Welcome to Evercore ISI's seventh annual Payments and Fintech Innovators Forum. I'm David Togut. I lead the payments processors and IT services research team here at Evercore ISI. Delighted to host Equifax management today. Representing Equifax will be John Gamble, Chief Financial Officer. John, welcome. Thanks so much for being here. David, thanks for having us. We appreciate it. Last month, Equifax announced a restructuring that will reduce your workforce by 10%, including contractors, which will help drive $200 million of cash OpEx and CapEx savings this year and $250 million next year. Some of the savings will be offset by higher variable compensation and commission expense. This year, what will be the cadence of any OpEx and CapEx savings flowing through the income and cash flow statements, respectively? Sure. Just to give a little background, right, on the actions that you talked about, right? A lot of what we're talking about now is really what we've been talking about with our investors for several years in terms of what should happen as our transformation completes. Since we've made really substantial progress across transformation, specifically across North America, but to a lesser degree, but still happening in internationa. As we move through 2023, what we're seeing is that we're now able to start ramping down some of the resources that we added, right, in order to help transformation move quickly forward. Also starting to see some of the benefits from being on cloud systems that we've talked about being able to deliver. What's occurring is obviously we're seeing a reduction in a significant reduction in the number of contractors we have that were supporting us, but also a reduction in our in our overall direct head count. The bulk of the savings start to really kick in as we move through the first quarter. A lot of the actions start happening in the first quarter. We'll start seeing some benefits in the second quarter, and then those benefits increase as we get into the second half with the full run rate of benefits happening by the fourth quarter. As we indicated, we expect 2024 that we'll see an additional $50 million of run rate savings related to these specific actions. Beyond that, as we complete more and more of the transformation internationally, we'll see incremental savings related to the completion of those transformation activities in 2024 and 2025. The savings ramp as they go through the year, the biggest piece of the savings that we'll see is in the back half of 2023, and that's impacting both capital and expense. We'll see even greater savings in 2024. Appreciate that. Your 2023 outlook calls for a 30% year-over-year decline in U.S. mortgage originations weighted to the first half with some sequential improvement in the second half. How did you arrive at down 30% for this year? That seems somewhat lower than other forecasts we've seen. Yeah. We try to look at it in multiple ways, right? We certainly do look at third-party forecasts. We look at MBA, we look at the forecasts that have been put forth by Fannie Mae and Freddie Mac, right? As you indicate, they're broadly talking about declines in the, you know, low to mid-20s% year-on-year, we think in 2023 versus 2022. We ended up a little higher than that. I think generally those forecasts have assumed some level of reduction in mortgage rates and some improvement as you move through the year. What we did, we assumed some improvement, but really principally what we've done is we've taken a look at the first quarter where I think we're somewhat consistent with those forecasters. We just assumed more seasonal year, a more normal seasonal year with some better 2nd quarter, some better 3rd quarter than the 1st, and then some declines in the 4th, which is the normal seasonal pattern on mortgage. Without a substantial recovery in mortgage as we move through this year because of a lowering of mortgage rates. Our forecast reflects, generally speaking, a continuation of kind of the 1st quarter conditions with a little improvement as we go through the year and a more seasonal pattern of mortgage activity. We'll see what happens as we move through the year. Obviously, what we've all seen over the past several years is mortgage is very difficult to predict. We've, you know, we've generally been okay within quarter. Once you get beyond a quarter, it gets pretty hard since the movements in interest rates have been quite hard to forecast. We think what we've done is reasonable. We think it's relatively conservative relative to market forecasters. Again, obviously, we've seen big movements in interest rates in the past three weeks. What we all know is it's hard to predict what's gonna happen in the overall economy, reaction to the Fed, and then the impact that'll have on the mortgage market. Understood. For this year, please discuss your outlook for the, two other largest drivers of consumer credit demand, credit cards and auto. Yeah. Just broadly speaking, and I'll address those two markets just by our broad view on what we've assumed in terms of economic conditions is what we've assumed is we're gonna see some weakening in the U.S. economy, which would affect card and affect auto, right, as we go through 2023. We didn't assume a recession, but what we did assume is slow growth. Generally, if you take a look at our long-term framework where, you know, our 7%-10% of organic growth on an ongoing basis, embedded in that is, you know, 2% to slightly over 2%, kind of, let's call it, general growth in the economies we serve. The U.S. would be, you know, just 2% or just slightly above 2% assumption in that long-term framework. We've assumed we're gonna see, let's say, 1 to 200 basis points weaker than that, and that would affect for us, card and auto, obviously, very specifically. We're assuming that general economic trend is gonna result in somewhat weaker performance across those two segments. Got it. You've also called out weakness in hiring, pressuring background screening volumes in November and December. For this year, how much impact do you expect potentially softening employment growth to have on your background screening volumes? Yeah. We've assumed that we're gonna see about a 10% reduction in hiring and therefore background screening volumes. Again, you know, 10% reduction in hiring all really depends on the segment. We'll see which segments are impacted as we go through the year, and there could be a greater or lesser impact on our volume based on the areas of weakness we see in the overall economy. We've assumed in general, you know, a 10% decline, and that's obviously relative to substantial growth that we saw through most of 2022. However, we still think we're gonna outperform that substantially, and we've indicated we expect to see growth in our talent business, you know, in the order of 10%, right? We think that's driven by what drives our outperformance in verification services generally, right? Which is we continue to see good record growth as we continue to board new payroll partners but also board more direct contributors through our employer services business. We expect to continue to launch new products. We've been very successful in launching new products and talent solutions and expect to continue to launch new products. We've talked about some specific products we're launching that we think support the staffing industries, for example. And then also price. I mean, verification services is the place we have probably more leverage than the rest of the business, and we do get some year-over-year price, although generally speaking, the biggest driver in our higher average unit revenue, average transaction revenue for us tends to be product. We think those drivers as well as increasing penetration, we think we still have an opportunity to grow penetration across the talent/background screening industry, that all of those things should allow us to substantially outperform the underlying market again in 2023. Got it. Staying with employee Workforce Solutions, your most profitable and highest growth business, you now have 152 million private non-farm payroll records or 114 million unique records representing 70% of private non-farm payrolls. Over what period of time do you expect to double your unique records by adding gig and pension records? We haven't really given a forecast for that. What we have obviously done is give a lot of detail on our pace of adding records, and obviously, we've seen, you know, strong double-digit growth in records really consistently over at least the past three to four years. We feel really good about our ability to continue to add both W-2 records as well as pension and then gig records. Again, with W-2 records, as we talked about, we added another four payroll processors as exclusive partners in the fourth quarter. I think we've added. We have over 20 now partnerships, I believe, in total, that we talked about. And we feel very, very good about our ability to continue to build those partnerships. Again, as we've talked about, we think we offer by far the most complete solution. We think we have by far the best technology stack supporting verification services. Our verification services technology stack, The Work Number, is a GCP cloud native, which we think provides a substantial benefit over any other competing offering by anyone else trying to enter this space. We've invested heavily in the stack over the past three to four years, so we think we offer the best technology solution. We think we offer obviously the most complete data asset, which makes us of the most interest, obviously, to verifiers. Think in the financial services industry, we just talked about background screening in the talent business, but also in government. It's the depth of the database that makes us interesting to the people that want to use it for verifications, which again, we think is what makes us so interesting to our partners, right, who want to contribute, because obviously if they're a payroll provider, they receive a royalty. The fact that we see by far the most volume in the industry, they're able to monetize their records much more quickly. We think we offer the best solution. We think we offer the most secure stack. We think we offer the most complete solution. All of those things as well as, we think a better financial outcome for our partners, we think is extremely helpful in having us continue to grow records. We talked about the fact that we've added a pension contributor now, a pension administrator. We're very excited about that. We're now receiving those records, and we're able to now start doing verifications against pension records as well. We think the pension administration segment looks a lot more like the payroll segment than perhaps the, let's call it, the contractor or gig worker segment does. We think we started making progress in pension, and we expect to continue to make progress there. It's another exciting area of adding new records, and we feel good about our ability to do that. We're continuing to work on how do we build out, the contractor record segment, right? We do get some of those records from existing partners that do 1099 processing, and we're continuing to work on how we get access to those records through non-partner means. Another area we've had a lot of success in building our records and retaining the strong base, and which again is 50% of our contributed records are contributed in this way, is through employer services, right? We've invested heavily in transforming the capability of those services again into our cloud services. We think we offer the best technology in terms of UC processing, unemployment insurance claim processing, Work Opportunity Tax Credit processing, ACA validation processing for companies, I-9 validations, with both our on-premise and our I-9 Anywhere service. We think it's that depth of services as well as the acquisitions we've added that provide those services not just directly to large customers, but also through the channel. That's allowed us to continue to grow our direct contributed records, and then also to continue to build out our partnerships with payroll processors, not just on the verification side, but also on the services side in terms of them using our UC services, our WASI services, our ACA services, our I-9 services. We think it's the depth of that whole portfolio, which we think is really unparalleled in the industry, that allows us to grow partnerships, allows us to grow direct contributions, and we expect to continue to grow records nicely as we go over time. I know I didn't answer your question on how fast, but I think the trend has been very, very positive, and we expect to continue to grow records very successfully. Our long-term model, which for Workforce Solutions, which is 13%-15% growth on a long-term basis, which we think is very attractive for a business of that size with 50% plus margins, only assumes that we're gonna add records that would benefit revenue on the order of 4%-5%, right? Well below what we've been achieving, and we think even with only growing 4%-5%, which again, we have been and expect to continue to outperform, we would be able to meet that 13%-15% goal. We feel very well positioned to continue to drive growth in Workforce Solutions consistent with and obviously above our long-term model. Thanks for that, John. Could you dig into your strategy to accelerate the expansion of The Work Number internationally, especially in the U.K., Canada and Australia? Over the next 12-24 months, how big a revenue growth driver for EWS could international expansion become? Again, just a little background, right? In terms of the way we build up Work Number businesses, and obviously, in the U.S., this has happened over, you know, 20-plus years, right? Is first by building out the database, and then as you build out the database, the verifiers tend to follow. Over the past, let's say, year, and it depends on the specific country we're gonna talk about U.K., Canada, Australia, and also, quite honestly, in India, we have been doing just that in terms of getting the technology in place, so getting our cloud-native technology systems in place, which was a huge win, right? The fact that TWN is cloud native running on GCP in the U.S., our ability to stand up that full suite of services specific to verification services in each of the countries we referenced, made dramatically easier by the cloud migrations. We think is a real benefit as we compete with others who attempt to set up these services in those countries. Over the past year, I think we've had a lot of success in building out contributors into those datasets. We've talked about the fact that we've seen very good success in getting direct contributors as well as payroll partner contributors through kinda, let's call it, the traditional payroll method, as well as getting access to other records through some government services that have allowed us to significantly build out the depth of the record base in the U.K. and the depth of the record base in Australia. It's been built out in Canada, but not quite to the same degree. Given the success we've had in this past year, we now expect to start boarding more verifiers and starting to see growth. Relative to the overall growth of EWS, it's probably not a significant contributor in 2023 or 2024. We would expect as we get kind of out a couple more years, 2025, 2026, it'll start to be a much more substantial contributor to that 13%-15% ongoing growth. It just takes time to board verifiers once you've boarded the contributors. Again, as a reminder, over the past, I'm gonna say 10 years, but it's probably longer, right? One of the reasons why we've been able to rapidly monetize new record additions in the US is over that time period, we built out system-to-system integrations with large verifiers in the US. Again, that's another step that we're in the process of executing in the countries you referenced, so that as these records continue to be boarded, we can monetize them more quickly. We're very happy with the progress. Not a ton of revenue in 2023, but positive growth. More revenue in 2024. Not a really big number, but we expect to see that really, You'll start to see more meaningful contributions and more meaningful contributions to the 13%-15% growth as you get to 2025 and 2026. Thanks for that. Workforce Solutions is attracting competition from Experian, which you alluded to. How strong a competitive threat do they represent, and how can you continue to extend your lead, you know, as Experian also builds, you know, their own database? It's clearly Experian's a competitor. There's others that are competitors, right? That have been working to build out their own Work Number or verification services business over time. Experian's been working on it for several years, some of the other competitors for longer. We also had TransUnion, which had previously indicated that they were gonna build out a Work Number business, and obviously, I think they haven't talked about that as much recently. I think what we're doing, and obviously, we take these competitors extremely seriously. We look at them very closely. We make sure we understand competitive position extremely closely. Our strategies are very well positioned to allow us to continue to perform extremely well, right? In terms of if you think about the moat we have, right? The moat we have, the biggest benefits we have clearly start with the depth of the database, the technology capability we have being a cloud-native service provider, and the depth of the database, not just in current records, but historic records, right? Increasingly, what you're seeing with verifications, not just in financial services, but also background screening and other segments, is customers are looking for not just your current income and employment, but they're looking for historical information, trended information, past 36 months, past 60 months. We not only have the 150 million current records on 114 million individuals in the US, but we also have obviously over 600 million total records. We have by far the deepest historical database, so that in terms of being able to provide that trended information, we think we have a very strong, unique competitive advantage. Increasingly that's what our customers want. One of our faster-growing products in mortgage is Mortgage 36, which is exactly what you think it is, right? It's 36 months of mortgage information. We think we have a very unique position where we can provide that far more effectively than any of our peers. By continuing to work on the things we've talked about, which is continuing to build out system-to-system integrations, building out more and easier integration methods for payroll providers and contributors through our cloud framework for the Apigee API network, continuing to build out more and more partnerships with payroll partners as well as pension administrators, as well as with software providers. We think the ecosystem we've created is really the competitive moat that continues to give us a very, very strong position. We think, you know, that the evidence there is, as we've said, we won four new payroll providers in the fourth quarter to contribute exclusively. We've won a substantial number, I think, well over 10 in the past 12 months. We continue to win, and we're not really aware of situations where in competitive opportunities where we don't win, right? We think it's because of not just the fact that we offer the best services, the most complete services, the greatest level of integration into third-party verifiers or background screeners, and because of all that, we offer the best service to an employee because they can do things online instantly, far more frequently if their employer works with Equifax. Also obviously to the partners, because of the fact that our transaction volume is so much higher and we offer access to not only current but also historical income related markets, we offer much higher levels of royalties available through Equifax. We feel like we're very well positioned, and we're gonna continue to try to build out that the strength of those capabilities and broaden them. We'll continue to build out more employers, employer services to broaden those, to continue to build that moat. We'll continue to watch the competitors very closely, but we think so far we're performing extremely well and we would expect to continue to perform extremely well relative to competition. Very clear. Looking beyond The Work Number database, you have a number of other very large proprietary data sets, in particular IXI and Wealth and Income and NCTUE. What are you doing to build out those data sets over the next 12-18 months? So again, an important part of building out those data assets, again, is transformation. We've talked about the fact that USIS, really North America, but USIS as well as Canada and EWS, which is further along, will principally complete their transformation, which includes these types of data assets you're talking about as we move through 2023. In addition to IXI and NCTUE, we also have DataX and Teletrack, which is additional alternative data. We also have our commercial assets, which again are unique because we not only have trade line data, we also have unique data that's contributed to us to our Commercial Financial Network, as well as data that we acquired through PayNet, which is leasing data. With all of these data assets, what we're doing is building them out through Fabric so that we can build out more solutions faster, linking the data more effectively, and you'll see it through higher levels of NPI. A really good example of that recently, obviously, is what we announced in the mortgage industry, right? We worked with the mortgage with Fannie and Freddie and the mortgage industry for a period of years in order to get them comfortable with using some of the attributes generated through our unique data in order to add those to the mortgage file. We can now add specific attributes because we have a large data asset that has telecom information in it, utility information in it, cell phone information in it, where we can add payment attributes related to those activities into the mortgage file, which no one else can add. Now this makes our mortgage information unique, right? We think it provides lift to the mortgage underwriting process, especially to those people with thinner files, which was of great interest to obviously the GSEs. We think this is another example of where this unique data strengthens our position and strengthens our position not just with the unique asset, but also with the underlying credit asset, where we can deliver them together and help people do analytics together. We feel very good about that. There's similar type of activities going on with the combination of DataX and Teletrack in Data Fabric. It's happening broadly across our commercial business, where we're now in the process of launching a commercial credit score that combines all of those data assets into a single score where we believe our coverage is much higher than any of our competitors can provide. We think we're seeing really nice progress as those assets get on Fabric, and we expect that to accelerate as we complete Fabric in USIS, as we move through this year and then certainly into next year as those products launch. Got it. You've indicated a plan to reduce capital spending this year from $610 million to $540 million. That would represent 10% of revenue, and a long-term CapEx to revenue target of 7%. When do you expect CapEx to revenue to reach 7%? Yeah. We didn't give a date, right? What, what's happening, the reduction this year and then a further reduction in 2024, right, is again, directly linked to the first topic we talked about, which is the, which is the the $200 million spending savings program we put in place this year that extends into 2024, which is all built around the transformation completion that's occurring as we move through this year and into next year, right? So we expect to see spending reductions in 23, probably further reductions in 24, which results in obviously as a percent of revenue, it coming down given the fact that we're growing. Then we do expect over the next several years to get down toward our 7% target, right? As we continue to work toward achieving our $7 billion and 39% margin goal, which obviously, as we've indicated, requires some recovery in the mortgage market. Perhaps two-thirds of recover right now in mortgage, we're running about 40% below what you'd consider average. If you looked at 2015 to 2019 as the average level of originations or credit inquiries in the market, we're currently running about 40% below that. We need to recover about two-thirds of that, we think, to get towards $7 billion in revenue and 39% margins. As that occurs, and as we continue to manage capital spending down, we think over that same timeframe is when you'll start to see us getting toward 7% in terms of CapEx as a percent of revenue. Understood. What are the major elements of the Equifax Cloud and Single Data Fabric that are left to be finished? What is the timeline to achieve that? Then tied to that, once you're done with this initiative, what will your primary competitive advantages be, you know, versus TransUnion and Experian, technology-wise? Sure. Again, we've talked about this a little bit already, right? On North America, it's the significant activity remaining is customer migrations, right? There is some development left on Fabric, and that's certainly the case. Quite honestly, that'll be the case forever, right? We'll be continuing to enhance and build on Fabric and build on the applications that run on top of Fabric. It's the biggest activity right now is really around customer migrations and getting customers moved onto Fabric, which allows us to then decommission the old assets that they were running on. We've made a lot of progress on that so far. We've talked about the fact that we have 70% of our customers, you know, interacting with us through our cloud interfaces. There's still more activity to get them fully on Cloud, and we said that that will be principally done with that North America in 2023 and completing as we move through 2024. We feel really good about that. What's left is really just completing the assets outside North America, which have made progress. We've had good progress in Europe, progress in Latin America, some progress in Asia-Pacific, and we expect those to complete as we move through 2024 and 2025. The real substantial benefit we see is by being Cloud native on a Single Data Fabric is the ability to, and you asked about it earlier, right? Create products more effectively, because data is ingested through standard Cloud frameworks using Google standard Cloud native tools, consistently, not just in North America, but consistently around the world. By doing that, right, it makes our ability to ingest and manage data more effective. It makes our ability to key and link more effective, and it makes our ability to create new products using that data far faster because of the journaling, the definition of how that data can be used is available consistently across all data assets, as opposed to being siloed individual data assets. Mark talks very much about our data transformation and the Single Data Fabric, and that's really one of the huge benefits we'll see. We also think that our stability and our always-on capabilities will be substantially better than our peers, because we'll be running in a cloud native infrastructure across multi-regions worldwide. We'll look like a born on the cloud company because we really did rebuild ourselves in a way that's consistent with cloud native principles. The last thing that we think you're gonna see is as Google and our partners continue to launch more cloud native tools on their infrastructure, because we run on their cloud native basic infrastructure, our ability to utilize the tools that are developed and extended by those large technology partners, we think is just gonna be better than any of our peers. We don't have to build our own capabilities. We can, in many cases, use the machine learning and other capabilities that are provided by our service providers, or Google in this case. We think that'll help us develop new capabilities and new products even faster. It also will put us in a better position to generate NPI and accelerate NPI. I don't wanna forget, but we also have to remember, we started this journey because we think the most secure place to be is on the cloud and cloud native. We think it'll put us in a position where we have an extremely secure infrastructure, and as we announce every year in our security scorecard, we think we've already made really incredible progress to the point now where we believe our level of security is at or above the level of some of the largest financial institutions in the world. Got it. In the fourth quarter, your Vitality Index reached a record 14%, representing percentage total revenue from new products launched in the past three years. For this year, what percentage of total revenue do you expect new products to contribute, and which products will be the most impactful contributors to revenue? I think we've indicated we expect to continue to be able to run at above our 10% goal, and we should be able to do that again in 2023. Again, that we think that'll be a very good outcome. Again, given our current size, you know, for us, again, that represents over $500 million of revenue generated in 2023 from products launched in the past 3 years. We think the trends in terms of where the products are gonna be generated is generally aligned along who's the furthest along in their cloud journey. We expect, you know, Workforce Solutions has had the strongest contribution in NPI over the past several years. Would likely be the case again in 2023 as they're furthest along in their cloud journey. What we're expecting to see is accelerating NPI out of USIS and Canada, right? Because they're completing their cloud journey, and they're starting to see those benefits that were made available to EWS just earlier. Now EWS does have our most unique data assets, so certainly that gives them a benefit. We do expect to see nice improvements in NPI across those properties that are finishing transformation, and then those will principally be in North America. We've generally seen very good performance across our Latin America and some of our emerging market teams. Some of the smaller countries have shown very, very good capability to build new products that are very specific in targeting in their markets, and we expect that to continue as we go through 2023. We expect, still expect really good NPI, for example, out of LATAM. Got it. Shifting to capital allocation, Equifax has been very active, from an acquisition perspective over the last couple years. Going forward, what are your capital allocation priorities among dividends, share repurchase, debt pay down, and acquisitions? We expect to continue to focus, obviously, first on capital spending. We said capital is gonna come down, but it's still the first use of cash flow. 'Cause we think in terms of the level of incremental profitability we generate, it's always highest when we can sell, when we can drive higher usage of the data that we're collecting and, and moving forward with, and that's all really driven by NPI. That'll always continue to be our primary focus. In terms of our balance sheet overall, you know, we continue to be focused on trying to make sure we retain strong investment grade ratings. We currently have them. We wanna stay investment grade. Structuring our balance sheet to allow that to be the case is important to us. We're gonna continue to try to focus on bolt-on acquisitions. We announced, obviously, the fact that we signed a merger agreement to acquire Boa Vista, our current Brazilian partner. As that transaction completes, assuming we're able to complete that in the second or early third quarter, then we likely would take a bit of a pause in the rest of this year to complete the integration of some of the acquisitions we've done over the past two years, which, as you've indicated, we've been very active. Then also to drive the integration of Boa Vista, and then also allow us to bring our leverage down a bit. Adding Boa Vista doesn't add a lot of leverage to our balance sheet, but it does add some, and we'll work to bring our leverage down over the rest of this year. As we get into next year and our leverage is moved back to the levels we desire, we'll start to consider acquisitions again. As we get into 2024, right, as we take a look at the improvement in our margins, the reduction in our capital, right? What we're expecting is and we expect you'll see that as we move through this year, very significant increases in our free cash flow, which should definitely create the capability for us to be a more consistent returner of capital to shareholders. You know, we haven't done that meaningfully over the past four to five years. That's absolutely a goal, right? It's a goal of ours to start increasing the dividend again, and it's a goal of ours to start increasing return of capital through share repurchases. I think as we get into 2024, you'll hear us talking about that more specifically, but also, quite honestly, given the improvements in margins this year and the reductions in capital, the amount of free cash flow we should have available to us as we move through 2024 and 2025 to return to shareholders. Beyond that, what we've used to do, bolt-on acquisitions, we think should be material. Understood. Just a quick closing question, John. What do you see as the greatest business risks to Equifax? You know, I think we feel really good about where the businesses are positioned and their ability to grow, right? I mean, obviously what we're doing as everybody is just focused on the direction the economy is taking and making sure we execute in our cost plans so that we can deliver our margin goals based on how as the economy, in the U.S., but also internationally, progresses through this year. As we said, we don't expect a recession, but we do expect weakening. I think we're all gonna have to be flexible as we move and see how the economy changes as we move through 2023 and into 2024. I think we feel good about our strategies. We feel good about our ability to execute. We know we have strong competition, we're just gonna make sure we manage dynamically based on the way we see the economy moving. Very clear. John, thanks so much for being with us here today. Greatly appreciate your time and insights. Thanks, David. See ya.