Equifax Q2 2024 Earnings Report

Equifax EPS Results

• Actual EPS: $1.82
• Consensus EPS: $1.73
• Beat/Miss: Beat by +$0.09
• One Year Ago EPS: $1.71

Equifax Revenue Results

• Actual Revenue: $1.43 billion
• Expected Revenue: $1.42 billion
• Beat/Miss: Beat by +$6.15 million
• YoY Revenue Growth: +8.60%

Equifax Announcement Details

• Quarter: Q2 2024
• Date: 7/17/2024
• 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 2024 Earnings Call Transcript

Presentation

[Operator]

Hello and welcome to the Equifax, Inc. Q2 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Trevor Burns, Senior Vice President, Head of Corporate Investor Relations. Please go ahead, Trevor.

[Trevor Burns, Senior Vice President, Head of Corporate Investor Relations 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 Investor Relations website. During the call, we will 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 2024 earnings conference call.

Also, we will make certain forward-looking statements, including third quarter and full year 2024 guidance, to help you understand Equifax and its business environment. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from our expectations. Certain risk factors that may impact our business are set forth in our filings with the SEC, including our 2023 form 10-K and subsequent filings. We will also be referring to certain non-GAAP financial measures, including adjusted EPS 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.

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

[Mark Begor, Chief Executive Officer at Equifax]

Before I cover our strong second quarter results, I want to update you on the significant progress in our cloud transformation. Over the next several weeks, USIS will complete the migration onto the cloud data fabric of all customers and services for their consumer credit and telco and utilities exchanges, which is a huge milestone for Equifax. Along with the EWS work number exchange which we completed migrating to the Equifax cloud over two years ago, we will have our three largest data exchanges in the new Equifax cloud. As of the end of July, we expect over 80% of Equifax revenue will be in the Equifax cloud, with about 90% of our revenue in the cloud by year end.

The cloud migrations have been a huge effort across Equifax over the past four plus years. We expect to have a significant competitive advantage as we pivot from building to leveraging the cloud that will allow us to fully focus on growth, innovation, new products and AI going forward.

Completing the USIS cloud and expanding EFX.AI, along with continued expansion of our differentiated data assets, will accelerate innovation and new products at USIS, that will drive our top and bottom line. We now have streamlined access to our proprietary data through the data fabric, which will accelerate new product development. We also expect to reduce product development times resulting in faster time to market for our new solutions. USIS has already begun to see their new product vitality index accelerate.

USIS is deploying Equifax proprietary explainable AI along with Google Vertex AI across Ignite, our global analytics platform and Interconnect, our global decisioning platform. For USIS, Vertex AI enables faster and more predictive model development on our Ignite platform. The USIS cloud will deliver always on stability and faster data transmission that will give Equifax a competitive advantage in today's digital market, driving share gains. We're also driving faster data ingestion analytics with greater processing power with the new Equifax cloud, and most importantly, completing the cloud is going to free up the USIS team to fully focus on growth and expanding innovation, new products, data sets and markets.

With both USIS and EWS in the cloud, we'll also be able to begin development of new products that integrate twin income and employment data with USIS credit data solutions for mortgage, auto cards and P loans that only Equifax can deliver.

Completing the USIS consumer and telco and utility migrations to the Equifax cloud allows us to start decommissioning legacy on prem systems in the third quarter, supporting our goal of spending reductions in 2024 that will improve operating margins and lowering the capital intensity of our business. In the second quarter, we also made substantial progress on our international cloud transformation activities. Canada is expected to complete their consumer credit exchange customer migrations to data fabric next month. Europe continues to make significant progress with the goal of completing Spain's consumer credit exchange migration to the data fabric and decommissioning of their legacy systems by year end, and the U.K. is on schedule to complete cloud migrations and decommissioning in the first half of 2025. And in Latin America, we've completed the Argentina and Chile cloud migrations and expect to make substantial progress on several additional Latin American countries in the second half of this year.

It's energizing to be approaching the finish line of our cloud transformation. We're entering the next chapter of the new Equifax as we pivot from building the new Equifax cloud to leveraging our new cloud capabilities to drive our top and bottom line.

Now, turning to slide 4, we had a strong second quarter with reported revenue just over $1.43 billion, up 9% and just over the top end of our April guidance. Adjusted EBITDA margins at 32% were in line with our expectations, and adjusted EPS at $1.82 per share was well above the high end of our April guidance. Our global non-mortgage businesses, which represent about 80% of total Equifax revenue in the quarter, had strong 13% constant currency revenue growth, which is above the top end of our eight to 12 long-term growth framework. Non-mortgage organic constant currency revenue growth was at 9% in the quarter, and also at the top end of our 7% to 10% organic revenue growth framework. This performance was driven by 20% non-mortgage growth in EWS verifier led by strong 30% growth in government, and talent that was up over 13%. International delivered 28% constant dollar revenue growth and strong 12% organic growth, led by strong growth in Latin America and Europe.

USIS non-mortgage revenue growth of 1% was in line with last quarter and somewhat weaker than our expectations. We expect to see accelerating growth in USIS non-mortgage revenue as we complete the U.S. consumer cloud migration later this month.

Total U.S. mortgage revenue was up 4% in the quarter. The growth in mortgage revenue was driven by USIS where mortgage revenue was up a strong 27% and consistent with our expectations. The strong growth in USIS mortgage reflects the continued benefit from strong vendor pass through pricing actions and performance in our new mortgage pre-qual products. EWS mortgage revenue was down just under 12% and also consistent with our expectations.

Equifax also had another strong quarter of new product innovation with a Vitality index of almost 13% above our 10% frame for 2024 guidance, and our long-term 10% Vitality framework. The Vitality was up 350 basis points sequentially from broad based execution across all of our business units, and EWS was particularly strong with a 17% vitality.

Turning to slide 5, workforce solutions revenue was up 5% and well above our expectations. Non-mortgage verification services revenue delivered very strong 20% growth of 500 basis points sequentially and well above our expectations. Government had another outstanding quarter with very strong 30% revenue growth from continued growth in penetration in their big $5 billion TAM. Government revenue grew sequentially from strong growth in state revenues, despite the substantial completion at the end of March of post COVID CMS initial redeterminations. We expect continued strong government growth over the medium and long term in workforce solutions.

Talent Solutions revenue was up a strong 13% in the quarter, up 17 percentage points sequentially and well above our expectations. Talent Solution volumes improved sequentially, and we saw a very strong growth in our Insights incarceration data products in the Talent vertical. Based on data through May, EWS Talent Solutions outperformed the BLS white collar hiring markets by approximately 19 percentage points from new records, new products and penetration into the vertical.

EWS mortgage revenue was down just under 12% and in line with our April guidance, Twin increase in the second quarter were down 18% and consistent with the down 19% we discussed with you in April. Twin inquiries continue to be weaker than USIS credit inquiries as buyers continue to have difficulty completing home purchases. EWS total mortgage revenue outperformed Twin inquiries by over 6%. We expect EWS mortgage revenue to benefit significantly in the third and fourth quarters from the significant growth in Twin records already delivered late in the second quarter and from planned additions in the third and fourth quarter.

EWS consumer lending revenue was up 8% from strong double-digit growth in P loans and debt management, and high single digit growth in auto. Employer services revenue was down 11%, principally from lower ERC revenue. Excluding ERC, revenue was lower than expected at down 2% due to lower WOTC revenue as we talked about in April, partially offset by positive ACA revenue growth. We expect employer revenue to return to growth in the fourth quarter.

Workforce solutions adjusted EBITDA margins of 53%, were up 170 basis points sequentially and continued to be very strong from non-mortgage verifier revenue growth and good cost execution, while we continue to invest in new products, expand in high growth verticals like government and Talent, and grow our Twin records.

Before moving on to USIS, I want to acknowledge the significant contribution of Rudy Ploder made to EWS and Equifax over the last 20 years. Under Rudy's leadership, EWS revenue grew from about $900 million in $2019 to $2.3 billion last year, and has positioned EWS for strong above market growth, leveraging the Equifax cloud. We're super energized to have Chad Borton, who joined us in May leading workforce solutions. Chad's broad financial service experience, proven executive leadership, customer focus and regulatory depth will be a big asset for EWS as they continue to drive above market growth.

Turning to slide 6, we continue to see very strong revenue growth in our EWS government vertical with 30% growth in the quarter and above our expectations. On the left side of the slide, we provided some of the federal agencies we are supporting with EWS digital income, employment and incarceration data, that accelerate the time to delivery needed -- to deliver needed social service benefits to over 90 million Americans, and help government agencies ensure program integrity, a win-win for all parties. In the middle of the slide, you see the substantial progress our EWS government vertical has made in a short time frame, penetrating that $5 billion TAM with a three-year CAGR over 50%. We expect EWS government to continue to make significant progress in the government vertical from additional sales resources, the federal and individual state capital level, strong record growth, new product rollouts, leveraging our differentiated and incarcerated data -- incarceration data and system to system integrations enabled by our cloud native technology that makes our solutions easier to consume.

EWS continues to help federal, state and local government agencies improve the consumer experience, and their own operating efficiency, from the application and authentication phases to redetermination and recovery processes. The strength of the EWS government vertical was again clear in the quarter, and we expect strong future revenue growth in this business in '25 and beyond.

Turning to slide 7, EWS had another strong quarter of new record additions, signing agreements with four new strategic partners that will contribute over 3 million records collectively to the Twin database. Our continued success in expanding partnerships is a testament to EWS' ability to deliver the highest levels of client service from technology, data security and accuracy and operational excellence for our partners and their end customers. We expect these new partnerships to come online and begin generating revenue for workforce solutions in the fourth quarter.

In the quarter, EWS added 8 million active records to the Twin database, ending the quarter with 180 million active records, up a strong 12% on 132 million unique individuals. Total records are now 695 million, and were up 10% versus last year. At 132 million unique individuals, we have plenty of room to grow the Twin database towards the TAM of 225 million income producing Americans.

EWS is also making very good progress, building a pipeline of pension and 1099 contributors as well as with HR software companies in partnerships, and they expect to close partnerships in the second half of the year as we continue focus on expanding the Twin database.

Turning to slide 8, USIS revenue was up 7%, solidly within our long-term revenue growth framework of 6% to 8%. USIS mortgage revenue grew 27% and was in line with our April guidance. Mortgage credit inquiries, while continuing to be down significantly year over year, down 13%, were largely in line with our April guidance. Despite the modest reduction in mortgage rates we've seen over the last several weeks, we have not seen an improvement in mortgage market inquiries, likely due to continued low new home inventory levels. Consistent with the first quarter, the strong pricing environment, along with the strength of our pre-qual products drove the very strong mortgage revenue growth and outperformance. At $143 million, mortgage revenue was about 30% of total USIS revenue in the quarter. Total non-mortgage revenue at up 1% was below our expectation of 2% growth. We saw strong growth in consumer solutions and financial marketing services, which were partially offset by a decline in USIS B2B online revenue.

We believe growth in the second quarter was negatively impacted by the U.S. team's broad-based focus on completing customer cloud migrations, which likely dampened some of the new business activity we were expecting. USIS Online B2B non-mortgage revenue was down about 4% and below our expectations. Consistent with trends from the first quarter, we saw a continuation of tight credit conditions which impacted the auto market as well as the broader FI vertical. Auto was also impacted by a software supplier system outage that we all read about. USIS saw double digit declines in third party bureau sales and a lesser extent, low digit -- low single digit declines in telco and auto. These declines were partially offset by growth in the broader FI market and in insurance. ID and fraud was also below our expectations, as was auto.

Financial marketing services, our B2B offline business was up 7%. Marketing revenue was up 4%, primarily due to growth in pre-screen marketing. Our pre-screen quarterly trends have been fairly consistent with growth coming from large FIs and fintechs, offset by declines in midsize banks and credit unions. USIS is seeing growing demand for our suite of Ignite solutions, including Ignite for prospecting.

Broad revenue was up a very strong 15% from new business wins. USIS consumer solutions D2C business had another very strong quarter, up 13%, from strong double-digit growth in consumer direct channel and high single digit growth in our indirect channel. We expect mid-single digit growth in our D2C business in the second half of this year against strong comps from last year.

USIS adjusted EBITDA margins were 33.2% in the quarter and below our expectations, reflecting this lower-than-expected revenue growth. In USIS, with significant efforts across the business to complete the cloud transformation clearly had an impact on USIS customer engagement and non-mortgage revenue growth in the first half. As USIS consumer cloud migration is completed in the next few weeks, the USIS team will now be able to fully focus on customer engagement and growth, and we expect USIS non-mortgage revenue to see improved growth in the second half of this year and of course in '25 and beyond.

Turning to slide 9, international revenue was up a very strong 28% in constant currency, and up a strong 12% in organic constant currency in the quarter excluding the impact of BVS, and well above the 20% growth we guided to in April due to continued very strong growth in Latin America and Europe. Europe local currency revenue was up a very strong 12% in the quarter with continued strong 6% growth in our credit and data businesses, and from very strong 23% growth in our debt management business. Latin America local currency revenue was up 124%, principally due to the acquisition of Boa Vista with very strong organic growth of 30%. Latin America organic revenue growth was driven by very strong double-digit growth in Argentina, Paraguay and Central America.

Brazil revenue in the quarter on a reported basis was $41 million. We continue to make good progress on the Brazil integration. Equifax Interconnect Solution was launched for small business and medium businesses in the second quarter in Brazil, with full feature release to service larger clients in the second half. The first apps of Ignite have also been launched. Identity and fraud solutions including Kount and Midigator are now available for Brazilian customers, and Brazil is driving accelerated negative data acquisition to add to their database. The team is making excellent progress on driving growth and integrating with Equifax.

Canada delivered 6% growth in the quarter. As I previously mentioned, we expect Canada to complete their consumer credit exchange customer migrations to the new Equifax cloud in the next few weeks, and similar to USIS, we're expecting to see accelerated new product rollouts and growth going forward from the Canadian team.

In Asia Pacific, revenue was down about 2% as expected, better than the down 10% in the first quarter. We expect Asia Pacific to return to revenue growth in the second half. International adjusted EBITDA margins of 25.6% were above our expectations and up 130 basis points sequentially, given their strong revenue growth performance.

Turning to slide 10, we continue to make very strong progress driving innovation, with over 30 new products launched in the quarter that delivered a 12.5% Vitality index which was up 350 basis points sequentially and was driven by broad based performance across all of our business units. EWS had a strong second quarter with Vitality index of 17%, up 700 basis points sequentially, and we expect EWS VI to remain strong in the second half with new product introductions focused on incarceration data, mortgage pre-qual or shopping behavior, in I-9 and onboarding solutions.

USIS saw continued sequential improvement with a vitality index of 8%, up 100 basis points sequentially. We expect USIS to continue to show strong VI performance from cloud completion as they leverage our new cloud native infrastructure for innovation new products in identity and fraud, commercial, and our new mortgage pre-qual products.

International also had strong 11% VI in the quarter, up 200 basis points sequentially. We expect strong Equifax double digit VI in the second half, leveraging our Equifax cloud capabilities to drive new product rollouts with a full year VI for Equifax of over 10%.

EFX.AI is one of our key EFX 2026 strategic priorities enabled by our new Equifax cloud. We're energized to have a new AI leader on board who will drive our strategic vision and execution in explainable EFX.AI. We are accelerating the pace at which we are developing new Equifax models and scores using AI and ML in areas such as identity and fraud and consumer loan affordability that drive performance and predictability of our solutions. In the second quarter, 89% of our new models and scores were built using AI and ML, which is up 400 basis points sequentially and ahead of our 2024 goal of 80% and last year's 70%.

Before I turn it over to John, I wanted to provide a few comments on our full year 2024 guidance. We're maintaining our 2024 guidance midpoint with revenue of $5.72 billion, up 8.6% and adjusted EPS of $7.35 a share, up 9.5%. This guidance implies a strong second half for Equifax with revenue at the midpoint of $2.9 billion, up over 9.5% and adjusted EPS of $4.03 per share, up 13%. Consistent with our practice, this framework assumes mortgage market activity consistent with the levels we saw in June and early July, resulting in an estimated full year USIS credit inquiries at down 11%, and consistent with our April guidance.

As you know, we're using current trends to forecast mortgage market activity, and have not seen a strengthening in the mortgage market activity despite the recent modest decline in rates, and have not reflected the impact of any fed rate cuts in the second half. Delivering this level of performance in the second half against the U.S. mortgage market that continues at the levels we saw in the first half, we believe is very strong Equifax performance. It reflects constant dollar non-mortgage growth of about 10%, again led by very strong non-mortgage growth in our workforce solutions verification services businesses, and with strong continued growth -- organic growth in International and improving non-mortgage growth in USIS, despite the continuation of the tight credit markets we saw in the first and second quarter in the US, leading to some weakening in the auto market and also impacting the broader Fi market.

While we expect a continued weak mortgage market, we expect to grow mortgage revenue by 18% in the second half. Of course, we continue to expect significant future mortgage market improvements as rates come down and mortgage market activity returns to normal 2015 to '19 levels. As we've shared previously, we expect to flow the $1.1 billion mortgage revenue recovery through to EBITDA as mortgage market activity improves at our very high mortgage market gross margins, and we're continuing to deliver expanded EBITDA margin growth, principally in the fourth quarter as we complete the transformation of our U.S. consumer businesses and our businesses in Canada, Spain, Chile and Argentina.

Now I'd like to turn it over to John to provide more detail on our second quarter financial results and to provide our third quarter framework. Our third quarter guidance builds on our strong second quarter performance from new products, penetration, record growth and pricing.

[John Gamble, Chief Financial Officer at Equifax]

Thanks Mark. Turning to slide 11 consistent with our practice from the first half of 2024 and the last several years, our guidance for credit inquiries is based on our current run rates over the last two to four weeks, modified to reflect normal seasonal patterns. We have seen 30-year mortgage rates just under 7% for the last five weeks. However, we have not seen meaningful improvement in the run rate of either credit or Twin inquiries, although we continue to expect mortgage market activity to improve as rates come down in the future. Our guidance reflects mortgage credit inquiries to be down about 7% in 3Q '24, and 11% in calendar year '24, which for the full year is consistent with our April guidance. Our guidance reflects Twin increase in the third quarter to be down over 7% and for the full year down approaching 14%. Second half twin inquiries are down about consistent with the decline in credit inquiries, reflecting an expected normalization of the mortgage shopping we saw in the first half of the year, as interest rates remain stable or begin to decline.

As a reminder, and as we discussed in April, we expect the level of U.S. mortgage revenue outperformance to moderate as we move through 2024, as we start to lap the growth in new mortgage pre-qual products. We expect 3Q USIS mortgage revenue outperformance to be over 30%, down from the 40% in the second quarter, with full year USIS mortgage outperformance expected to be about 40%. We expect Twin revenue mortgage outperformance in the second half to increase sequentially from the new records we boarded in the second quarter.

Slide 12 provides the details of our 3Q '24 guidance. In 3Q '24, we expect total Equifax revenue to be between $1.425 billion and $1.445 billion, with revenue up about 9% at the midpoint. Non-mortgage constant currency revenue growth should be up about 10%. Mortgage revenue in the third quarter is expected to be up over 12%. Mortgage revenue will be just under 20% of total revenue. FX is negative to revenue about 2%.

Business unit performance in the third quarter is expected to be as follows: Workforce solutions revenue growth is expected to be up about 8%, with non-mortgage revenue up about 10%. Non-mortgage verifier revenue should again be very strong in the third quarter, with growth slightly under the 20% we saw in the second quarter, again driven by government and Talent Solutions. EWS mortgage revenue should return to growth and be up slightly in the third quarter. Both Verifier mortgage and non-mortgage revenue growth benefit from the strong growth in Twin records we are seeing throughout 2024. And employer services revenue is expected to decline over 15% in the quarter, principally due to declines in ERC. We expect employer services to return to revenue growth in the fourth quarter of 2024.

EWS adjusted EBITDA margins are expected to be about 51.5%, down about 100 basis points sequentially, principally from product mix. USIS revenue is expected to be up about 8.5% year to year, mortgage revenue should be up over 25%. Non-mortgage year-to-year revenue growth of over 2% should be up from the up 1% we saw this quarter. Adjusted EBITDA margins are expected to be up about 34%, up sequentially about 100 basis points, as USIS begins decommissioning legacy consumer and telco and utility systems.

International revenue is expected to be up about 18% in constant currency, which includes the benefit of the acquisition of BVS that was completed August of 2023. Revenue is expected to be up about 12% in organic constant currency. EBITDA margins are expected to be about 28%, reflecting revenue growth.

Equifax 3Q '24 adjusted EBITDA margins are expected to be under 33% at the midpoint of our guidance, with a sequential increase reflecting revenue growth and the early stages of decommissioning of legacy consumer and telco and utility assets. Adjusted EPS in 3Q '24 is expected to be $1.75 to $1.85 per share, up 2% versus 2Q '23 at the midpoint.

As of the end of the second quarter, our leverage ratio was 3.0 times with a goal by year end 2024 of about 2.5 times. We believe this leverage is nicely within the levels required for our current BBB BAA2 credit ratings. As we achieve these levels, we will have significant flexibility to begin to return cash to shareholders through dividend increases and share repurchases, as well as continue to do bolt-on acquisitions in 2025 and beyond.

Slide 13 provides the specifics of our 2024 full year guidance, which is overall unchanged from the full year revenue and adjusted EPS guidance we provided in April, and is centered at the midpoint. Constant currency revenue growth is expected to be about 10.5% with organic constant currency revenue growth of 8.5% at the middle of our 7% to 10% long-term organic growth framework. Total mortgage revenue is expected to grow over 10%, despite the over 10% decline in the U.S. mortgage market. Non-mortgage constant dollar revenue should grow over 10% with organic growth of about 8%, led by very strong non-mortgage growth in our workforce solutions verification services business, with continued strong organic growth in international and improving non-mortgage growth in USIS. This is within our long-term framework. FX is about 180 basis points negative to revenue.

As Mark discussed earlier, we are maintaining the midpoint of adjusted EPS at $7.35 per share. EBITDA margins, however, are expected to be 32.6%, down from the over 33% we discussed earlier this year. As Mark discussed, we are making very good progress on cloud migrations. However, they are completing up to a quarter later than we had planned. As a result, our cloud cost savings are lower due to timing in 2024, which negatively impacts EBITDA, partially offsetting this impact is lower depreciation. As these effects are timing of completion, they only impact 2024 and do not impact the cost savings we expect to achieve in 2025 and beyond.

Full year BU guidance is principally consistent with what was shared in April, with the exception of the impact on USIS and international EBITDA margins per my previous discussion. Workforce solutions revenue growth is expected to be up about 7% with non-mortgage revenue up about 10%. Non-mortgage verifier revenue should be up over 15%, driven by government and talent solutions. EWS mortgage revenue should be down 3% for the year. EWS margins are expected to be about 52%. USIS revenue is expected to be up 9% year-to-year, mortgage revenue should be up over 25%. Non-mortgage year-to-year revenue growth of about 2% is expected to be up from the 1% we saw in the first half of 2024.

USIS EBITDA margin should be about 34%, down about 50 basis points from our April guidance, and international revenue is expected to be up over 15% in constant currency, which includes the benefit of the acquisition of BVS. Revenue is expected to be up about 10% in organic constant currency. EBITDA margins are expected to approach 27.5%, down from 28% in our April guidance.

Using the midpoint of our 3Q '24 and fiscal year '24 guidance for revenue and adjusted EPS, the implied 4Q '24 midpoint for revenue is $1.465 billion, up 10% year-to-year, and $30 million sequentially. And for adjusted EPS is $2.23 per share, up over 20% year to year. The improvement in adjusted EPS in 4Q '24 sequentially from 3Q '24 is certainly substantial, and requires strong execution.

The drivers of this improvement are expected to be as follows: About half of the improvement is driven by the sequential revenue growth at our very high variable margins. Revenue mix also should drive improved margins as non-mortgage revenue grows strongly sequentially and mortgage revenue declined sequentially. Mortgage has much lower margins relative to non-mortgage, principally due to much higher royalties and purchase data file costs and mortgage.

Cost and expense reductions drive about a quarter of the improvement. These cost reductions are principally due to completion of cloud migrations in North America and Europe, resulting in lower COGS and also lower development expense. In addition to the cost benefit from completion of cloud migrations, we continue to execute fixed cost and expense reductions, which will also benefit 4Q '24. Items below operating profit, principally taxes, represent on the order of 20% of the improvement.

Capital expenditures for 2024 are expected to be about $485 million, which is a year-to-year reduction of about $100 million. This is up from our April guidance, reflecting the timing of completion of the migrations to the Equifax cloud that I just referenced.

In the first half of 2024, capex was $256 million, down almost $50 million year to year. We expect capital expenditures in the second half to decline further as the tech transformation activities I previously discussed complete.

Turning to slide 14, and as we discussed in April, the U.S. mortgage market is on the order of 50% below its historic average inquiry levels. As the mortgage market recovers toward its historic norms, that represents over $1 billion of annual revenue opportunity for Equifax in 2025 and beyond, none of which is reflected in our current 2024 guidance. At our high mortgage margins, this over $1 billion of mortgage revenue would deliver on the order of $700 million of EBITDA and $4 per share that we would expect to move into our P&L. Now I'd like to turn it back over to Mark.

[Mark Begor, Chief Executive Officer at Equifax]

Thanks John. Wrapping up on slide 15, Equifax delivered another strong quarter with 11% constant currency revenue growth, which was at the upper end of our 8% to 12% long-term revenue growth framework, reflecting the power and breadth of the Equifax business model and strong execution against our EFX 2026 strategic priorities. Our very strong 20% EWS non-mortgage verifier revenue growth, 12% EWS active record growth and strong 12.5% broad based VI give us momentum as we enter the second half of 2024. A big priority for 2024 is to complete our North America cloud transformation as well as significant portions of our global markets which will enhance our competitiveness, drive margin expansion, reduce our capital intensity, expand our free cash flow for bolt-on M&A dividend growth and share repurchases.

Completing the USIS consumer cloud migrations in the next few weeks is a significant milestone for Equifax. We continue to expect capex to decrease in 2024 by about $100 million to under 8.5% of revenue, with further reductions in 2025, allowing us to move towards our long-term capex goal of 6% to 7% of revenue as we exit next year. Entering 2025 with 90% of Equifax revenue in the new Equifax cloud is a big milestone, so the Equifax team can move towards fully focusing on growth.

Another significant EFX 2026 strategic priority is to drive innovation through our investments in EFX.AI. AI and machine learning are changing the way we develop new products in our single data fabric, the way we built -- and allowing us to build higher performing models, scores and products, ingest and cleanse data and operate our consumer care centers more effectively. We're on offense at Equifax with EFX.AI.

We're entering the next chapter of the new Equifax as we pivot from building the new Equifax cloud to leveraging our new cloud capabilities to drive our top and bottom line. We're convinced that our new Equifax cloud differentiated data assets in our new single data fabric, leveraging EFX.AI and machine learning and market leading businesses will deliver higher revenue growth, expanded margins and accelerated free cash flow that will enable us to start returning cash to shareholders in 2025 and beyond. We remain focused on executing our long-term model, delivering 8% to 12% revenue growth with 50 plus basis points of margin expansion annually on average over a cycle.

Before I turn the call over to the operator, I'd like to thank Sam McKinstry on the Investor Relations team for his significant contributions over the past four years. Good news, Sam is staying with Equifax and is taking a position within the USIS business to further his career in finance. He's been a real asset to the IR team and the investor community, and joining the investor relations team from USIS is Molly Clegg, and we welcome Molly to the IR team. With that operator, let me open it up for questions.

Questions and Answers

[Operator]

Thank you. [Operator Instructions] Our first question is coming from Manav Patnaik from Barclays. Your line is now live.

[Manav Patnaik, Analyst at Barclays]

Thank you. Good morning, and congratulations on getting close to this tech transformation ending. My first question was on that, which is how much of the cost savings, I guess, have you baked into the third quarter, fourth quarter, and I guess, more importantly, just the run rate of what we should think this is now going to help in 2025 just on its own.

[John Gamble, Chief Financial Officer at Equifax]

I don't think we're going to get into 2025 guidance, but in terms of third and fourth quarter now, we've baked in the cost savings related to the North American consumer businesses, completing transformation in the third quarter and beginning their decommissioning, and we've done the same thing with regard to Spain and some other -- some other movements we've talked about in Mark's script in the fourth quarter. So, when I talk about...

[Trevor Burns, Senior Vice President, Head of Corporate Investor Relations at Equifax]

The savings are really in the fourth quarter and then we'll get the annualization of that next year.

[John Gamble, Chief Financial Officer at Equifax]

Absolutely. As we talked about in the bridge from third to fourth quarter, a significant portion of those savings, as Mark said, really gets in the fourth quarter, because the transformations and the completion of the transformations and beginning of decommissioning don't start until later in the third.

[Mark Begor, Chief Executive Officer at Equifax]

Manav, I think, as you know, I appreciate you pointing it out. This has been a long road. You know, we started this five years ago and to be close to this finish line with 80% of our rev, you know, in the cloud in the next month or two and 90% in the fourth quarter. It's really a huge milestone. It's been a huge effort by the entire organization to run the company over the last number of years, but also do the cloud work. And we're super energized to really be pivoting to leveraging that cloud in the second half as we complete USIS and Canada in the next couple of weeks, and then really go into 2025 in a very, very strong position.

[Manav Patnaik, Analyst at Barclays]

Okay, fine. And then just broadly, I think just from the first half results, it looks like there's a lot of, you know, pluses and minuses across the segment. I'm just curious in terms of the way you set the second half guidance, like where would you say you've perhaps left some room for error or being conservative on it?

[Mark Begor, Chief Executive Officer at Equifax]

Yeah, we try to be balanced. I think, you know, that. You know, we want to put forecasts out that we know how to meet, and we feel, you know, a lot of confidence in the forecast we put out. I think John and I, in our prepared comments, talked about some of the, you know, positives we have. We've had some challenges. You're always doing a business. You know, I think we highlighted USIS, you know, has seen, you know, some softening in the first quarter in some of their end markets, and also in the second quarter. Mortgage hasn't really come back, and, you know, short of rate cuts, we don't expect that to happen in our guide. You know, we've seen, you know, some impacts likely from the big focus in the first half in USIS and cloud transformation. We expect those to obviously mitigate. So, the commercial team can be fully focused on just commercial conversations versus also commercial and cloud. EWS is performing exceptionally well. You look at the government performance, Talent had a very strong quarter. Obviously, we talked about employer impacted by WOTC and some other kind of macros that will solve themselves, but likely later in the year that will benefit 2025.

But, you know, putting that all together and maybe just finishing with international, you know, strong momentum there, you know, and all the businesses performing above our expectations, you know, when we put that all together, we felt like we had the right -- the right framework in holding the year, you know, in the second half.

[Operator]

Thank you. Next question today is coming from Andrew Steinerman from J.P. Morgan. Your line is now live.

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

Hi there. First, I would just want to confirm that second quarter revenue percentage for mortgage was 20%. I know the word about was used. And then the second question is I want to focus just more on the third quarter guide, and Mark, I know you really talked about the second half there, and I want to focus specifically on USIS. I surely heard you highlighting that the cloud migration, let's call it multitasking, will be behind us the end of this month for USIS, so revenue acceleration there into August. And then I also heard the comment about CDK, which was a drag to auto revenues and auto dealers in the second quarter, that also seems behind us. So, what other kind of maybe drags have you assumed on USIS in the third quarter guide? Because the third quarter revenue guide for USIS to me looks a little conservative. And did you change any assumptions about the health of the U.S. consumer outside of mortgage when thinking about that third quarter USIS guide.

[Mark Begor, Chief Executive Officer at Equifax]

Andrew, to your specific question, it's 21% was the exact number. And to your question on USIS, I think we, in our prepared comments, Andrew, I know you heard them. We've seen some softening in some of the end markets in USIS late in the first quarter, certainly continued in the second quarter. You talked about the CDK impact. Obviously, you know, what is a negative late in the second quarter that's obviously behind us. But the end market softening, for example, in auto, you know, while mortgage has been impacted by higher rates, you know, we're seeing some impact in auto where the payments, you know, for new and used cars are very high with the higher rates that are being charged. And, you know, we've seen some impact in just consumer demand for loans, you know, in auto. And then a broader, I would call it, slight softening in second quarter, and we carried that forward in the second half, so that's reflected in the USIS guide. I don't know if you'd add anything else, John.

[John Gamble, Chief Financial Officer at Equifax]

No, just, Mark's already talked quite a bit about the distraction from transformation that does recover in the third quarter. We started to come out of that right, but again, we're just finishing transformation in the quarter. So, you're not going to see a lot of benefit in the third quarter. You don't start to see that till 4th-quarter, and really next year. You are starting to see NPI improvements in USIS. But again, those are not going to really accelerate until you get to the fourth quarter of next year.

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

Makes sense. Thank you.

[Operator]

Thank you. Next question is coming from Heather Balsky from Bank of America. Your line is now live.

[Heather Balsky, Analyst at Bank of America]

Hi. Thank you for taking my question. I wanted to start off with EWS verification or verification and EWS broadly into the back half, and thinking about the sequential trend from 3Q and what's implied into the 4th-quarter. Especially for 4Q, there seems to be some implied material acceleration, and recognizing that the mortgage market has somewhat stabilized and the benefits from that, can you just walk us through the building blocks to kind of what gets you to the trends in 3Q and what's implied for 4Q, and where you're seeing the biggest tailwind?

[Mark Begor, Chief Executive Officer at Equifax]

Yeah. So just as an overarching statement, right, it's important to remember that EWS verifier is benefiting in the second half, really significantly related to record editions, right. They've done an outstanding job with adding, with adding new partners. We had a significant partner come online very late in the quarter, and we had, as Mark said, we added four more. We added a substantial number in the first half. Those records are coming online, and that drives a substantial amount of revenue in the [Speech Overlap]

[Trevor Burns, Senior Vice President, Head of Corporate Investor Relations at Equifax]

Maybe adding to the records point, John, is that we have real visibility as we are in July now and in the third quarter. And as we look out to the fourth quarter of meaningful record additions that we're working on, and we haven't closed those yet, so we haven't added them into our discussions with you. And as you know, records, when we add them, when they come online, they turn into revenue that day, you know, because we're already getting the inquiries. That's the beauty of the system we have. Sorry, John, go ahead.

[John Gamble, Chief Financial Officer at Equifax]

No problem. And as you get into fourth quarter, obviously what you're seeing from third to fourth quarter is there's some traditional strength, generally from third to fourth quarter in talent, right, just because of seasonal hiring. And I-9, because of seasonal hiring, where we do onboarding for companies, we generally see some strength in banking and card around CLIs. And then importantly in CMS, ACA signups start in the fourth quarter. So, we generally see nice growth in government going into the fourth quarter. And then you layer on top of that, the strength in records, and that's what gives us confidence that we're going to see good performance as we go through the back half of the year in Verifier and non-mortgage. Mortgage, we've talked about, I think that's been covered. And employer, what we're seeing is as we get into the fourth quarter, the significant impact of ERC that we saw through the first nine months of the year, we wrap around the decline that occurred in the fourth quarter of last year. So, employer revenue on a year-over-year basis, the growth rate will be substantially better. As we said, we expect to be flat to slightly up relative to the declines that we've been seeing, and that's principally driven by the fact that we saw a big decline in ERC in the fourth quarter of '23. So, I'd say that's why we feel good about the way EWS is trending, and the opportunities to drive the revenue growth we're talking about.

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

Got it. Thank you. And I know you've gotten questions about where there might be a little bit of caution in the guidance and room for upside. There's been a couple of surprises the past few quarters, the WOTC, the transition taking a little bit longer. Do you feel like for the back half, you've given yourself some room for some things that might occur, like that, some of the stuff that may be kind of out of your control?

[Mark Begor, Chief Executive Officer at Equifax]

Yeah, we always try to do that, as you know, and it's often not easy. Like the WOTC change that went in place last year, we just thought would be implemented by the states more quickly. You know, government bureaucracies sometimes move at different paces, but we think we have good visibility. You know, we talked earlier about the records. That's one where we have high visibility on. You know, we know we've signed, we know when they're coming on. We have kind of those schedules. So that gives you a lot of visibility. And, you know, we, you know, do what you would suggest or would you think we do is, you know, we handicap, you know, different, you know, macro elements and try to put our best forecast together. And as you know, on mortgage, you know, while there's, you know, maybe increased, talk about a rate cut in September, you know, we don't have that in our forecast. We wouldn't put it in our forecast, that's not our process. You know, if that happens, that's going to be good news, you know, for the second half. But outside of our forecast and, you know, as you know, we expect rates over, you know, the medium term -- call it into '25 and '26, you know, to come down, and that's going to be, you know, a real tailwind for us on the mortgage side.

So, yeah, we, you know, we've put pluses and minuses that we think we know about into the forecast, and that's why we put it in front of you.

[John Gamble, Chief Financial Officer at Equifax]

And as Mark referenced and we talked about in the script, right. I mean, obviously, we know third to fourth quarter requires a lot of execution, but we have a lot of confidence in the way the teams are executing right now, and it's around completing the transformations. We think we have very good visibility into how that's going to complete in the timing.

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

Appreciate it. Thank you.

[Operator]

Thank you. Next question today is coming from Kelsey Zhu from Autonomous Research. Your line is now live.

[Kelsey Zhu, Analyst at Autonomous Research]

Hi. Good morning. Thanks for taking my questions. My first question is on Talent. Obviously, it was really strong growth this quarter. I was wondering if you can tell us a little bit more about the new products you've introduced year to date, how much they have contributed to growth as well as kind of upcoming product pipeline you expect them to contribute to growth?

[Trevor Burns, Senior Vice President, Head of Corporate Investor Relations at Equifax]

Yeah. In Talent, you have to add to it, you know, also the penetration. Remember, that's a large TAM that we have, a big position in, but there's a lot of run way for growth of just converting manual. Let's use just employment verification processes. As you know, we have incarceration, we have education data and other data elements like medical credentialing data. But just the penetration is just a huge opportunity. Just like government. When you've got a $450 million, $500 million dollars run rate business in Talent, operating in a $3 billion plus TAM, there's just a lot of penetration opportunity.

Product is a big lever also. We've got a lot of focus around new products, on incarceration, on education, on different depths of employment data. We rolled out an hourly solution for hourly background screens that don't require as much employment history. So, there's a big focus there. And I know the team's working on the next chapter of combining those data elements, with our goal being to have a single transaction to deliver all the data that's required for a background screen, which would include employment history, would include incarceration, education, etc. We signed and announced a new partnership on education that goes beyond college degrees and into high school and vocational schools, so that's another depth of element that's a part of our second half focus on Talent.

[John Gamble, Chief Financial Officer at Equifax]

And in the second quarter, we saw very nice growth out of the Insights portfolio, incarceration, as Mark referenced, helping us drive the talent growth rate. So, that was a nice -- that was a nice growth area for us in the second quarter.

[Kelsey Zhu, Analyst at Autonomous Research]

Got it. Super helpful. And then my second question is on government. We also saw really strong growth this quarter. How much of that is driven by the CMS contract expansion? And are there any one-off factors that contributed to growth this quarter? And how should we think about, you know, a sustainable growth rate going forward?

[Mark Begor, Chief Executive Officer at Equifax]

Yeah, that's a heavy question. Let me take a few parts of that. You know, when you think about government, I think John and I both mentioned in our comments, you know, the biggest driver in government is penetration into that big $5 billion TAM. You know, that's really at the state agency level. And as you know, we've continued to add resources in our government team in, at the states in order to drive that penetration. And remember, you know, you've got multiple agencies that are using our data, and in most cases are not using our data. They're still doing it manually, whether it's for healthcare benefits, food support, rent support, child care support, education support, income support. There's, you know, about a dozen different social services. And I think, you know, the scale of the U.S. consumer base, that our household base that receives these services, it's about 90 million Americans receiving those services.

And, you know, when you think about our business, and call it roughly $800 million run rate today, you know, against that $5 billion TAM, you've got over a $4 billion really manual processing of principally income verification that we're penetrating into. So, state penetration is a big driver, and we think about that as very sustainable. You know, there's not, there's no one-offs in there. You get embedded in their workflows and then you become, you know, a part of that process. As you point out, we did extend our CMS contract last September, so we're still, you know, taking the benefit of the price increase that was built in there. And as you know, that's a five-year contract with annual escalators. So that's one with a lot of visibility. So, you know, there's not any kind of one-offs in there. Anything else you'd add, John, in government? Yeah, you can tell we're quite energized. Government last quarter, and now again, this quarter is the largest vertical in workforce solutions. And it's the business with, you know, we think the largest, you know, runway -- your question about the long-term growth rate, it's obviously outgrowing. In the last three years, it's had a 50% CAGR, was up 30% in the quarter. I think 35 last quarter. So, it's had very strong above kind of framework growth for workforce solutions in the 13% to 15% total growth. We've been clear that we expect government to outgrow our 13% to 15% framework for EWS over the long term. So that's clearly a business we have a lot of confidence in, and we're investing a lot in because of the opportunity there. We haven't given any guidance for '25. We'll do that as we get through this year, but we've been clear that we expect it to grow faster than the rest of Equifax and faster than the rest of EWS.

[John Gamble, Chief Financial Officer at Equifax]

In terms of 2024, just looking at sequential trends, right, I think the sequential trends we're seeing in the second quarter were good and strong. And third and fourth quarter, I think, are very consistent. What we've seen in the past and specifically the -- as we referenced, the growth we're expecting into the fourth quarter is heavily driven by CMS. And the fact that ACA starts in the fourth quarter, and every year we see a pop in revenue from that, from that agreement with CMS in 4Q and then again in 1Q.

[Operator]

Thank you. Next question is coming from Faiza Alwy from Deutsche Bank. Your line is now live.

[Mark Begor, Chief Executive Officer at Equifax]

Faiza, we can't hear you. Yeah, we got you now, I think.

[Faiza Alwy, Analyst at Deutsche Bank Aktiengesellschaft]

Oh, is this okay?

[John Gamble, Chief Financial Officer at Equifax]

Yep. That's better.

[Faiza Alwy, Analyst at Deutsche Bank Aktiengesellschaft]

Yeah, okay, okay. Sorry about that. So, wanted to ask about the USIS acceleration that you're expecting on the revenue line just from cloud completion. Talk a little bit about your confidence in that, maybe what type of new products [Technical Issues] talked about potential market share gains. So just give us a bit more color and confidence around that acceleration.

[Mark Begor, Chief Executive Officer at Equifax]

Yeah, and as John said earlier in one of the questions, we expect to see some benefits perhaps later in the year, but that's really going to be in '25, '26, and '27. There's no question that there's been some distraction for that team. This has been our most complex cloud transformation of the 40-year-old, you know, kind of consumer credit. We call it ACRO platform that we had to be finishing it, you know, in the next couple of weeks, is just a huge accomplishment. And it's just taken so much bandwidth from the team to complete that. So, you know, kind of the focus of the team is one positive that we'll have in the second half, but you should think about that really benefiting as we get into '25 and beyond.

You point out a number of really important levers. We believe the always on stability, the ability to roll out new products more quickly, just make us a more valuable partner to our customers. And we do expect to have share games going forward. We've got some of those in flight and a lot of conversations going on. The feedback from our customers that we've moved 99% of our customers to the cloud, I think it's even higher than 99 as I speak today, has been outstanding. You know, the performance, the speed, acceleration of moving the data, just the feedback is super positive. And as you know, that's one of the reasons we invested, you know, this substantial amount of money in the cloud, you know, four plus years ago was we believed it was going to give us a stronger competitive position with our customers. So, you and we should start to see those benefits, you know, really in '25. But the momentum, you know, there should be some good guys as we get into the second half on that.

New products is another big deal. As you know, their vitality has been below our 10% goal for a number of years, as they've been working on the cloud transformation. We've seen some positive acceleration in the quarter. I think there were 8% vitality and up 100 bps, which is positive. So, the team is starting to create some bandwidth for new products. And you'll see new products really from every element of USIS. A lot of stuff coming out from identity and compliance, which we're excited about. A lot of risk-based solutions, data combination solutions, given we have such really unique data in USIS versus our competitors, particularly in the alternative data with NC Plus, DataX and Teletrack. So, a lot of traction there. Some products and marketing, leveraging our IXI wealth data have been coming out. Then the last one I comment on is I used it in my comments, I mentioned in my comments is with the Cloud Complete in EWS and now the Cloud Complete in USIS, we've got a big focus on delivering products that really combine Twin, our income and employment data with the credit file. We think there's a lot of opportunities to put a flag on the credit file, for example, in mortgage, auto, P loans. So, when one of our customers is pulling a credit file, they'll know that there's an individual there that's also working, that adds to the underwriting capabilities of that consumer and adds to the value of our credit file and our solution. And, we're really energized about those kind of solutions that combine USIS and EWS products that will benefit both businesses, but we think make our credit file more valuable, which should drive credit file share.

So, that's a second half focus on the product side, likely a 2025 implementation. So, we're really energized around the always on stability that will drive our competitive advantage. And then, as you point out, the ability to roll out more new products, leveraging the USIS data, but then also bridging between USIS and DWS going forward.

[John Gamble, Chief Financial Officer at Equifax]

Only thing I'd add is we're also seeing nice growth in the use of Ignite and Prescreen and Ignite by our customers. That's important because that's also the platform in which we're deploying our proprietary and then also Vertex AI. So, we're making that available to our customers and it allows us to expand and expand the use that we have substantially. So, we feel very, very good about the fact that we're seeing accelerating adoption of ignite in the marketplace with our customers using it directly and with us developing products internally.

[Faiza Alwy, Analyst at Deutsche Bank Aktiengesellschaft]

Great. Thank you so much. And then my second question is on EWS mortgage side. Obviously, we've had a lot of conversations over the last few quarters, even years, about, you know, Twin inquiries versus outperformance. So just give us, you know, the lay of the land in terms of how you're thinking about outperformance from here. And then, I know you talked about Twin inquiry sort of stabilizing maybe, or being more in line with the credit inquiries. And I'm sure you saw the HMDA data came out last week. I'm just curious if you reflected on that and any incremental thoughts around just EWS mortgage.

[John Gamble, Chief Financial Officer at Equifax]

Just in terms of how we expect EWS mortgage to perform relative to inquiries, as we talked about, a lot of our improvement in the second half is driven again by records, right. So, Mark talked a lot about the fact that we've done a really nice job of adding new partners, and we're adding a significant number of records. A lot of them boarded late in the second quarter. So, we are expecting to see revenue benefits in EWS from record editions, from the records that were added at the end of the second quarter. And also, the records we're going to add throughout the rest of this year. And that's really the big driver.

[Mark Begor, Chief Executive Officer at Equifax]

I'll just add again, I mentioned it earlier in one of the earlier comments, I think you know this, but you know, record additions, we already have the inquiries coming. When we add the records, they turn into revenue. So, it's such a powerful lever for us. And as you know, we've had really strong momentum there on records, and we've, you know, signaled we have strong momentum in the second half and also good visibility. You know, it's -- we don't have to do anything else but get the records in our data set, and they become revenue because we already have the inquiries coming in from our customers, we just have higher hit rates.

[John Gamble, Chief Financial Officer at Equifax]

We're also looking, we're also expecting some benefits from new products. I think we've mentioned that in the past, some marketing products that we're trying to put in place earlier in the approval funnel. So, we're going to continue to work on NPI in EWS mortgage, but the big driver, certainly in the second half of 2024, is driven by the strong performance and records in the first half of 2024, as well as -- as well as what we expect to continue to do in the rest of this year.

[Faiza Alwy, Analyst at Deutsche Bank Aktiengesellschaft]

Great. Thank you so much.

[Operator]

Thank you. Next question is coming from Surinder Thind from Jefferies. Your line is now live.

[Surinder Thind, Analyst at Jefferies Financial Group]

Thank you. I'd like to start with a question just about the innovation cycle. When we think about all of the commentary that you've kind of provided, is the idea that we should be entering a period, especially within USIS, of accelerated innovation, and how quickly will those products come out? And then should we expect, what I would call well above normal in the near term, or help us work us through that cycle? I guess, yeah.

[John Gamble, Chief Financial Officer at Equifax]

Yeah, it's a great question. As I commented on the last question, they've clearly been dampened with all the focus on completing the cloud. We were really energized with the momentum that they even had in the second quarter in the midst of a very heavy quarter of cloud migrations, their vitality was up 100 bps to 8%. They've been below our 10% goal for five years, six years. Pick the timeframe, when we increased that goal from 5% to 7% to 10% for Equifax, and we expect USIS to move to that 10% as we get into '25 in the latter part of '25, meaning they've got really good momentum there.

I rattled off a whole bunch of solutions that they're working on, and that they expect to roll out in the second half. These new products take time, and they were clearly hampered by the cloud transformation, and we expect that with the cloud completion in the next couple of weeks, to see some increased focus. And then, as I mentioned on the other, the last question, we're also have a big focus. We actually have a dedicated leader and team working on the EWS, USIS products, meaning the product combinations, which we've never done before, and we think will be quite powerful and kind of only Equifax solutions that we can bring to market.

We've got a dedicated team in USIS, and they're going to be really putting the pedal to the metal as we finish the year. To your question about when you'll see a lot of the benefit, I think that acceleration will happen in 2025 versus the second half, but you're going to see positive momentum of products coming out. They may not be revenue in the fourth quarter, but they'll turn into revenue in '25 and beyond.

[Surinder Thind, Analyst at Jefferies Financial Group]

Thank you. And on the implied 4Q margins, it sounds like there's a tax benefit in there as well. If we adjust that out, is that the right run rate for the firm on a go-forward basis from beyond 4Q?

[John Gamble, Chief Financial Officer at Equifax]

Yeah. So, in terms of 2025 EBITDA margins, we'll give you guidance on that as we get into 2025. But as we've been talking about, and Mark talked about the fact that we expect on a long-term model, 50 basis points of improvement per year, and we do expect to see nice improvement in margins as we get into 2025. In terms of an exact level, we'll talk more about that as we get into next year.

[Mark Begor, Chief Executive Officer at Equifax]

And maybe I just add, John, I think we're all watching to see when the Fed's going to change rates and we believe the positive impact that will have on mortgage activity. We've been very clear that as that starts rolling in, that's going to be accretive to our margins in a very positive way, meaning it's going to drop through in very high incremental EBITDA levels, 70 plus when that happens, likely in '25 and beyond as rates move down to some more normal level.

[Operator]

Thank you. Next question is coming from Andrew Nicholas from William Blair. Your line is now live.

[Andrew Nicholas, Analyst at William Blair]

Hi. Good morning. Thanks for taking my questions. A lot of talk about record count. Obviously a really strong number, both year over year and sequentially. I just kind of wanted to ask about the Gig/1099, and pension opportunity there. And more specifically, how chunky or how big can those kind of record ads be on a one-by-one basis? And part of why I ask is I'm just trying to figure out if it's maybe more expensive from a sales staffing perspective to acquire those deals or if they can be comparable to some of the HR technology, software and payroll relationships that you've fostered over the years.

[Mark Begor, Chief Executive Officer at Equifax]

Yeah, it's a whole range, as you might imagine, use pension, there are pension administrators that manage to find benefits, pension payments, almost like a payroll processor for companies. We've signed one or two of those kind of relationships. So, you think about those like a payroll processor. Those can be -- call it more chunky, meaning larger. We have direct kind of relationships around pension records and just a long runway in pension. And then there's a lot of pension records, as you might imagine in federal, state and local government organizations, fire departments, police departments, government agencies still have defined benefit pensions. Most corporations do not like the vast majority, but some of the legacy corporations still have that. So, that's how we're going after pension. We have a dedicated group -- first off, we have a dedicated leader that works for our EWS leader, that all they work on is records. And you may remember that's a change we made in December to put a full-time dedicated leader. At the time, he had other tasks in EWS, and we just saw an opportunity to really continue to drive records. So, we asked him to fully focus on records. So, there's a dedicated team on pension. We have a dedicated team on 1099. We have a dedicated team on -- call it W2 or non-farm payroll partnerships, which would be payroll processors, HR software companies, and others like that.

And then also remember that half of our records come from our direct relationships that we get through our employer business. So that's another important focus of ours, is we are continuing to invest in new products and capabilities to have those direct record relationships. On 1099, we have a dedicated team. It's a different path that's going to some of the big gig operators. But remember, 1099 income producing Americans include doctors, dentists, lawyers that are self-employed and very high income. So, you've got to go to, like, tax prep services that do their quarterly estimated taxes as a way to get some indication of their income. So, lots of different avenues that I would say your question about are some chunky and some more granular. The answer is, yeah, it's a mix of all of the above across really all three kind of areas for focus on records.

The positive we have is our scale, so we can focus on really going after those in so many different places. And we've got a big focus on it for the obvious reason, because of the benefit we get, we're already receiving the inquiries. So, as we add records, we're able to translate those into revenue and give higher hit rates for our customers, which is what they're after.

[Andrew Nicholas, Analyst at William Blair]

Very helpful. Thank you. And then for a very quick follow up for John. I believe you talked about the outperformance in mortgage for EWS. Maybe kind of underlying that, is the expectation that the EWS inquiry number more closely tracks kind of the overall mortgage inquiry number in the back half, or is your expectation that that gap persists as I guess, mortgage lenders and buyers don't get all the way through to the final stages of the purchase process.

[John Gamble, Chief Financial Officer at Equifax]

Now, in the second half, we've assumed it narrows and that they tend to trend -- they're going to trend together. Now, again, that's based on our expectation. It's also based on the trends we're seeing today, right. So, as we just run out the trends for the rest of the year and apply seasonality separately, it looks like the movement in USIS credit inquiries and in Twin inquiries should move on a percentage basis year on year, similarly, right. so, we'll have to see, right. We have been surprised in the past where sometimes the shopping behavior continues longer than we expect. But right now it looks like it's starting to narrow, and we can also see it analytically.

[Andrew Nicholas, Analyst at William Blair]

Great. Thank you.

[Operator]

Thank you. Next question today is coming from Jeff Meuler from Baird. Your line is now live.

[Jeff Meuler, Analyst at Robert W. Baird]

Yeah, thank you. Good morning. So just when you had at Investor Day a few years ago, there was going to be kind of like an outsized margin expansion period after the cloud transition was complete. What's the current thinking on flowing through the tech transformation savings into margin versus any change in thinking on reinvesting that to, I guess, best harvest the increased revenue opportunity from the cloud transition.

[Mark Begor, Chief Executive Officer at Equifax]

Yeah, no change, Jeff. We're going to flow that through. We're investing, and we have been, and you followed us for a long time, you know, as well, you know, while we were doing the cloud and putting, you know, outsized investment in our tech transformation for the obvious long-term strategic reasons and competitive reasons, we've been making the right investments in '21, '22, '23, '24 you know, in new products and other resources, commercial resources, etc., so, you know, we're investing the right amount to grow Equifax today, and those incremental savings from the cloud will flow through to expand our margins. Same way that we've talked about is, you know, when the mortgage market returns, we'll let that flow through. You know, we're not going to reinvest that. We're investing the right amounts to grow Equifax at 8% to 12% and deliver that 50 bps of kind of what I'll call ongoing operating leverage from running the company. So, as we have, like mortgage market recovery, or as you point out, the cloud cost savings, those are going to flow through, and they're going to allow us to not only expand our margins, but as John pointed out, you know, with our leverage coming down, you know, we're getting closer to that stage which we've been after for, as you know, quite some time to start returning cash to shareholders.

[Jeff Meuler, Analyst at Robert W. Baird]

Got it. And then when you were describing, I think it was OIS, you mentioned the IT and fraud softness this quarter. So, I'm guessing that's Kount and Midigator, correct me if I'm wrong, but what drove that? How quickly can it recover? And how is international doing for Kount and Midigator?

[John Gamble, Chief Financial Officer at Equifax]

Yeah, so if we take a look at Kount and Midigator together, what we saw actually was -- let's call it the fraud part portion of the business performed better. We continue to see growth. We saw a little bit of weakness in chargeback management, which is what's called the Midigator part of the business, right. So, we're expecting -- we've launched a lot of new products and platforms now in Kount, right. Kount 360 is now live. We're expecting to see that platform take hold. So, we're expecting to see improved performance as we move through the rest of this year around Kount, and then around chargeback management, as we integrate chargeback management into the Kount 360 platform. We would expect to see some improvement there as well. So, but I'd say that what we're seeing, and its good news on the margin front because the fraud business has better margins. We're seeing a little better performance in fraud. And given the launch of new products, our expectation is that [Indecipherable] will see improved performance first as we go through the rest of the year.

[Jeff Meuler, Analyst at Robert W. Baird]

Okay, thank you.

[Operator]

Thank you. Next question is coming from Scott Wurtzel from Wolfe Research. Your line is now live.

[Scott Wurtzel, Analyst at Wolfe Research]

Great. Good morning, guys, and thanks for taking my questions here. Just wanted to go back first to the Vitality Index in EWS, and pretty notable sequential acceleration there. It seems like there was a decent amount of contribution there from Talent, but just wondering if there were any other kind of notable positive outliers there that were contributing to the sequential acceleration in growth. Thanks.

[Mark Begor, Chief Executive Officer at Equifax]

Yeah. As you know, EWS has been really outperforming our 10% kind of vitality goal for, gosh, almost three years now, principally after they completed the cloud, and it was a real step up. So, they've had really broad based in all their verticals focused on innovation and new products. You point out Talent where they've rolled out some products and they've got more in the pipeline, and so there was clearly some benefit there from products that were put in place late last year and in the first half of this year. Mortgage has got products that they've rolled out. So, there's probably some benefit there. While we lap Mortgage 36, they've got some other solutions that they're bringing in. Employer, we've got a new I-9 solution called I-9 Virtual that's in the marketplace. So, you know, that vertical is focused on new products, and government has also got some focus there. So, we've been quite energized about EWS', call it, above framework ability to execute on innovation. We'd expect them over time to move back towards the 10, but they've been well above it for the last three years. And as we talked about, international had a good quarter on innovation and so did USIS, even in the midst of their cloud work.

[Scott Wurtzel, Analyst at Wolfe Research]

Got it. That's helpful. And just as a quick follow up on the international side, I mean, you know, one of your peers recently had called out some headwinds to growth in Brazil during the past quarter as a result of some flooding. And just wondering if you guys had any impact from that at all in second quarter here.

[John Gamble, Chief Financial Officer at Equifax]

We did. We have -- it was in Brazil, right, and there was a substantial flooding in the south of Brazil, and it certainly impacted our business, although our Brazil business has actually performed fairly consistently with the plans we put in place when we started the year.

[Mark Begor, Chief Executive Officer at Equifax]

So, we're pleased -- we're pleased with Boa's performance. You know, we talked about, you know, a bunch of the solutions that we're bringing there now that should benefit the second half in '25, as we complete the integration. We're just lapping, getting close to lapping the 12-month mark from acquiring the business. But we're well down the path on integration and rolling in our new products and bringing in our platforms, like Ignite and Interconnect and some of the other new product solutions. So, we're quite optimistic about our Boa Vista acquisition, and the opportunity for growth going forward.

[Scott Wurtzel, Analyst at Wolfe Research]

Great. Thank you guys.

[Operator]

Thank you. Next question today is coming from Kyle Peterson from Needham and Company. Your line is now live.

[Kyle Peterson, Analyst at Needham and Company]

Great, thanks and good morning, guys. What does start off the records growth seems really strong there. I just want to see if you guys could unpack what drove some of the new additions you guys have been talking about gig, and such as well as some of these HR software partnerships. I guess if you kind of rank order and what some of the bigger contributors were to the net new records this quarter, that'd be really helpful.

[John Gamble, Chief Financial Officer at Equifax]

Yeah, I would say similar to earlier question, it's broad based. I think you're seeing the benefits of having a fully dedicated team and leader. Reporting to the leader of EWS, reporting into Chad. Joe Muchnick is the leader who's driving that, and I think we made that change in December, and you've seen just the ability to just drive more of those strategic partnerships, which is really been quite positive. It is broad based. We add records from individual relationships when we're doing employer solutions like I-9, UC, WOTC, and other things with them. As we point out, we added four new partnerships in the quarter. We see a pipeline of those. And those partnerships are with pension administrators. They're with HR software companies, as you point out, and they're with traditional payroll processors. And remember, when you think about the TAM, if you will, for records, there's roughly the way we think about it, 225 million working Americans, we're north of 132 million individuals in our data set. Just a long runway for growth, you know, going forward. And, you know, we've clearly, gosh, over the last 365 [Phonetic] seven years, been outgrowing our framework for records over the long term, which is, you know, kind of three points, four points of record growth per year is what we think about over the long term. But there's just been a lot of momentum given our focus and resources we've been putting on it.

[Kyle Peterson, Analyst at Needham and Company]

That's really helpful. And, you know, I just want to follow up on auto, some of the moving pieces that you guys have seen there. I know, you guys called out kind of the CDK issue. Seems like that's, I guess, largely resolved itself. But I guess should we think of that as kind of a late 2Q, maybe first week or so of 3Q impact? And I guess if so, how are you guys thinking about auto X that impact for at least for the balance of the year?

[Mark Begor, Chief Executive Officer at Equifax]

Yes, I think we tried to highlight it. We've seen really for the last -- call it a couple of quarters, some impact from higher interest rates on auto loans, dampening some of the auto credit underwriting. So, I would say we don't expect that to change in the second half, and we've reflected that in our framework until rates come down.

[Kyle Peterson, Analyst at Needham and Company]

Got it. That's Helpful. Thank you.

[Operator]

Thank you. Next question today is coming from Shlomo Rosenbaum from Stifel. Your line is now live.

[Shlomo Rosenbaum, Analyst at Stifel Nicolaus]

Hi. Good morning. Thank you for taking my questions. Hey, Mark. I just want to get a little beat on the overall consumer credit environment. I mean, it sounds from your comments that there's some deterioration sequentially. And what I'm trying to understand is it deterioration from the bank side of things? Is it deterioration from the consumers? Just saying, hey, I can't afford some of the loans. And what are you seeing over there? And some of the financial marketing area, the area that has portfolio review. Are you seeing some impact over there with the growth in revenue moving up to 7%? If you could just give us a little bit of color, and then I have a follow up.

[Mark Begor, Chief Executive Officer at Equifax]

Yeah, I think there's been some slight softening of -- I would call it consumer demand. Like the consumer is still strong, you know, outside of the subprime consumer, which we know has been impacted by inflation, which, you know, while it's coming down on a two-year basis, what they're buying is still a bigger part of their disposable income. You know, whether it's groceries or fuel, it has clearly impacted the subprime consumer. It's really around the rates. You know, we saw it mortgage, obviously. Mortgage, you know, we've seen the impact of higher rates, you know, really impacting the mortgage market meaningfully, you know, over the last couple of years. And, you know, I think in the last six months, we've seen that flow to a less, much lesser degree, but obviously a negative impact in auto where you've got payments on a car, you know, with the higher rates, you know, are just substantially higher than they were a couple years ago. And that's impacting some level of auto purchases.

I think you've seen inventories by the car dealers increase, which is probably an indicator of consumer demand there because of higher rates. And until we see some reduction in rates, I would expect that auto would be somewhat dampened. It's probably the one that we've seen the most of. You know, outside of that, I think the other verticals are kind of continuing to move along. It's not a customer impact. Our customers are still strong. Our customers are still focused on growing their businesses. I think it's more of an end-user demand on the consumer side.

[Shlomo Rosenbaum, Analyst at Stifel Nicolaus]

Okay, great, thanks. And then you made a comment about the impact to margins. The reason margin guidance was lowered was just the timing of the cutover and some of the transition, but shouldn't impact 2025 outlook? Just trying to understand, if things go out a quarter, why doesn't that snowball into 2025? Why wouldn't I think about that as a 2025 number also being kind of a quarter behind?

[Mark Begor, Chief Executive Officer at Equifax]

Yeah, I think John commented that we're at the finish line with a lot of these transformations, but when we move all our customers, there's a couple of months of overlap before we shut down the legacy infrastructure as we complete decommissioning those infrastructures. And that's still in our run rate, meaning we're still paying for those duplicate infrastructures, the new cloud and the legacy infrastructure that will come out of '24. So, we'll have full run rate in 2025, but it's delayed a couple of months because of some of the final work we're doing to complete, principally USIS, and I would say Canada is the other one that we're a few weeks behind and that pushes out those savings. So, we have less benefit in '24, but we get the full benefit in '25.

[Operator]

Thank you. Next question is coming from Owen Lau from Oppenheimer. Your line is now live.

[Owen Lau, Analyst at Oppenheimer]

Good morning, and thank you for taking my question. So going back to Mark's earlier comments about rate cut, the market currently expects the rate to cut rate by, I think, 50 basis points to 75 basis point this year, and it may even start in September. Let's say if the Fed cuts by 50 basis point, how much incremental benefit you think Equifax can capture? And how do you think about all these up at this year? Thank you.

[Mark Begor, Chief Executive Officer at Equifax]

Yeah, that's a tough one to actually put a point estimate on there. It's obviously going to be good news, you know, when the Fed cuts rate principally, you know, in our mortgage vertical. I think you saw the chart in the deck. You know, that inquiries are down 50% from what we would call normal levels. We would expect that activity to recover as rates come down, and you've got the kind of the macro challenges of consumers, homeowners better term, you know, in a home at a 3% or 4% mortgage and likely want to upgrade or change, but, you know, are waiting to see rates come down from kind of the high sixes or, you know, that kind of range, you know, before they make that move. So, there's not a lot of inventory on the market. We would expect that to be positive going forward. And, you know, we've tried to frame for you, you know, that if you look at where we are today versus what we characterize as normal, you know, that's a $1.1 billion of incremental revenue, which is a huge number that we would expect over time that activity to go back towards normal. We'll see how it goes.

And of course, how does the Fed move rates? The interest rates in the United States from the Fed are the highest, I think, pretty much in the globe today. And they are 25-year high, you know, for the United States, you know, it's, you know, we all believe, or we certainly believe that they will come down over time, and then we'll have a big positive from the mortgage market recovery that we've been clear that will flow through our P&L and drive our margin expansion and free cash generation substantially, you know, as that comes back into our financials.

[Owen Lau, Analyst at Oppenheimer]

Got it. That's helpful. And then I remember last quarter, Talent revenue was down 4%. And you saw some recovery in March and continued in April. In the second quarter it was up 13%. Was it because of some kind of demand from January or February or high market has actually improved that you see the growth will be more sustainable. Thanks.

[Mark Begor, Chief Executive Officer at Equifax]

I think the biggest driver, John, you can jump in also, in Talent is just continued penetration in that TAM, you know, meaning customer wins, you know, getting to, you know, top of waterfall, meaning they're using our solution first, kind of position some of the new products. What would you add on that, John, for Talent?

[John Gamble, Chief Financial Officer at Equifax]

Well, we also saw really nice performance in some Insights products, meaning incarceration, that's used in background checks. And we also started to see some growth around some education products. So generally speaking, as we talked about last quarter, January and February are very weak in terms of hiring. You know, what we saw was weaker than normal. And then we saw recovery in March, and we got a little better performance in the second quarter because of that recovery, also in our normal income and employment products, but also because we saw nice performance from some of the other products that we use that support the Talent market.

[Owen Lau, Analyst at Oppenheimer]

All right, thanks a lot. I appreciate it.

[Operator]

Thank you. Next question is coming from Craig Huber from Huber Research Partners. Your line is now live.

[Craig Huber, Analyst at Huber Research Partners]

Great, thank you. Can you discuss, if you would, your AI spending here? I'm just curious, the dollars you're spending on that and going forward here, are you doing that within the context of, say, your normal technology budget, putting aside the cloud and stuff, inside your normal technology budget here, where it's just displaced in other spending that you normally would do on the technology side? [Speech Overlap] that it's actually hurting your margins?

[Mark Begor, Chief Executive Officer at Equifax]

Yeah, well, I don't know. I don't think about it's hurting our margins. But we're investing for obvious reasons in what we believe is a very important growth lever for us of enhancing our scores, models and products using AI and ML. This isn't new at Equifax, but we've been consistently increasing our focus and spend around resources and capabilities for AI. The tech transformation provides a big lever there with our own AI capabilities, and then leveraging that with Google's Vertex AI. So being in the cloud is a big positive for us. And then we've been investing in more resources and people. I mentioned that we brought on a really strong leader from the industry, was actually from one of our customers that we're excited to have in the business to lead AI and ML for us. You've seen, you know, the use of AI expanding. We had a goal of 80% of our models and scores this year to be using our new AI and ML. And I think we were at 89 in the quarter. So, north of our goal, which is a good thing. As we move forward, we will move to 100%, right. You know, that's where we're heading. So, this is a big lever, and it's one of the pillars of our EFX, you know, 2026 strategic priorities is to really leverage. And what it's going to deliver for our customers is just higher performing solutions. They're going to be more predictable. They'll help them drive higher approval rates at lower losses or higher identity, you know, validations. You know, in our identity businesses, we're super energized. And, you know, the ability to have all of our data in a single data fabric and to have the Equifax cloud substantially complete as we finish up in the next number of weeks in the USIS, that gives us big, big opportunities to really take our product capabilities and really charge them with AI and ML. So, we're super excited about this as a priority going forward.

[John Gamble, Chief Financial Officer at Equifax]

And when you think about spending, a significant amount of our capital spending is around getting data into fabric to make it available easily across all of our businesses, which dramatically accelerates AI and ML. So, compare our spending to what other companies talk about in AI and ML. You would probably need to include a bunch of the transformation spending we're doing, because we're doing data normalization in a way that other companies have to do, but we're doing it as part of our ongoing process improvement. So, we're spending substantially on AI and ML.

[Craig Huber, Analyst at Huber Research Partners]

And then my follow up question, please, on credit cards, just touched on your outlook there for the rest of the year on a year-over-year basis. And just refresh us, what happened again in the first and second quarter there?

[Mark Begor, Chief Executive Officer at Equifax]

Yeah, no change in the second half from the first quarter. As you know, there's a small portion of the credit card space that's in subprime, that's went through a cycle in really '22 and '23, where there was some dampening there because of credit risk exposure with the subprime consumer, that's flattened out, meaning they're kind of at a run rate level, so that is behind us. And then in the prime, near prime, it's still a good business for us. And we don't see any real changes there.

[John Gamble, Chief Financial Officer at Equifax]

Banking and lending, we said it's been growing kind of mid-single digits, a little higher in the first, little lower in a second, but it's what it's looked like in the first half. So, we think relatively good performance there.

[Craig Huber, Analyst at Huber Research Partners]

You expect it to continue like that in the second half, you're saying.

[Mark Begor, Chief Executive Officer at Equifax]

We do. Again, you go from take second half, take 2025. The consumers strong, they're working. If you think about prime, near prime consumers, they have wage growth and they have balance sheet growth from the equity markets. We've all seen the spending behavior from broadly the U.S. consumer base post COVID is very strong. So, that's a good outlook. And our customers are strong. They have strong balance sheets and these are important businesses for them that they want to keep growing. So, they're spending money on marketing and they want to originate. And then for us, if we can continue to deliver differentiated solutions that help them grow their businesses faster, that's going to be a good thing for USIS in the card space and along the rest of FI.

[Craig Huber, Analyst at Huber Research Partners]

Great. Thank you.

[Operator]

Thank you. Next question today is coming from Toni Kaplan from Morgan Stanley. Your line is now live.

[Toni Kaplan, Analyst at Morgan Stanley]

Thanks so much. I wanted to go back to the mortgage outperformance and Verifier. I think it was just slightly lower than last quarter, and I know you had expected it to be up slightly. Could you just give a little bit more color on, you know, what's going on there? Is there a mix component like last quarter that was unfavorable? Just any sort of drivers that maybe led to a little bit of a worse expectation than expectation.

[John Gamble, Chief Financial Officer at Equifax]

Yeah, Toni, we would characterize it as pretty much consistent with the guidance we gave, right. Slight up to slight down is pretty close to the same thing. So, we think we were very consistent with the guidance we gave. I can't point to anything specific, right, as to why there would be small variances between where it came in and what we said. But overall, it was fairly consistent with what we expected, which is what gives us some comfort that as we go through into the second half of the year that we're going to see the improved performance that we expect. Because again, we talked about it multiple times because of records, right. So, we feel good about that.

[Toni Kaplan, Analyst at Morgan Stanley]

Okay, great. And then I wanted to ask another on international, just very strong organic growth. This quarter looked like LaTam was really the standout there with 30% organic growth. Have you seen share gains there or is it still a little bit too early? And just how are you thinking about LaTam for the rest of the year?

[Mark Begor, Chief Executive Officer at Equifax]

Yeah, in LaTam, you know, the principal driver in there is outside of Brazil. You know, Brazil had a good quarter and, you know, we do expect over the medium and long term to continue to grow that business well. But, you know, it's still early days, you know, in Brazil, but strong performance in, you know, really most of the markets in Latin America driven by new products and innovation. Argentina, Chile, you know, a lot of the markets where we have strong leadership positions in those markets. But if you go across the rest of international, U.K. CRA was very strong, U.K. debt management was very strong. Those are growing kind of above market in U.K., particularly CRA had another very good quarter and likely some share gains in that market. Canada was just above mid-single digits, which was a very good performance. Australia below where we would like them to be, but we expect them to recover as it moves forward. But product, new products, a very positive driver across international as they're driving innovation. Toni, we gave full year guidance. So again, I think we gave a perspective on where we expect the year to come in. We expect international to perform well. We expect LaTam to perform well. Not quite as strong as the second quarter, but still the rest of the year should be good.

[Toni Kaplan, Analyst at Morgan Stanley]

Thank you.

[Operator]

Thank you. The next question is coming from George Tong from Goldman Sachs. Your line is now live.

[George Tong, at Equifax]

Hi, thanks. Good morning. I wanted to go back to an earlier point, which was in the USIS non-mortgage business, you saw a continuation of tight credit conditions that impacted the auto market.

[John Gamble, Chief Financial Officer at Equifax]

That's not what I said. George. Go ahead.

[George Tong, at Equifax]

Yeah, I guess. How are you thinking about the broader credit conditions in the second half of the year?

[John Gamble, Chief Financial Officer at Equifax]

Just to clarify, I did not say that there were tight credit conditions in auto. There are in subprime, but that's old news, right. That happened, you know, a year ago, two years ago in '22 and '23, as I think, you know, what I talked about was our view that the high rates in auto are impacting end user demand for financing automobiles, meaning buying automobiles in the last couple of quarters. And it's really a follow on of what we've seen in mortgage, the payment levels now for a new car for someone who's financing it are substantially higher than they were a couple years ago. So, we think that's impacted consumer demand, not credit underwriting. So just to clarify that, and I'm sorry, the second half of your question was what?

[George Tong, at Equifax]

In the second half of the year, how are you thinking about broader credit conditions, not just in auto, but just broadly?

[John Gamble, Chief Financial Officer at Equifax]

Yeah, so for credit conditions, we see the consumer continuing to be strong. You know, employment is high, unemployment is low. That's always a positive for underwriting, you know, when the consumers are working broadly, credit scores are still strong. I think we've talked before with you and others about the impact of subprime, but that's kind of flattened out from the declines we saw in '22 and '23. And another thing that we think a lot about on credit conditions is the strength of your customers, meaning the financial institutions, and they're broadly very strong. So, those elements are very good. The one area -- two areas obviously, we're seeing impact on consumer demand because of rates is clearly mortgage has been substantial, which we've talked at length about. And then we're seeing some impact in auto.

[George Tong, at Equifax]

Got it. And then in EWS non-mortgage, a lot of the growth is coming from records additions and volumes. Can you talk a bit about how much pricing is contributing to growth, particularly in verifications?

[Mark Begor, Chief Executive Officer at Equifax]

Yeah, as you know, we have four really principal levers in EWS. Records is one, and as you point out, it's been very strong, which we're pleased with. Price is one. As you know, we don't disclose price, but it's one lever. You should think about, George, that we have substantial benefits from penetration, meaning penetrating into new verticals. I think we've talked about that in government and Talent and others. And then product is a big deal, you know, bringing new solutions that deliver, you know, more value to our customers, meaning whether it's multiple data solutions or more historical data, those are generally at a different, higher price point because they're bringing more value. But those four levers, over the long term, we think about as being equally weighted in the 13 to 15, and then add some market on top of that, meaning market growth, that's how you get to the 13 to 15. So, we're really energized to have those four strong levers. When you think about EWS, clearly the records -- ability to add records is very unique to that business and most data businesses. So, it's a lever that we don't have in other businesses. I would argue that penetration is also one that we don't have in other businesses. We don't compete with manual in other businesses. We generally compete with competitors like TU and Experian. Competing with manual is one that gives us the opportunity to add real value from a productivity standpoint, you know, as well as the speed and accuracy standpoint of instant data that comes from EWS.

[George Tong, at Equifax]

Got it. That's helpful. Thank you.

[Operator]

Thank you. We have reached the end of our question-and-answer session. I'd like to turn the floor back over to Trevor Burns for any further closing comments.

[Trevor Burns, Senior Vice President, Head of Corporate Investor Relations at Equifax]

Yep. Thanks everybody, for their time today. And if you have any follow up questions, just reach out to me or Molly. I look forward to catching up throughout the quarter. Thank you.

[Operator]

Thank you. [Operator Closing Remarks]

Participants

Corporate Executives

• Trevor Burns, Senior Vice President, Head of Corporate Investor Relations
• Mark Begor, Chief Executive Officer
• John Gamble, Chief Financial Officer

Analysts

• Manav Patnaik, Barclays PLC
• Andrew Steinerman, J.P. Morgan
• Heather Balsky, Bank of America Co.
• Kelsey Zhu, Autonomous Research
• Faiza Alwy, Deutsche Bank Aktiengesellschaft
• Surinder Thind, Jefferies Financial Group Inc.
• Andrew Nicholas, William Blair
• Jeff Meuler, Robert W. Baird
• Scott Wurtzel, Wolfe Research
• Kyle Peterson, Needham and Company
• Shlomo Rosenbaum, Stifel Nicolaus
• Owen Lau, Oppenheimer Holdings Inc.
• Craig Huber, Huber Research Partners
• Toni Kaplan, Morgan Stanley
• George Tong, The Goldman Sachs Group, Inc.