Greetings, welcome to the Equifax second quarter 2023 earnings conference call. At this time, all participants are on a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Trevor Burns, Senior Vice President, Head of Corporate Investor Relations. Thank you, sir. Please go ahead.
Yep. 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, and archive of the recording will be available later today in the IR Calendar section of the News and Events tab in our IR website, investor.equifax.com. During the call today, we'll 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, 2Q 2023 earnings conference call. We're making certain forward-looking statements, including third quarter and full year 2023 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 our filings with the SEC, including our 2022 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. In the second quarter, Equifax incurred a restructuring charge of $17,500,000 , or $0.10 per share. This charge was for costs principally incurred to reduce additional headcounts in 2023 as we realign our business functions in advance of completing our cloud transformation.
This restructuring charge is excluded from Adjusted EBITDA as well as Adjusted EPS. Now I'd like to turn it over to Mark.
Thanks, Trevor. Good morning. Turning to slide 4, we executed well in the second quarter against a challenging mortgage and hiring markets while delivering on our 2023 financial objectives. We continued to outperform our underlying markets with broad-based 6% non-mortgage growth against a tough 22% comp last year. We continued strong mortgage outperformance in a challenging market and very strong new product growth with a record 14% Vitality Index. We also executed well against the $200,000,000 cloud and broad-based spending reduction program we announced in February and delivered 350 basis points of sequential margin expansion in the quarter. Globally, with the exception of the U.S. mortgage and hiring markets, we continue to see good customer demand across our consumer, commercial, and government lines of business.
The U.S. mortgage market weakened relative to our expectations as we moved through the latter portions of the second quarter, when mortgage rates moved above 7%, which will impact our results in the second half. In the quarter, we delivered Adjusted EPS of $1.71 per share and Adjusted EBITDA margins of 32.7%, both above the guidance we provided in April. Execution against our cloud and broader spending reduction programs was also very strong and drove the 350 basis points of margin expansion in the quarter. Revenue at $1,318 ,000,000 was close to the midpoint of guidance, with USIS and international delivering strong quarters, both above our expectations.
EWS non-mortgage revenue at up 4% was below our expectations, but off a very strong 52% comp last year, principally due to the weaker hiring market that impacted our talent solutions and onboarding businesses. EWS had outstanding operational execution in the quarter, delivering a new product Vitality Index of 25% and expanded current TWN records by 12% to 161 ,000,000 records, a growth of 5 ,000,000 records sequentially. EWS also had strong cost management as they fully operational their new cloud capabilities, delivering Adjusted EBITDA margins of 51.5%, up over 100 basis points sequentially and stronger than our expectations. USIS had an outstanding quarter and delivered almost 6% revenue growth, much stronger than our expectations.
Total non-mortgage revenue growth, revenue grew 8%, led by 9% growth in our B2B online and 10% growth in Consumer Solutions. Adjusted EBITDA margins of 36% were also stronger than our expectations, expanding over 300 basis points sequentially. Total U.S. mortgage revenue from both USIS and EWS was down about 13% or 24 points better than the 37% market decline from pricing actions, new products, records, and penetration. We continue to see stronger than expected consumer shopping behavior in these higher interest rate environments, so the weaker mortgage market we saw in June had a much smaller impact on USIS than in EWS, where their mortgage activity is more aligned with closed loans.
International delivered 7% growth in constant currency, also stronger than our expectations, with double-digit growth in Latin America and high single-digit growth in Canada and the U.K. CRA. International delivered 24.2% Adjusted EBITDA margins, up 70 bips sequentially and stronger than our expectations. New product innovation, leveraging our differentiated data assets and new capabilities delivered by the Equifax Cloud, is also executing at a very high level. Our new product Vitality Index of over 14% in the quarter was a record for Equifax, and 400 basis points above our 10% long-term vitality goal, and up over 100 basis points sequentially. This is encouraging for the future and reinforces our long-term strategy of leveraging our differentiated data assets, our new cloud capabilities, to deliver new solutions for our customers. We continue to make good progress on completing our cloud transformation.
At the end of the quarter, over 70% of North American revenue was being delivered from the new Equifax Cloud. We're convinced that our Equifax Cloud, single data fabric, and AI capabilities will provide a competitive advantage to Equifax for years to come. As we look to the second half, we expect the weaker than expected U.S. mortgage market that we saw in the latter half of the quarter to continue through the remainder of the year. Our updated guidance is for U.S. mortgage originations to be down about 37% for the year and about 20% in the second half, a reduction of five points from our prior full year framework. We expect EFX mortgage origination outperformance to continue to be very strong in 2023.
We're also expecting to see weaker U.S. hiring market continue for the remainder of the year, impacting Workforce Solutions, talent, and onboarding businesses. We expect to offset the hiring weakness, principally from strength in the Workforce Solutions government business, and continued solid performances at USIS and International. EFX non-mortgage revenue growth was up 6% off a very strong 22% comp last year. We expect non-mortgage revenue growth to strengthen in the second half to up 11% and up over 300 basis points sequentially relative to the first half, from continued commercial execution and strong new product rollouts. Our 2023 Cloud and broader cost reduction program executed well in the quarter. We continue to operate more of Equifax in the new Cloud environment, we're seeing more opportunities for efficiencies and expect an additional $10 ,000,000 of spending reductions in the second half.
These new actions will deliver additional run rate savings of $25 ,000,000 next year. We now expect to deliver spending reductions of $210 ,000,000 this year and over $275 ,000,000 in 2024. As a reminder, the 2023 savings are weighted to the second half and will deliver $65 ,000,000 of 2024 run rate benefit. We expect the weaker mortgage originations to impact our mortgage revenue by about $40 ,000,000 in the second half. Despite the weakening in U.S. hiring, we expect to deliver 2023 non-mortgage revenue growth of about 8% from strong growth in EWS government, USIS non-mortgage and international, and stronger NPI growth. This above 8% non-mortgage growth is against a strong 20% non-mortgage growth last year and well within our 8%-12% long-term growth framework.
The net impact of the weaker than expected mortgage market of about $40 ,000,000 , partially offset by positive FX, is a reduction of our 2023 revenue guidance at the midpoint by $25 ,000,000 to about $5,300 ,000,000 . The impact of the lower mortgage revenue results in a reduction of our full year 2023 Adjusted EPS guidance at the midpoint of $0.22 to $6.98 per share. We remain focused on delivering EBITDA margins of 36% and over $2 in Adjusted EPS per share in the fourth quarter, which we believe sets us up well for 2024 and beyond. In June, we received shareholder approval for the acquisition of Boa Vista Serviços, the second largest credit bureau in Brazil. We're energized to complete this strategic and financially attractive acquisition.
We expect the transaction to close in early August and are actively planning for integration and the transfer of our cloud capabilities, global platforms, and products to help accelerate BVS growth. The BVS acquisition will add approximately $160 ,000,000 of year one run rate revenue in the fast-growing Brazilian market. We expect the transaction to be slightly accretive to year one Adjusted EPS. The guidance we provided for 2023 does not include BVS. We intend to provide more details on our expectations for BVS in 2023 at our October earnings call after we close the deal. Before I cover results in more detail, I wanted to provide a brief overview of what we're seeing in the U.S. economy and the U.S. consumer. Since our April update, outside the challenging mortgage and hiring markets I already discussed, the U.S. consumer and our customers remain broadly resilient.
We continue to navigate a higher interest rate environment that's negatively impacting the U.S. mortgage market. Mortgage interest rates have trended upwards since April and were slightly above 7% at the beginning of July, and were just under 7% at the end of last week, which is clearly impacting originations. We expect mortgage originations, as I mentioned earlier, to further weaken in the second half, with originations down about 37% in 2023, or 500 basis points weaker than our April framework. Broadly, consumers are still strong and working with unemployment at historically low levels, and the market is resilient, with roughly 10 ,000,000 open jobs against 5 ,000,000 people who are looking for jobs. Inflation is starting to abate at 3% in July, which should mean we are approaching a peak in Fed interest rates.
Consumers are spending and borrowing with average credit card and personal loan balances back above pre-pandemic levels. With consumers working and still leveraging pre-COVID stimulus and savings, delinquencies are still at historic levels, historic low levels and close to 2019 pre-pandemic levels. Subprime DQs are the only areas of stress that we're seeing. We're also seeing credit card and personal loan utilization increases in some delinquent, with some delinquency increases in subprime. More broadly, delinquencies are back at pre-pandemic levels, which as we all know, were very low, although they remain significantly below levels we saw in the last economic event in 2009 and 2010. Auto delinquency rates for subprime consumers are above pre-pandemic levels, as well as above levels we saw in 2008 and, I'm sorry, 2009 and 2010.
We believe there's been some credit tightening by our financial customers, principally in fintech and subprime. Looking forward, consumers holding student loans will need to resume making payments beginning in October, and we believe removing student loan payment freeze will have a modest increase on a decrease on average credit scores. Beyond the weaker mortgage market and slowing white-collar hiring market, which had a larger impact on EWS than we anticipated in the quarter. The combination of white-collar job reductions and broad hiring freezes has reduced both background screening and onboarding activity. As I mentioned earlier, we expect this to continue in the second half. Turning to slide 5, Workforce Solutions revenue was down 4% in the quarter.
Mortgage revenue was down 20, but up about 3 percentage points sequentially. The decline of 20% compares to a mortgage origination down 37%, as estimated by MBA, based on data through May. As I mentioned, overall mortgage market performance in the latter part of the quarter weakened relative to our expectations, resulting in lower mortgage revenue than we expected in our April framework. Strong record growth, the positive impact of 2023 price actions, and strong NPI performance, driven by the adoption of our Mortgage36 solution, which is a 36-month trended mortgage product, drove the 17 points of mortgage outperformance by EWS in the quarter. During the quarter, about 50% of TWN mortgage inquiries were for products that include EWS trended or historical information, and of course, these are all at higher price points.
In the quarter, Workforce Solutions saw declines in low margin manual mortgage verification services revenue, as some customers moved some of these activities back in-house. This negatively impacted mortgage outperformance by about 300 basis points in the quarter. EWS had another very strong quarter of record additions, with an incremental 5 ,000,000 records added to the TWN database, ending the quarter with 161 ,000,000 current records, which was up 12%, with 120 ,000,000 unique records or SSNs, which was up almost 10%. Over the past 5 years, EWS has doubled the size of the TWN database, a strong testament to the record acquisition strategy EWS has executed across the multiple segments of direct employers, third-party payroll providers, HR software management companies, pension administrators, and self-employed individuals.
As a reminder, TWN's 120 ,000,000 unique records represent individuals or SSNs on the TWN database, and their 161 ,000,000 current records represent current active jobs on the database, which means there's close to 40 ,000,000 individuals in our data set that have more than one job. Including self-employed or 1099 employees and people on defined benefit pension plans, we now cover just over 50% of the 220 ,000,00 working and income-producing individuals in the United States. Through our cloud tech transformation, we're expanding our capabilities to ingest all levels of records, including 1099-based self-employment records. As a reminder, about 50% of our records are contributed directly by individual employers as they are customers of our expanding employer services business, and the remaining are contributed through partnerships, principally with payroll companies.
During the quarter, we signed agreements with four new payroll processors that will deliver records during the rest of the year. The TWN database now has 631 ,000,000 total current and historical records from over 2,800,000 employers in the United States. Increasingly, more of our new products are incorporating current and historical records, with about 50% of second quarter verification services revenue coming from products that included historical records. Turning to slide 6, Workforce Solutions delivered non-mortgage revenue growth of about 4%, with non-mortgage revenue now representing over 70% of Workforce Solutions revenue. As a reminder, EWS non-mortgage revenue was up a very strong 52% in second quarter last year, which was a very tough comp.
Verification services non-mortgage revenue, which now represents about two-thirds of verifier revenue, delivered 4% growth, both sequentially and versus last year in the quarter, which was below our expectations. This was also against a very challenging 90% non-mortgage growth comp by Workforce Solutions last year. The miss versus expectations was predominantly in talent solutions from weaker white-collar hiring. Government performed exceptionally well, consistent with the high growth that we had expected, and consumer finance declined somewhat in the quarter. In government, we saw continued very strong growth, with revenue up 21%, off over 100% growth last year in second quarter, and revenue also up almost 10% sequentially, driven by strong growth with CMS at the state level, new products, and TWN record growth. The government now represents about 45% of verifier non-mortgage revenue.
We expect to see accelerating sequential growth in our government vertical in the second half, driven by growth from CMS Medicaid redeterminations, ACA open enrollment volume, further state penetration, and pricing from state contract renewals. We began to see incremental volumes from CMS redeterminations in May and expect to see this accelerate in the second half. This strong sequential growth will also result in accelerated second half EWS growth rates. Talent Solutions was down 6% in the quarter, but up about 1% sequentially. As we are comping off a very strong 130% growth last year from record levels of hiring in the second quarter.
As a reminder, we are currently more heavily penetrated to white-collar workers, including technology, professional services, healthcare, and financial services, which has seen greater reductions in hiring activity and broader hiring freezes than the about 7% decline that BLS is reporting through May. Approaching 70% of talent solutions revenue in the quarter was from industries that had negative hiring growth versus last year, with many of those industries having significant double-digit negative growth in the quarter. We are outgrowing the declining market from penetration of our digital solutions with background screeners, strong new product growth, continued expansion of TWN records and favorable pricing. We are also seeing continued customer penetration of our new differentiated educational products. We expect these new products to continue to drive above underlying market talent revenue growth through 2023 and into 2024 and beyond.
The consumer lending vertical in Workforce Solutions, which includes P-Loan, card, auto, and debt management, was about flat sequentially, but down 11% versus last year to lower auto volumes with financial services and P-Loan declines with Fintech lenders, both principally in the subprime space. We expect modest consumer lending sequential growth in the second half, driven by record growth, penetration, and pricing. This will result in revenue growth in second half as we lap 2022 headwinds in the auto and P-Loan verticals. In total, we expect to see accelerated sequential growth in verifier non-mortgage in the second half, driven by strong government growth, as well as moderate sequential growth in talent and consumer lending. Employee services revenue of $109 ,000,000 was up 4%, driven by growth in our I-9 and onboarding businesses, despite the negative impact of U.S. hiring.
In total, our UC and ERC businesses were up slightly. Despite the slowdown in U.S. hiring, we have not seen an increase in UC revenue yet. As a reminder, first quarter employer service revenues were seasonally higher than other quarters due to the higher Affordable Care Act and W-2 volumes. In the third and fourth quarters, we expect to see overall growth in employer services sequentially from second quarter levels, driven by penetration and I-9 onboarding. Workforce Solutions Adjusted EBITDA margins of 51.5% were up 110 basis points from first quarter and in line with our April guidance from strong operational execution. The EWS team continued to perform well despite the macro headwinds from mortgage and U.S. hiring, outperforming their underlying markets from strong record growth, new products, penetration and price.
As shown on slide seven, USIS revenue of $445 ,000,000 was up 6% and much better than our expectations due to stronger mortgage and non-mortgage performance. USIS mortgage revenue was down less than 1% and outperformed the mortgage market credit inquiries that were down 33% by more than 30 points. The strong pricing environment that we discussed in April, both from the addition of telecom, telco and utility attributes to our new mortgage credit solution, and the increased pricing for credit scores drove the very strong outperformance. At $113 ,000,000 , mortgage revenue was 25% of total USIS revenue in the quarter. Mortgage credit inquiries again outperformed MBA's current estimate of originations by about 5 points from increased shopping behavior. We expect this increased shopping behavior to continue as we move through the remainder of the year.
Total non-mortgage revenue of $332 ,000,000 was up 8% in the quarter, with organic growth of about 4% and better than our expectations. B2B non-mortgage revenue of $278 ,000,000 , which represented over 60% of total USIS revenue, was up 7%, with organic revenue growth of 3%. B2B non-mortgage online revenue growth was up 9% total and 3% organically. During the quarter, online revenue had strong double-digit growth in commercial and identity and fraud, with auto approaching 10% growth and telco and insurance growing low single digits. Banking was up slightly, consistent with first quarter, with market volumes at larger financial institutions offsetting declines with smaller financial institutions and Fintechs that were more principally focused on subprime. Financial Marketing Services, our B2B offline business, had revenue of $56 ,000,000 , that was up 1%.
Strong revenue growth in fraud and header, as well as risk and account reviews, was partially offset by declines in marketing, principally prescreen marketing, with IXI Wealth revenue growth about flat. Prescreen marketing revenue was at similar levels with first quarter, as we continue to see significant weakness from smaller FIs and Fintechs in the subprime space, which was partially offset by growth from larger FIs. USIS is using the power of their Ignite platform, along with our proprietary data, to enable customers to drive deeper marketing insights and identifying extending offers to better prospects, delivering better marketing performance management. USIS is seeing incremental penetration and growing pipeline from our advanced Ignite capabilities.
We did see limited growth in our portfolio review business, have not seen a meaningful increase in our risk-based portfolio reviews that typically pick up during challenging economic times. USIS Consumer Solutions direct-to-consumer business had another strong quarter, with revenue up $54 ,000,000 , up 10% from very good performances in both our consumer direct and indirect channels. USIS is winning in the marketplace with strong momentum from new solutions and differentiated data in key verticals of identity and fraud, commercial and auto. We're also in active dialogues with USIS customers about the competitive benefits of the Equifax Cloud that will deliver always-on stability, faster data speeds, and Equifax Cloud-enabled new products, which is driving a strong, active new deal pipeline, which was up from the first quarter.
Todd and the USIS team are on offense as they complete their cloud transformation and pivot to leveraging their new cloud capabilities to deliver new products. USIS Adjusted EBITDA margins were 36% in the quarter, up 340 basis points sequentially, and the strongest USIS margins since the beginning of the mortgage market decline a year ago. EBITDA margins were up sequentially from better-than-expected revenue performance and good execution against their cloud and broader cost reduction program. Turning to slide 8. International revenue was $290 ,000,000 , up 7% in constant currency and better than our expectations. Europe local currency revenue was down 2% due to the expected about 16% decline in our UK debt management business.
As we discussed previously, our U.K. debt management business was very strong in the first half last year, as the U.K. government made large catch-up debt placements following COVID debt collection moratoriums. As a result, we expect to see declines in the first half versus last year. We expected to see those declines. However, we do expect to see consistent sequential debt management growth as we move through the second half, and we expect debt management to return to revenue growth later this year. Our U.K. and Spain CRA business revenue was up 7% in the quarter in a very good performance. This strong performance was driven principally by strong growth within identity and fraud, decisioning, consumer, and direct-to-consumer.
Asia Pacific delivered solid local currency revenue growth of 4%, with growth in commercial, identity and fraud, and D2C, as well as continued very strong growth in our India business, which was up 38% in the quarter. Latin America local currency revenue was up a very strong 23%, driven by double-digit growth in Argentina, Uruguay, Paraguay, and Central America from new product introductions and pricing actions. This is the ninth consecutive quarter of strong double-digit growth for Latin America, which we expect to continue in the second half. Canada local currency revenue was up 8%, with broad-based growth in consumer, identity and fraud, decisioning, and commercial. In Canada, we recently completed the full migration to our new cloud-based FraudIQ Exchange and now have all of our Canadian fraud exchange customers on this new cloud-based solution.
International Adjusted EBITDA margins of 24.2% were up 70 basis points sequentially and better than our expectations. The improvement was driven by good execution against their 2023 cost reduction plans. Turning now to slide 9. In the second quarter, overall non-mortgage constant dollar revenue growth of 6% was lower than our expectations, but against a very strong 22% growth last year. USIS and International both delivered stronger non-mortgage growth than we expected. This was offset by the slower growth in EWS non-mortgage that I mentioned earlier in talent and onboarding, despite their very strong growth in their government business. As we look to the second half, we expect non-mortgage revenue growth to grow sequentially in third and fourth quarter, led by very strong growth in the EWS government business and growth in EWS talent and consumer lending from new products.
We also expect continued strong performance in USIS and International, resulting in third quarter Equifax non-mortgage revenue growth above 9%, which is well within our 8%-12% long-term growth framework. Turning to slide 10. New product introductions, leveraging our differentiated data and the Equifax Cloud, are central to our EFX 2025 growth strategy. In the second quarter, we launched over 30 new products and delivered a record 14% Vitality Index. Our second quarter VI was again led by strong performances in EWS in Latin America. In the second quarter, over 80% of our new product revenue came from non-mortgage products leveraging the Equifax Cloud. Leveraging our Equifax Cloud capabilities to drive new product rollouts, we expect to deliver a Vitality Index of approximately 13% in 2023, which is 300 basis points above our 10% long-term Vitality Index goal index.
This equates to about $700 ,000,000 of revenue in 2023 from new products introduced in the past 3 years. New products leveraging our differentiated data, Equifax Cloud capabilities, and single data fabric are central to our long-term growth framework in driving Equifax top line and margins. On the right side of the slide, we've highlighted several new products introduced in the quarter. These new solutions are a testament to the power of the Equifax Cloud in driving innovation that can increase the visibility of consumers to help expand access to credit and create new mainstream financial opportunities. We launched a new product this quarter, Talent Report Flex 2.0, a customizable pre-hire employment verification solution that helps solve the challenge background screeners and HR professionals may experience when seeking to verify a candidate's specific employment records.
With a unique and first-to-market employer preview option, a list of employer names is now available on The Work Number using a candidate's SSN. This allows the customization of the employment history report by selecting only the records wanted. With the power of the Equifax Cloud, we're bringing new solutions to market that meet the needs of our customers. Turning to slide 10, we were very excited to receive shareholder approval for our new Boa Vista acquisition in late June. BVS is the second largest credit bureau in the fast-growing Brazilian market, with over a $2,000 ,000,000 TAM. We expect the transaction to close in early August, and Equifax will be able to provide Boa Vista with access to expansive Equifax international capabilities, our cloud-native data, products, decisioning, and analytic technology for the rapid development of new products and services and expansion into new verticals like identity and fraud in Brazil.
As a reminder, I mentioned earlier, we expect Boa Vista to deliver approximately $160 ,000,000 in run rate revenue to Equifax and to be accretive to Adjusted EPS in the first year. As I mentioned earlier, Boa Vista results are not included in the guidance we're providing today. We'll provide more detail on Boa Vista's impact in 2023 during our October earnings call after the transaction is closed. Given the size of the transaction, we plan to pause on M&A activity in the second half to focus on integration of BVS and our 2021 and 2022 acquisitions. Our intention is to use excess free cash flow over the coming quarters to pay down debt and reduce our leverage.
Turning to slide 12, we believe that artificial intelligence is fundamentally changing Equifax business capabilities and is becoming table stakes for data analytics companies to manage increasingly large, diverse and complex data sets within a highly regulated data, bringing unique complex challenges around AI explainability. On the left side of slide 12, our large and diverse proprietary data set is a big differentiator for Equifax, including our income and employment data, traditional alternative credit data, cell phone, utility and pay TV data, identity and fraud data, and our commercial and wealth data. This proprietary data at scale, keyed and linked in our new single data fabric, gives us significant advantages in using AI to build advanced models, scores and products, including identity and fraud solutions, enabled by our best-in-class Equifax cloud-native technology.
To date, Equifax has about 70 approved AI patents supporting our AI neuro-decisioning technology, which we call NDT, an explainable AI, which is critical to ensuring that the correct data is used to make credit decisions that's surfaced by AI models and scores. Equifax will continue to invest in AI as we remain on all fronts, leveraging Google's Vertex AI capabilities, combined with our own Equifax NDT capabilities. We'll be building more predictive and valuable models and scores with our expanding data set and accelerating the speed at which we develop new model scores and products to bring more current solutions to our customers. We believe Equifax is uniquely positioned to capture the value of AI going forward. I'd like to turn it over to John to provide more detail on our third quarter and full year guidance.
We're executing very well against our strategic priorities and delivering revenue growth and expanding margins in a challenging macro environment.
Thanks, Mark. As Mark mentioned, second quarter mortgage market originations were estimated by MBA, with data through May, at down about 37%, which is in line with our expectations for the quarter. As shown on slide 13, second quarter credit inquiries were down 33% and also in line with our April expectations. As Mark mentioned, we saw weaker than expected inquiry data in June, which impacted our overall mortgage revenue for the quarter. As we look to the second half of 2023, our planning does not assume a fundamental improvement in the mortgage or housing markets from the levels we saw in late June and early July. We're applying normal seasonal patterns to these current run rates of credit and TWN inquiries.
In the first half of 2023, credit inquiries were down about 39% year-over-year, or about 8 percentage points better than the about 47% decline in mortgage originations, as estimated based on MBA data. In the second quarter, this spread narrowed to about 5 percentage points. In the third and fourth quarters, we expect this elevated impact from mortgage shopping and application activity that does not result in a closed loan to continue at about 5 percentage points. Applying normal seasonal patterns to the run rate we are seeing for mortgage credit inquiries in the end of June and early July, we expect mortgage credit inquiries to be down 31% for all of 2023, which is a slight reduction from our April guidance.
We are expecting mortgage originations to be down about 37%, reflecting about six percentage points of shopping behavior that benefits credit inquiries. This is about five percentage points weaker than the 32% we discussed in our April guidance for mortgage originations. This full year guidance for mortgage credit inquiries would result in second half mortgage credit inquiries being down about 14%, with the third and fourth quarter credit inquiries being down about 23% and 4% respectively. Applying the five percentage point benefit to credit inquiries relative to mortgage originations from shopping that is consistent with what we saw in the second quarter, we would estimate mortgage originations in the second half would be down just under 20%.
We're expecting the number of originations to weaken slightly in the third quarter relative to the second quarter and fourth quarter originations to weaken somewhat seasonally relative to the third. As we have discussed in the past, Workforce Solutions mortgage revenue is more closely tied to mortgage originations. This reduction in 2023 expected mortgage originations relative to our April guidance, reduces Workforce Solutions revenue in the second half of 2023 by about $40 ,000,000 . As our expectation for USIS credit inquiries in the second half of 2023 is slightly weaker than our April guidance, USIS mortgage revenue did not change meaningfully. Turning to slide 14, as Mark referenced earlier, in the second quarter, we exceeded our Adjusted EBITDA margin and Adjusted EPS guidance and delivered well against our 2023 spending reduction plan.
that will now deliver $210 ,000,000 in spending reduction in 2023 versus 2022 levels, including workforce reduction, closure of data centers and additional cost control measures. 3Q, we expect Adjusted EBITDA margins of about 33.5% at approximately the midpoint of our guidance range. The sequential margin expansion is driven by both revenue growth as well as the savings related to our expanded $210 ,000,000 spending reduction plan Mark previously discussed. Revenue grows sequentially through the second half of 2023 and cloud and broader cost reductions accelerate, we're focused on delivering fourth quarter Adjusted EBITDA margins of about 36% and Adjusted EPS exceeding $2 per share in the fourth quarter. Slide 15 provides our guidance for 3Q 2023.
In 3Q 2023, we expect total Equifax revenue of between $1,320 ,000,000 and $1,340 ,000,000 , with revenue up about 6.9% at the midpoint. Non-mortgage constant currency revenue growth should strengthen to over 9% and will be partially offset by mortgage revenue that is down low single digits. FX is expected to have a minimal impact on revenue, and acquisitions are expected to benefit revenue by about 1%. As a reminder, this guidance does not include BVS. We'll provide more information on BVS at our October earnings call. 3Q 2023 Adjusted EBITDA margins are expected to increase sequentially by about 75 basis points at the midpoint of our guidance, reflecting both sequential revenue growth and the benefits of our cost actions.
Overall, BU EBITDA margins in total are expected to be up sequentially for 2Q 2023, driven by Workforce Solutions, returning to revenue growth in the quarter, as well as margin improvement international. Corporate expenses for 3Q 2023 are expected to be about flat with 2Q 2023. Business unit performance in the third quarter is expected to be as described below. Workforce Solutions revenue growth is expected to be up about 7.5%. We expect non-mortgage revenue will return to over 10% growth year-over-year from continued strong growth in government and a return to growth in talent solutions and consumer lending verticals. EBITDA margins are expected to be about flat sequentially. USIS revenue is expected to be up about 7.5% year-over-year.
Non-mortgage year-over-year revenue growth should be up slightly from the 8% we saw this quarter, above their long-term 6%-8% revenue growth framework. Mortgage revenue is expected to return to year-over-year growth in the quarter. Adjusted EBITDA margins are expected to be down about 100 basis points sequentially, principally due to the lower revenue. International revenue is expected to be up 4.5% in constant currency. EBITDA margins are expected to increase a very strong 250 basis points sequentially, reflecting sequential revenue growth and strong cost management, including the benefit of planned cost reductions. We're expecting Adjusted EPS in 3Q 2023 to be $1.72-$1.82 per share. Slide 16 provides the specifics of our 2023 full year guidance.
As Mark mentioned, we're lowering our full year revenue guidance by $25 ,000,000 at the midpoint of $5,300 ,000,000 from the weaker mortgage market. As Mark discussed, the reduction in revenue guidance reflects our assumption that U.S. mortgage originations will decline 37% in 2023, 5 percentage points more than our April guidance, reducing mortgage revenue by over $40 ,000,000 in Workforce Solutions. As I referenced earlier, we're seeing continued high levels of shopping, which is benefiting USIS, and as such, mortgage revenue in USIS is not expected to be meaningfully impacted by the lower level of originations. Total mortgage revenue is expected to decline about 13% in 2023. Partially offsetting the reduction in Workforce Solutions mortgage revenue is positive FX.
We continue to expect non-mortgage constant currency revenue growth to be strong at above 8% in 2023, slightly stronger than our April guidance. Non-mortgage constant currency revenue is expected to grow over 11% in the second half of 2023, as continued solid performance from USIS and International and accelerating growth in EWS government vertical more than offset the impact of weaker U.S. hiring. Adjusted EBITDA margins are expected to improve consistently throughout 2023, with the third quarter at 33.5% and the fourth quarter at about 36%. As Mark mentioned, we remain focused on delivering both 36% EBITDA margins and over $2 per share in 4Q 2023. As Mark also mentioned, we're reducing our adjusted EPS guidance for 2023 to the range of $6.85 to $7.10 per share at the midpoint of $6.98.
This is a reduction of $0.22 or about $35 ,000,000 in operating income. This is principally driven by the loss of over $40 ,000,000 of high margin Workforce Solutions mortgage revenue. We believe that our full year guidance is centered at the midpoint of both our revenue and Adjusted EPS guidance ranges. Total capital spending for 2023 is expected to be slightly over $550 ,000,000 . Capital spending in the second quarter was about $150 ,000,000 , and in line with our expectations, we expect capital spending in the third quarter to decline sequentially by almost $15 ,000,000 as we continue to progress U.S. and Canadian migrations to Data Fabric. CapEx, as a percentage of revenue, will continue to decline in 2024 and thereafter, as we progress toward reaching 7% of revenue or below.
As we discussed in April, we remain focused on delivering our midterm goal of $7,000 ,000,000 in revenue and with 39% EBITDA margins. Market conditions are significantly different than when we first discussed in November of 2021, our goal of achieving these 2025 goals. The U.S. mortgage market is expected in 2023 to be down about 40% from the normal 2015-2019 average levels we had discussed to deliver $7.000 ,000,000 in revenue in 2025. Our non-mortgage revenue has grown faster than we discussed with you back in November of 2021. Even after considering the additional revenue from the BVS acquisition, a recovery in the mortgage market
... from the levels we are seeing in 2023 of on the order of two-thirds of the lost volume is still needed to achieve our $7,000 ,000,000 goal in 2025. We are focused on driving above market growth and delivering the cost and expense improvements committed with our expanded 2023 and 2024 spending reduction plans, and as part of our data and technology cloud transformation, which are needed to achieve 39% EBITDA margins as we exceed the $7 ,000 ,000,000 revenue level. We'll continue to discuss with you our progress toward our $7 ,000 ,000,000 goal as the mortgage and overall markets evolve in 2023 and forward. I would like to turn it back over to Mark.
Thanks, John. Wrapping up on slide 17, Equifax delivered a solid quarter with Adjusted EBITDA margins and Adjusted EPS above our guidance, despite the challenging mortgage and hiring markets. USIS and international delivered strong quarters, offsetting some weakness in the EWS talent and onboarding businesses to allow us to deliver revenue at about the midpoint and EPS above guidance. The breadth and depth of our businesses and execution against our 2023 Cloud and broader spending reduction program allowed us to deliver despite a challenging macro environment. Summarizing at the business unit level, Workforce Solutions continued to deliver against their long-term growth strategy. While their 4% revenue decline was pressured by mortgage and hiring macros, they were comping off a very strong 21% growth last year.
We expect their growth to recover in the second half. Importantly, EWS had another very strong quarter of TWN record additions, adding 4 more payroll providers, which brings the total added since the beginning of last year to 17, and increased current records to 161 ,000,000 , up 5 ,000,000 from the fourth quarter and or 12% versus last year, with total records growing to 631 ,000,000 . Workforce Solutions delivered a very strong NPI Vitality Index of 25%, leveraging their Equifax Cloud capabilities, which will benefit them in the second half and in 2024 and beyond. The continued growth of TWN, strong NPI and government growth positions EWS for 15% growth in the second half.
An EWS operating focus delivered 51.5% EBITDA margins, which is up over 100 basis points and stronger than we expected. Second, USIS continued their momentum for the first quarter with strong non-mortgage growth of 8% total and at the top end of their long-term framework and 4% organic, driven by online B2B non-mortgage growth of 9% total and 4% organic as they focus on customer migrations to the Equifax Cloud. USIS delivered EBITDA margins of 36%, of up over 300 basis points sequentially, through revenue growth and strong cost management. International delivered strong 7% local currency growth, with strong growth in Latin America, Canada, India, and our European credit businesses. They delivered EBITDA margins of 24%, up 70 basis points and stronger than our expectations.
As mentioned earlier, our second quarter Vitality Index of 14% is an Equifax record and was 400 basis points above our 10% long-term growth framework, as we've delivered over 60 new products year to date, leveraging the new Equifax Cloud. The focus of our Equifax Cloud data and technology transformation is completing those North American migrations, which will allow us to further accelerate new product launches and complete legacy system decommissioning. Our cloud-native technology will differentiate Equifax and allows us to be on offense with leading system stability and capabilities that position us to leverage AI tools to drive revenue growth and cost efficiencies. We're executing well against our 2023 Cloud and broader spending reduction plan that will now deliver $210 ,000,000 of savings this year, with run rate savings of $275 ,000,000 in 2024.
This is up $10 ,000,000 in 2023 and $25 ,000,000 in 2024 from our April framework. We remain focused on delivering 36% Adjusted EBITDA margins and over $2 per share in Adjusted EPS in the fourth quarter, which sets us up well for 2024. We're energized about receiving shareholder approval for the BVS acquisition in June, and we're on track to close this strategic and financially attractive acquisition in early August. As mentioned earlier, given the weaker than expected mortgage market, we're lowering our full-year revenue guidance by $25 ,000,000- $5,300,000,000 at the midpoint, with full year 2023 Adjusted EPS at the midpoint to be down $0.22 per share to $6.98 from the impact of the lower, but high margin mortgage revenue.
We're energized to be entering the next chapter of the new Equifax as we pivot from building the new Equifax Cloud to leveraging our new cloud capability to drive our top and bottom line. This is an exciting time for Equifax, and we're convinced that our new Equifax cloud-based technology, differentiated data assets, and our new single data fabric, and our market-leading businesses will deliver higher growth, expanded margins and free cash flow in the future. With that, operator, let me open it up for questions.
Thank you. Ladies and gentlemen, the floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. In order to allow as many people the opportunity to ask as possible, we do ask you please limit yourself to one question and one follow-up. Again, that is star one to register a question at this time. Today's first question is coming from Andrew Steinerman of JPMorgan . Please go ahead.
Hi, John. Let me just ask my two questions together. The first one is, you know, could you just tell us what second quarter mortgage revenues is as a percentage of total revenues? I didn't catch that if you gave it.
The second one is looking at the EWS revenue growth guide for third quarter of 7.5%, which is on slide 15, then kind of taking it together with the comments for EWS revenue guide on slide 16. It seems to imply a rather strong revenue ramp for EWS in the fourth quarter compared to the third quarter. Could you just comment on that?
Your first question is 21%. I've answered your first question.
Thanks.
As we take a look at EWS, Mark talked about it I think, fairly completely, right? What we're seeing is we're expecting to see nice sequential improvements. I'm talking specifically about non-mortgage, as we move through third quarter and into fourth quarter. A lot of it driven by very strong growth in government, which we feel very good about, and the strength we're seeing in the government business, not only in the third and fourth quarter, but we've seen in the first quarter and in the second quarter. We're also expecting to move back to see sequential growth in talent driven by new product, and also in our consumer lending businesses, also driven by new product and to some extent, penetration.
We think those factors allow us to see nice sequential growth as we go through the year, and as we're on non-mortgage. As we're now comparing against easier comps, as we get into the second half of 2023 versus 2022, we see better growth rates. You're also going to see obviously better growth rates in mortgage, although we took mortgage down, right? The level of decline in mortgage year-on-year in originations declined substantially going through the year. We can expect to continue to have very good mortgage outperformance in EWS. That allows us to have to return to growth in EWS mortgage as we get toward the very end of this year.
With those two factors, together, we think we're going to see nice acceleration in EWS revenue, as we go through the rest of this year.
Thank you so much.
Thank you. The next question is coming from Manav Patnaik of Barclays. Please go ahead.
Thank you. Good morning. Maybe my first question, just to follow up on that. I guess you addressed the revenue visibility you seem to have, you know, as you ramp up into the end of the year. Can you just talk about the moving pieces on margins? Like, how confident are you to hit that 36% and how that, you know, flows through to next year?
Yeah, I'll start, Manav, and John can jump in. you know, so we'll leave the revenue leverage aside. We have, you know, we think good visibility outside of the mortgage piece. as you know, we increased our cost program by another $10 ,000,000 this year and $25 ,000,000 next year. We see additional efficiencies as we get further into the cloud completion. Combining that with the core program we announced in February, we just have a lot of visibility because we know when contractors are leaving and, you know, when we're taking other cost actions. That gives us a lot of confidence in the cost side of that, across all the businesses and at the corporate level.
Again, as Mark said, good focus on cost. We have good visibility on cost, obviously, we do need to see the revenue growth we're talking about, but I think we feel very good about the sequential movements we're talking about in our non-mortgage business. We delivered well in non-mortgage other than the talent impacts we talked about in the second quarter. Obviously, we've made an assumption on the mortgage market. We think we've made a reasonable assumption. Having the mortgage market deliver at the levels we're talking about, obviously, is also needed for us to deliver our 36% margins in the fourth quarter.
Got it. Just on Workforce Solutions, I mean, I guess most of the changes were just your volume assumptions. I missed, you know, what your new gross hiring assumption is, but I was also hoping you could address or confirm that you're not seeing, you know, any changes in the competitive behavior, like, all these changes are really just, you know, your volume assumptions?
John, I'll let you jump on the hiring assumption, but, you know, we did mention, Manav, that, for example, in mortgage, you know, we're seeing some mortgage originators move manual verifications back from Equifax in-house. That had an impact us on the quarter. We expect that to continue. That, you know, is a, is clearly a revenue impact. What we're seeing is that you've got mortgage originators doing less activity, so they've got people, you know, sitting in their offices, and they're deciding to do some of those manual verifications in-house. That clearly, you know, had an impact. I think there's no question that, you know, Experian, Truework, to a lesser degree, TransUnion and their kind of new focus on this are in the marketplace.
We don't see that being a meaningful impact, you know, on our revenue, but, you know, they're definitely out there, and they're doing more than they were a year ago. That clearly, you know, also, you know, has an impact, particularly, you know, probably in mortgage.
In terms of talent market, I don't think we gave a %. I think in April, we talked about, you know, the market being down, like, 10%. We said June was worse and that we're expecting that weaker level of the talent market to continue through the rest of the year. We didn't really give a number, but weaker than the 10% we talked about in April.
Again, we also commented, Manav, that, you know, we see ourselves over-indexing to white-collar employers, you know, in our customer base. Those are more impacted from both hiring freezes, you know, as well as layoffs than the blue-collar side.
Got it. Thank you.
Thank you. The next question is coming from Kevin McVeigh of Credit Suisse. Please go ahead.
Great. Thanks so much. I'll ask one multi-part question. Thanks for framing the $40 ,000,000 runoff. Was that purely higher rates or any dislocation from regional banks or maybe tightening credit standards? You know, then I wonder if you could give us a sense of, you know, the sensitivity on the way up. The extent rates start to go down-
... Like, what would be that theoretical level where you may see people get a little bit more aggressive with a HELOC or refinance? I mean, it seems like 7% was a trigger for some weakness. What level of rate, and is there any way to maybe frame the sensitivity of, you know, what 6.5% might mean for the business as we think about 2024?
Yeah, I think there's a lot of factors, Kevin, you know, in the mortgage space. You know, clearly higher rates, I think the uncertainty around rates is as much as that, you know, consumers that are thinking about purchasing a home, rates go up, you know, towards that 7%. They pull back and wait to see what's happening. You know, where will rates stabilize? You know, is an activity that we're definitely seeing. There's an element of, and you've read about this, you see it, of there's just a shortage of housing stock. You know what I mean? There isn't a lot of inventory out there, you know, for people to, you know, make home purchases. Those that own homes are doing...
Are not upgrading, you know, meaning going, buying a larger home or moving a different neighborhood in town, because of the low rate that they're currently sitting on in their mortgage and some uncertainty about where rates are going. We believe that there's some element of rate stabilization that, you know, consumers, you know, will increase their activity from that. I don't think we're thinking about, you know, rate reductions. You know, that'll happen sometime in the future, you know, whether it's, you know, a year from now or in 2025 or 2026, you know, going forward. As a reminder, you know, we've never seen, you know, purchase volume declines at this level.
That, you know, from a historical levels, we're well below 40% of below historic levels, you know, excluding kind of a refi boom that we had in, you know, 20 and 21, and 22. You know, that just has never happened before. It's our view that at some point we'll return to normal historical levels. You know, whether that's in a year from now, you know, as people get more comfortable operating in a 6%, 7% mortgage interest rate environment, or it's into 26, there'll be, you know, a return to normalization, you know, over time, you know, is our expectation. What would you add, John?
Well, just I think the important thing for us also is we're continuing to drive very good performance above market, right? Again, very strong performance in the first quarter at 20 points. In the second quarter, effectively 20 points, if you adjust for the fact that, you know, we made a decision to not participate to the same level in what's really a not particularly profitable manual business. We talked about how that reduced our outperformance by about 300 basis points. Again, on the very high margin digital verifications business, again, about 20 points outperformance. We feel good about our continued outperformance. We also feel good about the fact that to the extent we see a faster growing mortgage market than what we forecast, that we'll participate very clearly, and we'll see the upside from that.
We clearly saw the reduction in transaction volume when rates moved up to above 7. It's hard to predict what's going to happen when they move back below, but to the extent that we see nice growth, from that, to the extent it occurs, we think we'll participate well.
At some point, on the other side of this high inflationary environment, where the Fed's had to raise interest rates, you know, there'll be a time, you know, I'm not an economist, but at some point in the future, you know, the Fed's going to reduce interest rates to boost economic activity. You know, it's, it's just the cycle that we typically have, and, you know, there'll be another refi window, whether that's in 25, 26, 27. We'll be well positioned for that. The very high incremental margins on mortgage revenue declines or mortgage revenue growth, you know, we'll see the other side of that, you know, at some point in the future at Equifax.
Thanks so much.
Thank you. The next question is coming from Kelsey Zhu of Autonomous Research. Please go ahead.
Good morning. Thanks for taking my question. My first one is on the government vertical for EWS. Part of the acceleration of growth in the second half is coming from the government vertical, which part of that is coming from the Medicaid redetermination process. I was wondering if you can talk about how much of that was done in Q2 and kind of how much do you expect to be done in Q3 and Q4? In general, it will be helpful to understand a little better about the government revenue breakdown across different programs, so Medicaid, Social Security, food stamps. Thanks.
Yeah. There's a bunch of factors driving government, which is the good news for us. You know, it's a very important, fast-growing segment of Workforce Solutions. It's one where we have a very, very strong market position given the scale of our data set, the $630 ,000,000 , you know, historical records and our active records. You point out one of the levers, you know, on the redetermination. You know, we saw some of that activity pick up in May and June, and we expect that to continue in third quarter and fourth quarter, and, you know, much of that to be a 2023 event, which is positive. We're also seeing more ACA volume. We're getting more penetration at the state level.
Remember, this business, which is approaching $500 ,000,000 , is in a TAM that's close to $3 ,000 ,000,000 . Each state and each agency at the state level are separate organizations, and we have a commercial team that's headquartered at many of the state capitals, that's working to bring our solutions to convert current manual activity around verifications for whether it's unemployment claims or childcare support, food support, all the other social services to convert them from manual to using our automated solution. That's a big lever for growth as we add more states and more agencies. That we have a pipeline, we have visibility around those relationships.
Another lever is, you know, we're constantly renegotiating those individual contracts that we have. Remember, 50 states, you know, think about, you know, maybe 6 or 8 agencies in each state, that we have relationships with a portion of them. The ones that we have, those contracts come up, and we work to, you know, increase price for the additional value that we're delivering. The other lever we have is at the federal level. We have federal programs with some of the big organizations. You mentioned one, Social Security Administration, you know, those are also growth programs for us at the government level.
Got it. My second question is on the talent vertical. I was wondering, could you share a little bit more about revenue breakdown, kind of across blue-collar hiring activity versus white collar? I know you've introduced this new pre-employment verification services, kind of targeting the hourly workforce, and I think that will help drive penetration with the blue-collar hiring activity. I was wondering if you can talk about, you know, how much penetration you've gained with that product and kind of the growth outlook for, blue-collar-
Yeah.
revenues versus white collar.
We participate in all employees. We're making the point that we, with our current customer base, customers being background screeners, the customers that we have tend to overindex to white-collar jobs, which is why we're seeing more of an impact right now. We have a lot of blue-collar jobs coming through in, you know, employment verification work that we do. The new solution on hourly has only been in the marketplace for 30 days, it's very new, we've seen very positive traction. We think it's not only going to drive penetration, you know, with our existing customers, it's also going to allow them to drive growth in their business, meaning they can go out and pick up more volume or share in those kind of employees doing verification work.
We also talked about, you know, some of the other solutions we have outside of just employment history. We've seen very positive growth in our education solution, where we have a instant solution around verifying education backgrounds, which is used in a lot of white-collar jobs. That's a newer solution for us that we've been in the marketplace for, you know, call it a year, but we're growing a lot of usage and share with that's a positive for the talent business. The last one, as you know, we have our insights business that we acquired a couple years ago that has the incarceration data, that's another one where we're bringing new products to market and new solutions. For talent, you know, you've got the ability to drive penetration.
You know, that business is north of $400 ,000,000 at run rate in a $4,000 ,000,000 TAM. You know, there's a lot of penetration growth opportunity there. A lot of our new product focus is around talent. You know, you talked about the solution for the hourly workforce that we rolled out about a month ago, and then we rolled out one a couple of weeks ago, that provides more flexibility about which employers our customers want to focus on for an employee. You know, that's another solution that should drive growth. New products are a big, you know, focus of ours in the talent vertical.
Super helpful. Thank you so much.
Thank you. The next question is coming from Kyle Peterson of Needham & Company. Please go ahead.
Great. Thanks. Good morning, guys. Appreciate you taking the questions. You know, just wanted to dig a little bit more into, you know, some of the talent weakness that you guys kind of saw is, I get that this is, yeah, more white-collar based, but I guess is within kind of verticals of the white-collar workforce, is the hiring slowdown that you guys saw in June, it sounds like, is that fairly broad-based, or, you know, is that concentrated in, you know, one or two verticals? Just any more color there would be, you know, really helpful.
It's pretty broad-based. You know, I think you, you look at them like we do. You see less of them, but in the first half of the year, you saw companies left and right announcing either layoffs, you know, or, you know, hiring freezes. I think it was Ford, a couple of weeks ago, announced another white-collar, you know, reduction. If a company's reducing people making those kind of announcements, they also typically have a hiring freeze in place, so there's less inbound, you know, new hires coming in. You know, that clearly is not, it didn't just happen in late in the quarter. It's been happening for quite some time.
It's, we've kind of nine months into that hiring, you know, reduction, that has had an impact on us, that, you know, we've been able to outgrow, you know, through pricing in 2023, through new products, through penetration, in, you know, adding new customers in the background screening space. It clearly had an impact, and you know, we expect it to continue to be an impact in the second half, and we've laid that into our framework.
Makes sense. Just a follow-up, you know, on the cost side, you know, great to see the additional cost savings you guys identified, you know, this quarter, it's kind of offset some of the weaker volumes. Just wanted to think about, you know, if we continue to see challenging volumes, whether it's, you know, through mortgage or background screening or, you know, any other areas of the business, are there any other efficiencies that, and levers that you guys might be able to pull, you know, if we're in a prolonged period of, you know, weaker volumes and revenue pressure, or are you guys approaching the max efficiency here?
Well, I think as you know, we're gonna have $65 ,000,000 of run rate benefit next year because a lot of the actions from, you know, the broader cost and cloud program that we have in 2023 are in the second half, so that'll be a benefit. We've talked previously that we still expect to get further cloud efficiencies in 2024 and 2025, as we complete the cloud. You know, we're at 70% now. We've still got that remaining 30% of Equifax to complete over the next couple of years.
As we complete that cloud, we expect to see further, you know, efficiencies that'll benefit our margins, and in margin rate, in 2024 and 2025, you know, including the carryover benefit of the, you know, cloud actions that we're taking, you know, in broader restructuring in 2023.
Just as a reminder, right, the actions we've already taken and the tight control we have on cost broadly are allowing us to drive our margins higher in the third quarter and the fourth quarter substantially. We think we've taken pretty significant actions already, which are allowing us to see nice improvement in margins.
Maybe one other point. I wouldn't think about the actions as, you know, being aligned with a revenue decline. You know, that's not how we operate our business. You know, the program we announced in February, you expect it. You know, we talked about it last year, that we would be reducing our costs, you know, as we complete the Cloud. This is something we've been talking about for years. As we said in February and April and again today, you know, we're just seeing broader opportunities to improve our efficiencies as we get further into the Cloud.
You know, it's the real backbone, you know, of these cost efficiencies and margin expansions are what we've talked about for the last 3 or 4 years. It's really driven by our ability to get closer to completion of our cloud investment.
Makes sense, and that's helpful. Thanks, guys.
Thank you. The next question is coming from Andrew Jeffrey of Truist Securities. Please go ahead.
Good morning. I know nature abhors a vacuum, Mark. I'm just gonna ask you 1 question at a high level. When I look out at the U.S. economy and think about, you know, perhaps a soft landing or a Goldilocks environment, however you wanna consider it strikes me that there are parts of Equifax's business that benefit from the rate of change in the economy, either improving or deteriorating. If we're sort of in a stasis, does that impact your business? I'm thinking about, you know, mortgage. Just broadly, is change as important, regardless of direction? Obviously, you know, improving is better than deteriorating, is change a meaningful impact to your growth rates, your revenue growth rates?
Yeah, you gotta kinda break some pieces apart there. You know, mortgage obviously has had a huge impact on our business. You know, We've never seen a mortgage decline like this to be 40% below, well, over 40, I think it's 45% below historic levels in the second half. It just never happened before. That's gonna recover, right? You know, it's just a matter of when will it return to, call it norm, you know, that, minus 45, and that'll be a very positive thing for Equifax. Whether it's 24, 25 or 26, the mortgage market's not gonna stay at this level.
Meaning people are gonna buy houses, people keep moving. Then add on it at some point, you know, when rates start coming down again from these higher levels, which should happen, you know, there'll be a refi element. You know, that's kinda mortgage. We're very pleased, I hope most of our investors are, of our ability to continue to drive the 80% of Equifax, that's non-mortgage, quite strongly, you know, in, you know, what you'd characterize as an uncertain economic environment. The diversity of our businesses, you know, if you look at Equifax 10 years ago, being primarily a credit bureau, and now we're talking on this call predominantly around our talent vertical and government vertical, that didn't exist 10 years ago.
You know, talent, you know, still performing even with a macro impact and government, you know, super strong just because of the power of the unique solutions that we have. I think that's the, you know, kind of the underlying strength of Equifax, is our non-mortgage businesses, you know, are super strong. Lay on top of that, the, you know, new product initiative. It's not an initiative, it's really how we operate. We're a product-led organization, leveraging our differentiated data and our cloud capabilities. You know, the 14% vitality in the quarter, you know, that's great momentum for the second half in 2024 and 2025, meaning that we're seeing we can leverage our differentiated data assets, our product-led culture and capabilities in cloud, and put new solutions in market.
Those new solutions are at higher price points that are gonna expand our margins, you know, going forward. That's a real positive. The underlying macros, I think the diversity of Equifax, you know, plays into that. Is there gonna be a soft landing? My personal view is there is. I think we're kinda already feeling it and seeing it with inflation down to 3%. That's gonna head towards where the Fed wants it. Unemployment, you know, so low, people are still working. That's a pretty good economic environment for all businesses, but, you know, importantly, ours, you know, going forward.
You lay on top of it, the completion of the cloud, you know, from a kind of timing standpoint, you know, over the next, you know, year and change, you know, and the cost benefits that you're seeing this year and margin benefits this year that carry into 2024, you know, those are quite powerful in our ability to expand our free cash generation-... and have, you know, as we get into 2024, 2025 and 2026, have significant excess free cash flow to return to shareholders at the right time.
As usual, very comprehensive, thoughtful answer. Thanks.
Thank you. The next question is coming from Jeff Meuler of Baird. Please go ahead.
I just want to make sure I'm understanding the dynamic on mortgage underwriters moving the employment and income verifications in-house. Are you saying that that's just for the.
Correct.
Correction of the verification, and.
Yeah, that's.
You're not losing them as a client?
Correct. Yeah, that's where we've seen it, Jeff. That, you know, customers came to us and were looking for lower pricing on the manual efforts that we do for them. I think, you know, we have an operation in Iowa where we do that. You know, we opted not to chase price down because it's a low-margin solution now for us, but an attractive one. Some of them moved that in-house, and it was, you know, meaningful. It's 300 basis points of the mortgage outperformance in the quarter. No, it's isolated to that manual effort we were doing for customers. We've just seen less activity there. It's logical when you think about a mortgage originator that just has more people doing less mortgages, they can do some of that themselves.
We haven't seen the impact on the instant verification side, which is where, as you know, where all our revenue and margin is.
We've also seen some of that.
Can you give us-?
You've also heard some of our competitors talk about growing their manual business, and again, we think that's part of the shift. This is just business that is low margin, that we're moving away from.
Can you give us any sense of how much revenue you generate from doing the manual verifications?
We didn't give totals, but what we did talk about is the level of decline, right? We said it impacted our outperformance by about 300 basis points, so.
Got it. Mark, you answered the verifier competition question a bit differently today, or at least I perceived your answer a little bit differently today. John, you just kind of alluded to, hey, some of the competition is manual on that slow margin. You can see the credit file inquiries, so you can triangulate share for verifier mortgage. If you look at the non-exclusive records that you have there been any recent share changes for digital verifications? Thank you.
Yeah, not that I would characterize as meaningful, Jeff, but you know, we don't see it in our marketplace, but we hear our, you know, so-called competitors talking about their revenue growth. You know, I don't know what the real numbers are that some of those smaller players have, but they're definitely getting revenue somewhere. We just don't feel it in our business, but we continue to watch it.
Got it. Thank you.
Thank you. The next question is coming from Craig Huber of Huber Research Partners. Please go ahead.
Great, thank you. You've obviously mentioned a 14% Vitality Index. Can you give us a flavor of some of the areas, the new products that you're most excited about here, as you kind of think out? What's working really well? Where do you think is the biggest opportunity to grow revenues?
Oh, man, how much time do we have? I'll try to be-
Give me the top two or three.
Yeah, I know, but first off, I'd start with the 14%. You know, when we set the 10% vitality goal, remember our long-term run rate, pre-cloud and pre the 10% goal was 5%-7%. I think 5%-7% is what most data analytics companies do, and 5-7 is a big number. You know, to have 5%-7% of your revenue from new products introduced, you know, in a timeframe, we picked 3 years, you know, that's a pretty vibrant, you know, innovative company. We set a goal for 10, and since we set the goal, we've been overachieving it, you know, and 14 in the quarter and 13 for the year.
I would start with that, I'm energized about the broad-based ability at Equifax across all of our business units to leverage our differentiated data, our cloud capabilities, to bring new solutions to market. You know, that's a, that's a company that, you know, you want to have as a partner if you're a customer, someone who's innovating to bring new solutions, because remember, all of our products deliver ROI. You know, we're not Coke versus Pepsi or, you know, doing Sprite versus Diet Coke. We're delivering a solution that's going to help our customer originate more consumers, lower their losses, you know, increase, you know, their marketing hit rates. You name it, we're delivering ROI. What excites me? You know, certainly all of the solutions in Workforce.
You know, that would be kind of number two for me, beyond the 14%. You know, having Workforce Solutions that I think it was 23% vitality in the quarter. Remember, Workforce is the first business at Equifax to get, you know, into fully cloud native for over a year now, and they've really been able to unleash, you know, kind of the pent-up capacity, if you will, to bring new solutions to market. They're doing it in every vertical. Mortgage36, delivering a 36-month solution of historical data, you know, to our mortgage customers. To the earlier question, you know, from Jeff a few minutes ago, you know, our so-called startup competitors can't do that. They don't have the 630 ,000,000 historical records.
Uniquely, we can deliver a Mortgage36 solution that's integral now to many mortgage originations going back 3 years. That historical data is something that, you know, super energizes, you know, me. I'll jump to USIS, you know, our new mortgage credit file that includes the NC Plus, 14 NC Plus attributes. Really energizing to have multi-data assets delivered. You know, the mortgage credit file is, it looked the same for 40 years. We're now making ours differentiated, and because of the scale of the cell phone utility database that we have, our competitors can't do that, you know. Only Equifax can have a differentiated mortgage credit file, you know, super exciting. The solutions for talent that we already talked about, you know, also super exciting. You know, we're really focused on our new product initiative.
We think it's gonna drive top line and margin expansion, going forward, and you're seeing us outperform the 10%, which, you know, we think is a good thing for the future.
My final question, as you sort of look out beyond this weak, sluggish environment here into 2024 into 2025, a lot of your business should recover very nicely next year and in the year after. What areas are you most excited about when we get into a better economic backdrop?
Well, certainly mortgage, which we've already talked about. To have mortgage 45% below, you know, kind of historic, normal market levels, you know, that recovery, you know, which is gonna happen at some point, whether it's 2024, 2025 or 2026, and how it meters in, that's gonna be good news for Equifax. There's gonna be very high incremental margin in EWS and USIS, as, you know, that recovery takes place. You know, at some point, there'll be more stabilization in the hiring market. You know, once employers get more comfortable, you know, around the economy, I would expect there'd be less hiring freezes and, you know, some level of employment improvement, you know, going forward. That, you know, is gonna be a positive, you know, for Equifax.
You know, when the subprime market stabilizes, you know, that's had an impact on us over the last three quarters, you know, in USIS, you know, that'll be a, you know, a positive, you know, for us going forward.
Great. Thank you.
Thank you. The next question is coming from Andrew Nicholas of William Blair. Please go ahead.
Hi, good morning. Thanks for taking my questions. First question I wanted to ask is just maybe a point of clarification. I hear the acceleration commentary and what makes you confident in that through the back half of the year. Just wanted to make sure I understand. Is there any change to kind of your economic assumptions for the second half?
No.
as well? You're still baking in some level of...
Slowdown.
slowdown, on the back side?
Correct.
Okay.
Yep, 100%.
That's helpful.
It's just really our visibility around pipelines, you know, government, we talked a bunch about, you know, that we can see just visibility in that business and the others. We still have the same view of no change in the macro.
Got it. Then for my follow-up, a different topic entirely. Mark, you spent a decent bit of time on artificial intelligence and how Equifax is well positioned to leverage it going forward. I'm just wondering if you could speak to kind of the cost side of that equation. How expensive is it to leverage the cloud and Google Vertex and in an environment where I think, you know, chips are expensive and there's some shortages there. Just wondering how you think about cost and whether or not that's a meaningful consideration when you go down the AI path?
Yeah, I think.
the large language model path.
Yeah. What I've talked most about today and what our principal focus in, is around using AI to really manage large data and multi-data sets to deliver better performing scores, better performing models. You know, you may remember we rolled out a solution called OneScore in April, that combines some of our differentiated data assets, you know, across USIS. You know, we used AI modeling in that, and that provides significant performance enhancement. When you deliver a performance enhancement, it's more valuable, and you can charge a higher price. You know, that's gonna be our principal focus around AI. No, there's not a high cost in completing AI. There's actually a bunch of efficiencies from a DNA perspective of using AI because it's just faster.
You can complete more work and, you know, we'll be more productive, if you will, in delivering these higher performing solutions. I thought where you were going was in our operations side, where we expect to use some of the AI capabilities to improve our call centers, our operating centers. You know, that'll clearly be a leverage point for us, you know, in 24 and beyond. Our I believe our big leverage is gonna be around having more sophisticated, higher performing products, scores, models, and solutions.
Makes sense. Certainly, having everything on the same Data Fabric is helpful to that too. Thanks, Mark.
Thank you. The next question is coming from Shlomo Rosenbaum of Stifel. Please go ahead.
Hi, good morning. Thank you for taking my questions. Hey, Mark, I should just ask my first question. I want to focus a little more on some of the questions that came in earlier about the manual verifications or move back in-house or, you know, you're talking about, you know, there's some competitors over there. Like, Truework has a, you know, a product over there that they're very focused on the manual verifications.
I just wanna ask you about strategically, as you move back a little bit from that because of pricing, are you concerned that that's going to give them kind of an entree into the client base, which will also give them, you know, potentially the ability to move Truework to a top-of-waterfall position, you know, to take advantage of potentially, you know, getting kind of like ADP data, which is not, you know, it's not unique to all the players that are in there? Strategically, how are you thinking about that in terms of, you know, you're not wanting to cut costs in there? I have a follow-up.
Yeah, that one we're going to be, you know, obviously focused on maintaining our strong customer relationships. You know, I don't know what Truework's revenue is. Maybe it's $15 ,000,000 or something, or $20 ,000,000 . It's a fairly small player. It doesn't have really any scale differentiated data assets. You know, we've got a, at the end of the quarter, 161 ,000,000 records. I don't even know what their record count is, you know, we certainly watch them. We just don't feel that there's having a meaningful impact, you know, on our business, we certainly are keeping an eye on them.
Well, the other thing that's happening, right, is we continue to rapidly grow our database. The need to do manual verifications when you use Equifax continues to decline substantially, right? Given where we are at 120 ,000,000 uniques against U.S. non-farm payroll of, say, 160 ,000,000 , we're getting to the point now where the need for a manual verification when you use Equifax is very small.
Okay, great. Hey, John, once you're on, I have a question for you. I'm just trying to understand the lowering of the EPS guidance. Like, the midpoint is $0.22. Even if I assume that, you know, $40 ,000,000 of lower revenue coming from mortgages is, you know, above 90% contribution, I mean, that would be like all of that, you know, reduction. You know, there's also other stuff that's doing better on USIS and government talent, and you also increased by $10 ,000,000 , the, you know, the cost savings program. It just seems to me like the midpoint of the guidance on the EPS was lowered a lot, you know, more than it needed to be. Can you comment on that?
Sure. Really, the driver was lower mortgage revenue, right? We said Workforce Solutions, mortgage revenue is down over $40 ,000,000 , right? Applying a very high margin to that, you do get a very substantial amount of operating income. We said non-mortgage is slightly better, so not for the entire company. I know pieces have moved around, but in total, non-mortgage is slightly better. That wasn't a big driver of positive operating income in the changing guidance. Really, the difference between the reduction of over $40 ,000,000 in mortgage revenue and the down $25 we talked about is just heavily FX, which has very little flow through in terms of positive operating income. It's really driven by the fact that we lost very high-margin mortgage revenue in EWS, and that really drove the reduction, right?
Yes, there was some cost savings. Again, they weren't a big number of $10 ,000,000 of incremental that we talked about. You can think that was kind of split between capital and cost. Not a big driver of recovery. The big movement is just related to the fact that we saw the reduction in mortgage revenue.
Okay. Thank you.
Thank you. The next question is coming from Heather Balsky of Bank of America. Please go ahead.
Hi, thank you for taking my question. I, I know there's been a fair number of questions already on the acceleration in non-mortgage EWS revenues, but I just wanted to kind of follow up here because I think we're backing into something in, in a healthy double-digit range for the fourth quarter. You've, you've outlined the drivers, but I guess, where do you expect to see the most meaningful acceleration in your business? It sounds like the macro isn't changing, so just trying to understand, you know, how you go from how you did this quarter to double-digit growth in the fourth.
Heather, if you look at it sequentially, right? What we're talking about here in terms of EWS is really nice sequential improvement. We talked about this in government, right? We think government revenue is a big driver of our improvement. When you compare to last year, obviously last year, what you saw was some weakening in the back half of the year as you saw weakening talent markets, et cetera. The compare is easier, but if you just look at sequentially, the performance we're talking about, we expect government to improve substantially as we move through the rest of the year. Mark covered very completely what the drivers of that are. Then sequentially, we're also talking about seeing talent get a little better from where we are today.
A lot of it driven by product, again, as Mark covered in his prepared remarks and earlier answers. Also on consumer finance, we kind of think we've hit a bottom, and we'll see slight improvements in consumer finance sequentially, which again, given what the second half of last year looked like, gives us growth rates that are substantially different than we saw in the first half. The big driver in sequential improvement certainly is government. We're seeing some sequential improvements in the other segments in EWS, but that's how we think about the improvement, and we think the trend we've already seen in government supports the level of improvement we're talking about.
Outside of EWS, I think as we talked earlier, both USIS and international were above our expectations in the quarter, and we expect them to perform well, you know, in the second half also.
Thank you for that. Then just another question with regards to the outperformance at EWS versus the mortgage market. You called out 17% this quarter. Is that a, the new run rate factored into your forecast, or is there some assumption that the impact from the manual pulls going in-house kind of worsened in the back half?
Again, adjusting for the impact of manual, we are at about 20. We were at about 20 last quarter. Yes, we'll have another impact. We'll have more impact as we go through the rest of this year in terms of the lower levels of manual revenue, which again, very low margin, right?
Also fairly low, low revenue.
Fairly low revenue.
Yeah.
We'll see an impact from that as we go through the rest of this year, but we continue to expect to see nice outperformance in the mortgage market.
Got it. Thank you.
Thank you. The next question is coming from Toni Kaplan of Morgan Stanley. Please go ahead.
Thanks very much. One of your competitors launched a product this week that allows consumers to choose to share their employment information directly from their payroll provider, and this is a model that's been in the market, obviously. I guess, do you see the market moving more that way in the future or parts of the market moving that way? Is there any benefit for you to offer that type of model in addition to your traditional model, or does that not make sense for you? Thanks.
Yeah, we have a solution that does much of that, Toni. We just see it that there's a ton of friction for the customer, you know, whether it's a mortgage originator, an auto lender, and a lot of friction for the consumer. Remember, if you think about our data set, you know, the 161 ,000,000 records that we have today, or 120 ,000,000 SSNs, you know, that's against a 160 ,000,000 non-farm payroll. In non-farm, there's 40 ,000,000 people not in our data set, that are out getting mortgages and doing other products. Then when you add pension and the self-employed individuals, you know, there's another, you know, call it, close to 100 ,000,000 in total.
The solution that was announced, it's actually been in the market. I think Experian has had that in the marketplace for quite some time. I'm not sure what kind of traction they're getting with it, but we just find that if there's an instant record available, it's always going to trump any of these friction-filled processes, you know, where the consumer has to put their user ID and password in. In this example, you know, the consumer, you know, would have to give their, in my case, Equifax HR user ID and password in order to get to my payroll records, in my case. Most consumers that are employed in W-2, non-farm payroll, would have to provide those credentials, if you will, in order to get to that.
That's against our company policy and every company policy, there's just a ton of friction, and then it's just the consumer's required to do it. Where I believe there is value in some of these alternative solutions, and as we talked earlier in the call, we have a manual verification team where we do manual for our customers, is another version of what you're talking about, you know, is in the records that we don't have. You know, think about the, call it 40 ,000,000 non-farm payroll, the 30 ,000,000 -40 ,000,000 self-employed, you know, the 20 ,000,000 -30 ,000,000 pensioners.
Those records, if they're not doing a solution with Equifax, like our manual or our conventional solution or something like we described, it's being done manually by the company, whether it's a mortgage originator, auto lender, or pick your, you know, your solution. It's replacing that manual to really drive speed. That's where there's value in it, but it's very, very hard to get a lot of penetration with these solutions because of the significant friction for the consumer. In my view, and what we've seen in the marketplace, is it won't replace instant records.
Yep, that makes sense. I want to ask about the technology transformation and the potential revenue opportunities. I think about it in two ways. One, sort of faster new product introduction, and you're already seeing that with the 14% Vitality Index.
Yep.
That was greater than last year's, too? Like, are you already getting some benefits from the technology transformation, or should we expect that to really even accelerate next year? I think the other benefit is the being always on, and I guess I'm not sure how to quantify that benefit either? Like, you know, how frequently are you not on today, and sort of what's the incremental from always being on? Thanks.
I think you're nailing it, Toni, about the 2 elements. On the first one, you talk about really new product rollouts, the ability to roll out new products. Remember, when you think about the 14 for Equifax, remember, there's a bifurcation of where the different businesses are. USIS, you know, is well below the 14 because they haven't completed the cloud yet. EWS is well above the 14 because they've completed the cloud and are really driving those new products. International, you know, is slightly south of the, you know, the 10 or the 14. As the businesses complete the cloud, particularly USIS and International, we would expect them to move towards the 10%, you know, which is going to be a good thing. You know, it's going to drive new solutions there.
That's clearly one of benefits of the cloud, is the ability to leverage those scale differentiated data assets to bring more new solutions to market, and allow us to deliver long term that 10% Vitality goal. Your second point is an excellent one also, and in my view, it's going to be more impactful in USIS and International, although EWS is getting real benefits of being in a cloud environment, you know, and how they're able to operate their business. The always-on stability is clearly a benefit for them. The bigger benefit for Workforce is the ability to scale their data assets. There's no way, you know, they could have doubled in the last five years, their TWN data records without the cloud, period. There just is no way.
We've gone, I think in 2018, we had something like 300,000 employers contributing to the data set. Last quarter was 2,800,000 . Wouldn't have happened without the Cloud. That, you know, that's another benefit of the ability to manage data that's more workforce-oriented. On the benefits of always on and faster data transmission, we believe that's gonna result in market share gains, and particularly in USIS International, where their credit file businesses, typically, a customer will have a primary and secondary, as you know, and we would expect by being always on, we're gonna be a more valuable partner and allow us to move where we're tertiary or secondary into those secondary and primary positions.
I mentioned in my comments that we have deal pipelines in USIS, you know, where customers are talking to us about moving our market position because of our investment in the cloud. When will that show up in USIS revenue? You know, likely in 2024 and 2025 and 2026, you know, as they get, you know, post-cloud completion. The same thing should happen in international markets, where you've got that same dynamic of a customer using us and one of the other guys. We're gonna be a more valuable partner being always on.
Super. Thank you.
Thank you. The next question is coming from Ashish Sabadra of RBC Capital Markets. Please go ahead.
Hi, I just wanted to ask on the USIS mortgage business, where the outperformance compared to inquiry was much wider compared to the first quarter. There was commentary in the prepared calls around improved pricing, but I was just wondering if there was another step up in pricing in the second quarter, or was this more driven by mix or other tailwinds?
Yeah, it's really carryover. The pricing comment was really for both businesses. EWS did their normal 1/1 price increase that's just carrying through, but so no incremental price increase. We have no intention to do that. We've, you know, basically focused on doing annual price increases in all our businesses. As you may remember, back in January or February on the earnings call, we talked about, you know, a larger price increase in USIS related to one of our partners who has a credit score, and everyone knows who I'm talking about, is FICO, who put through a price increase in both Equifax, TU, and Experian, deliver that price increase to the marketplace when they increase the price of their credit score.
That rolled through in mortgage, is what we're talking about, a fairly sizable price increase that we mark up to maintain our margins, and there's no change in that. That's just rolling through the year.
If you're comparing first quarter to second quarter, the full effect of the price increase Mark was talking about didn't impact the first quarter, but it did the second quarter.
Good, yeah.
Yeah, that's very helpful, color. Maybe just on the background screener side, have you seen any change in their use of the waterfall model or any change in the market dynamics there? Thanks.
I think we talked about the big market macro of less hiring taking place. It really started three quarters ago. It started in the second half of 2022, when you saw companies announcing hiring freezes and layoffs, and that's carried through the second quarter. That's kind of the macro that's taking place. The real opportunity for us is that, you know, we have fairly low market share of using our instant data, whether it's employment or education, you know, our new education solution, newer education solution, you know, for background screen. That's why we're rolling out new products and, you know, working to add new customers and, you know, get them to convert from doing manual employment verification to using our instant solution.
That's helpful, color. Thank you.
Thank you. The next question is coming from Seth Weber of Wells Fargo Securities. Please go ahead.
Hey, good morning, guys. Mark, you mentioned the resumption of student loans, that's expected to pinch credit scores, maybe weigh on consumer balance sheets. Can you just talk about, you know, how you're thinking about the timing of that rolling through, if there was a lag effect and, you know, any dynamics between prime and subprime categories? Thanks.
Yeah, I think, as you know, there's a lot of political elements to that is.
Yeah
Somewhat been episodic as far as, you know, announcements and then legal challenges on it. You know, if it happens, it would be in the second half. As you point out, it will put pressure on some of the balance sheets or operating statements or operating available in, you know, income for, you know, some of those recipients. It does skew to subprime consumers, so it'll put more pressure on those that have outstanding student debt that's been, you know, on pause for a couple of years, if that actually does get resumed. I personally think it'll be absorbable inside of the, you know, kind of, economic environment that we have.
You know, what's positive for those impacted consumers is that they're, you know, or individuals, is that most of them are working, you know, so they still have, you know, in this employment environment, they've got, you know, jobs, and they'll have to adjust, likely their spending, you know, behavior. It may crimp their ability or desire to get new credit, but it should be a, you know, fairly small portion of the full population.
Got it. Thank you. Maybe just a quick follow-up for John. I think just looking at your margin guidance for the year, the international segment, I think the guide for the full year implies the fourth quarter, you know, is north of 30%. Is that the right way to think about it? Is there something going on there that, you know, creates this kind of hockey stick move in the back half of the year, in the fourth quarter? Thanks.
I think all the businesses, John, I'll let you jump in, but as you know, international, USIS, and EWS are a part of the cloud and broader cost restructuring program that we increased by $10 ,000,000 in the second half. You know, so all the businesses, that's primarily second-half oriented. There wasn't much in the first quarter of that cost program. There was some in the second, but it really picks up steam in the third and fourth, so, you know, which is why we had the carryover benefit in 2024. That'll be a, you know, a good positive for us next year. Would you add anything on international, specifically?
No, we're expecting to see nice improvement in international margins. I think the number you're quoting might be a little lofty, but we are expecting to see nice improvement in international margins, and it's driven by the fact that they're driving revenue improvements. They generally have stronger revenue in the fourth quarter. We're expecting that to continue, and they are doing a really nice job, as Mark said, on cost management. Those are the drivers.
Got it. Okay. Thank you, guys. I appreciate it.
Thank you. The next question is coming from George Tong of Goldman Sachs. Please go ahead.
Hi. Thanks. Good morning. In EWS, you talked about how mortgage originators are taking some of their manual verifications in-house as volumes come down. Can you talk about insourcing trends you're seeing in the non-mortgage business in response to volume and/or pricing trends?
George, are you talking about, like, in auto or with background screening or government, what?
Yeah, non-mortgage broadly and non-government, non-mortgage.
Maybe quite simply, is we're not. You know, we're not seeing any impact of kind of insourcing, if you will, income or employment verifications in non-mortgage. The mortgage piece is really quite specifically around the manual operation that we have in Iowa. We saw some pressures around us reducing, you know, requests from customers for us to reduce our pricing, which would impact our margins, which are thinner, if you will, there than they are in instant verifications, because they have capacity to do the manual verifications in-house, we decided to let those move in-house, not on the instant side and not in non-mortgage.
Got it. You mentioned a strength in the USIS business from increased shopping activity. Can you elaborate on some of the trends you're seeing there and how sustainable, that shopping activity is?
As you know, George, we've been talking about it for, I don't know, 4 or 5 quarters. As rates were coming up, we're just seeing consumers spend more time shopping around for mortgages. As you know, every time they click on a mortgage originator website, that mortgage originator will generally, before they spend, you know, much time responding, they have to understand who that consumer is, so they pull a credit file to see whether they're going to qualify. That is clearly a change in behavior than call it the low interest rate environment we had in 2019, 2020 and 2021 into the early parts of 2022, you know, where consumers were really just taking the first mortgage they clicked on, because it was lower than their existing mortgage in a refi or met their expectations.
There's just more shopping in this higher interest rate environment, which does benefit, USIS. As you know, George, that EWS is generally, there's multiple polls by EWS. just, there's more polls on the credit file side. but EWS is generally in the closed mortgages where they see their activity when they get further into the pipeline versus that early shopping behavior. This is just really a pre-qual that the mortgage originator is doing to see whether, you know, how much effort they're going to put into it, and really, how can they respond to that consumer about what they might qualify for.
Got it. Very helpful. Thank you.
Thank you. At this time, I'd like to turn the floor back over to Mr. Burns for closing comments.
Thanks, everybody. If you have any follow-up questions, let me and Sam know. Be glad to get on the phone. Otherwise, have a great day.
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