Equifax Q2 2023 Earnings Report

Equifax EPS Results

• Actual EPS: $1.71
• Consensus EPS: $1.67
• Beat/Miss: Beat by +$0.04
• One Year Ago EPS: $2.09

Equifax Revenue Results

• Actual Revenue: $1.32 billion
• Expected Revenue: $1.33 billion
• Beat/Miss: Missed by -$7.44 million
• YoY Revenue Growth: +0.10%

Equifax Announcement Details

• Quarter: Q2 2023
• Date: 7/20/2023
• Time: After Market Closes

Equifax (NYSE:EFX) operates as a data, analytics, and technology company. The company operates through three segments: Workforce Solutions, U.S. Information Solutions (USIS), and International. The Workforce Solutions segment offers services that enables customers to verify income, employment, educational history, criminal justice data, healthcare professional licensure, and sanctions of people in the United States; and employer customers with services that assist them in complying with and automating payroll-related and human resource management processes throughout the entire cycle of the employment relationship. The USIS segment provides consumer and commercial information services, such as credit information and credit scoring, credit modeling and portfolio analytics, locate, fraud detection and prevention, identity verification, and other consulting services; mortgage services; financial marketing services; identity management services; and credit monitoring products. The International segment offers information service products, which include consumer and commercial services, such as credit and financial information, and credit scoring and modeling; and credit and other marketing products and services, as well as offers information, technology, and other services to support debt collections and recovery management. The company serves customers in financial services, mortgage, retail, telecommunications, utilities, automotive, brokerage, healthcare, and insurance industries, as well as government agencies. It operates in Argentina, Australia, Brazil, Canada, Chile, Costa Rica, Dominican Republic, Ecuador, El Salvador, Honduras, India, Ireland, Mexico, New Zealand, Paraguay, Peru, Portugal, Spain, the United Kingdom, Uruguay, and the United States. The company was founded in 1899 and is headquartered in Atlanta, Georgia.

Equifax Q2 2023 Earnings Call Transcript

Presentation

[Operator]

Greetings and welcome to the Equifax Second Quarter 2012 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Trevor Burns, Senior Vice-President, Head of Corporate Investor Relations. Thank you. Sir, please go ahead.

[Trevor Burns, SVP, Head IR at Equifax]

Thanks, and good morning. Welcome to today's conference call. I'm Trevor Burns. With me today are Mark Begor, Chief Executive Officer, and John Gamble, Chief Financial Officer.

Today's call is being recorded. An archive of the recording will be available later today in the IR Calendar section of the News and Events tab at our IR website, investor.equifax.com.

During the call today, we'll be making reference to certain materials that can also be found in the Presentation section of the News and Events tab at our IR website. These materials are labeled 2Q 2023 earnings conference call.

Also, we will be making certain forward-looking statements, including third quarter and full-year 2023 guidance to help you understand Equifax and its business environment. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from our expectations. Certain risk factors may impact our business are set forth in filings with the SEC, including our 2022 Form 10-K and subsequent filings.

We'll also be referring certain non-GAAP financial measures, including adjusted EPS attributable [Indecipherable] and adjusted EBITDA, which will be adjusted for certain items that affect the comparability of our underlying operational performance. These non-GAAP measures are detailed in reconciliation tables, which are included with our earnings release, and can be found in the Financial Results section of the Financial Info tab at our IR website.

In the second-quarter, Equifax incurred a restructuring charge of $17.5 million or $0.10 per share. These charges is for cause principally incurred to reduce additional headcount in 2023, as we realign our business functions in advance of completing our cloud transformation. This restructuring charge is excluded from adjusted EBITDA, as well as adjusted EPS.

Now I'd like to turn it over to Mark.

[Mark Begor, Chief Executive Officer at Equifax]

Thanks, Trevor, and good morning. Turning to slide four, we executed well in the second-quarter against a challenging mortgage and hiring markets, while delivering on our 2023 financial objectives. We continue to outperform our underlying markets with broad-based 6% non-mortgage growth against a tough 22% comp last year. We continued strong mortgage outperformance and challenging market and very strong new product growth with a record 14% vitality index. We also executed well against the $200 million cloud and broad-based spending reduction program we announced in February and delivered 350 basis-points of sequential margin expansion in the quarter.

Globally, with the exception of the U.S. mortgage at hiring markets, we continue to see good consumer demand across our consumer -- good customer demand across our consumer, commercial and government lines of business. However, the U.S. mortgage market weakened relative to our expectations as we move through the latter portion of the second quarter when mortgage rates moved about 7%, which will impact our results in the second half.

In the quarter, we delivered adjusted EPS of $1.71 per share and adjusted EBITDA margins of 32.7%, both above the guidance we provided in April. Execution against our cloud and broader spending reduction programs is also very strong and drove the 350 basis-points of margin expansion in the quarter.

Revenue at $1.318 billion was close to the midpoint of guidance with USIS and International delivering strong quarter, both above our expectations. EWS non-mortgage revenue up 4% was below our expectations, but off a very strong 52% comp last year, principally due to the weaker hiring market that impacted our talent solutions and onboarding businesses. EWS had outstanding operational execution in the quarter, delivering a new product vitality index of 25% and expanded current twin records by 12% to a 161 million records, a growth of 5 million records sequentially.

EWS also had strong cost management as they are fully operational in the new cloud capabilities, delivering adjusted EBITDA margins of 51.5%, up over 100 basis-points sequentially and stronger than our expectations.

USIS had an outstanding quarter and delivered almost 6% revenue growth, much stronger than our expectations. Total non-mortgage revenue grew 8%, led by 9% growth in our B2B online and 10% growth in Consumer Solutions, and adjusted EBITDA margins at 36% were also stronger than our expectations, expanding over 300 basis-points sequentially.

Total U.S. mortgage revenue from both USIS and EWS was down about 13%, or 24 points better than the 37% market decline from pricing actions, new products, records and penetration. We continue to see stronger than expected consumer shopping behavior in these higher interest-rate environments. So, the weaker mortgage market we saw in June had a much smaller impact on USIS than in EWS, where their mortgage activity is more aligned with closed loans.

International delivered 7% growth in constant-currency, also stronger than our expectations, with double-digit growth in Latin-America and high-single-digit growth in Canada and the U.K. CRA. International delivered 24.2% adjusted EBITDA margins, up 70 bps sequentially and stronger than our expectations.

New product innovation, leveraging our differentiated data assets and new capabilities delivered by the Equifax Cloud is also executing at a very-high level. Our new product vitality Index of over 14% in the quarter was a record for Equifax and 400 basis-points above our 10% long-term vitality goal and up over 100 basis-points sequentially. This is encouraging for the future and reinforces our long-term strategy of leveraging our differentiated data assets, our new Cloud capabilities to deliver new solutions for our customers.

We continue to make-good progress on completing our cloud transformation. At the end of the quarter, over 70% of North American revenue was being delivered from the new Equifax cloud. We are convinced that our Equifax cloud single data fabric and AI capabilities will provide a competitive advantage to Equifax for years to come.

As we look to the second half, we expect the weaker-than-expected U.S. mortgage market that we saw in the latter half of the quarter to continue through the remainder of the year. Our updated guidance is for U.S. mortgage originations to be down about 37% for the year, and about 20% in the second half, a reduction of five points from our prior full-year framework. We expect the EFX mortgage origination outperformance to continue to be very strong in 2023.

We're also expecting to see weaker US hiring market continue for the remainder of the year, impacting Workforce Solutions talent and onboarding businesses. However, we expect to offset the hiring weakness principally from strengthening the Workforce Solutions government business and continued solid performances at USIS and International.

EFX non-mortgage revenue growth was up 6%, up a very strong 22% comp last year. We expect non-mortgage revenue growth to strengthen in the second-half to up 11%, and up over 300 basis-points sequentially relative to the first-half from continued commercial execution and strong new product rollouts.

Our 2023 cloud and broader cost-reduction program executed well in the quarter. As we continue to operate more of Equifax in the new cloud environment, we're seeing more opportunities for efficiencies and expect an additional $10 million of spending reductions in the second half. These new actions will deliver additional run-rate savings of $25 million next year. So, we now expect to deliver spending reductions of $210 million this year and over $275 million in 2024. And as a reminder, the 2023 savings are weighted to the second half, and will deliver $65 million of 2024 run-rate benefit.

We expect the weaker mortgage originations to impact our mortgage revenue by about $40 million in the second-half. Despite the weakening in U.S. hiring, we expect to deliver 2023 non-mortgage revenue growth of about 8% from strong growth in EWS government, USIS non-mortgage in international and stronger NPI growth. This above 8% non-mortgage growth is against a strong 20% non-mortgage growth last year, and well within our 8% to 12% long-term growth framework.

The net impact of the weaker-than-expected mortgage market of about $40 million, partially offset by positive FX is a reduction of our 2023 revenue guidance at the midpoint by $25 million to about $5.3 billion. The impact of the lower mortgage revenue results in a reduction of our full-year 2023 adjusted EPS guidance at the midpoint of $0.22 to $698 per share. We remain focused on delivering EBITDA margins of 36% and over $2 in adjusted EPS per share in the fourth quarter, which we believe sets us up well for 2024 and beyond.

In June, we received shareholder approval for the acquisition of Boa Vista Servicos, the second largest credit bureau of Brazil. We are energized to complete the strategic and financially attractive acquisition. We expect the transaction to close in early August and are actively planning for integration and the transfer of our cloud capabilities, global platforms and products to help accelerate BBS growth. The BBS acquisition will add approximately $160 million of year-one run-rate revenue in the fast-growing Brazilian market, and we expect the transaction to be slightly accretive to year-one adjusted EPS.

The guidance we provided for 2023 does not include BBS. We intend to provide more details on our expectations for BBS in 2023 at our October earnings call after we closed the deal.

Before I cover results in more detail, I wanted to provide a brief overview of what we're seeing in the U.S. economy and the U.S. consumer. Since our April update outside the challenging mortgage in hiring markets, I already discussed, the U.S. consumer, and our customers remain broadly resilient. We continue to navigate a higher interest-rate environment that's negatively impacting the U.S. mortgage market.

Mortgage interest rates have trended upward since April and were slightly above 7% at the beginning of July, and we're just under 7% at the end of last week, which is clearly impacting originations. We expect mortgage originations, as I mentioned earlier, to further weaken in the second half with originations down about 37% in 2023 or 500 basis-points weaker than our April framework.

Broadly, consumers are still strong and working with unemployment at historically low levels, and the market is resilient with 10 million -- roughly 10 million open jobs against 5 million people who are looking for jobs.

Inflation is starting to abate at 3% in July, which should mean we are approaching a peak in Fed interest rates. Consumers are spending and borrowing with average credit card and personal loan balances back above pre-pandemic levels. With consumers working and still leveraging pre-cloud stimulus and savings, delinquencies are still at historic levels, historic low levels, and close to 2019 pre-pandemic levels. Subprime DQs [Phonetic] are the only areas of stress that we're seeing.

We're also seeing credit card and personal loan utilization increases in some delinquent -- with some delinquency increases in subprime, but more broadly, delinquencies are back at pre-pandemic levels, which is, we all know were very low, although there remains significantly below levels we saw in the last economic event in 2009 and '10.

Auto delinquency rates for subprime consumers are above pre-pandemic levels as well as above levels we saw in '08 -- sorry, '09 and '10. We believe there's been some credit tightening by our financial customers, -- principally in FinTech and subprime, and looking-forward, consumers holding student loans will need to resume making payments beginning in October, and we believe removing student loan payment freeze will have a modest increase on -- a decrease in average credit scores.

Beyond the weaker mortgage market and slowing white-collar hiring market, which had a larger impact on EWS than we anticipated in the quarter, the combination of white-collar job reductions and broad hiring freezes has reduced both background screening and onboarding activity. As I mentioned earlier, we expect this to continue in the second half.

Turning to slide 5. Workforce Solutions revenue was down 4% in the quarter. Mortgage revenue was down 20%, but about 3 -- but up about 3 percentage points sequentially. The decline of 20% compares to a mortgage origination down 37% as estimated by MBA based on data through May.

As I mentioned, overall mortgage market performance in the latter part of the quarter weakened relative to our expectations, resulting in lower mortgage revenue than we expected in our April framework.

Strong record growth, the positive impact of 2023 price actions and strong NPI performance, driven by the adoption of our mortgage 36 solution, which is a 36-month trended mortgage product, drove to 17 points of mortgage outperformance by EWS in the quarter. During the quarter, about 50% of TWN mortgage increase were from products that include EWS trended or historical information. And of course, these are all at higher price points.

In the quarter, Workforce Solutions saw declines in low-margin Manual Mortgage Verification Services revenue as some customers moved some of these activities back in house. And this negatively impacted mortgage outperformance by about 300 basis-points in the quarter. EWS had another very strong quarter of record additions with an incremental 5 million records added to the TWN database, ending the quarter with 161 million current records, which was up 12% with 120 million unique records or assets ends, which was up almost 10%. Over the past five years, EWS has doubled the size of the TWN database, a strong testament to the record acquisition strategy EWS has executed across the multiple segments of direct employers, third-party payroll providers, HR software management companies, pension administrators and self-employed individuals.

As a reminder, TWN'S 120 million unique records represent individuals or SSNs on the TWN database and there are 161 million current records represent current active jobs on the database, which means there is close to 40 million individuals in our dataset that have more than one job.

Including self-employed or 1099 employees and people on defined-benefit pension plans, we now cover just over 50% of the 220 million working and income-producing individuals in the United States. And, through our cloud tech transformation, we're expanding our capabilities to ingest all levels of records, including 1099 based self-employment records.

And as a reminder, about 50% of our records are contributed directly by individual employers as they are customers of our expanding Employer Services business, and the remaining are contributed through partnerships, principally with payroll companies. During the quarter, we signed agreements with four new payroll processors that will deliver records during the rest of the year.

Between database, now has 631 million total current and historical records from over 2.8 million employers in the United States. Increasingly more of our new products are incorporating current and historical records with about 50% of second-quarter verification services revenue coming from products that included historical records.

Turning to slide six. Workforce Solutions delivered non-mortgage revenue growth of about 4% with non-mortgage revenue now representing over 70% of Workforce Solutions revenue. And as a reminder, EWS non-mortgage revenue was up a very strong 52% in second-quarter last year, which was a very tough comp.

Verification Services non-mortgage revenue, which now represents about two-thirds of Verifier revenue delivered 4% growth both sequentially and versus last year in the quarter, which was below our expectations. This was also against a very challenging 90% non-mortgage growth comp by Workforce Solutions last year. The miss versus expectations was predominantly in talent solutions from weaker white-collar hiring. Government performed exceptionally well, consistent with the high growth that we had expected, and consumer finance declined somewhat in the quarter. In government, we saw continued very strong growth with revenue up 21%, off over 100% growth last year in second quarter. And revenue also up almost 10% sequentially, driven by strong growth with CMS at the state-level, new products in TWN record growth, and government now represents about 45% of Verifier non-mortgage revenue. We expect to see accelerating sequential growth in our government vertical in the second half, driven by growth from CMS, Medicaid redeterminations, ACA open enrollment volume, further state penetration and pricing from state contract renewals.

We began to see incremental volumes from CMS redeterminations in May and expect to see this accelerate in the second half. This strong sequential growth will also the result in accelerated second-half EWS growth rates.

Talent Solutions was down 6% in the quarter, but up about 1% sequentially, as we're comping off a very strong 130% growth last year from record levels of hiring in the second quarter. Also, as a reminder, we are currently more heavily penetrated to white-collar workers, including technology, professional services, healthcare and financial services, which has seen greater reductions in hiring activity and broader hiring freezes, than the about 7% decline that BLS is reporting through May.

Approaching 70% of Talent Solutions revenue in the quarter was from industries that had negative hiring growth versus last year with many of those industries having significant double-digit negative growth in the quarter. We are outgrowing the declining market from penetration of our digital solutions with background screeners, strong new product growth, continued expansion of TWN records and favorable pricing. We are also seeing continued customer penetration of our new differentiated educational products. We expect these new products to continue to drive above underlying market talent revenue growth through 2023 and into 2024 and beyond.

The consumer lending vertical in Workforce Solutions, which includes P Loan, card, auto and debt management was about flat sequentially but down 11% versus last year to lower auto volumes with financial services and P loan declines with FinTech lenders both principally in the subprime space. We expect modest consumer lending sequential growth in the second half driven by record growth penetration in pricing. This will result in revenue growth in second half as we lap 2022 headwinds in the auto and P loan verticals.

In total, we expect to see accelerated sequential growth in Verifier non-mortgage in the second half, driven by strong government growth as well as moderate sequential growth in Talent and Consumer Lending.

Important Services revenue of $109 million was up 4% driven by growth in our I-9 and onboarding businesses despite the negative impact of U.S. hiring. In total, our UC and ERC businesses were up slightly. Despite the slowdown in U.S. hiring, we have not seen an increase in UC revenue yet. As a reminder, first-quarter employer service revenues were seasonally higher than other quarters due to the higher affordable Care Act and W2 volumes. In the third and fourth quarters, we expect to see overall growth in Employer Services sequentially from second-quarter levels, driven by penetration and I-9 onboarding.

Workforce Solutions adjusted EBITDA margins of 51.5% were up 110 bps from first-quarter, and in-line with our April guidance from strong operational execution. EWS team continued to perform well, despite the macro headwinds for mortgage and U.S. hiring, outperforming the underlying markets from strong record growth, new products, penetration and price.

As shown on slide 7, USIS revenue of $445 million was up 6% and much better than our expectations due to stronger mortgage and non-mortgage performance. USIS mortgage revenue was down less than 1% and outperformed the mortgage market credit inquiries that were down 33% by more than 30 points. This strong pricing environment that we discussed in April both from the addition of telco and utility attributes to our new mortgage credit solution and the increased pricing for credit scores drove the very strong outperformance. At $113 million, mortgage revenue was 25% of total USIS revenue in the quarter.

Mortgage credit inquiries again outperformed MBA's current estimate of originations by about 5 points from increased shopping behavior. We expect this increased shopping behavior to continue as we move through the remainder of the year.

Total non-mortgage revenue of $332 million was up 8% in the quarter with organic growth of about 4% and better than our expectations. B2B non-mortgage revenue of $278 million, which represented over 60% of total USIS revenue was up 7% with organic revenue growth of 3%. B2B non-mortgage online revenue growth was up 9% total and 3% organically. During the quarter, online revenue at strong double-digit growth in commercial and Identity and Fraud with auto approaching 10% growth, and telco and insurance growing low-single digits.

Banking was up slightly, consistent with first-quarter with market volumes at larger financial institutions offsetting declines with smaller financial institutions and FinTechs that were more principally focused on subprime. Financial Marketing Services, our B2B offline business had revenue of $56 million that was up 1%. Strong revenue growth and fraud and header as well as risk and account reviews was partially offset by declines in marketing, principally pre-screen marketing with ISI wealth revenue growth about flat.

Pre-screen marketing revenue was at similar levels at first-quarter as we continue to see significant weakness from smaller FIs and FinTechs in the subprime space, which was partially offset by growth from larger FIs. USIS is using the power of their Ignite platform along with the proprietary data to ensure customers -- to enable customers to drive deeper marketing insights and identifying extending offers to better prospects, delivering better marketing performance management. USIS has seen incremental penetration and growing pipeline from our advanced Ignite capabilities.

We did see limited growth in our portfolio review business, but I've not seen a meaningfully increased -- a meaningful increase in our risk-based portfolio reviews that typically pick-up during challenging economic times. USIS Consumer Solutions direct-to-consumer business had another strong quarter with revenue up $54 million, up 10% from very good performances in both our consumer-direct and indirect channels. USIS is winning in the marketplace with strong momentum from new solutions and differentiated data in key verticals of identity and fraud, commercial and auto.

We're also in active dialogs with USIS customers about the competitive benefits of the Equifax Cloud that will deliver always-on stability, faster data speeds and Equifax cloud-enabled new products, which is driving a strong active new deal pipeline, which was up from the first-quarter. Todd, in the USIS team are on offense as they complete their cloud transformation and pivot to leveraging our new cloud capabilities to deliver new products.

USIS adjusted EBITDA margins were 36% in the quarter, up 340 basis-points sequentially and the strongest USIS margins since the beginning of the mortgage market decline a year ago. EBITDA margins were up sequentially from better-than-expected revenue performance and good execution against their cloud and broader cost-reduction program.

Turning to slide 8. International revenue was $290 million, up 7% in constant-currency and better than our expectations. Europe local-currency revenue was down 2% due to the expected about 16% decline in our U.K. debt management business. As we discussed previously, our U.K. debt management business was very strong in the first-half last year as the U.K. government made large catch-up debt placements following COVID debt collection moratoriums. As a result, we expect to see declines in the first half versus last year, we expected to see those declines. However, we do not expect -- we do expect to see consistent sequential debt management growth as we move through the second-half, and we expect debt management to return to revenue growth later this year.

Our U.K. and Spain CRA business revenue was up 7% in the quarter in a very good performance. This strong performance was driven principally by strong growth within identity and fraud decisioning, consumer and direct-to-consumer.

Asia-Pacific delivered solid local-currency revenue growth of 4% with growth in commercial identity and fraud and D2C, as well as continued very strong growth in our India business, which was up 38% in the quarter. Latin-America local currency revenue was up a very strong 23%, driven by double-digit growth in Argentina, Uruguay, Paraguay and Central America from new product introductions and pricing actions. This is the ninth consecutive quarter of strong double-digit growth for Latin-America, which we expect to continue in the second-half.

Canada local-currency revenue was up 8% with broad-based growth in consumer identity and fraud decisioning and commercial. In Canada, we recently-completed a full migration to our new cloud-based fraud IQ exchange, and now have all of our Canadian fraud exchange customers on this new cloud-based solution.

International adjusted EBITDA margins of 24.2% were up 70 basis-points sequentially and better than our expectations. The improvement was driven by good execution against their 2023 cost-reduction plans.

Turning now to slide 9, in the second-quarter, overall non-mortgage constant dollar revenue growth of 6% was lower than our expectations, but against a very strong 22% growth last year. USIS and International both delivered stronger non-mortgage growth than we expected. This was offset by the slower growth in EWS non-mortgage that I mentioned earlier in Talent and onboarding, despite their very strong growth in their government business. As we look to the second-half, we expect non-mortgage revenue growth to grow sequentially in third and fourth quarter, led by very strong growth in the EWS government business and growth in EWS Talent and Consumer Lending from new products.

We also expect continued strong performance in USIS and International, resulting in third quarter Equifax non-mortgage revenue growth above 9%, which is well within our 8% to 12% long-term growth framework.

Turning to slide 10, new product introductions, leveraging our differentiated data and the Equifax cloud are central to our EFX 2025 growth strategy. In the second quarter, we launched over 30 new products and delivered a record 14% vitality index. Our second quarter VI was again led by strong performances in EWS in Latin-America. In the second-quarter, over 80% of our new product revenue came from non-mortgage products, leveraging the Equifax Cloud.

Leveraging our Equifax cloud capabilities to drive new product rollouts, we expect to deliver a Vitality Index of approximately 13% in 2023, which is 300 basis-points above our 10% long-term Vitality goal index. This equates to about $700 million of revenue in 2023 from new products introduced in the past three years. New products leveraging our differentiated data, Equifax cloud capabilities and single data fabric are central to our long-term growth framework and driving Equifax top-line and margins.

On the right-side of the slide, we highlighted several new products introduced in the quarter. These new solutions are a testament to the power of the Equifax Cloud and driving innovation that can increase the visibility of consumers to help expand access to credit and create new mainstream financial opportunities. We launched a new product this quarter, Talent Report Flex 2.0, a customizable pre-hire employment verification solution that helps solve the challenge background screeners and HR professionals may experience when seeking to verify a candidate specific employment records. With unique and first-to-market employer preview option, a list of employer names is now available on the work number using the candidate's SSM. This allows the customization of the employment history report by selecting only the records want it. With the power the Equifax Cloud, we're bringing new solutions to market to meet the needs of our customers.

Turning to slide 10, we are very excited to receive shareholder approval for our new Boa Vista acquisition in late June. BBS in the second-largest credit bureau in the fast-growing Brazilian market with over $2 billion TAM. We expect the transaction to close in early August, and Equifax will be able to provide Boa Vista with access to expansive Equifax international capabilities, our cloud-native data, products decisioning and analytics technology for the rapid development of new products and services and expansion into new verticals like identity and fraud in Brazil.

As a reminder, we mentioned earlier, we expect Boa Vista to deliver approximately $160 million in run-rate revenue to Equifax and to be accretive to adjusted EPS in the first year. And as I mentioned earlier, Boa Vista results are not included in the guidance we're providing today, we'll provide more detail and Boa Vista's impact in 2023 during October earnings call, after the transaction is closed.

Given the size of the transaction, we plan to pause on M&A activity in the second half to focus on integration of BVS and our '21 and '22 acquisitions, and our intention is to use excess free-cash flow over the coming quarters to pay down debt and reduce our leverage.

Turning to slide 12, we believe that artificial intelligence is fundamentally changing Equifax business capabilities and is becoming table stakes for data analytics companies to manage increasingly large, diverse and complex datasets within a highly regulated data, bringing unique complex challenges around AI explainability.

On the left-side of slide 12, our large and diverse proprietary database -- dataset is a big differentiator for Equifax, including our income and employment data, traditional alternative credit data, cellphone utility and pay TV data, identity and fraud data and our Commercial and Wealth data. This proprietary data at scale linked in our new single data fabric gives us significant advantages in using AI to build advanced models, scores and products, including identity and fraud solutions enabled by our best-in class Equifax cloud-native technology.

To date, Equifax as about 70 approved AI patents supporting our AI neuro decisioning technology which we call NBT and explainable AI, which is critical to ensuring that the correct data is used to make credit decisions that is surfaced by AI models and Scores.

Equifax will continue to invest in AI, as we remain on off rents, leveraging Google's Vertex AI capabilities combined with our own Equifax NDT capabilities, will be building more predictable and valuable models and scores with our expanding dataset and accelerating at speed at which we develop new models Scores and products to bring more current solutions to our customers. We believe Equifax is uniquely positioned to capture the value of AI going forward.

Now I'd like to turn it over to John to provide more detail on our third quarter and full-year guidance. We're executing very well against our strategic priorities and delivering revenue growth and expanding margins in a challenging macro environment.

[John Gamble, Chief Financial Officer at Equifax]

Thanks, Mark. As Mark mentioned, second-quarter mortgage market originations were estimated by MBA with data through May, and down about 37%, which was in-line with our expectations for the quarter. As shown on slide 13, second-quarter credit inquiries were down 33% and also in-line with our April expectations.

However, as Mark mentioned, we saw weaker-than-expected inquiries data in June, which impacted our overall mortgage revenue for the quarter. As we look to the second-half of 2023, our planning does not assume a fundamental improvement in the mortgage or housing markets from the levels we saw in late June and early July. We're applying normal seasonal patterns of these current run-rates of credit in twin inquiries.

In the first-half of 2023, credit inquiries were down about 39% year to year, about 8 percentage points better than the above 47% decline in mortgage originations as estimated based on NBA data. In the second-quarter, this spread narrowed to about 5 percentage points. In the third and fourth quarters, we expect this elevated impact from mortgage shopping and application activity that does not result in a closed loan, to continue at about 5 percentage points. Applying normal seasonal patterns to the run-rate we are seeing for mortgage credit inquiries in the end of July -- end of June and early July, we expect mortgage credit inquiries to be down 31% for all of 2023, which is a slight reduction from our April guidance. However, we are expecting mortgage originations to be down about 37%, reflecting about 6 percentage points of shopping behavior that benefits credit inquiries. This was about 5 percentage points weaker than the 32% we discussed in our April guidance for mortgage originations.

This full-year guidance for mortgage credit inquiries would result in second-half mortgage credit inquiries being down about 14% with the third and fourth quarter credit inquiries being down about 23% and 4% respectively. And applying the 5-percentage point benefit to credit inquiries relative to mortgage originations from shopping that is consistent with what we saw in the second-quarter, we would estimate mortgage originations in the second half would be down just under 20%.

We're expecting the number of originations to weaken slightly in the third quarter relative to the second quarter and fourth quarter originations to weaken somewhat seasonally, relative to the third.

As we have discussed in the past, Workforce Solutions mortgage revenue is more closely tied to mortgage originations. This reduction in 2023 expected mortgage originations relative to our April guidance reduces Workforce Solutions revenue in the second-half of 2023 by about $40 million. As our expectation for USIS credit inquiries in the second-half of 2023 is slightly weaker than our April guidance, USIS mortgage revenue did not change meaningfully.

Turning to slide 14, as Mark referenced earlier in the second quarter, we exceeded our adjusted EBITDA margin and adjusted EPS guidance and delivered well against our 2023 spending reduction plan that will now deliver $210 million in spending reduction in '23 versus 2022 levels, including workforce reduction, closure of datacenters and additional cost control measures. For 3Q, we expect adjusted EBITDA margins of about 33.5% at approximately the midpoint of our guidance range.

The sequential margin expansion is driven by both revenue growth as well as the savings related to our expanded $210 million spending reduction plan, Mark, previously discussed. As revenue grows sequentially through the second-half of '23 and cloud and broader cost reductions accelerate, we are focused on delivering fourth quarter adjusted EBITDA margins of about 36% and adjusted EPS, exceeding $2 per share in the fourth quarter.

Slide 15 provides our guidance for 3Q '23. In 3Q, '23, we expect total Equifax revenue of between $1.32 billion and $1.4 billion, with revenue up about 6.9% at the midpoint. Non-mortgage constant-currency revenue growth should strengthen to over 9% and will be partially offset by mortgage revenue that is down low-single digits.

FX is expected to have a minimal impact on revenue and acquisitions are expected to benefit revenue by about 1%. As a reminder, this guidance does not include BBS. We will provide more information on BBS at our October earnings call.

3Q '23 adjusted EBITDA margins are expected to increase sequentially by about 75 basis-points at the midpoint of our guidance, reflecting both sequential revenue growth and the benefits of our cost actions. Overall BU EBITDA margins in total are expected to be up sequentially for 2Q '23 driven by Workforce Solutions returning to revenue growth in the quarter as well as margin improvement international. Corporate expenses for 3Q '23 are expected to be about flat with 2Q '23.

Business unit performance in the third quarter is expected to be as described below. Workforce Solutions revenue growth is expected to be up about 7.5%. We expect non-mortgage revenue will return to over 10% growth year-to-year from continued strong growth in government, and a return to growth in Talent solutions and consumer lending verticals. EBITDA margins are expected to be about flat sequentially.

USIS revenue is expected to be up about 7.5% year-to-year. Non-mortgage year-to-year revenue growth should be up slightly from the 8% we saw this quarter, above their long-term 6% to 8% revenue growth framework. Mortgage revenue is expected to return to year-to-year growth in the quarter.

Adjusted EBITDA margins are expected to be down about 100 basis-points sequentially, principally due to the lower revenue. International revenue is expected to be up 4.5% in constant-currency. EBITDA margins are expected to increase a very strong 250 basis-points sequentially, reflecting sequential revenue growth and strong cost management, including the benefit of planned cost reductions. We're expecting adjusted EPS in 3Q '23 to be $1.72 to $1.82 per share.

Slide 16 provides the specifics of our 2023 full-year guidance. As Mark mentioned, we are lowering our full-year revenue guidance by $25 million at the midpoint of $5.3 billion from the weaker mortgage market. As Mark discussed, the reduction in revenue guidance reflects our assumption that U.S. mortgage originations will decline 37% in '23, 5 percentage points more than our April guidance, reducing mortgage revenue by over $40 million in Workforce Solutions.

As I referenced earlier, we're seeing continued high levels of shopping, which is benefiting USIS, and as such, mortgage revenue in USIS is not expected to be meaningfully impacted by the lower level of originations.

Total mortgage revenue is expected to decline about 13% in 2023. Partially offsetting the reduction in Workforce Solutions mortgage revenue is positive FX. We continue to expect non-mortgage constant-currency revenue growth to be strong at above 8% in 2023, slightly stronger than our April guidance. Non-mortgage constant-currency revenue is expected to grow over 11% in the second half of '23 as continued solid performance from USIS and international and accelerating growth in EWS government vertical more than offset the impact of weaker U.S. hiring.

Adjusted EBITDA margins are expected to improve consistently throughout 2023 with the third quarter at 33.5% and the fourth quarter at about 36%. As Mark mentioned, we remain focused on delivering both 36% EBITDA margins and over $2 per share in 4Q '23.

As Mark also mentioned, we are reducing our adjusted EPS guidance for 2023 to the range of $685 to $710 per share at the midpoint of $698, this is a reduction of $0.22 or about $35 million in operating income. This was principally driven by the loss of over $40 million of high-margin Workforce Solutions mortgage revenue. We believe that our full-year guidance is centered at the midpoint of both our revenue and adjusted EPS guidance ranges.

Total capital spending for 2023 is expected to be slightly over $550 million. Capital spending in the second quarter was about $150 million, and in-line with our expectations. We expect capital spending in the third quarter to decline sequentially by almost $15 million as we continue to progress U.S. and Canadian migrations to data fabric. Capex as a percentage of revenue will continue to decline in 2024 and thereafter as we progress toward reaching 7% of revenue or below.

As we discussed in April, we remain focused on delivering our mid-term goal of $7 billion in revenue and with 39% EBITDA margins. Market conditions are significantly different than when we first discussed in November 2021, our goal of achieving these 2025 goals. U.S. mortgage market is expected in 2023 to be down about 40% from the normal 2015 to '19 average levels we have discussed to deliver $7 billion in revenue in 2025. Our non-mortgage revenue has grown faster than we discussed with you back in November of '21, however, and even after considering the additional revenue from the BVS acquisition of recovery in the mortgage market from the levels we are seeing in 2023 of on the order of two-thirds of the lost volume is still needed to achieve our $7 billion goal in 2025.

We are focused on driving above-market growth and delivering the cost and expense improvements committed with our expanded 2023 and 2024 spending reduction plans, and as part of our data and technology cloud transformation, which are needed to achieve 39% EBITDA margins as we exceed the $7 billion revenue level. We'll continue to discuss with you our progress toward our $7 billion goal as the mortgage and overall markets evolve in 2023 and forward.

Now I'd like to turn it back over to Mark.

[Mark Begor, Chief Executive Officer at Equifax]

Thanks, John. Wrapping up on slide 17, Equifax delivered a solid quarter with adjusted EBITDA margins and adjusted EPS above our guidance, despite the challenging mortgage and hiring markets. USIS and International delivered strong quarters, offsetting some weakness in the EWS Talent and onboarding businesses, as well as deliver revenue at about the midpoint and EPS above guidance. The breadth and depth of our businesses and execution against our 2023 cloud and broader spending reduction program allowed us to deliver, despite a challenging macroenvironment.

Summarizing at the business unit-level, Workforce Solutions continued to deliver against our long-term-growth strategy. While the 4% revenue decline was pressured by mortgage and hiring macros that we're comping off a very strong 21% growth last year. We expect our growth to recover in the second-half, and importantly EWS had another very strong quarter of twin record additions adding four more payroll providers, which brings the total added since the beginning of last year to 17. And increased current records to 161 million, up 5 million from the third quarter or 12% versus last year with total records growing to 631 million.

Workforce delivered a very strong NPI Vitality Index of 25%, leveraging their cloud capabilities, which will benefit them in the second half and in '24 and beyond. And the continued growth of TWN strong NPI and government growth positions EWS for 15% growth in the second-half.

And EWS operating focus delivered 51.5% EBITDA margins, which is up over 100 basis-points and stronger than we expected. Second, USIS continued their momentum for the first quarter with strong non-mortgage growth of 8% total and at the top-end of their long-term framework and 4% organic, driven by online B2B non-mortgage growth of 9% total and 4% organic, as they focus on customer migrations to the Equifax cloud.

USIS delivered EBITDA margins of 36%, up over 300 basis-points sequentially through revenue growth and strong cost management. International delivered strong 7% local currency growth with strong growth in Latin-America, Canada, India, and our European credit businesses, and they delivered EBITDA margins of 24% of 70 basis-points and stronger than our expectations.

As mentioned earlier, our second quarter Vitality Index of 14% is an Equifax record, and was 400 bps above our 10% long-term growth framework, as we delivered over 60 new products year-to-date, leveraging the new Equifax Cloud. The focus of our Equifax Cloud data and technology transformation is completing those North American migrations, which will allow us to further accelerate new product launches and complete legacy system decommissioning.

Our cloud native technology will differentiate Equifax and allows us to be an offense [Phonetic] with leading systems state stability and capabilities that position us to leverage AI tools to drive revenue growth and cost efficiencies. We are executing well against our 2023 cloud and broader spending reduction plan, and will now deliver $210 million of savings this year with run-rate savings of $275 million in 2024, and this is up $10 million in '23 and $25 million in '24 from our April framework.

We remain focused on delivering 36% adjusted EBITDA margins in over $2 per share on adjusted EPS in the fourth quarter, which sets us up well for 2024, and we are energized about receiving shareholder approval for the BVS acquisition in June, and we're on-track to close the strategic and financially attractive acquisition in early-August.

As mentioned earlier, given the weaker-than-expected mortgage market, we're lowering our full-year revenue guidance by $25 million to $5.3 billion at the midpoint with full-year 2023 adjusted EPS at the midpoint to be down $0.22 per share to $6.98 billion from the impact of the lower but high-margin mortgage revenue. We are energized to be entering the next chapter of the New Equifax as we pivot from building the new Equifax cloud to leveraging our new cloud capability to drive our top and bottom line. This is an exciting time for Equifax, and we are convinced that our new Equifax cloud-based technology differentiated data assets and our new single data fabric in our market-leading businesses will deliver higher growth, expanded margins and free-cash flow in the future.

And with that, operator, let me open it up for questions.

Questions and Answers

[Operator]

Thank you, ladies and gentlemen, the floor is now open for questions. [Operator Instructions] Today's first question is coming from Andrew Steinerman of J.P. Morgan. Please go ahead.

[Andrew Steinerman, Analyst at J.P. Morgan]

Hi, John, let me just ask my two questions together. The first one is, could you just tell us what second-quarter mortgage revenues is as a percentage of total revenues? I didn't catch that if you gave it. And the second one is looking at the EWS revenue growth guide for the third quarter of 7.5%, which is on slide 15, and then kind of taking it together with the comments for EWS revenue guide on slide 16, it seems to imply a rather strong revenue ramp for EWS in the fourth quarter compared to the third quarter. Could you just comment on that?

[John Gamble, Chief Financial Officer at Equifax]

So, to your first question is 21%, to answer your first question. And as we take a look at EWS, Mark talked about it very, I think, fairly completely, right. What we're seeing is, we're expecting to see nice sequential improvement. I'm talking specifically about non-mortgage, as we move through third quarter and into fourth quarter, a lot of it driven by very strong growth in government, which we feel very good about and the strength we are seeing in the government business not only in the third and fourth quarter, but we've seen in the first quarter and in the second-quarter. And we're also expecting to move back to see sequential growth in Talent, driven by new product. And also, in in our consumer lending businesses, also driven by new product and to some extent penetration. So, we think those factors allow us to see nice sequential growth as we go through the year on non-mortgage, and we're now comparing against easier comps as we get into the second-half about of 2023 versus 2022, we see better growth rates.

You're also going to see obviously better growth rates in mortgage, although we took mortgage down, right, the level of decline in mortgage year-on-year in originations declined substantially going through the year, we can expect to continue to have very good mortgage outperformance in EWS. So that allows us to have to return to growth in EWS mortgage as we get towards the very end of this year.

So, with those two factors together, we think we're going to see nice acceleration in EWS revenue as we go through the rest of this year.

[Andrew Steinerman, Analyst at J.P. Morgan]

Thank you so much.

[Operator]

Thank you. The next question is coming from Manav Patnaik of Barclays. Please go ahead.

[Manav Patnaik, Analyst at Barclays]

Thank you, good morning. Maybe my first question just to follow up on that. I guess you addressed the revenue visibility you seem to have, as you ramp up into the end of the year. Can you just talk about the moving pieces on margins, like how confident are you to hit that 36% and how that flows through to next year?

[Mark Begor, Chief Executive Officer at Equifax]

Yeah, I'll start, Manav, and John can jump in. So, we'll leave the revenue leverage aside. So, we have -- we think a good visibility outside of the mortgage piece. As you know, we increased our cost program by another $10 million this year and $25 million next year. So, we see additional efficiencies as we get further into the cloud completion. So, combining that with the core program we announced in February, we just have a lot of visibility because we know when contractors are leaving and when we're taking other cost actions. So, that gives us a lot of confidence in the cost side of that across all the businesses and at the corporate level.

[John Gamble, Chief Financial Officer at Equifax]

And again, as Mark said, good focus on cost. We have good visibility on cost, and obviously, we do need to see the revenue growth we're talking about, but I think we feel very good about the sequential movements we're talking about in our non-mortgage business. We delivered well in non-mortgage rather than the Talent, other than the Talent impacts, we talked about in the second quarter. And then obviously we've made an assumption on the mortgage market, and we think we've made a reasonable assumption, but having the mortgage market deliver at the levels we're talking about, obviously it is also needed for us to deliver our 36% margins in the fourth quarter.

[Manav Patnaik, Analyst at Barclays]

Got it. And then just on Workforce Solutions, I mean I guess most of the changes were just your volume assumptions. I missed what is your new gross hiring assumption is, but I was also hoping you could address, I'll confirm that you're not seeing any changes in the competitive behavior like all these changes are [Technical Issues] your volume assumptions.

[Mark Begor, Chief Executive Officer at Equifax]

John, I'll let you jump on the hiring assumption, but we did mention, Manav, that for example in mortgage, we're seeing some mortgage originators move manual verifications back from Equifax in-house. So that had an impact on the quarter, we expect that to continue. So that is clearly a revenue impact, and what we're seeing is that you've got mortgage originators doing less activity. So, they've got people sitting in their offices and they are deciding to do some of those Manual verifications in-house. So that clearly had an impact. I think there's no question that Experian true, to a lesser degree, TransUnion in their kind of new focus on this, so in the marketplace, we don't see that being a meaningful impact on our revenue, but they are definitely out there, and they are doing more than they were a year-ago. So that clearly also has an impact particularly probably in mortgage.

[John Gamble, Chief Financial Officer at Equifax]

In terms of Talent market, I don't think we gave a percentage. I think, in April we talked about the market being down like 10%. We said June was worse, and that we're expecting that that weaker level of the Talent market to continue through the rest of the year. We didn't really give a number, but weaker than the 10% we talked about in April.

[Mark Begor, Chief Executive Officer at Equifax]

And again, we also commented, Manav, that we see ourselves over-indexing to white-collar employers in our customer-base, and those are more impacted from both hiring freezes, as well as layoffs and blue-collar side.

[Manav Patnaik, Analyst at Barclays]

Got it, thank you.

[Operator]

Thank you. The next question is coming from Kevin McVeigh of Credit Suisse. Please go ahead.

[Kevin McVeigh, Analyst at Credit Suisse Group]

Great, thanks so much. I'll ask one multipart question. So, thanks for framing the $40 million run-off. Was that purely higher rates or any dislocation from regional banks or maybe tightening credit standards, and then, I wonder if you could give us a sense of the sensitivity on the way up. So, the extent rates start to go down like what would be that theoretical level where you may see people get a little bit more aggressive with the HELOC or refinance? I mean it seems like 7% was a trigger for some weakness. What level of rate, and is there any way to maybe frame the sensitivity of what 6.5% might mean for the business as we think about 2024?

[Mark Begor, Chief Executive Officer at Equifax]

Yeah, I think, there's a lot of factors, Kevin, in the mortgage space, clearly higher rates. Yeah, I think the uncertainty around rates is as much of that. Consumers that are thinking about purchasing a home, rates go up towards that 7%, they pull back and wait to see what's happening. Where will rates stabilize in activity that we're definitely seeing. There is an element of, you've read about this, you see it, there's just a shortage of housing stock. I mean there isn't a lot of inventory out there for people to make home purchases, those that own homes are doing, are not upgrading, meaning buying a larger home or moving in a different neighborhood in town, because of the low rate that they are currently sitting on, and there are mortgage and some uncertainty about where rates are going.

So, we believe that there is some element of rate stabilization that consumers will increase their activity from that. I don't think we are thinking about rate reductions that will happen sometime in the future, whether it's a year from now or in '25 or '26 going forward, but as a reminder, we've never seen purchase volume declines at this level, that from historical levels. We are well below 40% of below historic levels, excluding kind of a refi boom that we had in '20 and '21. In '22, that just has never happened before. So, it's our view that at some point will return to normal historical levels, whether that's in a year from now, as people get more comfortable operating in a 6%, 7% mortgage interest-rate environment or it's into '26. There'll be a return to normalization overtime, is our expectation. What would you add John?

[John Gamble, Chief Financial Officer at Equifax]

Well, I just I think, the important thing for us also as we are continuing to drive very good performance above market, right. So again, very strong performance in the first quarter at 20 points. In the second quarter, effectively 20 points if you adjust for the fact that we made a decision to not participate to the same level, and what's really are not particularly profitable manual business, and we talked about how that reduced our outperformance by about 300 basis-points. So, again, on the very high margin digital verifications business, again about 20 points outperformance. So, we feel good about our continued outperformance. We also feel good about the fact that to the extent we see a faster growing mortgage market than what we forecast that will participate very clearly and will see the upside from that. But we clearly saw the reduction in transaction volume, when rates moved up to above seven. It's hard to predict what's going to happen when they move back below, but to the extent that we see nice growth from that to the extent that occurs, we think we'll participate, well.

[Mark Begor, Chief Executive Officer at Equifax]

Then at some point on the other side of this high inflationary environment with the Fed set to raise interest rates, there'll be a time, I'm not an economist, but at some point in the future, the Fed's going to reduce interest rates to boost economic activity. It's just the cycle that we typically have, and there'll be another refi window, whether that's in '25, '26, '27, but will be well-positioned for that in the very-high incremental margins on mortgage revenue declines or mortgage revenue growth, we'll see the other side of that at some point in the future at Equifax.

[Kevin McVeigh, Analyst at Credit Suisse Group]

Thanks so much.

[Operator]

Thank you. The next question is coming from Kelsey Zhu of Autonomous Research. Please go ahead.

[Kelsey Zhu, Analyst at Autonomous Research]

Good morning, thanks for taking my question. My first one is on the government vertical for EWS. So, part of the acceleration of growth in the second half is coming from the government vertical, which part of that is coming from the Medicaid redetermination process. I was wondering if you can talk about how much of that was done in Q2 and kind of how much do you expect to be done in Q3 and Q4. And in general, it will be helpful to understand a little better about the of government revenue breakdown across different programs, the Medicaid, Social Security, food stamps [Phonetic]. Thanks.

[Mark Begor, Chief Executive Officer at Equifax]

Yeah, there is a bunch of factors driving government, which is the good news for us, it's a very important fast-growing segment of Workforce Solutions. It's one where we have a very, very strong market position, given the scale of our dataset that $630 million historical records in our active records. You point out one of the levers on the redetermination. We saw some of that activity pick-up in May and June, and we expect that to continue in third quarter and 4th-quarter, and much of that to be a 2023 event, which is positive. We're also seeing more ACA volume; we're getting more penetration at the state-level. Remember, this business, which is approaching $500 million is in a TAM that's close to $3 billion, and each state and each agency at the state level are separate organizations. And we have a commercial team that's headquartered at many of the state capitals, that's working to bring our solutions to convert current manual activity around verifications for whether it's unemployment claims or childcare support, food support, all the other social services to convert them from manual to using our automated solutions. So that's a big lever for growth as we add more states and more agencies, so that we have a pipeline, we have visibility around those relationships.

Another lever is we're constantly renegotiating those individual contracts that we have. And again remember, 50 states, think about maybe six or eight agencies in each state that we have relationships with a portion of them, the ones that we have, those contracts come up, and we work to increase price for the additional value that we're delivering, and then the other lever we have is at the federal level. We have federal programs with some of the big organizations, you mentioned one, Social Security Administration, those are also growth programs for us at the government level.

[Kelsey Zhu, Analyst at Autonomous Research]

Got it. My second question is on the Talent vertical. I was wondering, could you share a little bit more about revenue breakdown kind of across blue-collar hire activity versus white-collar, and I know you've introduced this new pre-employment verification services kind of targeting the hourly workforce, nothing that will help drive penetration with the blue-collar hiring activity. So, I was wondering if you can talk about how much penetration you gained with that product and kind of the growth outlook for blue-collar revenues versus white-collar.

[Mark Begor, Chief Executive Officer at Equifax]

Yeah, so we participate in all employees. We are making the point that we, with our current customer-base, again customers being background screeners, the customers that we have tend to over-index to white-collar jobs, which is why we are seeing more of an impact right now, but we have a lot of blue-collar jobs coming through in employment verification work that we do. The new solution on hourly has only been in the marketplace for 30 days. So, it's very new, but we've seen very positive traction, we think it's not only going to drive penetration with our existing customers, but it's also going to allow them to drive growth in their business, meaning they can go out and pick-up more volume or share in those kinds of employees doing verification work.

We also talked about some of the other solutions we have outside of just employment history. We've seen very positive growth in our education solution, where we have instant solution around verifying education backgrounds, which is used in a lot of white-collar job, that's a newer solution for us that we've been in the marketplace for, call it, a year, but we're growing a lot of usage and share with that. So that's a positive for the talent business. And then, the last one is, you know, we have our Insights business that we acquired a couple years ago that has the incarceration data, and that's another one where we're bringing new products to market and new solutions. So, for Talent, you've got the ability to drive penetration. That business is north of $400 million at run-rate and a $4 billion-dollar TAM, so there's a lot of penetration growth opportunity there. A lot of our new product focus is around Talent. You talked about the solution for the hourly workforce that we rolled-out about a month ago, and then we rolled-out one a couple of weeks ago, it provides more flexibility about which employers our customers want to focus on for an employee, that's not a solution that should drive growth. So, new products are a big focus of ours in the in the Talent vertical.

[Kelsey Zhu, Analyst at Autonomous Research]

Super helpful, thanks so much.

[Operator]

Thank you. The next question is coming from Kyle Peterson of Needham and Company. Please go ahead.

[Kyle Peterson, Analyst at Needham and Company]

Great, thanks, good morning, guys. Appreciate you taking the questions. I just wanted to dig a little bit more into some of the Talent weakness that you guys kind of saw. I guess this is more white-collar base, but I guess is within kind of verticals of the white-collar workforces, the hiring slowdown that you guys saw in June, it sounds like, is that fairly broad-based? Or is that concentrated in one or two verticals or just any more color there would be really helpful.

[Mark Begor, Chief Executive Officer at Equifax]

It's pretty broad-based. I think you look at them like we do you. You see lots of them, but in the first-half of the year, you saw companies left and right announcing either layoffs or hiring freezes. I think it was Ford a couple of weeks ago announced another white-collar reduction, and if companies reducing people and that's that making those kind of announces, they also typically have a hiring freeze in place, so there's less inbound, new hires coming in. So that clearly is not -- it didn't just happen in late in the quarter, it was -- it's been happening for quite some time as we've kind of nine months into that hiring reduction. That has had an impact on us, that we've been able to outgrow through pricing in 2023 through new products through penetration and adding new customers in the background screening space, but it clearly had an impact, and we expect it to continue to be an impact in the second half, and we've laid that into our framework.

[Kyle Peterson, Analyst at Needham and Company]

Makes sense. And just a follow-up on the cost side. Great to see the additional cost savings you guys identified this quarter, it's kind of offset some of the weaker volumes, but I just wanted to think about it, if we continue to see challenging volumes, whether it's through mortgage or background screening or any other areas of the business, are there any other efficiencies and levers that you guys might be able to pull? If we are in kind of a prolonged period of weaker volumes and revenue pressure, or are you guys kind of approaching the max sufficiency here?

[John Gamble, Chief Financial Officer at Equifax]

I think as you know, we're going to have $65 million of run-rate benefit next year, because a lot of the actions from the broader cost and cloud program that we have in 2023 are in the second half. So that'll be a benefit, and we've talked previously that we still expect to get further cloud efficiencies in '24 and '25 as we complete the cloud. We're at 70% now. We still got that remaining 30% of Equifax to complete over the next couple of years, and as we complete that cloud, we expect to see further efficiencies that all benefit our margins and in margin rate in '24 and '25, including the carryover benefit of the cloud actions that we're taking and broader restructuring in 2023. And just as a reminder, right, the actions we've already taken and tight control we have on costs broadly are allowing us to drive our margins higher in the third quarter and the fourth quarter substantially. So, we think we've taken pretty significant actions already, which are allowing us to see nice improvement in margins.

[Mark Begor, Chief Executive Officer at Equifax]

And maybe one other point. I wouldn't think about the actions is being aligned with a revenue decline. That's not how we operate our business. The program we announced in February, you expect it, we talked about it last year that we would be reducing our costs as we complete the cloud, this is something we've been talking about for years. And as we said in February and April, and again, today we're just seeing broader opportunities to improve our efficiencies as we get further into the cloud. The real backbone of these cost efficiencies and margin expansions or what we've talked about for the last three or four years, and it's really driven by our ability to get closer to completion of our cloud investments.

[Kyle Peterson, Analyst at Needham and Company]

Makes sense and that's helpful, thanks guys.

[Operator]

Thank you. The next question is coming from Andrew Jeffrey of Truist Securities. Please go ahead.

[Andrew Jeffrey, Analyst at Truist Securities]

Hi, good morning. I know nature of [Indecipherable] vacuum, Mark, but I'm just going to ask you one question that of high-level. When I look out at the U.S. economy and think about perhaps a soft landing or a Goldilocks environment, however you want to consider it, it strikes me that there are parts of Equifax's business that benefit from the rate of change in the economy either improving or deteriorating, and if we are sort of in stasis, does that impact your business? I'm thinking about, you see I'm thinking about mortgage just broadly is change as important regardless of direction obviously, improving is better than deteriorating, but has changes a meaningful impact to your growth rates, your revenue growth rates.

[Mark Begor, Chief Executive Officer at Equifax]

Yeah, you got to kind of break some pieces apart there. Mortgage obviously has had a huge impact on our business. It's been, we've never seen a mortgage decline like this to be 40% below, well over 40%, I think it's 45% below historic levels in the second half. It's just never happened before. That's going to recover, right. It's just a matter of when will it return to call it, norm, that minus 45, and that'll be a very positive thing for Equifax, and whether it's '24, '25 or '26. The mortgage market is not going to stay at this level, meaning people are going to buy houses, people keep moving and then add-on it at some point, you know, when rates start coming down again from these higher levels, which should happen, there'll be a refi element. So that's kind of mortgage.

We're very pleased that, I hope, most of our investors are of our ability to continue to drive the 80% of Equifax, it's non-mortgage, quite strongly. In what you'd characterize as an uncertain economic environment, the diversity of our businesses. If you look at Equifax 10 years ago, being primarily a credit bureau, and now we're talking on this call predominantly around our Talent vertical and government vertical that didn't exist 10 years ago, and Talent still performing even with a macro impact and government super strong just because of the power of the unique solutions that we have so. I think that's the kind of the underlying strength of Equifax is our non-mortgage businesses, our super strong, and lay on top of that the new product initiative, it is not an initiative, it's really how we operate, we're a product-led organization, leveraging our differentiated data and our cloud capabilities. The 14% vitality in the quarter, that's great momentum for the second half in '24 and '25, meaning that we're seeing, we can leverage our differentiated data assets, our product-led culture and capabilities in cloud and put new solutions in market, and those new solutions are at higher price points that are going to expand our margins going-forward. So that's a real positive.

And then the underlying macro is, I think the diversity of Equifax plays into that. So, is there going to be a soft landing? My personal view is there is. I think we're kind of already feeling it and seeing it with inflation down to 3%, that's going to head towards where the Fed wants it and unemployment so low, people are still working. That's a pretty good economic environment for all businesses, but importantly ours going forward. And then you lay on top of it the completion of the cloud from a kind of timing standpoint over the next year and change, and the cost benefit that you're seeing this year and margin benefits this year that carry into 2024, those are quite powerful in our ability to expand our free-cash generation. And, as we get into '24, '25 and '26 have significant excess free-cash flow to return to shareholders at the right time.

[Andrew Jeffrey, Analyst at Truist Securities]

As usual, very comprehensive thoughtful answers. Thanks.

[Operator]

Thank you. The next question is coming from Jeff Meuler of Baird. Please go ahead.

[Jeff Meuler, Analyst at Robert W. Baird]

Yeah, I just want to make sure I'm understanding the dynamic on mortgage underwriters moving the employment and income verifications in-house. Are you saying that that's just for the manual correction of the verification, and [Speech Overlap] you are not losing them as a client?

[Mark Begor, Chief Executive Officer at Equifax]

Correct. Yeah, that's where we've seen it, Jeff. That in part of it was that, you know, customers came to us and we're looking for lower pricing on the manual efforts that we do for them. I think you know we have an operation in Iowa where we do that. We opted not to chase price down because it's a low-margin solution now for us, but an attractive one, and some of them moved in-house and it was meaningful at 300 basis-points in the mortgage outperformance in the quarter. But, no, it's isolated to that manual effort we were doing for customers. We're just seeing less activity there and it's logical when you think about mortgage originator that just has more people doing less mortgages, they can do some of that themselves, but we haven't seen the impact on the instant verification side, which is where as you know, where all our revenue and margin is [Speech Overlap]

[John Gamble, Chief Financial Officer at Equifax]

You have also heard some of our competitors talk about growing their manual business, and again, we think that's part of the ship. This was just business that is low-margin that we're moving away from.

[Jeff Meuler, Analyst at Robert W. Baird]

And can you give us any sense of how much revenue you generate from the manual verifications?

[Mark Begor, Chief Executive Officer at Equifax]

But we didn't give totals, but we did talk about this level of decline rates. We said it impacted our outperformance by about 300 basis points, so.

[Jeff Meuler, Analyst at Robert W. Baird]

Got it and then Mark, you answered the Verifier competition question a bit differently today or at least I perceived your answer a little bit differently today. And John, you just kind of alluded to, hey, some of the competition is Manual one that slow margin. But you can see the credit file inquiries, so you can triangulate share for Verifier mortgage. If you look at the non-exclusive records that you have, have there been any recent share changes for digital verifications? Thank you.

[Mark Begor, Chief Executive Officer at Equifax]

Yeah, not that I would characterize as meaningful, Jeff. But we don't see it in our marketplace, but we hear are so-called competitors talking about their revenue growth. And you know, I don't know what the real numbers are that some of those smaller players have, but they are definitely getting revenue somewhere. We just don't feel it in our business, but we continue to watch it.

[Jeff Meuler, Analyst at Robert W. Baird]

Got it, thank you.

[Operator]

Thank you. The next question is coming from Craig Huber of Huber Research Partners. Please go ahead.

[Craig Huber, Analyst at Huber Research Partners]

Great, thank you. You've obviously mentioned a 14% vitality index. Can you give us a flavor of some of the areas, the new products that you're most excited about here as you kind of think out, what's working really well. Where do you think is the biggest opportunity to grow revenues.

[Mark Begor, Chief Executive Officer at Equifax]

Oh man, how much time do we have, but I'll try to up to be [Speech Overlap] Yeah, I know, first off, I'd start with the 14%. When we set the 10% Vitality goal, remember our long-term run-rate pre-cloud and pre the 10% goal was 5% to 7%, and I think 5% to 7% is what most data analytics companies do, and 5% to 7% is a big number. To have 5% to 7% of your revenue from new products introduced in the timeframe we picked three years, that's a pretty vibrant innovative company. We set a goal for 10, and since we set that goal, we have been over achieving it, 14 in the quarter and 13 for the year. So, I would start with that I'm energized about the broad-based ability at Equifax across all of our business units to leverage our differentiated data, our cloud capabilities to bring new solutions to market. That is the company that you want to have as a partner if you're a customer, someone who is innovating to bring new solutions, because remember all of our products deliver ROI. You know, we're not Coke versus Pepsi or doing Sprite versus Diet Coke, we're delivering a solution that's going to help our customer to originate more consumers lower their losses, increase their marketing hit rates, you name it, we're delivering ROI. So, what excites me, certainly, all of the solutions in Workforce that would be kind of number two for me beyond the 14%. Having Workforce Solutions, I think it was 23% vitality in the quarter, and remember Workforce is the first business at Equifax to get in the fully cloud-native for over a year now, and they've really been able to unleash kind of a pent-up capacity, if you will, to bring new solutions to market, and they're doing it in every vertical. Mortgage 36, delivering a 36-month solution of historical data to our mortgage customers, to the earlier question from Jeff a few minutes ago, our so-called startup competitors cannot do that. They don't have the 630 million historical records, so uniquely, we can deliver a 36 solution, it's integral now to many mortgage origination going back three years, so that historical data is something that super energizes me.

I'll jump to USIS, our new mortgage credit file that includes the NC Plus, 14 NC Plus attributes, really energizing to have multi-data assets delivered. The mortgage credit file looked the same for 40 years. We're now making ours differentiated, and because of the scale of the software and utility database that we have, our competitors can't do that.

So only Equifax can have a differentiated mortgage credit file, super exciting. The solutions for Talent that we already talked about also super exciting. So, we're really focused on our new product initiatives, we think it's going to drive top-line and margin expansion going forward. And you're seeing us outperform the 10% which we think is a good thing for the future.

[Craig Huber, Analyst at Huber Research Partners]

And then my final question, if you sort of look out beyond this week's sluggish environment here in '24 and 2025, a lot of your business should recover very nicely next year and the year after. So what areas are you most excited about when we get into a better economic backdrop.

[Mark Begor, Chief Executive Officer at Equifax]

Certainly, mortgage, which we've already talked about that. Mortgage 40%, below 45% below kind of historic normal market levels. That recovery which is going to happen at some point, whether it's '24, '25 or '26, and how it meters in, that's going to be good news for Equifax. It is going to be very-high incremental margin in EWS and USIS as that recovery takes place. At some point, there'll be more stabilization in the hiring market once employers get more comfortable around the economy, I would expect there'd be less hiring freezes in some level of employment improvement going forward. So that going to be a positive for Equifax.

When the subprime market stabilizes, that's had an impact on us over the last third quarters in USIS, that'll be positive for us going forward.

[Craig Huber, Analyst at Huber Research Partners]

Great, thank you.

[Operator]

Thank you. The next question is coming from Andrew Nicholas of William Blair. Please go ahead.

[Andrew Nicholas, Analyst at William Blair]

Hi, good morning, thanks for taking my questions. First question I wanted to ask is, just maybe a point of clarification. I hear the acceleration commentary and what makes you confident in that through the back-half of the year. Just wanted to make sure I understand it, is there any change to kind of your economic assumptions for the second half as well. So, you're still baking in some level of slowdown on the [Indecipherable] okay.

[Mark Begor, Chief Executive Officer at Equifax]

Yeah, 100%, it's just really our visibility around pipelines. Government, we talked a bunch about. We can see just visibility in that business and the others, but we still have the same view of no change in the macro.

[Andrew Nicholas, Analyst at William Blair]

Got it, got it. And then for my follow-up, a different topic entirely. Mark, you spent a decent bit of time on artificial intelligence and how Equifax is well positioned to leverage it going forward. I'm just wondering if you could speak to kind of the cost side of that equation? How expensive is it to leverage the Cloud and Google Vertex in an environment where I think chips are expensive and there are some shortages there. Just wondering how you think about cost and whether or not that is a meaningful consideration when you go down the AI path, the large language model path.

[Mark Begor, Chief Executive Officer at Equifax]

Yeah, so, what I've talked most about today and what our principal focus is around using AI to really manage large data in multi, multi datasets to deliver better-performing scores, better-performing models. You may remember, we rolled-out a solution called One Score in April that combined some of our differentiated data assets across USIS. We used AI modeling in that, and that provides significant performance enhancement. And when you deliver performance enhancement, it's more valuable and you charge a higher price. So that's going to be our principal focus around AI.

No, there's not a high cost in completing AI, there's actually a bunch of efficiencies from a D&A perspective of using AI, because it's just faster, you can complete more work and will be more productive if you will, in delivering these higher-performing solutions. I thought you were going, was in our operations side where we expect to use some of the AI capabilities to improve our call centers, our operating centers that will clearly be a leverage point for us in '24 and beyond. But I believe our big leverage is going to be around having more sophisticated, higher-performing products scores, models and solutions.

[Andrew Nicholas, Analyst at William Blair]

Makes sense. Certainly, having everything on the same data fabric is helpful to that too. Thanks, Mark.

[Operator]

Thank you. The next question is coming from Shlomo Rosenbaum of Stifel. Please go ahead.

[Shlomo Rosenbaum, Analyst at Stifel Nicolaus]

Hi, good morning. Thank you for taking my questions. Hey, Mark. To just ask my first question, I just want to focus on some of the questions that came in earlier about the Manual verifications back-in house or you're talking about there, some competitors over there like True Work has a product over there that they very focused on in the Manual verifications in. I just wanted to ask you about strategically as you move back a little bit from that because of pricing, are you concerned that that's going to give them kind of an entree into the client base, which will also give them potentially the ability to move True Work to a top of waterfall position to take advantage of potentially getting kind of like ADP data, which is not. It's not unique to all the players that are in there. And so, strategically, how are you thinking about that in terms of your not wanting to cut costs, and then I have a follow up.

[Mark Begor, Chief Executive Officer at Equifax]

Yeah, and that one, we're going to be obviously focused on maintaining our strong customer relationships. I don't know what True Works revenue is, maybe it's $15 million bucks or something, or $20 million, it's a fairly small player, it doesn't have really any scaled differentiated data assets. We've got at the end of the quarter 161 million records. I don't even know what their record count is, but we certainly watch them, we just don't feel that there is having a meaningful impact on our business, but we certainly are keeping an eye on them.

[John Gamble, Chief Financial Officer at Equifax]

Shlomo, the other thing that's happening, right, is we continue to rapidly grow our database. So, the need to do Manual verifications when you use Equifax continues to decline substantially, right. So given where we are at 120 million uniques [Phonetic] against the U.S. non-farm payroll of say 160 million. We're getting to the point now where the need for Manual Verification when you use Equifax is very small.

[Shlomo Rosenbaum, Analyst at Stifel Nicolaus]

Okay, great, and then, hey, John, I have a question for you. I'm just trying to understand the lowering of the EPS guidance, at the midpoint is $0.22. Even if I assume that that $40 million of lower revenue coming from mortgages is above 90% contribution, I mean that would be like, all of that reduction, but there's also other stuff that's doing better on USIS and government Talent, and you also increased by $10 million the cost-savings program, it just seems to me like the midpoint of the guidance on the EPS was lower to what more than it needed to be. Can you comment on that?

[John Gamble, Chief Financial Officer at Equifax]

Sure, so really the driver was lower mortgage revenue, right. We said Workforce Solutions mortgage revenue was down over $40 million, right. So, applying a very-high margin to that, you do get a very substantial amount of operating income. We said non-mortgage is slightly better. So not for the entire company. I know pieces have moved around, but in total non-mortgage is slightly better, so that wasn't a big driver of positive operating income in the change in guidance. And really the difference between the reduction of over $40 million in mortgage revenue and the down 25 we talked about is just heavily FX which has very little flow-through in terms of positive operating income. So, it's really driven by the fact that we lost, very high margin mortgage revenue in EWS. And that really drove the reduction, right. Yes, there were some cost-savings. But again, they weren't a big number of $10 million of incremental that we talked about, now you can think that was kind of split between capital and costs. So not a big driver of recovery. So, the big the big movements is just related to the fact that we saw the reduction in mortgage revenue.

[Shlomo Rosenbaum, Analyst at Stifel Nicolaus]

Yes, thank you.

[Operator]

Thank you. The next question is coming from Heather Balsky of Bank of America. Please go ahead.

[Heather Balsky, Analyst at Bank of America]

Hi, thank you for taking my question. I know there's been a fair number of questions already on the acceleration in non-mortgage EWS revenues, but I just wanted to kind of follow-up here, because I think we're backing into something in a healthy double-digit range for the fourth quarter, and you've outlined the drivers, but I guess where do you expect to see the most meaningful acceleration in your business, and it sounds like the macro isn't changing. So just trying to understand, how you go from how you did this quarter to double-digit growth in the fourth.

[John Gamble, Chief Financial Officer at Equifax]

So, Heather, if you look at it sequentially, right, what we're talking about here in terms of EWS is really nice sequential improvement. We have talked about this in government, right, and we think government revenue is a big driver of our improvement. When you compare to last year, obviously, last year what you saw was some weakening in the back-half of the year. As you saw weakening Talent markets etc. So, the compare is easier, but if you just look at sequentially, the performance we're talking about, we expect government to improve substantially as we move through the rest of the year. Mark covered very completely what the drivers of that are. And then sequentially, we're also talking about seeing Talent and get a little better from where we are today, a lot of it driven by product. Again, as Mark covered in his prepared remarks, and earlier answer is and then also on consumer finance, we kind of think we've hit a bottom, and we're going see slight improvements in consumer finance sequentially, which again given what the second half of last year looked like, gives us growth rates that are substantially different than we saw in the first half. So, the big driver in sequential improvement certainly as government. We're seeing some sequential improvements in the other segments in EWS, but that's how we think about the improvement and we think the trend we've already seen in government supports the level of improvement we're talking about. And then, outside of EWS, I think as we talked earlier, both USIS and International were above our expectations in the quarter and we expect them to perform well in the second-half also.

[Heather Balsky, Analyst at Bank of America]

Okay, thank you for that. And then just another question with regards to the outperformance at EWS versus the mortgage market. It would -- you called out 17% this quarter, is that the new run-rate factored into your forecast? Or is there some assumption that impacts from the Manual polls going-in house kind of worsened in the back half.

[John Gamble, Chief Financial Officer at Equifax]

So again, again adjusting for the impact of manual, we're at about 20, we were at about 20 last quarter. So yes, we will have another impact. We will have more impact as we go through the rest of this year in terms of the lower levels of manual revenue which again very low-margin, right, and fairly low revenue. So, will see an impact from that as we go through the rest of this year, but we continue to expect to see nice outperformance in the mortgage market.

[Heather Balsky, Analyst at Bank of America]

Got it, thank you.

[Operator]

Thank you. The next question is coming from Toni Kaplan of Morgan Stanley. Please go ahead.

[Toni Kaplan, Analyst at Morgan Stanley]

Thanks very much. One of your competitors launched a product this week that allows consumers to choose to share their employment information directly from their payroll provider, and this is a model that's been in the market obviously. I guess, do you see the market moving more that way in the future or parts of the market moving that way. And is there any benefit for you to offer that type of model in addition to your traditional model or does that not make sense for you. Thanks.

[Mark Begor, Chief Executive Officer at Equifax]

We have a solution that does much of that, Toni. We just see there is a ton of friction for the customer, whether it's a mortgage originator and auto lender, and a lot of friction for the consumer. And remember, if you think about our dataset, you know the 161 million records that we have today or 120 million SSN that's against the 160 million non-farm payroll. So, in non-farm there's 40 million people not in our dataset that are out getting mortgages and doing other products, and then when you add pension and self-employed individuals, there's another, call it, close to a $100 million in total. So, the solution that was announced, it's actually been in the market. I think, Experian, has had that in the marketplace for quite some time. I'm not sure what kind of traction they're getting with it, but we just find that if there is an instant record available, it's always going to trump any of these friction filled processes, where the consumer has put their user ID and password, and in this example, the consumer would have to give their in my case Equifax HR user ID and password in order to get to my payroll records in my case, and most consumers that are employed in W2 non-farm payroll would have to provide those credentials, if you will, in order to get to that.

That's against our company policy and every company policy. So, there's just a ton of friction and then it's just the consumers required to do it. Where I believe there is value in some of these alternative solutions and as we talked earlier on the call, we have a manual verification team where we do manual for our customers is another version of what you're talking about, is in the records that we don't have. So, think about the, call it, 40 million non-farm payroll, 30 million or 40 million self-employed, the 20 million to 30 million pensioners. Those records, if they're not doing a solution with Equifax like our manual or our conventional solution or something like we described, it's being done manually by the company, whether it's a mortgage originator, auto lender, pick your solution. So, it's replacing that Manual to really drive speed. That's where there's value in it, but it's just it's very, very hard to get a lot of penetration with these solutions because of the significant friction for the consumer.

In my view and what we've seen in the marketplace, it won't replace incident records.

[Toni Kaplan, Analyst at Morgan Stanley]

Yeah, that makes sense. Wanted to ask about the technology transformation and the potential revenue opportunities. So, I think about in two ways. So, one sort of faster, new product introduction and you're already seeing that with the 14% Vitality Index, and that was greater than last year's two. Like, are you already getting some benefits from the technology transformation or should we expect that to really even accelerate next year and then I think the other benefit is being always on, and I guess, I'm not sure how to quantify that benefit either like how frequently are you not on today and sort of what's the incremental from always being on. Thanks.

[Mark Begor, Chief Executive Officer at Equifax]

I think you're nailing, Toni, about the two elements in. So, on the first one, you talk about really new product rollouts, the ability to roll out new products, and remember when you think about the 14 for Equifax, remember there is a bifurcation of where the different businesses are. USIS is well below the 14 because they haven't completed the cloud yet. EWS is well-above the 14 because they completed the cloud and are really driving those new products and international is slightly south of the 10 or the 14. So, as the businesses complete the cloud, particularly USIS and international, we would expect them to move towards the 10%, which is going to be a good thing, it's going to drive new solutions there. So that's clearly one of the benefits of the cloud is the ability to leverage those scale differentiated data assets to bring more new solutions to market and allow us to deliver long-term that 10% Vitality goal.

Your second point is an excellent one. Also, in in my view, it's going to be more impactful in USIS and International, although EWS is getting real benefits of being in a cloud environment. And how they are able to operate their business. The always-on stability is clearly a benefit for them, the bigger benefit for Workforce is the ability to scale their data assets. There's no way they could have doubled in the last five years there TWN data records without the cloud, period. It's just there's no way. We've gone, I think in 2018, we had something like 300,000 employers contributing to the dataset. Last quarter was 2.8 million, wouldn't happen without the cloud so that's another benefit of the ability to manage data that's more Workforce oriented.

On the benefits of always-on and faster data transmission, we believe that that's going to result in market share gains and particularly in USIS and International, where their credit file business is typically a customer will have a primary and secondary. As you know, and we would expect by being always-on, we're going to be a more valuable partner and allow us to move where we're tertiary or secondary into those secondary and primary positions that I mentioned in my comments that we have deal pipelines in USIS, where customers are talking to us about moving our market position, because of our investment in the cloud. Now, when will that show up in USIS revenue, likely in '24 and '25 and '26 as they get post-cloud completion, and the same thing should happen in international markets where you've got that same dynamic of a customer using us in one of the other guys, we're going to be a more valuable partner being always-on.

[Toni Kaplan, Analyst at Morgan Stanley]

Super. Thank you.

[Operator]

Thank you. The next question is coming from Ashish Sabadra of RBC Capital Markets. Please go ahead.

[Ashish Sabadra, Analyst at RBC Capital Markets]

Hi, just wanted to ask on the [Indecipherable] mortgage business outperformance compared to inquiry was much wider compared to the first quarter. There was commentary in the prepared calls around improved pricing, but I was just wondering if there was another step-up in pricing in the second quarter, or was this more driven by mix or other tailwinds.

[Mark Begor, Chief Executive Officer at Equifax]

Yeah, it's really carryover, the pricing comment was really for both businesses. The EWS did their normal one-one price increase, that's just carrying through, but so no incremental price increase. We have no intention to do that. We basically focus on doing annual price increases in all our businesses.

As you may remember, back in January or February, on the earnings call, we talked about, you know, a larger price increase in USIS related to one of our partners who has a credit score, and everyone knows who I'm talking about is FICO who put through a price increase in both Equifax to and Experian delivered that price increase to the marketplace when they increased the price of their credit score. So that rolled through in mortgage is what we're talking about a fairly sizable price increase that we mark up to maintain our margins, and there is no change in that. That's just rolling through the year.

[John Gamble, Chief Financial Officer at Equifax]

And if you're comparing first quarter to second quarter, the full effect of the price increase Mark was talking about, didn't impact the first quarter, but it did the second quarter.

[Ashish Sabadra, Analyst at RBC Capital Markets]

Yes, that's very helpful color. And then maybe just on the background screeners side, have you seen any change in their use of the waterfall model or any change in the market dynamics there. Thanks.

[Mark Begor, Chief Executive Officer at Equifax]

Yeah, I think we talked about the big market macro of less hiring taking place in 20, it really it started three quarters ago started in the second-half of 2022, when you saw companies announcing hiring freezes and layoffs and that's carried through the second quarter. That's kind of the macro that's taking place. The real opportunity for us is that we have fairly low market share of using our instant data whether it's employment or education, our new education solution -- newer education solution for background screen. So that probably we're rolling out new products and working to add new customers and get them to convert from doing manual employment verifications to using our instant solution.

[Ashish Sabadra, Analyst at RBC Capital Markets]

That's helpful. Thank you.

[Operator]

Thank you. The next question is coming from Seth Weber of Wells Fargo Securities. Please go ahead.

[Seth Weber, Analyst at Wells Fargo Securities]

Hey, good morning, guys. Mark, you mentioned the resumption of student loans that's expected to pinch credit scores, maybe weigh on consumer balance sheets. Can you just talk about how you're thinking about the timing of that rolling through, if there is a lag effect, and any dynamics between prime and subprime the categories. Thanks.

[Mark Begor, Chief Executive Officer at Equifax]

Yeah, I think as you know, there's a lot of political elements that had somewhat been episodic, as far as announcements and then legal challenges on it. If it happens, it would be in the second-half, as you point out, it will put pressure on some of the balance sheets or operating statements, if you're operating available income for some of those recipients, it does skew to subprime consumers, so to put more pressure on those that have outstanding student debt that's been on pause for a couple of years if that actually does get resumed. I personally think it'll be absorbable inside of the kind of economic environment that we have. What's positive for those impacted consumers is that there are individuals is that most of them are working. So, they still have in this employment environment they've got jobs and they'll have to adjust likely their spending behavior, it may crimp their ability or desire to get new credit, but it should be fairly small portion of the population.

[Seth Weber, Analyst at Wells Fargo Securities]

Got it, thank you. And then maybe just a quick follow-up for John. I think I am just looking at your margin guidance for the year, the international segment. I think the guide for the full-year implies the fourth quarter was north of 30%. Is that the right way to think about it, and is there something going on there that creates this kind of hockey-stick moves in the back-half of the year in the fourth quarter. Thanks.

[Mark Begor, Chief Executive Officer at Equifax]

I think all the businesses, John will later jump-in, but as you know, International USIS, and EWS are a part of the cloud and broader cost restructuring program that we increased by $10 million in the second half, and so all the businesses, that's primarily second-half oriented. There wasn't much in the first quarter of that plus program that was some in the second, but it really picks up steam in the third and fourth, so which is why we have the carryover benefit in 2024, there'll be a good positive for us next year. And would you add anything on international, specifically?

[John Gamble, Chief Financial Officer at Equifax]

We are expecting to see nice improvement in international margins. I think the number you're quoting might be a little lofty, but we are expecting to see nice improvement International margins, and it's driven by the fact that they are driving revenue improvements, they generally get stronger revenue in the fourth quarter, we're expecting that to continue, and they are doing a really nice job, as Mark said, on costs on cost management. So those are the drivers.

[Seth Weber, Analyst at Wells Fargo Securities]

Got it, okay. Thank you, guys. Appreciate it.

[Operator]

Thank you. The next question is coming from George Tong of Goldman Sachs. Please go ahead.

[George Tong, Analyst at The Goldman Sachs Group]

Hi, thanks good morning. In EWS, you talked about how mortgage originators are taking some of their Manual verifications in-house as volumes come down. Can you talk about in-sourcing trends you're seeing in the non-mortgage business in response to volume in or pricing trends.

[Mark Begor, Chief Executive Officer at Equifax]

And George, you're talking about like in auto or background screening or government, what?

[George Tong, Analyst at The Goldman Sachs Group]

Yeah, non-mortgage broadly in non-government, non-mortgage.

[Mark Begor, Chief Executive Officer at Equifax]

Yeah, maybe quite simply is, we're not. We're not seeing any impact of kind of in-sourcing, if you will, income or employment verifications in non-mortgage, and the mortgage piece is really quite specifically around the manual operation that we have in Iowa. We saw some pressures around us reducing requests from customers for us to reduce our pricing, which would impact our margins, which are thinner, if you will, than they are instant verifications, because they have capacity to do the Manual verifications in-house, and we decided to let those move in house, but not any instant side and not in non-mortgage.

[George Tong, Analyst at The Goldman Sachs Group]

Got it, and you mentioned the strength in the USIS business from increased shopping activity. Could you elaborate on some of the trends you're seeing there and how sustainable that shopping activity is.

[Mark Begor, Chief Executive Officer at Equifax]

As you know, George, we've been talking about it for, I don't know, four, five quarters, as rates were coming up, we're just seeing consumers spend more time shopping around for mortgages. And as you know, every time they click on mortgage originator website, that mortgage originator will generally before they spend much time responding, they have to understand who that consumer is so they pull a credit file to see whether they're going to qualify, so that is clearly a change in behavior than call it the low-interest rate environment we had in '19, '20 and '21 and the early parts of '22, where consumers were really just taking the first mortgage they clicked on because it was lower than their existing mortgage and refi or met their expectations. They are just more shopping in is higher interest-rate environment which does benefit USIS, and as you know, George, that EWS is generally there's multiple polls by EWS. Just there's more poles on the credit file side but EWS is generally in the closed mortgages where they see their activity when they get further into the pipeline versus that early shopping behavior, and this is just really a pre-qual that the mortgage originators doing to see whether how much efforts they are going to put into it, and really how can they respond to that consumer about what they might qualify for.

[George Tong, Analyst at The Goldman Sachs Group]

Got it, very helpful. Thank you.

[Operator]

Thank you. At this time, I'd like to turn the floor back over to Mr. Burns for closing comments.

[Trevor Burns, SVP, Head IR at Equifax]

Thanks everybody. If you have any follow-up questions, let me and Sam know, we will be glad to get over them in follow up. Otherwise, have a great day.

[Operator]

[Operator Closing Remarks]

Participants

Corporate Executives

• Trevor Burns, SVP, Head IR
• Mark Begor, Chief Executive Officer
• John Gamble, Chief Financial Officer

Analysts

• Andrew Steinerman, J.P. Morgan
• Manav Patnaik, Barclays PLC
• Kevin McVeigh, Credit Suisse Group AG
• Kelsey Zhu, Autonomous Research
• Kyle Peterson, Needham and Company
• Andrew Jeffrey, Truist Securities
• Jeff Meuler, Robert W. Baird
• Craig Huber, Huber Research Partners
• Andrew Nicholas, William Blair
• Shlomo Rosenbaum, Stifel Nicolaus
• Heather Balsky, Bank of America Co.
• Toni Kaplan, Morgan Stanley
• Ashish Sabadra, RBC Capital Markets
• Seth Weber, Wells Fargo Securities
• George Tong, The Goldman Sachs Group, Inc.