think about 5 million versus, you know, 150 million or 155 million.
That's right.
... it's just so dramatically different. I think, as you know, our records, we get them through either direct.
Yeah
... our employer services business, which is about a half a billion-dollar business, where we're delivering regulatory services to HR managers, unemployment claims, I-9 verification, W-2 management, ACA management, Work Opportunity Tax Credit, all those services get outsourced to Equifax, as a part of that half Billion dollar business sitting inside of Workforce Solutions. As a part of that relationship, we also deliver income and employment verification to that company for free.
Mm-hmm.
Remember, if we're not doing income and employment, they're doing it themselves.
True.
They have to have a call center. They have to authenticate the mortgage originator or the auto lender or whoever's calling. Is this a fraudster?
Yeah.
Is it really someone legitimate? We do that for them.
Yes.
We validate every user of the data, and the data is never used by any of the authorized users without the employee consent.
Yeah.
A really strong value prop there.
Yes.
The other half of our records we do through partnerships. You know, those are long-standing partnerships with payroll processors, HR software companies. The scale of our dataset is really quite substantial.
Yeah. Most of your relationship are exclusive with the payroll providers.
That's correct.
The other benefit we have, again, is historic records, right?
Yeah.
None of our none of the people trying to enter the market have the depth of historic records. We're finding in non-mortgage, we're looking at a situation where we're getting to a majority of the transactions we execute are looking for historic information. It's something that we're uniquely positioned to deliver.
Yeah
... Those products are more valuable to our customers.
Absolutely. As you see more penetration of trended data as you talked about Mortgage36 product.
That expands the moat around the business.
Absolutely.
No question, because we have the history of the data, which is so valuable. You know, close to 25% of our revenue comes from our historical records.
Yeah.
If you're in a startup mode, you don't have any historical records.
That's right.
You think about a mortgage solution where, you know, you have to have 24, 36 months of history, it's very challenging when you're in a startup mode to have that kind of data.
Switching gears, talking about technology transformation, EFX is the first bureau to have a fully cloud-native application.
First and only.
First and only.
Yeah.
You have it. I was just wondering if you could talk about like how having a cloud, fully public cloud infrastructure as well as the data fabric.
Yep.
Obviously you talked about Vitality Index. Vitality Index jumped to 14% in the fourth quarter, so that's been a good driver. Can you also talk about how it's helping you go after a greater share of wallet-?
Sure
with your existing customer or new wins or even expand addressable markets?
Yeah. we think fundamentally a data analytics company has to be a great technology company. You know, that's something that I believed when I joined five years ago. following the cyber event in 2017, you know, we had an opportunity to either spend $200 million to strengthen our legacy security or to go to the cloud and have even better security, which we believe we have the best security in the industry...
Mm-hmm
and go cloud native. We opted to go cloud native. This has not been an easy exercise. It's not for the faint at heart, but it's really gonna transform Equifax and how we operate. It's really a new company when we think about it going forward. We're in the final chapters of completing it, you know, after 4+ years of work on it and $1.5 billion of incremental spend that's mostly behind us. We finished last year at 70% cloud native of our revenue. The end of this year will be 80%, which means North America, most importantly US, which is where our large businesses are, will be cloud native. In 2024 and 2025, we'll finish up international.
We'll be fully cloud native, and as you point out, the only data analytics company that's cloud native. The second piece of our cloud transformation that's less visible to our investors, we need to help with that, is the fact that we not only took all of our applications to the cloud, and these weren't lift and shift, these were rewritten. When you think about, you know, a company over time will have five, seven, 10 versions of an application, we rewrote those to one, so every customer's on the newest version of that. We become more valuable to them. The second part that we did in the cloud transformation is go to a single data fabric. Managing data at scale in a data analytics company is super hard because there's so much of it.
Historically, we and our competitors had their data sit in siloed data assets by different types: credit file, income and employment like TWN, wealth data. You know, we have different data sets that we have. We took all that data as a part of the cloud transformation and put it into a single file, so no more siloed data assets.
Mm-hmm.
We believe that's gonna allow us to accelerate, our new product introductions, which drive top line.
Yeah
...and drive incremental margins. What are the benefits from the cloud? you know, we didn't do this just for cost savings.
That's right.
The cost savings are quite substantial.
Mm.
You know, think about 20% savings legacy versus cloud. You're seeing that, you know, in 2023, you know, with some of the cost takeouts that we're implementing as a result of moving from legacy, shutting down our data centers and shutting down those old applications and moving to the cloud. You know, we announced in February that it'll be about $200 million of CapEx and OpEx out in 2023. There'll be additional cost saves in 2024 and 2025, you know, from the cloud savings. As I said, we didn't do it for cost savings.
Mm.
It almost tenses out just from the cost savings. We really did it to be more competitive. Number one, to manage more data.
Yeah.
Allows us to ingest more data. Second is the ability to deliver in a digital environment. All of our customers' transactions are happening online. If you're in a legacy environment, you can't deliver nine nines of stability, meaning being always on. The cloud allows you to deliver to nine nines. We think we're gonna be a more important partner that should drive market share.
Yeah
...to your point, because we're always gonna be on. That's a very valuable thing in a digital environment. We already talked about the ability to roll out more new products more quickly.
Yeah.
As you know, I talked about it earlier, we laid out a 10% Vitality Index goal for Equifax over the long term, and that's the percent of our revenue from new products in the last three years. As you point out, we were 14% in the fourth quarter, 13% for 2022, and we guided that we'll be in that 13% range for 2023, so above our 10%. One of the things we're seeing is businesses inside of Equifax that have gotten to the cloud more quickly are actually north of that 10% and north of that 13%.
Wow.
Workforce Solutions, for example, has been cloud native in their verification business for almost two years. They're almost 2x that 10%, meaning, north of 20 in vitality. It really unleashes the ability to bring data to market in a different way. Of course, new products are accretive to our revenue growth.
Mm-hmm
...because they're driving new solutions to our customers, and they have very high incremental margins, new products. Because your data is already paid for with your base, you know, load of the business as you're rolling out new solutions. You know, super important there. As I mentioned earlier, security. You know, security is so important as a data analytics business, particularly for a company that was a victim of a cyberattack in 2017. We believe that you can't have the security of the cloud that you get in a legacy environment. It's just too expensive, and we believe the cloud security is just market leading, you know, for us going forward. Did I miss anything?
I think you covered it well.
All right.
Yeah. Yeah.
Yeah, I think just 20% plus vitality in the Workforce Solutions.
Is a great proof point, isn't it?
Is a fantastic proof point.
Yeah. Yeah.
Just switching gears, moving to international.
Yep.
Pending Boa Vista acquisition.
Yeah.
I was just wondering what's driving that accelerated growth in Boa Vista, and what can you do to further accelerate growth as post the close of the acquisition?
Yeah. International for us, as you know, is about 20% to 25% of Equifax. We're in 25 countries outside the U.S. We have market-leading positions in Australia and Canada. We're in the U.K., not market leading. We're leading in Spain. In most Latin American countries, we're number 1.
Yeah.
We're not in Brazil. We've had a 10% ownership. Just to finish on international was up strong double digits last year.
Mm-hmm.
Above long term, we expect international to grow 7%-9%.
Yeah
inside of our 8-12.
Sure.
EWS at 13%-15%, 8%-12% overall, 7%-9% for international, 6%-8% for USIS. They've been outgrowing-
Yeah
...their long-term growth rate for Equifax, for international quite positively. Latin America is the strongest grower inside of international. We've been in a lot of those countries there. We've owned 10% of Boa Vista for a decade.
Yeah.
We've been looking for an entry point to, you know, move from the 10% to control. We tried to be quite disciplined about, you know, getting into that. What we like about Boa Vista is obviously, we have a big competitor that's very successful in Brazil in Experian Serasa. A lot of respect for them. You know, very high market share, well above 50%. I think it's close to 70% market share in Brazil. It's a fast-growing market. It's a big market. It's got a growing middle class and banked consumer base, which is good for data.
Yeah.
Those are all the reasons we like Brazil. We wanted to be in Brazil and want to find the right entry point. What's unique about Boa Vista, it also has a data set that no one else in Brazil has.
Yeah
... from retail finance. One of the owners of Boa Vista is an association of retailers.
Mm-hmm
... in the São Paulo state, which is where most of the population is and most of the income and consumer base. They have a very rich consumer database that only Boa Vista has. That was another attraction for us. The association is gonna stay as a 20% owner of Boa Vista going forward, we'll have 80%. That was important to us to keep them in there. Boa Vista has been growing in kind of mid-teens, you know, which is very attractive for the last number of years.
Mm-hmm.
You know, we like the business. We feel like we have a very attractive proposal on the table. You know, the board of Boa Vista has approved the transaction. We're going through some of the regulatory filings, then there'll be a shareholder vote.
Yeah.
We hope to close, expect to close, the transaction in the second quarter. It'll be very attractive financials for Equifax, you know, as far as accretion and our plan will be is to do what Experian's done with Serasa. You know, what we do with our other international markets is we'll bring in the Equifax cloud.
Mm-hmm
... our Equifax capabilities, all of our Equifax products, to really augment, you know, what Boa Vista has, which is very strong on its base, and really continue to drive growth going forward.
No, that's great. Maybe just quick question on margins. You talked about $200 million savings in 2023.
Yep.
$250 million, I think you've guided for next year, 2024. If you look at the margins also, there's a significant ramp up in the margins exiting the year at 36%.
Yep.
You've reiterated your 2025 targets of 39% margins.
Yep
... which is still a steep margin expansion over the next few years.
Well, I'm guessing 36 in the fourth quarter is better than you had in your model in December.
Absolutely.
Obviously, you weren't expecting us to accelerate a bunch of the cloud cost savings into 2023.
Yeah.
Part of that was we spent more CapEx last year and made more progress. We did a broader restructuring in the company-
Yeah
... to really take advantage of some of the cloud benefits outside of technology.
Makes sense.
You know, to really improve the company. $120 million of OpEx savings this year, those ramp through the year, as you point out.
Yeah.
Meaning the reductions of contractors working on tech or some of the FTEs in Equifax that'll be coming out. Exiting the year at 36% EBITDA margins is a great jumping off point for 2024 as we head towards our 39% goal in 2029. I'm sorry, 2025.
That's it.
Yeah.
To get to 2025, we've also talked about wanting to get $7 billion of revenue. When we gave that goal back in 2021, right, we talked about needing a more normal mortgage market.
Yes.
What we said normal was, let's say, 2015 to 2019 average market for, say, originations. Right now, with the 2023 guidance we've given, we're running 40% below those levels.
Yeah.
We don't need to get.
Below normal.
Below normal, yeah.
Yes.
We don't need to get all the way back to those normal levels in order to deliver $7 billion in revenue. I think what we've indicated is we need to get about two-thirds of that back. The reason why we don't have to get all the way back to mortgage, as we talked about back in 2021, back to those normal levels is because.
Our non-mortgage businesses are really outperforming.
Very strong, yeah.
... our long-term framework. Workforce Solutions has been growing faster, you know, than their long-term framework of 13%-15%. Our other non-mortgage businesses have been performing exceptionally well, which gives us the momentum to still, you know, go after that $7 billion number for 2025.
You've seen that through the much higher Vitality Index than we talked about back in 2021. The 13% is way higher than anything we talked about initially.
Absolutely. That's very helpful. Maybe just on the mortgage also, right? You've been outperforming the mortgage market. I was wondering if you can talk about what's driving that outperformance.
Yeah.
Maybe it just goes back to, as you said, better system integrations and new product innovations. How do we think about that sustainability of performance to mortgage?
As you know, we've been doing it for a long time.
Yeah.
You would expect Equifax and any data analytics company to outperform their underlying markets.
Makes sense.
That's what DNA businesses do. That's why we get the multiple that we have.
Yeah
... that we grow faster than GDP.
Yeah.
You know, on our 8%-12% versus call it a 2% long-term GDP, you know, rate is, you know, 4x-6x that, which is how we perform. How do we deliver that? You know, it starts with pure price. We take price up every year. You know, price, if the market's going down and you're increasing price, you're offsetting a part of that market decline. If the market's going up and you increase price, you're outperforming, you know, that underlying market. New products, which we talked a bunch about.
Yeah
... you know, in this session, is another one. Bringing out those new products at those higher price points.
Yes
... drives, outperformance. Market share, you know, driving penetration does that. With Workforce Solutions uniquely is records.
Yeah.
The ability to add records, whether the economy or mortgage market is up, down or sideways, if you're adding records, you're getting higher hit rates, which drives your revenue.
Yeah. No, that's very helpful. We'll keep it there. Thank you very much. Thanks, Mark.
Thanks a lot. Thank you.
Thank you.
Take care.