I'm Andrew Steinerman, your U.S. Business Information Services analyst. That's Stephanie Yee, the vice president on my team. This is Ultimate Service Investor Conference. Make sure you pick up one of these. They're, they're right there, and they're also outside. That's our Information Services Data Book, a quarterly primer that we've updated for over a decade for you, and we just did it this past weekend. Yeah, this is the Equifax Fireside Chat. As you can imagine, the general demeanour here is, you know, we ask the questions. Mark Begor, CEO. CFO, John Gamble. Trevor Burns, IR. We ask the questions, but we really want you to raise your hand and you ask your questions. I'll be looking for your hands. I'll start off the questions, but if you wanna jump in, just raise your hand, and you can ask questions as well. Mark, welcome. Thanks, Andrew. Great to be here. Could you just start with a general thought on how are consumer credit applications doing and give a comment by the different asset classes and, you know, you know, what kind of shape you feel like the U.S. consumer is in? Yeah. Broadly, the U.S. consumer is still quite strong from our perspective. One of the things we spend a lot of time watching is unemployment, and if consumers are working, they generally pay their bills, and if they pay their bills, delinquencies stay low. If delinquencies stay low, then FIs, banks, financial institutions, credit unions, fintechs will keep originating. I think you have to separate the U.S. consumer. While the subprime consumer is working, they've been pressured by inflation, and in many regards, that's old news. That started a year ago. We're almost four quarters in to the inflationary environment that's pressured the subprime consumers. We've seen subprime DQs go up, and you've seen a pullback by the fintechs that started a year ago in originations. In core FI, which is big banks, financial institutions, credit unions, medium-sized banks, still fairly normal, you know, from our perspective. Now, I'll jump to mortgage Okay. if you want me to. No problem. Just for a minute. I think we all know we've been operating in recession doesn't describe it well, but we've been operating in an environment where mortgage originations have declined precipitously over the last 24 months and continuing to decline, you know, in the fourth quarter. That's been from the raise in interest rates that have driven up mortgage rates. It's from home affordability. That's had a big impact on our business. And we'll probably touch on that a little bit, but mortgage in the fourth quarter will be approaching 15% of Equifax. Before the decline, it was much larger as a percent of Equifax. We've had to absorb that mortgage market decline, that over the last 24 months, the market impact is a negative $1.4 billion of revenue on us that we've had to absorb. As you know, our non-mortgage businesses, which are 85%, have been growing quite strongly. Just as a last point on the mortgage, mortgage today, the way we look at it from an inquiry standpoint versus our historical inquiries, is about 50% below what we would characterise as normal. Normal for us is 2015 to 2019. It was before the refi boom that came with the pandemic, and we're 50% below that, which we've never seen before, meaning purchase volume is down dramatically because of rates, affordability, the shock of rates going up quite quickly. As you look forward to 2024, 2025, 2026, somewhere in that timeframe, you know, we would expect the mortgage market to return to normal, which is that 2015-2019 level, which obviously will be a positive for Equifax. And then second is, at some point, you would expect the Fed to take rates down when they feel like inflation's been tamed. I think, I don't know what your expert is saying at JP Morgan, but some of the economists are saying they would expect a rate decrease late next year. Second half, yeah. We're expecting cuts in the second half. Second half, and as you know, when rates go down, that creates some refi elements. So we're in a position now, with Equifax. Let me say, how quickly? Like, like, if our economist thinks rates go down second half, when will the refi market come back? Second half. Okay. Instantly. It starts extremely quickly because consumers that took out mortgages over the last 24 months at those higher rates will want to refi those. But you have the unique combination of the market itself, which is primarily purchase, being so far down than normal. We would expect in 2024, 2025, 2026, we're not giving 2024 guidance, but we'll give that, you know, when, as we get into the first quarter with our year-end results. But there's a tailwind coming of mortgage returning to normal and then at some point, a refi element. So when you say return to normal, you mean fully get back to the average of 2015-2019? Like, I remember at some point you guys said, "Hey," and this might be more of a John point, "Hey, to get that to that 39% EBITDA margin, we need to get back to two-thirds of that normal level." So, like, just help me dissect these two points. You know, one, do you expect it to fully get back to normal, 2015-2018? And, John, does that old point still hold, that when we get back to two-thirds of normal mortgage, we could get to the 39% margin? Yeah, they're two different questions. I know. I'll do the first half. John can do the second half. So, on the first half, you know, generally, markets return to means. Yeah. Right? And we would expect the mortgage market to return over time to that 2015-2019 level, meaning people move. If 60% of U.S. households own their home, when they move, they generally buy a home in that new location when they move. And there's, I think, 7 million families, 8 million families move every year. And there's generally a fairly meaningful element of consumers, homeowners that want to upgrade. They're in a two-bedroom condo, they want to buy a house with a yard. You know, that has been curtailed. So we would expect that element to return. There's also an element of cash-out refis. There's a, I think, $3 trillion of untapped equity in homes today that would come in a cash-out refi. Generally, consumers are less sensitive to rate if they're going around, getting, cash out of a mortgage, by doing a cash-out refi, because they're generally paying down a high auto loan, a high student loan, or high credit card balances. So the answer is yeah, we would expect over time, and then when rates come down, you've got a refi element that's on top of that 2015 to 2019. John, you want to take the Margin. seven billion Sure. 39%? Yeah, absolutely. And we've talked for quite some time about that. When we get to $7 billion in revenue, and we'd said to Yep. that we expected that to be in 2025, and we did say we would need the mortgage market to recover about two-thirds of what it had fallen, right? But it was, we were really linking that $7 billion in revenue to the 39% margins. And so I think what we talked about in the last earnings call is, given what the mortgage market's done, certainly those two midterm goals, we still are focused on delivering them, but they're going to move out in time. So as you look forward, we still expect to get to that 39% margin level, probably at somewhat higher than $7 billion in revenue, because as it's moving out in time, obviously inflation's going to impact our cost structure overall. But still, we expect to deliver the 39% margins in the midterm as mortgage recovers and as we get to above the $7 billion revenue level that we've been talking about for a while. Right. And so if we get back to full normalcy, not just to two-thirds, margins will be even higher. Correct. Absolutely. Yeah. Okay. Correct. Okay. John, talk a little bit about the 250 basis points of margin that come from the cloud migration, 'cause we're, you know, closer to the end of the cloud migration. Is this going to be 250 basis points of margin realized, or some of that going to end up getting reinvested in growth initiatives? Well, so what we've been talking for quite some time about the fact that we deliver substantial cost reductions related to the cloud, right? Yep. We'd indicated that something under 50% of our COGS was tech related. Yep. We thought we could generate something like 15% type of reductions on that tech-related cost. So not going to get into the specific basis point growth, but yes, we're going to generate those savings. We're making very good progress generating those savings. Well, it's happening this year. It's some of it's happening this year, and you've seen it in the announcement we made about taking $210 million in cost and capital out in 2023, when $275 million in 2024. Some of it we will, we will reinvest, but a significant portion we're expecting to flow through to allow us to continue to drive margins higher. It's how we get to that 39% in the midterm as revenue moves up above $7 billion. You're seeing our margins expand in 2023, even with the pressure from a down mortgage market, from the cloud cost savings and the fact our non-mortgage businesses are performing so well. Okay. Do you feel like this soft landing premise, which is definitely the base case for our economists, who I interviewed over lunchtime, is going to be a good environment, you know, for Equifax going into next year? Absolutely, and I've subscribed to the soft landing for quite some time. Okay. You know, that's, been my I'm not an economist, you know? Yeah. That's not my role. I'm running a company. But, you know, I look at an environment with unemployment so low, and it's hard to see a catalyst that's going to change. If people are working, the economy's going to be good, and that's good for Equifax. Okay, how about just one recession question? I won't, I won't keep on belaboring recession, 'cause it just seems like an unpopular subject, but do you think Verifier could grow through a recession? It has before. I know. You know, in 2008, 2009, it grew. Smaller company. Smaller company, it was primarily mortgage back then. It's much more diversified. When we think about the verticals of Verifier, you know, you've got, half of Verifier that's outside of the financial services market. Yep. You know, between government and talent. As you know, we have a $500 million government Verifier business, where we verify income and employment for social service delivery by federal, state, and local governments. That business was up 50% last year. It's going to be up strong double digits this year. Our talent vertical, obviously outside, has a different macro on the hiring space in a recession. There'll be some dampening there, but ability for us to grow with new products and penetration. So, yeah, we expect that business would grow. Even in recessions? Absolutely. Yeah. Okay, great. How about record growth? Well, you know, do you expect kind of over the next, you know, 12 months to have a strong year of record growth? And, you know, where are those records going to come from? Yeah. Andrew, I know, as everyone knows, is referring to our income and employment records. These are payroll records that we collect, and maybe just sizing it of what we have today. We have 160+ million active records every pay period at the end of the third quarter. Inside of that 160 million is 122 million individuals. The delta is people that have two jobs. And if you think about 122 million SSNs or individuals in the United States, that compares to about 220 million working Americans or income-producing Americans. There's about 158, 159 non-farm payroll or W-2 income individuals. There's 30-40 million 1099 or self-employed individuals, and remember, self-employed is Uber drivers, but it's also doctors, dentists, lawyers, business owners. So really high-income people sit in on 1099, so we're going after those records. And then there's another 20-30 million of defined benefit pensioners, which is an income that they get. As you know, many federal, state, and local pension, defined benefit pensions people vest out at 50 or 55 years old. That becomes a base part of their income. Many times, they go get a second job that's in the W-2 or 1099 side. So when you think about 220 million versus 122 that we have, real long runway to add another 100 million, you know, records to it. We've been adding records at a very attractive pace, up 10 million year-over-year in the third quarter, up 10%. So very, very strong. To answer your question, records is clearly a strong lever for growth. We've got a lot of dedicated resources on it, and we would expect to continue to add records in the fourth quarter and going forward. We announced in the quarter, third quarter, we added four new payroll partnerships. Those will come online in the fourth quarter and in 2024. We continue to have a pipeline of both direct record additions through our employer business, which, as you know, we get half of our records there from delivering regulated services to HR managers and then doing income and employment verification for them for free. So we get records that way, and then we also have them on the partner side, which we've been growing and expanding. So an important lever for growth. And again, why is it important? Because we have system integrations in all of the workforce solutions verticals, whether it's mortgage, auto, cards, P loans, and then the non-financial services verticals, like government and background screening or talent, as we call it, that are hitting our database every day with every applicant that they have. Yep. So, when we add records, we're able to monetize those new records instantly. Right. Meaning this afternoon. And it's a very unique growth lever. We don't have any other businesses like it. There aren't many in the industry where you have the ability to grow through price, grow through product, grow through new verticals, grow through penetration in existing verticals. In this case, we also have the ability to grow by adding records. Coverage, yeah. Yeah. Because you have so many records, I know you just said we have these dedicated resources and there's a lot of white space, but is it harder to keep growing at the same growth rates when you have so much scale already? Sure. Or does scale make it easier to grow at a high pace? I would say, you know, everything's hard. You know, nothing's easy, right? Right. The hard things about hard things. We have the benefit of having the scale that we can invest in dedicated resources. So we have dedicated resources in our employer business that are out selling our regulated services to HR managers, like unemployment claims, management, I-9, onboarding verification, Work Opportunity T ax Credit. That's a $400 million business, so dedicated commercial team, and then we get records there. Right. Then we have a dedicated team that's working with what we would call partners in the W-2 space, primarily, as well as 1099, so dedicated resources there. And then we have dedicated resources around pension, you know, going off the pension. And remember, on pension, you have to go to, like, pension administrators who are managing it on behalf of companies, and then there's a lot of direct relationships you have to go after to get those records. So, you know, we have the scale. So just stepping back, and I think, Andrew, you know, we've been outgrowing what we would characterize as our long-term growth rate on records for four or five years. You know, 10% growth is not what we expect over the long term Yeah. for record growth. Maybe if I could just step back for a minute Yeah. at Workforce Solutions. If you think about the long-term growth framework for Workforce Solutions, I'll start with Equifax. We expect Equifax to grow 7%-10% organically over the long term, 8%-12%, including bolt-on M&A, so 7%-10%. USIS, 6%-8%, international, 7%-9%, Workforce Solutions, 13%-15%. So take that and call it 14%, you know, long-term growth rate for Workforce Solutions. And if you look at the building blocks for that, you got a couple of points over the long term of market growth. Yeah. 200-300 basis points, pick your what you think GDP is gonna be. Then you've got, you know, 200-400 basis points of record growth. You've got a couple hundred basis points of pure price, a couple hundred basis points of product growth by bringing new products to market, and then you've got a couple hundred basis points, 300-400 basis points of penetration into the verticals. So that shows you if you like, you know, call it 13%-15% growth, which we do. Yeah. The building blocks for that are quite balanced. Over the long term, you know, we have the ability to grow well below 10% record growth and still deliver that high double-digit top-line growth at Workforce Solutions. And how We do think the size of the exchange makes it more attractive to contributors. Right. Right? Right. Because of the fact that it has over 160 million current, but really importantly, over 650 million total records, so the historic records. So we're in a position where if you contribute records to The Work Number, our ability to monetise them is substantially better than anybody else's. Because the exchange is so large, it attracts background screeners, it attracts mortgage underwriters, it attracts government. And because we're really the only one that can deliver this, the significant amount of trended information that we're moving toward, where 50% of the inquiries that we get tend to be around trended type of products, that contributing to The Work Number database is just a far more effective way for any of our partners to monetize their records and to provide better services to their customers. Right. And just remind me on the way you count your unique records around Social Security numbers, are those complete records, or are those just, you know, Social Security numbers that have multiple jobs? 'Cause, like, what happens if there's three jobs and you only have two for that person? Like, are those complete Social Security numbers or? Those are the complete records that from that. It's the complete payroll record, which is generally 50 attributes. Right. we get for every job someone has. So it's the all 50 attributes is the 160, I know, two or 3 million that we actually have active records on 122 million individuals. Those are the SSNs. Right, the 122, are those complete records? Yes. Yeah. Okay. Yep. That's good and y ou mentioned 1099s. You know, how are you doing? Is there progress in those records? It just seems like those are harder to aggregate records. Yeah, they are. There's multiple avenues to get self-employed or a 1099. There's some that sit with payroll processors who do some tax management, and as you know, as a self-employed individual, you've got to make quarterly tax payments generally to the IRS. Someone helps you do that. So going to those kind of individuals, whether it's a payroll processor or a tax preparation service, directly to companies that might have contract-type employees, like an Uber, a DoorDash, you know, those kind of companies, is another place to go get those records. So we've got multiple strategies on 1099. Same with pension. You know, pension, there's some equivalent There's pension administrators that manage defined benefit pension distributions on behalf of companies. Some big companies do it themselves. Legacy companies Mm-hmm. continue to have, you know, paying out those pensions. And then a lot of the government organizations, whether it's a fire department, a city, a police department, built at the local level, you know, will be paying out their own pensions. So we have dedicated resources in each of the states that are on our government vertical that are also chasing down, adding those kind of records. So, here's a competitive question. So Experian reported this week, they gave their record count, if I remember it right, it was 52 million records versus their, their fiscal year end, which was 47, so they added 5 million records. Like, I thought that was pretty good. Like, as they add records and their coverage improves, do they make for a more formidable competitor, or do you feel like this is a big, growing market, plenty of room, not a big deal? Yeah, I think as we understand it, Experian talks about their global records I don't think so. when they talk about it? I've asked them that question. Okay. That's our understanding. We don't. We always, we only talk about our U.S. records. Right. As you know, there's one big payroll processor that both Experian and Equifax also have. Yes. The majority of our records, you know, are only Equifax Right. which is, you know, quite powerful, and when they're only with Equifax, you know, it's hard for someone else to get them. But look, Experian's a formidable company. They're a strong operator. You know, we think we've got, you know, a very strong market position, given the scale of the records that we have at 122 million. And I think the 53 would have two jobs, so you got to think about the 160 I'm not sure. Right. 160, two or 3 million total records I agree with that. active records that we have. And then the other big asset we have, and John mentioned it, is our historical records. We've been in this space for 20 years. We keep every record, and as John pointed out, in every vertical, we're increasingly selling trended. But when we say trended, think about historical. So last three years of Mark's income, last four years of Mark's income, selling it in mortgage and other spaces. If you haven't been in the business for a long time, you can't deliver if you don't have those records. We have a total of 650-660 million total records in our data set. That's very valuable, and the portion of our revenue that includes historical or trended data elements has grown from 30% a couple, three years ago, to 50% today. So if you don't have this historical records, you can't participate in that part of the market. So that's a, you know, a very powerful element. And then the breadth of our verticals. You know, our distribution, you know, in all those verticals is just, you know, quite substantial 'cause we've been in it for such a long time, whether it's government, talent, you can't do without historical records, and then some of the other verticals. Right. So it sounds like you think there is room, and you guys could get all the goals, and there will be other players 'cause this is a good market. Is that a fair summary? It's a very good market. It's one that we participate in. Dominate. We don't use that term. That's all right. We have a strong position in. Strong historical position, yeah. Yeah, and we think there's a lot of room for us to grow in it. Right. Right, so, but do you think a lot about the competitors? Sure, you know, because you guys always ask me about them. Occasionally. We don't hear about them in the marketplace, meaning with our customers. You know, they have some unique records at Experian that Yeah. is a small number. Those are valuable to them. Those are records they have that we don't have. We've just got a massive amount of unique records that allows us to compete and grow in the marketplace, and then add the historical element, the scale of our technology, and then the breadth of verticals that we're in. Okay. Move on to the fraud, anti-fraud space. You know, talk about your positioning there, Kount, Midigator. Yep. Do you feel like you could add to what you're focusing on? You know, is this, is this gonna be a needle mover for you? Yeah, it's a space that's a priority, for sure. We like the identity and fraud space for the obvious reasons of the digital macro that's happening across the globe, with all of our customers moving their customers, whether it's a consumer or a small business, online, for applications, for you know, applying for a loan, applying for a mortgage, applying for a credit card, applying for insurance. It's just a huge space. It's about a $20 billion TAM, is the scale of the market for identity and fraud, and we've been investing heavily in it. As Andrew pointed out, we made an acquisition a couple of years ago of Kount, that was big in the e-commerce identity space. It brought unique data to us. We made another acquisition last year of Midigator that made that larger, and we're looking for more M&A around identity and fraud. It's one of our three M&A priorities, and we've got a focus on investing in products. So we're in the throes now of integrating Kount into our cloud capabilities and bringing all of our identity assets together, which will allow us to bring new products to market that drive, you know, very high performance around identifying identities without a lot of friction, meaning the consumer doesn't feel it when they're in the process. That's very valuable, you know, to a customer to have a low friction but high predictability of identifying an identity. So it's a business that's been growing double digit for us. Yeah. As you know, over the last couple of years, the TAM is also growing double digits, so it's a great space to be in. And, we're gonna continue to invest in product as well as in, bolt-on M&A going forward, in the identity and fraud space. Our positioning is really around transactional execution, so we help with identity validation, fraud protection, and chargeback protection, as the transaction's being executed by the customer in e-commerce, and also we support, obviously, the credit card company and the payment segment. We're not really in marketing, right? So we're not at the very front end of that transaction. We're where we are really in across our business, around validating identity and preventing fraud and helping transactions occur, as opposed to being on the front end of marketing. How's Boa Vista doing? Do you feel like the long-term trajectory is the same as you always anticipated? Yeah. So we acquired Boa Vista in July. I think, as you know, those that follow the company closely, it's the number two credit bureau or data analytics company in Brazil. Experian's business, which is called Serasa, their Experian Serasa, has very strong market position. We believe the market was looking for a strong global number two. Yeah. So, we're very pleased with the team there. We're only in the early days of integrating it. It's a market that is a couple billion-dollar market, so there's room for growth between Serasa and Equifax. And the big banks are looking for us to bring our global products, technology, and platforms into the marketplace to really you know help grow. Boa Vista has some unique data assets in retail data. We own 80% of the company. There's a 20% partner, which is a retail association, an association of retailers there. And in Brazil, like many markets around the world, some retailers do their own sales finance or financing. We have unique access to that payment data from their financing activities in Boa Vista, which is an advantage. So, you know, we're excited about the acquisition. We worked on it for a long time I know. as you remember. And we're pleased to get it closed, and we look forward to growing it going forward. And it, you know, it adds to our international business. We're very strong in Latin America. We've got a big position in Canada and Australia. In Spain, we're number one, and in the U.K., of course, we compete with Experian, who's quite strong there in TU. Okay, great. Talk a little bit about Tri-Merge, Bi-Merge. You know, there's an option soon for lenders to switch to Bi-Merge, for mortgages if they want, I guess, is probably the best way to describe it. Do you think lenders will want to switch Yep. to Bi-Merge? We don't think so, and I'll give you a couple reasons out of it. Maybe just start, as you remember, the FHFA came out with two recommendations about a year ago. One was to give the mortgage originator the option to go from 3B to 2B. Today, it's a requirement to do 3B, and they'd have a requirement to do 2B or more, a minimum of 2B. They also came out and said they're going to require both the FICO score and the VantageScore. So I'll start on that side first. That's a good guy. Yep. I know. We're gonna sell two scores instead of one. Yeah. So that's a good guy when it gets implemented. About a month ago, the FHFA came out and said they were delaying the implementation date to collect more information from the industry. So maybe I'll switch to your question, which was around 3B versus 2B. Yeah. Couple reasons why we don't think mortgage originators are gonna move from 3B to 2B. Number one is 3B provides more coverage around the consumers. There's 8 million consumers in the U.S. that are only on one credit bureau. Yep. If you only pull two, and that consumer's applying for a mortgage that's on the third that you don't pull, you can't approve it. Mm-hmm. You know, so you spent money in marketing, and you're not able to approve it. Right. Second is, there's about 40 million consumers and many of you in the room, probably, I'm one of them, if you check your credit score at Experian versus TU versus Equifax, you likely have a meaningful difference Yeah. between the three. It's because there's different number of contributors. We don't, every bank doesn't contribute to all three of us. So 40 million people have a 30-40 point difference in their credit score. Same thing, if you didn't pull the high credit score, credit bureau, you might not approve a consumer, or they might have to pay more for the, loan. Right. The average just gets more funky with two than three. I, I get it. Third is this is a pass-through cost. It's not a COGS for the mortgage originator. If you've gotten a mortgage, you probably know that. For most lenders. For most lenders. For the vast majority of lenders, actually. Yes. More than most. Right. But the vast majority, it's a pass-through cost, and it's on the closing statement, and the consumer pays for that 3B. So there's really no incentive Incentive, right. for the mortgage originator to reduce the level of originations. What's happening now is there's a lot of industry pushback on it. There's actually a congressional pushback. Though recently, there was a letter sent, that's public, Yeah. you know, from senators and congressmen about. Because remember, these are federally guaranteed mortgages. Yeah. They're federally guaranteed because the government wants to promote homeownership, so they want consumers that qualify to get approved, and if you're reducing the data elements from 3B to 2B, and less people are gonna be approved It's a good argument. it doesn't meet I kind of the goals of 3B versus 2B. Regardless, two points on Equifax. Mortgage is a lot smaller part of Equifax today than it was. Yep. We're heading for 15%. I know. If something does happen here, it would be late next year. Oh, yeah? And then, It was delayed to late May? Well, it was delayed. They didn't say when. Yeah, I didn't think so. They're collecting more data, but there's gonna be a long implementation cycle. It's fair. Then the last point is, Andrew, you remember that, about six months ago, we rolled out a new Equifax mortgage credit file, Yep. that includes cell phone utility attributes that only Equifax has. So we now have a differentiated, more predictable, thicker, richer data set in our credit file than our competitors do. So we're positioned to be, as you know, like in shopping behavior, which is the early port of a mortgage cycle, sometimes the mortgage originators will only pull one file. We think we're positioning to be the file they pull because we have better data and richer data in it. Yeah. Last question. When you think about 2024, which products are you kind of most excited about in terms of revenue needle-moving products? Oh, boy! That's a Revenue needle. So you just have to tell me the products. But, you know, it's like this. I've got three boys. I love all three of them, right? You love all your children. But what excites us, I think, number one is around the Workforce Solutions products that are coming out. You know, in talent, in government, in mortgage, we still have new products coming out. As you know, with the cloud, we unleash their capability to roll out new products, and as you know, our vitality goal is 10%, Workforce, now that they're in the cloud, is over 20. So Workforce has really unleashed a whole bunch of new products going forward. We're also excited about the ability to continue to deliver trended or historical data in that business and across Equifax. John, would you add anything around products we're excited about? I think we're excited about some of the new identity and fraud products Yep that'll be coming out next year. Commercial, we expect to continue to perform very, very well. It's product expansion, but it's also customer expansion. Really, the businesses that have performed well this year, that you've seen perform better than market, we think are the businesses that we're the most excited about. All right, let's end on that. Thank you, John and Mark. I I appreciate it. Thank you, Andrew.