Mark W. Begor
Chief Executive Officer and Director at Equifax
Thanks, Trevor, and good morning. Equifax delivered another strong quarter with 10% constant currency non-mortgage revenue growth as we executed well against our Equifax 2025 strategic priorities and the $200 million spending plan we announced in February.
Before I cover our strong results for the quarter, I want to provide a brief overview of what we're seeing in the US economy and US consumer. We continue to navigate a higher interest rate environment that has severely impacted the US mortgage market. Mortgage originations were down 56% in 2022 and we expect them to be down about 32% this year. In the second half, we expect mortgage inquiries to be approaching an unprecedented 40% below 2015 to 2019 levels. The combined market impact in '22 and '23 is expected to reduce Equifax revenue by over $900 million, but the breadth and depth of the Equifax business model and fast-growing non-mortgage businesses allowed Equifax to deliver 20% non-mortgage constant dollar growth last year and 4% total growth last year, and an expectation to deliver 8% non-mortgage and 4% total growth in 2023 at the midpoint of our guidance, more than offsetting the large negative impact from the unprecedented mortgage market decline.
Broadly, consumers are still strong with unemployment at historically low levels and with modest increases in delinquencies. We're seeing some credit card and personal loan delinquency increases in subprime, and more broadly, DQs are now back to pre-pandemic levels, although they remain significantly below the levels we saw in 2009 and 2010. Auto loan delinquency rates for subprime consumers are above pre-pandemic levels as well as above the levels we saw in 2009 and 2010. And as you know, delinquencies generally are manageable when people are working. While we have seen limited pockets of DQ increases, we continue to watch this important metric as we move through the rest of the year. Historically, as DQs increase, our customers will begin to reduce marketing and tighten originations.
Gross hiring year-to-date through February was down about 6%, slightly better than the trends we saw in the quarter, and inflation remains at elevated levels, but has begun to moderate slightly given Fed actions. But with inflation still well above Fed targets, we expect further rate increases. And we believe there has been some credit tightening at some customers with more impact in fintech from both expectations of a slowing economy in the second half and capital issues impacting certain banks. As you recall, our guidance assumes a slowdown in the second half. While we are operating in an uncertain and challenging economic environment, Equifax continues to deliver. The breadth and depth of Equifax's broad-based business model is allowing us to weather this -- the unprecedented mortgage market decline and deliver revenue growth and margin expansion.
Turning to Slide 4. Equifax had another strong quarter with non-mortgage constant dollar revenue growth up 10%. First quarter reported revenue of $1.302 billion was down 4.5% and down 4.3% on an organic constant currency basis and above our expectations against an unprecedented 58% mortgage market decline in the quarter. Revenue was above the high-end of our February guidance from broad-based strength and execution across Equifax and continued strong new product roll-outs.
First quarter adjusted EBITDA totaled $380 million with adjusted EBITDA margins of 29.2%, both in line with our expectations. Adjusting for the incremental stock-based compensation expense incurred in the quarter, adjusted EBITDA margins would have been approximately 31%, which is the baseline of which we expect to grow to 36% in the fourth quarter from revenue growth and our $120 million cost savings plan. As a reminder, the bulk of the spending reductions benefit the second half and we have $50 million of carryover benefit in 2024 from our actions this year. Adjusted EPS of $1.43 per share was above our February guidance range of $1.30 to $1.40 per share from stronger-than-expected revenue growth.
Our Equifax non-mortgage businesses, which represented about 80% of total revenue in the quarter, were strong with 10% constant currency and 8% organic constant currency revenue growth with the 10% growth solidly inside our 8% to 12% long-term growth framework. All BUs delivered stronger-than-expected non-mortgage growth, which is positive momentum for the rest of the year. Estimated US mortgage market originations, which MBA forecasted to be down about 58% in the quarter were slightly weaker than the down 55% in our February framework. Total US mortgage revenue was down about 33% or 25 points better than the market with both total revenue and our mortgage outperformance stronger than we outlined in February. The stronger outperformance was driven by better US credit inquiries from higher-than-expected consumer shopping and positive mix in Workforce Solutions, driven by significant growth from our new Mortgage 36 Trended product.
We continue to make significant progress driving completion of the Equifax data and technology transformation. At the end of the quarter, over 70% of Equifax is being delivered from the new Equifax Cloud, which will expand to 80% by year-end as we substantially complete the North America customer migrations to the Equifax Cloud. Our new Equifax Cloud infrastructure is delivering always-on capabilities and faster new product innovation with integrated data sets, faster data delivery, better data quality, and industry-leading enterprise-level security. We continue to be convinced that our Equifax Cloud and single data fabric will provide a competitive advantage to Equifax for years to come. New product innovation, leveraging the capabilities delivered by the Equifax Cloud is also executing at a very high level. Our New Product Vitality Index of 13% in the quarter is at record levels and 300 basis points above our 10% long-term vitality goal. And as you recall, in February, we reached a definitive agreement to acquire Boa Vista Servicos, the second largest credit bureau in Brazil. When completed, the BVS acquisition will add $160 million of run rate revenue in the fast-growing Brazilian market. The transaction is subject to Boa Vista shareholder approval and other customary closing conditions, and we expect the transaction to close in the third quarter.
As we outlined in February, we're executing a broad operational restructuring across Equifax, reflecting both the acceleration of our cloud transformation benefits and a broader focus on operational improvements aided by our new cloud capabilities. The plan will reduce our total workforce of over 23,500 employees and contractors by over 10% during 2023 as well as delivering cost reductions from the closure of major North American data centers and other broader spending controls. Total spending reductions from these 2023 actions are expected to be about $200 million with about $120 million reduction in expense or about $0.75 per share and $80 million reduction in capital spending, and we're tracking well to the plans we laid out in February and we remain committed to meeting these cost improvement targets. In 2024, the run rate benefit of these actions will reduce spending by an incremental $50 million to over $250 million.
And we're maintaining our 2023 full year revenue guidance of $5.275 billion to $5.375 billion and adjusted EPS guidance of $7.05 a share to $7.35 per share. Our guidance continues to assume a weakening US and global economy in the second half. Given the slightly weaker US mortgage market that we saw principally in March, we are now assuming US mortgage market inquiries for 2023 to be down about 32% or 200 basis points weaker than we discussed in February. Given our strong and broad-based performance in the first quarter, our ability to continue to outperform our underlying markets and execution on our planned 2023 spending reductions, we are reaffirming our 2023 guidance in a continued challenging mortgage market and expected slowing economy in the second half. We also continue to expect to deliver adjusted EBITDA margins of over 36% in the fourth quarter, which is a very important stepping off point for 2024. John will provide more detail on the overall mortgage market in our second quarter and full year guidance shortly.
Turning to Slide 5. In the first quarter, we continued our strong non-mortgage revenue performance, delivering 10% constant dollar and 8% organic constant currency revenue growth. All three business units delivered strong non-mortgage revenue growth in the quarter with workforce up 11%, International up 10% in constant currency, and USIS up 8%. This broad-based non-mortgage growth across the business units will be increasingly supported by completion of the Equifax Cloud and continued NPI growth across the businesses. First quarter constant dollar non-mortgage growth of 10% was well within our 8% to 12% long-term revenue framework despite some slowdown in US hiring activity that impacted EWS' Talent Solutions and I-9 businesses, as well as the comparison of a very strong 25% non-mortgage constant dollar revenue growth in first quarter last year.
Turning to Slide 6. Workforce Solutions delivered another very strong quarter with non-mortgage revenue growth up 11% and total revenue down 8% as expected from the 58% mortgage market decline. EWS had another strong quarter of record additions with an incremental four million records added to the TWN database, ending the quarter with 156 million current records, up 15%, and 117 million unique records, which was up 12%. This is a very positive sign, as historically the first quarter has lower net record growth as large retail and logistics companies reduce elevated holiday season staffing in the first quarter. And as a reminder, unique records represent individuals on the TWN database and current records represent current active jobs in the database, and in our case, we have almost 50 million individuals having more than one job in our data set. The 117 million unique individuals on TWN deliver high hit rates, including self-employed or 1099 employees and defined benefit pensioners. We now cover just over 50% of the 220 million people in the US with employment and income records that are relevant to the TWN database and our customers.
As I referenced last quarter, we're also beginning to onboard pension records with records from one major pension administrator and discussions with many more. And through our cloud tech transformation, we're executing -- expanding our capabilities to ingest unique 1099-based self-employment records. And as a reminder, about 50% of our records are contributed directly by individual employers from our Employer Services business relationships. The remaining are contributed through partnerships principally with payroll companies, and during the quarter, we signed agreements with three new payroll processors that will deliver records during the balance of 2023. And the TWN US database now has 618 million total current and historical records from over 2.7 million employers. Increasingly, more of our new products are incorporated current and historical records with about 50% of first quarter Verification Services revenue coming from products that include historical or trended records.
Mortgage revenue was down 38% in the quarter, which was in line with our February guidance, but outperformed the overall market by 20 points when compared to the 58% decline in originations. These are very strong results when compared to EWS' 52% outperformance in the first quarter last year. In addition to strong record growth and the positive impact from price actions in the quarter, we also saw strong NPI performance driven by the adoption of our new Mortgage 36 solution, which is a 36-month trended product. During the quarter, over 50% of TWN mortgage inquiries were for products including trended or historical information and all at higher price points.
Turning to Slide 7. Workforce delivered revenue of $596 million, down 8%, and in line with our expectations. Verification Services revenue of $456 million was down 11%, driven by the decline in mortgage revenue that I just referenced. Verification Services non-mortgage revenue, which now represents about two-thirds of Verifier revenue, delivered strong 16% growth in the quarter. We saw continued very strong growth in the Government vertical, which is about 45% of Verifier non-mortgage revenue with revenue up 33%, driven by strong growth with CMS at the state level, new products, and record additions. We expect this strong growth in our Government vertical to continue throughout the year.
Talent Solutions delivered strong 10% growth in the quarter despite the 6% decline in the overall hiring market. Talent Solutions' volumes have remained consistent since the middle of the fourth quarter despite the declining hiring market. We outgrew the market decline by over 15 percentage points, delivering 10% growth, a very strong performance, driven by continued penetration of our digital solutions and background screening, strong new product growth, continued expansion of TWN records and favorable pricing. In the quarter, we launched new products targeted to staffing and hourly segments designed to meet specific needs of background screeners and end market employers in these very high-volume market segments.
We're also seeing continued penetration of our new educational background solutions. We expect these new products to continue to drive talent growth throughout 2023. Consumer lending was down 1% in the quarter due to lower auto volumes with financial institutions and P loan declines with fintech lenders. In Employer Services, revenue of $141 million was up 4% from growth in our I-9 and onboarding businesses despite the negative impact in US hiring, offset by a 9% decline in UC, or unemployment claims, driven by lower jobless claims. Despite the slowdown in hiring, we've not seen an increase in US -- UC transactions yet. And as a reminder, first quarter Employer Services revenues are seasonally higher than other quarters due to higher Affordable Care Act and W2 volumes.
Last month, Workforce Solutions launched the PeopleHQ portal, a new cloud-native solution that brings together multiple best-in-class employer compliance services in a single unified online experience. PeopleHQ serves employers of all sizes and supports the total employee journey with enhanced and connected people-first experience, leveraging the full suite of EWS employer solutions. Powered by the Equifax Cloud and leveraging industry-leading security measures, the PeopleHQ portal will house several EWS services, including The Work Number verification service, I-9 HQ, including I-9 Anywhere and I-9 Inspect, and ACA HQ with best-in-class Affordable Care Act capabilities that help employers meet the needs of their employees while also reducing risk for penalties. PeopleHQ is another example of how EWS is leveraging our new cloud-native capabilities to deliver new solutions to the market that will drive employer revenue and continued direct record growth.
Workforce Solutions' adjusted EBITDA margins of 50.4% were up 370 basis points from the fourth quarter and in line with our February guidance, and as expected, above 50% due to first quarter record growth, new product introductions, and pricing actions more than offsetting the macro effect of lower volumes in mortgage and Talent Solutions as well as the negative mix from seasonally higher Employer Services revenues. The strength of EWS and uniqueness and value of their TWN income and employment data in Employer Services businesses were clear again in the quarter. Rudy and the EWS team delivered another strong quarter, outperforming the mortgage and hiring markets and continued strong record growth that will drive revenue and margins in the future.
Turning to Slide 8. USIS revenue of $422 million was down about 2.5% and much better than our expectations due to stronger mortgage and non-mortgage performance. USIS mortgage revenue was down 25% and was better than our expectations. Although estimated mortgage originations were 300 basis points weaker than our expectation at down an estimated 58%, USIS credit inquiries were stronger than we expected at down 44%. Credit inquiry performance continues to outperform originations, reflecting higher relative levels of consumer mortgage shopping behavior in this higher interest rate environment. Revenue outperformance relative to credit inquiries was strong at 19%, driven principally by pricing actions and was also strong versus estimated originations at 33%. At $105 million, our mortgage revenue was about 25% of total USIS revenue in the quarter. Total non-mortgage revenue of $317 million was up 8% in the quarter with organic growth of about 4%. The 8% growth was stronger than the mid-single-digit growth that we expected in our February guidance.
B2B non-mortgage revenue of $261 million, which represented over 60% of total USIS revenue, was up 8%, with organic revenue growth of about 3%. B2B non-mortgage online revenue growth was up 9% total and up over 3% organically. And during the quarter, online revenue had very strong double-digit growth in commercial, auto, identity and fraud, and insurance. And banking was up slightly in the quarter with growth at large financial institutions, although at slower pace than in the fourth quarter, more than offset by declines in -- with smaller financial institutions and fintechs. Commercial was up over 20% with continued strong growth from our differentiated commercial credit data, including financial, telco, utility, and industry trade lines and our new OneScore for Commercial that we launched in the first quarter. Commercial is an increasing area of strength, delivering above-market growth in the risk segment, and we should see continued strong performance as we complete their data and cloud transformation later this year.
Financial Marketing Services, our B2B offline business, returned to growth with revenue of $48 million that was up 4% and in line with our expectations. Revenue growth in offline fraud, insights, and IXI wealth products was partially offset by lower Prescreen marketing revenue. Prescreen revenue from larger customers slowed growth in the quarter, but we saw significant weakness from smaller FIs and fintechs. And we have not seen an increase in risk-based portfolio reviews yet.
USIS Consumer Solutions business had revenue of $56 million in the first quarter, up 8% from very good performances in 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 US customers about the competitive benefits of the Equifax Cloud with always-on stability, faster data transmission, and Equifax Cloud-enabled new solutions. USIS is on offense as they finalize their cloud transformation and are pivoting to selling cloud-enabled -- new cloud-enabled solutions.
USIS adjusted EBITDA margins were 32.6% in the quarter and in line with our expectations. EBITDA margins were down sequentially due to negative mix from seasonally sequential growth in mortgage solutions, which drives higher royalties and data costs as well as the normalization of annual employee incentive costs. USIS is also incurring incremental costs from customer migrations to the new Equifax Cloud that are accelerating as we move through 2023. We expect USIS adjusted EBITDA margins to be about 34% in the second quarter, up sequentially, reflecting revenue growth and the accelerating benefit of our 2023 spending reduction plan.
Last month, we announced Todd Horvath joined Equifax as our USIS President. Todd has a proven track record of leading enterprise teams and financial services to drive growth and strong commercial relationship, and he brings more than 20 years of financial services management experience, a commitment to driving product and operational excellence, and strong expertise in enterprise and cloud technologies to his role as the USIS President. I'm energized to welcome Todd to the Equifax leadership team and believe that his experience in transformation, innovation, and customer experience will prove invaluable to taking USIS to the next year.
Turning to Slide 9. International revenue was $284 million in the quarter, up 9% in constant currency and 8% organically, and much better than our expectations from new products and pricing actions. We're seeing a broad-based execution from Lisa and our international team. Europe local currency revenue was down 4%, but stronger than expected. The decline was due to the expected 20% decline in our debt management business in the UK. As we discussed last year, our UK debt management business was very strong in the first half of 2022 as the UK government made large catch-up debt placements following their COVID debt collection moratoriums. As a result, we expect to see declines in that business in the first half of 2022. However, we do expect to see consistent sequential growth in our debt management business as we move through 2023. In the quarter, we secured an expanded budget allocation from the UK government, which will deliver higher volumes of debt placements during the year, and we expect debt management to return to revenue growth later this year.
Our UK and Spain CRA business revenue was up 7% in the quarter, a very good performance and stronger than we expected. This strong performance was principally due to strong growth from consumer decisioning and analytical solutions. Asia Pacific delivered very strong local currency revenue growth of 11%, in which Australia delivered high-single-digit growth in the quarter. And we also saw a very strong growth in our India business, up over 40%. Latin America local currency revenue was up a very strong 32% driven by very strong double-digit growth in Argentina, Uruguay, Paraguay, and Central America from new product introductions and pricing actions. This is the eighth consecutive quarter of strong double-digit growth for the Latin American team, which we expect to continue in 2023. Canada local currency revenue was up 8% and above our expectations. Growth in consumer and identity and fraud was offset partially by lower mortgage volumes in Canada. And International adjusted EBITDA margins at 23.5% or better than our expectations due to the stronger revenue growth and good execution against their 2023 cost reduction plans.
Turning to Slide 10. New product introductions leveraging our differentiated data in the new Equifax Cloud are central to our EFX 2025 growth strategy. Building off the momentum from 2022 where we launched over 100 new products and delivered a record Vitality Index of over 13%, in the first quarter, we launched over 30 new products and delivered 13% vitality again. Our first quarter Vitality Index was again led by very strong performance in Workforce Solutions and in Latin America, and in the quarter, over 80% of new product revenue came from non-mortgage products, leveraging the new Equifax Cloud.
Leveraging our new Equifax Cloud capabilities to drive new product roll-outs, we expect to deliver Vitality Index in 2023 at about 13%, which is well above our 10% long-term Vitality Index goal. This equates to over $700 million of revenue from new products introduced in the past three years during 2023. New products leveraging our differentiated data, our new Equifax Cloud capabilities, and single data fabric are central to our long-term growth framework and are driving Equifax top line growth and margins.
On the right side of the slide, we've highlighted several new products introduced in the quarter. Leveraging our differentiated data, USIS launched OneScore, a new consumer credit scoring model that combines traditional Equifax credit history with telecommunications, pay TV, and utility payment data on over 191 million consumers as well as Equifax DataX and Teletrack specialty finance data on about 80 million consumers, including payment history from non-traditional banks and lenders, which will potentially increase credit scores by up to 25 points in the scorable population by more than 20%. These new solutions are 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 for them.
Now, I'd like to turn it over to John to provide more detail on our second quarter guidance. We're off to a strong start in 2023, building off the momentum for a strong 2022 non-mortgage growth from new products, record growth, and pricing. John?
