Equifax Q2 2022 Earnings Report

Equifax EPS Results

• Actual EPS: $2.09
• Consensus EPS: $2.03
• Beat/Miss: Beat by +$0.06
• One Year Ago EPS: $1.98

Equifax Revenue Results

• Actual Revenue: $1.32 billion
• Expected Revenue: $1.32 billion
• Beat/Miss: Beat by +$60.00 thousand
• YoY Revenue Growth: +6.60%

Equifax Announcement Details

• Quarter: Q2 2022
• Date: 7/20/2022
• 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 2022 Earnings Call Transcript

Presentation

[Operator]

Hello and welcome to the Equifax Q2 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [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, sir.

[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, Chief Executive Officer; and John Gamble, Chief Financial Officer.

Today's call is being recorded. An archive of the recording will be available later today in the IR Calendar section of the News and Events tab at our IR website www.investor.equifax.com. During the call, we will 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 Q2 2022 earnings conference call. Also, we'll be making reference certain forward-looking statements including third quarter and full year 2022 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 filings with the SEC including our 2021 Form 10-K and subsequent filings.

We will also be referring to certain non-GAAP financial measures, including adjusted EPS attributable to Equifax 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, beginning on Slide 4.

[Mark W. Begor, Chief Executive Officer at Equifax]

Thanks, Trevor. Good morning. Equifax delivered another solid quarter with record second quarter revenue of $1.32 billion, which was up 7% and at the middle of our April guidance including the negative impact of 190 basis points or $23 million of FX. Constant currency revenue growth was almost 9%, at 8.5%. Adjusted EPS of $2.09, was above the top-end of our April guidance range with U.S. mortgage market overall about at the level of our April guidance with U.S. mortgage credit inquiries down 33% versus last year. As expected, the mortgage market decline increased as we move through the quarter. In the first half of July mortgage credit inquiries were down about 40% versus last year.

Core revenue growth in the quarter of 19% and core organic revenue growth of 16% in the quarter were very strong, consistent with our expectations, which allowed us to deliver the 8.5% constant currency growth against a 33% U.S. mortgage market decline. Importantly, non-mortgage constant currency growth of 22% was very strong in the quarter and well above our 8% to 12% long-term framework, and of course, this represents about 75% of Equifax revenue.

Workforce Solutions core revenue growth of 41% was outstanding and above our expectations. International delivered 11.5%, constant currency growth, which was also above our expectations and USIS B2B non-mortgage growth at 6%, was up from first quarter but lower than we expected. B2B non-mortgage online was strong at 9%. However, our B2B offline business was much weaker than expected, declining 5% in the quarter and I'll cover this more fully shortly. Second quarter adjusted EBITDA totaled $461 million, up 7% and adjusted EBITDA margins of 35% were about in line with our expectations for the quarter.

We continue to make strong progress during the quarter on our EFX Cloud data and technology transformation. Year-to-date we've migrated approximately 14,500 customers to the cloud in the U.S. and since the start of the transformation, we now have migrated about 70% of our U.S. customers. So far in 2022, we've also migrated approximately 13,000 international customers and decommissioned four U.S. data centers. Leveraging our new EFX cloud infrastructure, we continue to invest in new product resources and accelerate new product innovations. So far in 2022, we released 50 -- over 50 new products, continuing the momentum from 2021 where we launched a record 151 new products.

In the quarter, our vitality index, defined as revenue from new products introduced in the last three years was extremely strong and exceeded 13%. This is over a 400 basis point improvement from our 9% vitality last year and the highest level in over 10 years at Equifax. For 2022, we expect vitality of over 11% which is 100 basis points above our 10% long-term vitality goal and 100 basis points above the framework when we started the year. This strong NPI performance will benefit our growth in the second half and in 2023 and beyond.

We continue to invest our strong free cash flow in strategic bolt-on acquisitions with the acquisition of LawLogix that we announced earlier this morning, which will further strengthen our EWS Employer Solutions I-9 and Immigration Regulatory Service capabilities. This is our sixth acquisition in Workforce Solutions since January 2021 and aligned with our M&A strategy to strengthen Workforce, our largest and fastest growing businesses -- business. Bolt-on both acquisitions that broaden and strengthen Equifax or a strong lever for future growth and are central to our long-term growth framework to add 100 to 200 basis points to our revenue growth annually from strategic bolt-on M&A.

We are very pleased with our strong second quarter results, particularly our strong 22% non-mortgage constant currency growth. This is clearly an unprecedented economic environment with record inflation, strong Fed actions and the impact from higher interest rates on the mortgage market. Despite our strong first half performance, we felt it was prudent to adjust our 2022 guidance to reflect expectations for further weakening of the U.S. mortgage market in the second half beyond the framework we provided in April, as well as the significant negative impact of FX from the stronger dollar.

Importantly, our expectations for 2022 core revenue growth remains a very strong 17% and our expectation for constant currency non-mortgage revenue growth remains a very strong 19%, both unchanged from our April guidance. While our second quarter mortgage results were aligned with our April guidance, we thought there was enough uncertainty between future Fed actions, the impact on interest rates and mortgage activity to further adjust our second half mortgage outlook. Our updated expectations for mortgage or that credit inquiries will decline by over 46% in the second half, which is down about 600 basis points from our April framework with mortgage originations declining 200 to 300 basis points beyond these levels. This compares to the Mortgage Bankers Association forecast for the second half of 2022 mortgage origination units of down 43.5% that was released last night.

As you know USIS mortgage revenue was tied more closely to credit inquiries while Workforce Solutions revenue was tied more closely to mortgage originations. And for the second half of 2022, FX is a headwind of over $40 million, up from an impact of about $7 million in our April guidance from the stronger dollar. The change in the second half mortgage inquiries and FX impact results in our revised 2022 guidance for revenue at the midpoint of $5.1 billion, down $100 million from our April framework, but still up almost 4% versus last year or 5% on a constant currency basis. This reduction in revenue was about two-thirds related to mortgage, with the balance from FX. Our updated adjusted EPS guidance is to a midpoint of $7.68, down $0.47 from our April guidance and up about 1% from 2021.

As I said earlier, there is no change in our core organic revenue growth framework, which remains a very strong 15% for 2022% and 13% in the second half of 2022, and our non-mortgage growth framework, which remains up a strong 16% for the year and 12% in the second half as we comp off some strong double-digit results in the second half of 2021 and -- in the second half of 2021. In the second half of 2022 non-mortgage is about 80% of Equifax revenue consistent with 2019, and up from 68% last year.

Turning to Slide 5, in the second quarter, Equifax core revenue growth, the green section of the bars, grew a very strong 19%, which was in line with our expectations and substantially above our long-term financial framework of 8% to 12%. Core organic revenue growth of 16% in the quarter was also substantially above the long-term framework of 7% to 10% for organic growth. Non-mortgage organic growth in EWS international and USIS drove about 12 points of core organic revenue growth in the quarter. Core mortgage outperformance of 13% predominantly in Workforce Solutions drove the remaining 4% of second quarter core organic revenue growth. Both were very strong performances.

With our strong 19% core growth in the quarter and accelerating NPI rollouts, we continue to expect 2022 core revenue growth of 17%. This is driven by broad-based strong performance across Workforce Solutions, as well as strength in USIS non-mortgage B2B online and international, which is supported by our accelerated new product introductions.

As detailed on Slide 6, U.S. core mortgage revenue growth in the quarter was up a strong 13%, driven by Workforce Solutions core mortgage revenue growth of 20% and 2% in USIS. Second quarter mortgage revenue was down only 19% despite a 33% decline in the overall U.S. mortgage market is measured by our credit inquiries and an MBA June estimated decline in mortgage originations of about 37%. Workforce Solutions' core mortgage growth of 20%, continues to be driven by very strong performance on TWN record additions, new products and pricing, system-to-system integrations and continued penetration. The 20 points of market outperformance is very strong, particularly in a period of declining market transaction volumes. We expect to see continued very strong core mortgage growth from EWS approaching this level in the second half.

As a reminder, we estimate the U.S. mortgage market as the change in USIS credit inquiries. In a rising interest rate environment, we believe consumers tend to rate shop more frequently, thus creating a favorable variance between mortgage credit inquiries in originations, this trend benefits USIS credit file pulls. In the second quarter, we saw mortgage credit inquiries perform on the order of 4 points better and the estimated change in the mortgage origination units estimated by MBA. However TWN income and employment is typically pulled later in the mortgage application process and at closing. As a result EWS does not benefit as much from the upfront rate shopping trend that occurs in a rising interest rate environment as TWN increase are more closely correlated to mortgage originations.

Turning to Slide 7, in 2022, we expect non-mortgage revenues to be 77% of total Equifax revenues, which is up a very strong 900 basis points from the 68% of total Equifax revenues that we saw in 2021. Given the above-market growth in fast growing Workforce Solutions verticals such as talent, government and card, further penetration identity and fraud accelerated by our 2021 acquisition account and accelerated NPIs with a vitality index expected to be 11% in 2022, and of course, growth in our international markets. We also expect non-mortgage revenue will benefit from being the only cloud native credit bureau through always on system stability, faster transaction processing and leveraging the data fabric to expand our NPIs.

Turning now to Slide 8. Workforce Solutions delivered outstanding 41% core revenue growth in the second quarter, the fifth quarter over 40% revenue growth in the last six quarters, and their 10th quarter of double-digit revenue growth driven by outstanding non-mortgage growth of over 50%. As a reminder, non-mortgage revenue is over 60% of Workforce Solutions and a big EWS growth driver for the future. Rudy Ploder in the Workforce Solutions team continue outstanding execution across their key growth drivers detailed on the right hand side of this slide.

As I referenced earlier, we signed a definitive agreement to acquire LawLogix last night, the next in a string of bolt-on acquisitions that strengthen Workforce Solutions Employer Services vertical and adds TWN records. Over the past two years, we've completed six bolt-on acquisitions supporting Workforce Solutions growth including Appriss Insights last fall and LawLogix this morning.

Turning to Slide 9, Workforce Solutions, very strong performance is driven by the team's consistent execution across their key growth levers that will drive their long-term growth of 13% to 15% including, first, growing the Work Number database. Since late last year, we signed four new exclusive agreements with large payroll processors that we started to board in the second quarter and expect to have all of them contributing records by the end of the third quarter. We ended the quarter with 144 million total current records, which is up a very strong 22% from last year and up 6% sequentially. These 144 million total record represent a 110 million unique individuals representing two-thirds of the over 160 million W2 employees included in U.S. non-farm payroll. In addition to traditional W2 wage earners, we estimate there are approximately 30 million to 40 million Gig workers and 20 million to 30 million pensioners in the U.S., who will also bring valuable insights to lenders background screeners, and government agencies. We're in the very early innings of collecting records on these 50 million to 70 million non-W2 wage earners but expect to make significant progress as we move through 2022 and 2023.

We have the ability to double our TWN database with the total potential market for income and employment information on about 220 million individuals versus the 110 million we have today. As a reminder, over 50% of our records are contributed directly by individual employers. The remaining are contributed through partnerships principally with payroll companies. The vast majority of our partnerships with payroll companies are exclusive including all the relationships we've signed in the past four-plus years. Second, workforce is increasing penetration in their key non-mortgage verticals at mortgage, talent, government and consumer finance. With all four verticals having significant opportunity for continued expansion by new products, leveraging our expanding TWN active and historical data assets.

Our talent and government businesses have seen average organic growth of over 50% since last year and over 20% CAGR since 2017. Our strength in talent and government is driven by the depth and coverage of our TWN database with over 570 million total records, both current and historic that provide both current and previous employment information on individuals, allowing us to increasingly provide an instant digital resume or employment verification on both current and historical job histories. The expanding depth of our TWN database and expansion of the Workforce Solutions talent data hub, as well as the increasing ease of integrations as workforce leverages the API capabilities through our new Google Cloud is also providing the ability to continue to increase penetration in key verticals.

Fourth, workforce is expanding their system-to-system integrations. Currently more than 75% of our mortgage transactions are system-to-system integrations as web access, which is up over -- versus web access, which is up over 2 times from 2019. As you know, we get about a 20% lift in mortgage pulls when we convert our customers from web to system-to-system integrations.

In Talent Solutions system-to-system now represents more than 85% transactions, while in government, we have more opportunity with about 65% of transactions on a system-to-system basis. As a reminder, close to 100% of credit files are delivered systems-to-system for originations. From our perspective, it's only a matter of time for TWN to approach these levels of system-to-system integrations with customers, which of course will drive our revenue.

As Workforce continues to deliver greater value to customers through deepening the database and extending real time system-to-system integrations and accelerating its launch of higher value vertical specific new products. Average revenue per transaction will continue to grow significantly, both through higher value and price new products and annual price increases. As I said earlier, Rudy and EWS team have a long runway for growth leveraging multiple levers in 2022 and beyond. We have a lot of confidence in Workforce's ability to deliver on their 13% to 15% long-term framework. As a reminder, over the past three years, they've delivered 34% CAGR which of course is well above their 13% to 15% long-term growth framework.

Turning to Slide 10, Workforce Solutions had another exceptional quarter, delivering $609 million of revenue, their second revenue quarter above $600 million. Revenue growth was up a very strong 21% with organic revenue growth of 11% despite the significant decline in the U.S. mortgage market. Non-mortgage revenue is now over 65% of Workforce Solutions with organic growth of 30%.

We Verification Services revenue of $505 million, up 28%, was over $500 million for the second quarter in a row, again, despite the decline in the mortgage market. Non-mortgage verticals now represent almost 60% of verifier revenue and delivered 90% and 53% -- 90% total and 53% organic growth. Appriss Insights, which we acquired late last year, delivered strong 15% growth in the quarter. Growth was strong in their key verticals of risk and justice intelligence. Risk intelligence helps background screeners analyze people risks via background checks and continuous monitoring and justice intelligence helps channel partners assist law enforcement agencies in their investigations. Increased customer penetration, whitespace expansion and strong hiring volumes are driving growth, and their NPI pipeline also remains strong. We are very positive about the future growth and potential of our Insights business.

Talent and Government Solutions would now -- which now represents 40% of Workforce Solutions and almost 80% of verifier non-mortgage respectively, both had outstanding quarters. Talent Solutions delivered a 134% total, and 73% organic growth in the quarter on record growth and strong new product revenue. We also saw strong growth in the government vertical with revenue up 100% total and 50% organic with significant new wins at the state level, and continued growth of our large SSA contract. The continued expansion of Workforce Solutions data hub in the fast growing $5 billion talent and $2 billion Government TAMs is driving strong double-digit organic revenue growth in both verticals, leveraging Workforce Solutions over $570 million current and historical records for new products.

The integration of Appriss Insights National Student Clearinghouse and other talent related data assets strengthens our ability to deliver to these new solutions, leveraging the EWS data hub and drive outsized growth in the future. The non-mortgage consumer lending business, principally in banking and auto, also showed strong growth, up 18% in the quarter, and debt management grew over 70% in the quarter.

Employer Services revenue of $105 million was down 3% due to the expected decline in our unemployment claims in Employee Retention Credit businesses. We expect total UC & ERC revenue to be down over 25% during 2022, driven by lower jobless claims and lower ERC transactions, as well as the COVID federal tax credit program -- as the COVID federal tax program runs out. Employer Services revenue excluding UC & ERC was up a strong 42% in the quarter, driven by strong based double-digit growth in our I-9 and onboarding healthy FX in our tax credits businesses. Workforce Solutions adjusted EBITDA margin remained strong at 53%. In the quarter, we increased spending relative to our April expectations on both technology and marketing principally for new products.

The strength of Workforce Solutions and uniqueness and value of their TWN income and employment data, and Employer Services businesses was clear again in the second quarter. Rudy and the EWS team delivered another outstanding quarter with 21% revenue growth and 41% core growth, well above their 13% to 15% long-term framework, and we're well positioned to deliver a very strong '22 and continue above market growth in the future.

Turning now to Slide 11. USIS revenue of $421 million was down 7.5% compared to last year and slightly below our expectations. The decline was driven by the reduction in USIS mortgage revenue which had $113 million is about 25% of total USIS revenue, and was down 29% in the quarter, about 4 percentage point better than the overall mortgage market credit inquiries that declined 33%. Importantly USIS delivered their sixth consecutive quarter of growth in B2B non-mortgage revenue of $259 million, which represents over 60% of total USIS revenue and was up 6% with organic revenue growth of 4%. This is at the low-end of the 6% to 7% growth, we discussed in April, due to lower than expected FMS, Financial Market Services, revenue. Importantly B2B non-mortgage online revenue growth was strong at 9% with 7% organic growth.

During the quarter we saw double-digit growth in insurance, financial services, commercial as well as Kount, our identity and fraud business. We also saw growth in direct-to-consumer with auto about flat in the quarter on favorable pricing offset by lower volumes, given the continued auto supply chain issues. Kount, which provide unique identity and fraud solution continues to perform very well. Our core new product growth continues to be strong and the team continues to execute on the development of joint solutions, leveraging both Kount and Equifax data including combining Kount's market-leading Omniscore AI capabilities and digital identity data with Equifax's physical identity into a single score to enhance fraud protection.

Financial Marketing Services, our B2B offline business, had revenue of $55 million, down 5% year-over-year. And although, better than the first quarter was lower than our expectations. FMS is principally comprised of three lines of business, including, first, fraud and data services, in which we provide header data principally to providers of identity and fraud services, which is a line of business is driving the weakness in our B2B offline. Fraud and data services historically represents over 20% of our offline revenue, but is declined substantially in the first half. We saw this decline in the first quarter as customers either decreased frequency of refresh data or shifted to use of their own internal data. This decline continued in the second quarter. Revenue was about 10% of B2B offline in the first half. We expect revenue at this level to continue through 2022 as the team focuses on bringing new solutions to market later this year.

Marketing Services, which represented -- represents over half of B2B offline revenue in the first half, performed very well, growing it, but got consistent with our non-mortgage B2B online organic growth. This is a business in which we provide data and decisioning principally financial institutions for pre-screens, as well as providing our IXI data for marketing activities. And third, risk management, our portfolio review represents about a third of B2B offline revenue. This is a line of business in which we provide data and analytics services to financial institutions to evaluate the health of their existing portfolios or in some cases portfolios they are acquiring. This business is often somewhat countercyclical as customers perform more risk analytics during weak economic periods. This business was down slightly in the first half and slightly weaker than expected, and we expect this business to be down slightly for the remainder of the year.

Overall for our financial marketing services in B2B offline for the remainder of 2022, we expect to see declines in line with the second quarter as the weakness in the fraud and data services is partially offset by continued good growth in marketing services. As we look to 2023, the completion of the Equifax new cloud data fabric will enable enhanced product offerings in B2B offline, combining U.S. credit file, DataX, Teletrack, Kount, ID and Fraud, and NCTUE data. We believe this will drive growth across all three of our B2B offline lines of business as we get 2023. For B2B non-mortgage in total, we expect to see continued strong online growth consistent with the first half, however declines in Financial Marketing Services are expected to result in second half total B2B non-mortgage growth at or slightly below the bottom end of our long-term framework of 6% to 8% revenue growth.

USIS Consumer Solutions business, the U.S. B2C business from GCS that we combined with USIS in the fourth quarter last year, had revenue of $49 million, up 3% in the quarter and about flat versus last year. We expect second half growth rates to improve as the team leverages the cloud to rollout NPIs. USIS sales team had a strong quarter with a number of key wins resulting in a healthy win rate and their new deal pipeline remains very strong with the overall pipe, slightly higher than the first quarter. And USIS adjusted EBITDA margins were 38.2% in the quarter, a 110 basis points lower than the first quarter, but better than our expectations. The decline relative to the first quarter is principally driven by lower revenue from the decline in mortgage.

Turning now to international is shown on Slide 12, the revenue was $286 million, up a strong 11.5% on a local currency basis. We're seeing broad-based execution from our international businesses. Europe local currency revenue was up 16%, principally driven by strength in our U.K. debt management business. We've seen significant increases in debt placements from the U.K. government over the past several quarters that we expect to continue. Our European CRA businesses was about flat in the quarter and below our expectations, driven by declines in consumer direct and commercial, partially offset by strong growth in identity and fraud.

Asia Pacific local currency revenue was 6% driven by strong growth in our Australian consumer business, HR services and identity and fraud. Latin American local currency revenue was up 28%, driven by strong double-digit growth in Chile, Argentina, Uruguay, Mexico and Central America. The team's strong new product introductions over the past three years and pricing actions continue to drive strong growth across the region. This is the sixth consecutive quarter of growth for Latin America. Canada local currency revenue was up 2%, below our expectations. We saw growth in commercial and analytic solutions, which was partially offset by consumer services, mortgage-related products and online businesses, due to interest rate increases. International adjusted EBITDA margins at 24.7% were down 200 basis points from last year, due primarily to the elimination of equity income from our Russian joint venture.

As shown on Slide 13, we had another very strong new product quarter with a vitality index over 13%, which is up 400 basis points above our full year 2021 Vitality goal, and 300 basis points above our 10% long-term framework goal and our highest vitality performance ever. Building on the record 151 new products last year, we've delivered over 50 new products, leveraging the new EFX Cloud so far in 2022, with broad-based execution across all of our business units. We've detailed some of the more significant new products on the slide, leveraging our new EFX Cloud capabilities to drive new product rollouts, we expect to deliver a vitality index of over 11% this year, which equates to over $550 million of new product revenue in 2022. We believe our strong NPI revenue generation is an important early indicator of the benefits of the new Equifax Cloud, new products, leveraging our differentiated data and new EFX Cloud capabilities are central to our long-term growth framework and driving future Equifax topline growth.

As detailed on Slide 14, reinvesting our strong cash flow and accretive and strategic bolt-on M&A is central to our EFX 2023 growth strategy and long-term framework. We expect to add 1% to 2% of revenue growth annually from strategic bolt-on M&A, including LawLogix that we announced this morning. We've completed 11 acquisitions since January 2021, aligned with our strategy to add bolt-on M&A around three strategic priorities. Number one, expanding and strengthening Workforce Solutions, our fastest growing and most profitable business. Number two, adding unique data assets. And number 3 building out and expanding our ID and fraud business.

Slide 15 provides detail on our latest acquisition of LawLogix, which further strengthens our Workforce Solutions Employer Solutions capabilities and provides I-9 management and immigration case management solutions focused on removing friction during the employee onboarding experience. LawLogix suite of products supplements Employer Services capabilities by building upon investments made to help clients enable automation, deepen employee insights and increase efficiency. Our I-9 Anywhere product has seen very strong 45% growth over the past few years. The LawLogix acquisition is aligned with our M&A priorities of expanding and strengthening our strongest and the fastest growing business Workforce Solutions.

And with that, I'll turn it over to John to provide some more details on the mortgage market and our third quarter and full year 2022 guidance.

[John W. Gamble, Chief Financial Officer at Equifax]

Thanks, Mark. As Mark mentioned, and is shown on Slide 16 our guidance now reflects an expectation that the U.S. mortgage market credit inquiries will decline over 46% in the second half of 2022, the continued decline from the down 40% level we're seeing in early July. Our assumptions reflect mortgage originations due to 300 basis points weaker than those levels with the work number inquiries more closely linked to mortgage originations. The reduction in U.S. mortgage credit increase of over 46% in the second half is off a second half 2021 reduction over 20%. This level of U.S. mortgage credit inquiries in the second half is over 30% lower than the second half average levels we saw over the 2015 to 2019 period. 1Q mortgage revenue was 29.5% of total Equifax revenues, and 2Q mortgage revenue was 24.7% of total Equifax revenues. In 3Q, we expect mortgage to make up just over 21% of total Equifax revenues and about 23.5% in the full year of 2022.

As we have shared in prior quarters, Slide 17 provides a view of both the number of home mortgages that would have a rate benefit from refinancing on the left and a view of the levels of home purchases on the right. The left side of the slide provides a perspective on the number of home mortgages for which are refinancing would provide a rate benefit, the in-the-money population of mortgages. The in-the-money population as of mid-July is about 1.9 million homes and below the 3.3 million we saw in April. At the current level, mortgage refi activity is heavily driven by cash-out refis that are often executed with no rate benefit or rate increase for perspective, for the most recent available Black Knight data from May 2022, about 95% of refinancings were cash out. As shown on the right side of f Slide 17, the pace of existing home purchases continues at high levels, but were down about 7% in May and 14% in June from the levels we saw in 2021.

We believe our assumptions for U.S. mortgage market credit inquiries over the last six months of 2020 reflect the trends just discussed, the 46.5% year-to-year decline in mortgage credit increase reflects a continued sequential weakening of the mortgage market with third quarter inquiries down over 20% in the second quarter and fourth quarter down a further over 15% from these much reduced third quarter levels. The rapidly changing and unprecedented macro environment makes forecasting the impacts on the U.S. mortgage market incredibly challenging. We will continue to be transparent with you about changes in the mortgage market, and the impacts on our business.

Slide 18 provides a walk detailing the drivers of the 5.2% constant currency and 3.6% total revenue growth to the midpoint of our 2022 revenue guidance of $5.1 billion. The revenue decline from the midpoint of our April guidance of $5.2 billion is driven by about two-thirds by the decline in the mortgage revenue reflecting the expectation of a weaker U.S. mortgage market, with the remainder due to a greater negative impact from FX. The over 37% decline in the U.S. mortgage market is negatively impacting 2022 growth by about 12%, about 150 basis points more negative than the levels we discussed in April. When combined with the expected declines in the Workforce Solutions unemployment claims in the ERC businesses that we discussed with you in April, total headwinds into 2022 revenue growth of about 13 percentage points.

As Mark discussed earlier, core revenue growth is expected to be 17% and core organic revenue growth to be about almost 15%, consistent with our April guidance. Both well above our long-term growth framework and reflecting outstanding growth and execution on new products. Non-mortgage organic revenue growth is driving a 11% of the core organic revenue growth. The largest contributor continues to be Workforce Solutions with strong organic growth in talent solutions, government, and employee boarding solutions including I-9. International and USIS non-mortgage are also expected to drive core growth.

Slide 19 provides an adjusted EPS walk detailing the drivers of the expected 0.4% growth to the midpoint of our 2022 adjusted EPS guidance of $7.68 per share. The growth in revenue and expansion in EBITDA margins by about 25 basis points drives growth in EPS of about 8%. Higher depreciation and interest expense and the negative impact of weaker FX are principally offsetting this growth in adjusted EPS. The reduction of $0.47 or about $75 million in pretax income from the midpoint of the guidance we provided in April is at a high level driven by the following, higher interest expense of about $13 million and weakening FX impacting income by over $8 million, negatively impacted pretax income by over $21 million. The remaining about $54 million and lower pretax income is driven by the reduction in mortgage revenue with high variable margins.

Some other factors impacting overall 2022 EBITDA margins in our July guidance relative to April guidance include an increased spending on product technology and related marketing to continue to drive NPI. International stronger than expected revenue growth includes strong growth and debt management which has somewhat lower margins and therefore puts margin pressure on international and lower overall variable compensation benefits margins. As I just referenced, we are continuing our investments in new product development and related marketing and sales and our data and technology cloud transformation as these are the levers driving of over 10% new product vitality index and improved cost structure in 2023 and beyond. We will continue to tightly manage spend outside these critical growth areas.

Slide 20 provides the specifics on our full year guidance, which I also just discussed. At a BU level, our updated view of U.S. mortgage impacted both EWS and USIS. EWS is expected to deliver revenue growth of around 15% as strong non-mortgage growth expected to be over 40% is partially offset by the impact of the weaker mortgage market. EWS EBITDA margins are expected to approach 53%, slightly lower than 2021. USIS revenue is expected to be down 8.5% reflecting the greater than 37% assumed decline in the U.S. mortgage market. B2B non-mortgage revenue is expected to be slightly below or at the low end of our long-term framework for USIS of 6% to 8%, reflecting the decline in B2B offline discussed earlier. USIS EBITDA margins are expected to be about 37% reflecting the impact of the weaker mortgage market.

International continues to deliver a strong year and is expected to deliver constant currency revenue growth of about 10%. International EBITDA margins are expected to be about 27%. International EBITDA margins are negatively impacted by product mix as our debt management business, which is growing strongly in 2022 at somewhat lower margins on our credit business. For the full year of 22 We expect capital expenditures to be in excess of $500 million. Slide 21 provides our guidance for 3Q 2022, we expect revenue in the range of $1.21 billion to $1.23 billion, reflecting revenue of about flat year-to-year at the midpoint of our guidance, were up just under 2% on a constant currency basis. Similar to full year 2022, in the third quarter we are overcoming significant revenue growth headwinds of about 17% from both the decline in the U.S. mortgage market, which is impacting revenue growth by 15% and the normalization of the unemployment claims in ERC businesses.

Core organic revenue growth on a constant currency basis of 15% and about 4% revenue benefit from acquisitions are allowing us to overcome these headwinds and deliver constant currency growth in the quarter. 3Q 2022 EBITDA margins are expected to be flat to slightly down year-to-year. The flat EBITDA margins reflect the flat year-to-year revenue as well as execution of the planned cost reductions related to transformation, the benefit of which is being principally offset by year-to-year cost increases and the dilutive effect on near-term margins of the 2021 and 2022 acquisitions. This impact on margins will be eliminated with times acquisition synergies drive these margins higher.

We're expecting adjusted EPS in 3Q 2022 of $1.60 to $1.70 per share compared to 3Q '21 adjusted EPS of $1.85 per share. The decline in adjusted EPS in 3Q 2022 year-to-year is driven by an over 15% per share negative impact on adjusted EPS of items below operating income. Specifically, interest expense, lost other income, principally from our Russian JV and a lower tax rate in 3Q '21 related to specific discrete items. Adjusting for these items and the negative impact of FX, as well as the increased depreciation we are incurring related to tech transformation, adjusted EPS at the midpoint of our guidance would be about flat to 3Q '21 and consistent with flat revenue. We believe both our third quarter and full year 2022 guidance are centered at the midpoint of the revenue and adjusted EPS ranges we provided.

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

[Mark W. Begor, Chief Executive Officer at Equifax]

Thanks, John. Turning to Slide 22, the new Equifax is a much different business today than we were in the last recession. We're more resilient and better positioned for stronger revenue and earnings growth. During 2008-2009 global financial crisis Equifax performed very well and exhibited the resiliency you would expect from a data analytics business. In 2009, we saw only a 6% decline in total revenue. Importantly, Workforce Solutions revenue grew throughout the period and showed substantial growth of 17% in 2009 from TWN record additions in their other growth levers, which drove higher verification rates and strong unemployment revenue growth from the growing unemployment levels in 2009.

We believe that Equifax business mix is much better positioned for potential economic event in the future than we were in 2019. Strong Workforce Solutions growth has increased their relative size in Equifax from 16% of revenue in 2009 to almost 50% today with margins about 50%, about 20 percentage points higher than the Equifax average. EWS is benefiting from strong growth levers that are not directly tied to economic activity, including record growth penetration into new fast growing verticals like talent and government system to system integrations deploying new and higher value products as well as the measured price actions taking advantage of the scale of the TWN database.

Second, completion of the Equifax Cloud will deliver cost savings in 2023 and beyond, we expect will drive about half of our targeted 500 basis point margin expansion from 2022 to 2025. The cloud migration cost savings are independent of any economic event and driven by our execution. And third, we're leveraging the cloud to accelerate new product development with the goal of 11% vitality index in 2022 which is over $500 million of annual incremental revenue, product revenue for Equifax. As a reminder, new products rolled out in '21 and '22 will drive top-line growth in 2023 and beyond as they mature in the marketplace.

To estimate the impact of the recession that we have on Equifax, we've assigned our lines of businesses into three categories. First recession growth or recession resistant, these businesses have drivers that are not directly aligned with economic activity in recession and we expect them to grow during the recession, the best examples of this are Workforce Solutions, U.S. mortgage, identity and fraud and our government lines of businesses that we expect will continue to grow during an economic event from the uniqueness of the data including TWN or from low interest rate environments that impact our mortgage business.

Second is our countercyclical businesses that typically perform better during recession and the best examples is our unemployment claims management business, we expect significant growth in Workforce Solutions from growing unemployment in the U.S. or some of our account management solutions. And third recession impact, these are businesses that are directly impacted by economic activity and contract in a recession and they include auto, cards, P loans were both consumer activity declines or lender activity is contracted for risk containment reasons. We expect these business lines to be flat to negative revenue growth in recession.

Today, we believe, almost 60% of our global business is recession-resilient or countercyclical. This is a big change in a strong position compared to Equifax in the 2008 global financial crisis where only about 40% of our businesses were either recession-resistant or countercyclical. The meaningful revenue growth in Workforce Solutions, U.S. mortgage and identity and fraud since 2009 as well as the cloud transformation cost savings position Equifax very well, if there is an economic event or recession in 2023 or beyond.

As highlighted in Slide 23 We remain laser focused on our executing our EFX 2023 growth strategy to leverage the new EFX cloud for innovation and new products. EFX 2023 is the foundation of our new 8% to 12% long-term growth framework. We continue to make significant progress executing the EFX cloud data and technology transformation. We're now approaching 60% of total revenue being delivered from the new EFX Cloud and we completed over 139,000 B2B migrations and over 10 million consumer migrations. Our international transformation is also progressing and we continue to expect to principally complete the transition by geographic region as we move through 2023 and into 2024. We're in the early days of leveraging our new EFX Cloud capabilities and are confident that will differentiate us commercially expanding our NPI capabilities, accelerating our top line growth and expand our margins from the growth in cost savings in 2022 and beyond. We remain confident in our plan to become the only cloud native data analytics company.

Wrapping up on Slide 24, Equifax delivered another strong and broad-based quarter with 7% overall growth and 19% core growth and a 13% vitality index, more than offsetting a 33% decline in the mortgage market. Against a decline in mortgage market, Equifax's resilient on offense and investing for future growth. Our updated 2022 revenue and adjusted EPS guidance reflects the impact of the expected accelerated decline in the U.S. mortgage market to a decline of over 46% in the second half of 2022, resulting in a mortgage market decline of over 30% for the year -- 37% for the year. Against this unprecedented mortgage market decline, Equifax will deliver constant currency revenue over 5% and deliver growth in adjusted EPS.

More importantly, our core revenue growth of 17% and non-mortgage growth of 16% are both well above our 8% to 12% long-term framework and reflect the strength of the underlying Equifax business model today and in the future. EWS continues to deliver above market growth and as our largest, fastest growing and highest margin business. Workforce Solutions above market 34% revenue CAGR over the last three years, is powering Equifax growth as they approach 50% of our revenue. New products leveraging the new Equifax cloud are also driving growth. Our 11% vitality from NPIs in 2022 will drive growth in 2023 and beyond. And we're in the early days of leveraging the new Equifax Cloud to drive innovation in new products. 11 bolt-on acquisitions since January 2021 had expanded our capabilities and are delivering strong topline growth and will deliver synergies in 2023 and beyond. And then last, we're in the final chapters of completing our four-year 1.5 billion transformation to the cloud that will deliver top-line growth in cost benefits in 2023 and beyond. Even in these uncertain economic environment, Equifax continues to be an offense and reinvesting in the new Equifax Cloud, new products, data analytics and bolt-on M&A to drive future growth.

We continue to be confident in our long-term framework of 8% to 12% revenue growth, our goal of $7 billion of revenue in 2020 -- or by 2025, our ability to expand our margins 500 basis points between 2022 and 2025 and 50 basis points per year of margin expansion longer term. We remain energized about our performance in 2022 in a challenging mortgage market macro and even more energized about the future of the new Equifax, a faster growing, higher margin cloud native data analytics company.

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

Questions and Answers

[Operator]

Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] Our first question today is coming from Manav Patnaik from Barclays. Your line is now live.

[Manav Patnaik, Analyst at Barclays]

Thank you. Good morning. I just wanted to touch on the strength of non-mortgage Workforce Solutions businesses and kind of the sustainability of that business and maybe if you could just comment specifically on the Talent Solutions side, just given all the announcements you're starting to see on hiring freezes or layoffs etc., do you anticipate and slowdown there?

[Mark W. Begor, Chief Executive Officer at Equifax]

Yeah. So it's a great question Manav. As you know we're investing heavily in the non -- one of our priorities is to invest heavily in workforce broadly because it's our fastest growing business. And as you point out the non-mortgage businesses in workforce are really outperforming the underlying market and delivering a substantial growth and I'll touch on talent first, as you pointed out, a big TAM of $5 billion and our play there is to help digitize the background screeners, using our data as we continue to expand our historical data, we can deliver real solutions there. And we haven't seen any impact from the hiring market as you know, unemployment is still very low, there is still more jobs open and there are people looking for them, and even in -- if that starts to slow down in the future, there's just so much penetration opportunity for us to really work to help digitize the background screening environment, both with our core work history. As you know, we have 570 million total record, so we have a digital resume on the average American worker that totals five jobs for each individual. So there's just a lot of data and growth opportunity there.

And then we're also, as you know, adding data assets to go beyond just our work history in talent, whether it's education, medical credentialing data that we acquired with Appriss Insights, of course the incarceration data that's used in virtually every background screen, and we have a stated strategy to look for more either partnerships or M&A to really strengthen the talent hub. So I don't expect them to grow at the rate they have been over the last couple of years, which is very, very strong, but certainly there'll will be a big growth driver going forward with double-digit growth in the future.

Government, as you know, is another big non-mortgage vertical for Workforce Solutions that's around social services, the $2 billion -- or $2 trillion dollar government TAM is a big one, we have a lot of penetration opportunities there. Social services are only expanding and is really the same thing, we're able to deliver an instant decision to that government agency either the federal, state or local level and we're just seeing a lot of traction. They have the same labor issues, meaning they are looking for productivity in their centers where people come in to apply for social services and we can deliver productivity with the instant decisioning and of course it also delivers that social service to that individual very quickly. And same thing the ability now to not only have that income and employment information that's used in really every social services as needs are income based, but also adding to it the incarceration data that we have that's used in virtually all social service processes.

Beyond talent and in government just touching quickly on kind of non-mortgage financial services, those are newer verticals for workforce where the data, whether it's in the card space, where we're starting to get penetration to have the income and employment data, supplement the credit data in a card origination, of course auto we've seen nice growth in sub-prime and moving into near-prime and of course it's used in P loans. And then just jumping outside of verifications and new employer services. As you know, we've been making acquisitions we've done five acquisitions in the employer services space in the last two years to really build out the capabilities in those regulatory compliance services whether it's unemployment claims, work opportunity tax credit ACA or health care and of course in the work opportunity tax credit in I-9 benefits like LawLogix that we announced this morning. That's a space that has a big $5 billion, $6 billion TAM in a more challenging economic environment, we expect more outsourcing by HR managers of those activities that we can perform more efficiently. So we see growth opportunities for that business, which is why we're investing in technology and the bolt-on M&A like LawLogix.

And of course as you know, as we expand our capabilities and reach there with individual companies we get more records. And of course underlying the growth of Workforce in a course non-mortgage is record growth, which was up a strong 22% in the quarter and we still have a long runway to essentially double the size of our database when you include a Gig and pension income recipients. So there's a lot of opportunity there. So lots of levers for non-mortgage in Workforce Solutions.

[Manav Patnaik, Analyst at Barclays]

Got it. Thank you. That's helpful. And then maybe just to follow up like in terms of the M&A pipeline, a lot of these tuck-ins makes sense, which is given maybe just some comments around what valuations in the private market look like, and your appetizing capacity maybe in a larger deals and tuck-ins?

[Mark W. Begor, Chief Executive Officer at Equifax]

Yeah, I think as you know, we tried to be very disciplined about our approach to M&A, we're very -- I use the term bolt-on, you can describe how big bolt-on is obviously Appriss was a larger acquisition, Kount was a larger acquisition last year, but we see a lot of opportunity to deliver very high return bolt-on M&A that are highly accretive to our cost of capital. So it's a, you start with our kind of capital allocation we see big opportunities to invest in the core of Equifax and we're doing that, and that's really through our cloud transformation which were in the final innings of completing that was a big project and a big focus of Equifax that'll start tailing off our investment in that over the coming year or so, as we complete the cloud. New products, we get very high return on and then when you get into inorganic, we see an opportunity to continue to do bolt-on M&A that adds very positively. And we are very disciplined financially and looking for businesses that are growing faster than Equifax on the top line that are accretive to our margins, and obviously, deliver high returns. So those are the kind of M&A that we're doing. And we've got a pipeline going forward of deals that we continue to look at that will really add value in the three areas that I talked about during my prepared comments of strengthening workforce, adding differentiated data and a strengthening identity and fraud.

And as you know, as we go into '23, '24, '25 with our margin expansion accelerating in that 500 basis points to 39% in 2025, our free cash flow accelerates dramatically in the coming 12, 24, 36 months and we'll continue to run the play of bolt-on M&A where it's appropriate, we'll look for acquisitions that might be at the larger end of bolt-on like an Appriss, but we'll be a point in the near future where we're going to want to return cash to shareholders. And we've been very clear that when that time comes that will be a part of our capital allocation strategy as our free cash flow accelerate as we get into '23, '24, '25.

[Operator]

Thank you. Our next question is coming from Andrew Steinerman - J.P. Morgan. Your line is now live.

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

Hi, John, it's Andrew. I wanted to check if that 24.7% mortgage revenue figure gave on the call was for total revenues in the second quarter and then also my second question is again on a total company basis, what was Equifax's second quarter organic constant currency non-mortgage revenue growth year-over-year?

[John W. Gamble, Chief Financial Officer at Equifax]

So, 24.7% was on total Equifax revenue. And then I don't believe we gave an organic revenue growth for the entire company non-mortgage so.

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

Right, but you gave all the segments can't you total it out for us?

[John W. Gamble, Chief Financial Officer at Equifax]

We can certainly follow up with you, Andrew. Trevor or Sam can come back to you on that.

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

Okay, thank you very much.

[Operator]

Thank you. Next question is coming from Kevin McVeigh from Credit Suisse. Your line is now live.

[Kevin D. McVeigh, Analyst at Credit Suisse Group]

Thank you, so much, Hey, Mark. Hey, John. Hey, below towards the kind of project, but any sense of kind of the near-term outlook for mortgage '22 to '23 and the reason I ask is, obviously, it seems like unprecedented declines, but we're in a much stronger macro environment than we were back in the GFC, is there any way to frame? Do you think you see continued refi kind of cash-outs more near term on the purchase side? Just as you think about mortgage within kind of the context of a more of a recovery just given kind of where we are from kind of feels like we're bottoming here?

[Mark W. Begor, Chief Executive Officer at Equifax]

Yeah, I think bottoming is probably in the second half. Based on our forecast, Kevin, as you know, but it's very hard to really predict what's going to happen with the environment with the economy, given the inflation rates that we haven't seen in really our lifetimes of what the Fed is going to do to respond to it. I would make a couple of comments on mortgage, which you know, look, the mortgage market doesn't disappear, right? There is a core mortgage market that in any economic environment stays there, meaning people move and buy houses people upgraded by houses on the purchase market and as you know, there is more people still looking for houses in the United States today than there are houses. So there's still quite a bit of demand on the purchase side.

So we expect there to be, is there is any economic environment and continued purchase market John gave some views about how we think about that in the second half. As you point out in the refi side, the interest rate refis are going to be lower or less of those in the second half given where interest rates are, because there are many opportunities for homeowners to do an interest rate refi, but there is a ton of untapped equity in homes in the United States. Over the past 24-plus months home price appreciation is up almost 30% and there is about $27 trillion of untapped home equity. And we've seen in economic environments in the past that homeowners will tap into that equity. If you think about a 5.5% fixed rate mortgage in order to refi into that to access your home equity which consumers are doing or homeowners are doing, we expect that to continue. And if you think about 5.5% interest rate on fixed-rate mortgage that's a heck of a lot worse than an auto loan, a student loan or a credit card. And that's what you'll see consumers do.

So it'll be a level of cash out refis going forward. And I know you get that, I think the challenging part is what's going to happen? How far is the Fed going to have to go to slowdown inflation with 9.1%. So that's the harder part for us to forecast. We did talk about in our prepared comments that we remain confident and obviously the long-term future of Equifax, our goal is $7 billion by 2025 hasn't changed, our goal to expand our margins to 39% by 2025 hasn't changed and we're still investing in the future of Equifax. As we speak, we're making investments that will benefit '23, '24, '25 based on our strong performance particularly in non-mortgage which is exceptionally strong.

[Kevin D. McVeigh, Analyst at Credit Suisse Group]

And actually that's where I want to follow up. Because it seems like you still comfortable with those 2025 targets. It's probably mortgage is a little bit lighter, where spend kind of the offset, is it within EWS or other parts of the business that continue to give you that the confidence to push towards those 2025 targets?

[Mark W. Begor, Chief Executive Officer at Equifax]

Yeah, it's certainly, I think as you know, we raised our non-mortgage or core guidance twice this year, once in February, and once in April that gives us confidence that should give you confidence and if you look at our non-mortgage performance and our core growth performance which includes how we're performing beyond the mortgage market, those are strong numbers, and those give us confidence in our ability. And then if you add to it during that '23 to '24 timeframe, in the next 12 months we're going to be completing substantially the U.S. cloud migration. So we'll be cloud-native and we can take full advantage of that, we'll finish international as we get through 2023 and into 2024, that's another lift for Workforce Solutions.

The other thing that should give you confidence and gives us confidence is the M&A that we've done over the last 18 months. We've done 11 acquisitions now with LawLogix, those are in our run rate revenue or will be. And of course the synergies from those acquisitions that we had in our acquisition cases really kick in '23, '24, '25 as they really get integrated into our businesses. And then the last point I'd make, it gives us confidence is NPIs. The vitality index that we're delivering, as you know, our long-term frame on vitality is 10, we were 13 in the quarter. We're expecting to be north of 11 for the year. Those are big numbers. When you talk about having $550 million of revenue in 2020 from new products, and remember, new products we introduce in 2022 to really benefit '23, '24, '25. They mature as we get into those years. So there is a lot of levers that give us confidence around the future of Equifax.

[Operator]

Thank you. Your next question is coming from Toni Kaplan from Morgan Stanley, your line is now live. Thanks so much. First, wanted to ask about the mortgage performance. So last quarter you talked about EWS outperforming the mortgage market by about 30 points in the year and for the quarter, last quarter was about 27 points above the market. This quarter looks a little bit more like you outperformed by 20 points according Slide 10. So, are you still expecting the 30 or is something changed to bring that down a little bit? And what are sort of the drivers that lead to that outperformance delta like why would it jump around, I guess?

[John W. Gamble, Chief Financial Officer at Equifax]

Sure. And so, I think last quarter what we indicated we were up 27 and we thought for the full year we can deliver something south of 30, but I think the 20 points is very strong, right. And what drives the outperformance in general is the new products, the price actions, the record additions. And all of those activities that Workforce Solutions is executing extremely well, actually executing faster than plan. The record additions as Mark already covered were well faster than plan is, we're up to 144 million records, they're all volume-dependent, right. So when we get into -- we get into circumstances where we see the current year volumes declined substantially, it makes it more difficult to outperform the prior year market, because of the lower volumes. So that's all it really is.

In terms of the drivers that will allow them to outperform the market over the long term, they are actually outperforming the expectations we had when we started the year. So we feel very good about how they're performing and I think given the much lower level of mortgage inquiries we're talking about of mortgage originations we're talking about in the second half if they're able to outperform at about 20 or I think we just said somewhat under 20, but that will be very, very strong and consistent with the execution against product price records, system integrations that we've been talking about.

[Toni Kaplan, Analyst at Morgan Stanley]

Great. In the guidance, it seems like the main delta on the revenue side is really mortgage, you're expecting essentially then non-market expectations outside of FX largely unchanged versus your guidance last quarter. Just if we look forward if there is a recession or a tougher environment that comes up, just maybe talk about some of the expense levers that you can pull and how you think about when to pull the trigger on that versus continued investment in the business, because obviously have a lot of really strong growth opportunities that you want to capitalize on. So maybe just how are you thinking about downturn playbook and when you would pull the trigger?

[Mark W. Begor, Chief Executive Officer at Equifax]

Yeah, it's a great question, Toni. This is Mark. First off, we don't see that in the second half. You may have a different point of view, but we don't see that in the second half but to be clear, we think about it a lot, obviously and we do have levers. First off, we think we're going to outperform the way we did in the past, if there is an economic event, we had a page when we talked about it in the investor deck. And we talked with you about it before, the difference in the business and levers that continuing to add records at Workforce Solutions and so many other levers in Workforce in particular identity and fraud business. So we think about that, but we clearly have the ability to throttle cost if we got into an economic event. In 2022 while we're seeing the pressure from the mortgage market macro and it's also FX on revenue. We made the decision to continue to invest, which is I think you want us to do and our investors do because that our core business or non-mortgage business, which is a big part of Equifax's performing exceptionally well and we want to keep driving that. So investing in things like new products, investing in completing the cloud transformation, which of course that'll them take a lot of our cost out as we get into '22 -- I'm sorry, '23, '24, '25 we get significant margin expansion or cost reductions as we complete the cloud and decommission a lot of our data centers. That's kind of a natural recession hedge for us as we execute the cloud transformation.

But we've got other cost levers that we could or would pull and we'll be ready to do that if there is an economic event, but at the same time, we have a lot of confidence in how we would perform in a economic event, because of the changing, dramatically changing nature of Equifax. Would you add anything John?

[John W. Gamble, Chief Financial Officer at Equifax]

I just think outside of the investments, Mark has already talked about an NPI and transformation is kind of the product technology and then marketing -- product marketing investments we're making. We certainly are looking at all the other expenses, and we're just going to manage those very tightly, right. So even though we don't expect a recession to come at this point in time, surely not in the second half of this year, obviously uncertain about 2023, but we are going to do is make sure we manage very tightly all of the expenses that don't drive that revenue growth.

[Operator]

Thank you. Our next question is coming from Ashish Sabadra from RBC Capital Markets. Your line is now live.

[Ashish Sabadra, Analyst at RBC Capital Markets]

Thanks for taking my question. So, Mark, thanks for providing the details around the Financial Marketing Services business. I was just wanted to drill down further on the fraud and identity piece and see you talked about new product innovations there which could reaccelerate growth maybe next year. So I was just wondering if you could provide some more color on that front or maybe also talk about the pipeline for new deals, particularly on the offline side? And how should we think about those momentum going into the back half, but also in '23 and beyond? Thanks.

[Mark W. Begor, Chief Executive Officer at Equifax]

Yeah. So we talked about -- we're obviously doing some work to get some new products positioned in the second half of this year to bring the FMS portfolio review business back into a different position. That's clearly a place that we're investing in. I think part of your question was also around broader identity and fraud, which is a different business for us that's really under the Kount business, which we're very pleased with, that's a business that performed exceptionally well in the quarter and the half. We see big potential in just a massive TAM around the broader identity and fraud and of course as you know, we bought Kount 18 months ago and we're still integrating that inside of Equifax and rolling out new solutions. And that's an area that we're investing in new products for both the e-commerce space, but also for our traditional financial customers and also looking for inorganic or M&A to continue to expand that's one of our three priorities around M&A is to grow in identity and fraud.

[John W. Gamble, Chief Financial Officer at Equifax]

And then B2B offline, specifically kind of the fraud header business, I think some of the real opportunities we have as we get into 2023 is heavily around data fabric right, as we are able to more aggressively integrate different data assets, again it will differentiate our information, our header information that we sell into those markets and we think we have the opportunity to reaccelerate that growth again. But that will happen as data fabric completes for USIS.

[Ashish Sabadra, Analyst at RBC Capital Markets]

That's really helpful color. And then going back to Slide 9 and drilling down further on the questions that were asked on the talent and government side, the penetration there is pretty low on talent is just 10%, and government It's 20%. You talked about some new state wins there, but just can you talk about, again, the pipeline, both on the talent and government side? And how do you drive better penetration in both of those markets? Thanks.

[Mark W. Begor, Chief Executive Officer at Equifax]

Yeah. As you know, these are I still call it newer verticals for us in Workforce Solutions both talent and government. They are big TAMs. Talent is a $5 billion data TAM for us. Government is about a $2 billion. We've got big teams in Workforce Solutions focused on that is, we made. As you know, some M&A additions to strengthen our capabilities there. We want to do more. That's an area where we want to expand in either M&A or partnerships, M&A being like Appriss Insights, where we got the incarceration and medical credentialing data, it's really helping us in both government and talent. The partnership we have with Clearinghouse, where we're bringing education data and we'd like you to do more partnerships or more M&A there.

The other really lever for us and talent and government is new products is really bringing new solutions together combining data elements we have in workforce. And of course at the heart of our growth in both of those verticals is our TWN dataset. Both our 144 million active records or 110 million active individuals in our dataset which is a huge coverage now. And as you know, when we add records, our hit rates go up, because remember in our system-to-system integrations, whether it's talent or government or other verticals they are hitting our database for every applicant or individual that they're trying to process, whether it's a mortgage or a background screen or a social service like rent support or unemployment claims. As we grow our records that grows the business.

And then leveraging our historical data, we just got so much historical data, the 570 million total records, which equates to about 5.5 jobs for the average American. That's a very valuable instant decisioning dataset for the talent space. So the combination of new products continue to grow out our TWN record database and continuing to do M&A and having our dedicated teams of growing customers. There's still a lot of customers that don't use our data in government social services and in talent. So that's another opportunity. So we're pretty energized about the growth potentials in those two verticals.

[Operator]

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

[Kyle Peterson, Analyst at Needham & Company LLC]

Great. Good morning, guys. Thanks for taking the questions. Just wanted to touch on inflation, obviously, it's the highest we've seen in quite some time. Where are you guys kind of seeing in the cost side of your business and how much have you guys been able to successfully pass along to clients?

[Mark W. Begor, Chief Executive Officer at Equifax]

Yeah. So, I share your concern, when I think about the 9.1% inflation or 9.4% in the U.K. or pick your market. Why I spend more of my time thinking about is, what's the impact going to be on the consumer on our customers. With regards to our cost structure, it hasn't had much of an impact. We haven't seen a big impact in labor. We're still able to attract the people we want inside of with some slight pressure on wage rates, but we're still managing that a big part of our cost structure, as you know, is technology and we're really heading more towards cost savings there as we convert from our legacy infrastructure to the cloud. And we've got long-term contracts in our cloud infrastructure.

And with regard to passing it on price versus inflation were to net positive, we put pricing increases in place earlier this year that give us a net positive margin impact versus inflation is that even with inflation where it is today.

[Kyle Peterson, Analyst at Needham & Company LLC]

Understood. That's helpful. And then just a quick follow-up, particularly any unemployment verification claims part of EWS business, how should we think about the puts and takes, and you guys said you aren't currently expecting a recession, but if we do have a new recession, how much of a potential tailwind could that be in a more garden variety recession not with unemployment kind of where it was in 2020, but just, yeah, little more run of the mill would be helpful?

[Mark W. Begor, Chief Executive Officer at Equifax]

Yeah, it's obviously a positive for us. That business is a lot bigger today than it was in '08-'09. Obviously, we've got a lot more scale. We're expanding the business with a lot of the investments in people and technology and capabilities as well as the M&A that we've done. So it will clearly be a tailwind. Obviously it's a headwind right now coming off '20 and '21 when there was a lot of furloughs, and layoffs during the COVID environment. I don't know, John, would you size it in anyway?

[John W. Gamble, Chief Financial Officer at Equifax]

Yeah. Just give you a perspective, it's -- this year it's $135 million business, right. So, and I think during the COVID recession it increased obviously dramatically but -- and it basically scales directly with unemployment insurance activity. So it's about $135 million. So whatever -- as you look at what the level of unemployment that could come in a recession, it will scale pretty directly with that.

[Mark W. Begor, Chief Executive Officer at Equifax]

And that's just one of, as you know is one of many kind of countercyclical businesses. Another of your focus on countercyclical, the other one is inside of our credit business while pre-screens will go down, account management and portfolio management activity goes up in an economic event. Now, we're not seeing that today, because it's, there is really an economic event yet, but that's a countercyclical element for our core credit businesses. And of course we got all kinds of levers in Workforce Solutions, we're going to keep adding records whether the economies up, down or sideways.

[Operator]

Thank you. Our next question is coming from Andrew Jeffrey from Truist Securities. Your line is now live.

[Andrew W. Jeffrey, Analyst at Truist Securities]

Hi, good morning guys. Appreciate taking the time. Mark, I wanted to ask you a question about the TWN database and sort of line of sight to getting to 2 times current records. Do you think you can get there with your current payroll agreements? Do you need to add more and I know you mentioned they're exclusive today. Can you talk about your comfort with those remaining exclusive sort of in the long run and just any color in terms of trajectory there would be helpful?

[Mark W. Begor, Chief Executive Officer at Equifax]

Yeah. So, bunch of layers of questions in there. First, I think as you point out, it's a really attractive lever for growth and unique through this business, right. No other data business that I know of as the ability to add records the way workforce has been able to do, and of course, it translates into revenue day one, quarter one, week one, the minute we add them, because remember we're -- as we're integrated or even through web access customers are coming to our dataset looking for all of their applicants and as we grow our hit rates, it really drives the revenue and revenue, records were up 22% in the quarter, we've had very strong double-digit growth for the last three years and are growing the dataset and now have 144 million actives and 110 million uniques which is really powerful in the scale of the dataset, not only is it driving revenue, but it also drives usage, meaning it's a dataset, it's more valuable.

And you remember you think about it, our customers want 100% coverage, because the consumers that they can't identify in our dataset. they got to go somewhere else to do a manual verification or do something else that slows down their process. So as we add records to our dataset we become more valuable to them. So, as you know, 50% of our records come from partnerships, 50% come from direct relationships that we have through our employer services business, and we want to grow both. On Employer Services, as you know, we've been making acquisitions, we've done five acquisitions in the last two years to strengthen our capabilities in employer services, whether it's an I-9, unemployment claims, work opportunity tax credit. And that's a kind of a $6 billion TAM, and we've got a $400 million plus business and the power of that is not only we're growing our -- the outsourcing there, but when we get the contracts for I-9 or unemployment claims or work opportunity tax credits, we also got records. So growing record there is a big lever.

The other 50% come from partnerships of payroll processors and what I'm referring to is really mostly W2 or non-farm payroll income, which is employees, which is the 160 million individuals in the United States versus the 110 million we have today. The newer markets for us are Gig, which is 30 million to 40 million and pensioners which is another 20 million to 30 million. So if you think about 110 million, there's about 220 million Americans that have some form of income. That's what we want to grow the database to and that's going to take time. If you think about going from 110 million to 220 million that may take a decade, but there's such runway for growth and we now have dedicated teams on the pension side, I mean we expect to be on boarding records obviously from those aren't typically with payroll processors, there are other entities that are processing those, whether it's a benefits administrator or individual companies, and then the Gig records, those were all records we want to add as we go forward.

I think your last question was around our partnerships. The last part of your question was around your question was around our partnerships and exclusivity, as I said, the vast majority of our partnerships are exclusive, all the relationships we signed in the last four-plus years have been exclusive and all the relationships we intend to sign going forward as well as extend, it's our intention for them to be exclusive. We think that's good for us and good for our partners going forward.

[Andrew W. Jeffrey, Analyst at Truist Securities]

Super comprehensive answers. Thanks. Appreciate it.

[Operator]

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

[Andrew Nicholas, Analyst at William Blair]

Thanks and good morning. I think different answers have touched on this already, but want to ask a little bit more directly about kind of the health of the U.S. consumer and what you're hearing from customers on the core credit side.

[Mark W. Begor, Chief Executive Officer at Equifax]

Yes.

[Andrew Nicholas, Analyst at William Blair]

Are you seeing any signs of weakness across the USIS business as it relates to core credit guidance doesn't seem to imply any slowdown there. So if you could just kind of talk about what gives you confidence in that part of the outlook in the overall state of the economy? Thanks.

[Mark W. Begor, Chief Executive Officer at Equifax]

Yeah. And to be clear, we're not. The U.S. consumer from our perspective is strong, I think you've heard it from the banks over the last week or so as they talk about, their performance, there is no sign, it really goes -- it starts with employment, people are working. And there is two open jobs for every person looking for a job, which we never seen in really our environment. You've seen strong wage growth, which is a positive, but it starts with people are working, that's a big deal. There's still a lot of stimulus around. Meeting consumers are still spending some of the stimulus they saved over the COVID environment, but there's still access to a lot of stimulus or social services support in the United States, which is benefiting consumers. So that's a positive.

Obviously, inflation is having an impact on confidence, having an impact on some spending, having an impact in some of the lower sub-prime or lower income consumers is having a bigger impact there, but kind of broadly, we don't see the consumer weakening in the second half. We haven't seen our customers thinking about it that way. And they're obviously -- everyone's watching but you haven't really seen a change in delinquencies, like card delinquencies are lower than they were in 2019. There is a little uptick in subprime, auto delinquencies, but the consumer is strong, it starts with their working and then add to it those that are homeowners, have a bunch of equity in their home, plus 20%, 25%, 30% versus in a couple of years ago that's untapped.

So those are all equations that are quite positive around the consumer, which is going to make in my view taming inflation quite challenging, because consumers are still out there spending. You've seen the banks kind of credit card spends are up strong double digits, consumers are traveling, they're still spending maybe not a big ticket transactions, but there is still pretty strong, we haven't seen any signs of a changing.

[John W. Gamble, Chief Financial Officer at Equifax]

Other thing which has happened since 2019 is that the percentage of consumers that are actually defined as subprime, it's just down materially, right. So it's down to the on the order of 20% of consumers and was much higher back in 2019. And that's just the strength in credit scores you've seen. So that's very material for people's access to credit.

[Mark W. Begor, Chief Executive Officer at Equifax]

Credits were up 15 to 20 points since 2019 still. So a lot of factors supporting the consumer.

[Andrew Nicholas, Analyst at William Blair]

Great, thank you. That's very helpful. And then switching gears a bit for my follow up, Mark, I think you alluded to growing the Work Number internationally as part of the three-year 2025 outlook. I understand. In the past you've talked about your right to win there and your relationships with global organizations is being a differentiator, but just kind of curious, can you speak to kind of go-to-market strategy there? Is there any different in these international markets than what you've developed here through payroll providers and an outsourced kind of HR capabilities or are there differences in those markets that we should kind of keep in mind that make that go-to-market strategy a bit different abroad?

[Mark W. Begor, Chief Executive Officer at Equifax]

No, it's very similar and we could spend hours talking about all the things we're working on and obviously expanding workforce internationally is one of the initiatives that Rudy and his team has, as you know, we're in four markets now, we added U.K. in the first quarter. We paused during our cloud transformation to go in other markets. We're in Australia, Canada, U.K. and India, we paused a couple of years ago when we were doing the cloud transformation, but now that we have a tech stack that we've invested a couple of hundred million dollars in, it makes it easy to enter new markets tech -- from a technical standpoint. So that's an approach that we have and why we kind of made our first move into the U.K. following our cloud transformation at Workforce Solutions.

The market dynamics are very similar. Mortgage is a place where you want to use it and you think about the markets we're in, they have mortgage markets, consumer mortgage market. So that would be a priority for us when we think about future markets. And then the talent side is another one, using the data for the hiring process is similar, and as you point out, we have some levers with our current multinationals in the U.S., where we're collecting their records from them directly or through partnerships, but the direct relationships they want us to do income and employment verification for them in other markets. So that's a positive. And then as you also point out the payroll processors, we do business with today in the U.S., many of them are global, so they want to do this to have the same relationship outside the United States.

And then in individual markets, there is payroll processors are HR software companies that are unique to so many markets and we're developing partnerships with them. So it's clearly part of our strategy. We've got a lot of needle movers in Workforce Solutions between now and 2025. This will be one of the smaller ones, but it's one that we're investing in. I think you'll see more traction out of it, perhaps in '24, '25, '26 then you will see in '23, '24. But as you would expect us to do, we're investing in it and we think we've got a franchise that obviously is, it has a strong market position here in the States and it's one that we want to take global and take advantage of it, because there really aren't other players like workforce outside the United States.

[Operator]

Thank you. Your next question 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, can you dig in a little bit more on what's going on with FMS in the offline and you said it's like the part where you're doing fraud and header data. I'm just not clear as to what all of a sudden changed in that business? Is there something competitively that changed in where maybe one of the other bureaus are doing better over there or is there anything else happening? And typically in a certain point in the cycle you guys would see a pickup in some of the FMS business as well in terms of portfolio reviews. And I want to know are they starting to pick up because banks are worried about that, but you are not getting them or they're just not happening?

[Mark W. Begor, Chief Executive Officer at Equifax]

Yeah. The portfolio reviews are our constant part of the business, but as you point out in times of economic challenges that typically we see some real pickup there that hasn't happened yet. The financial institutions really don't view at the second half of being economically challenged, it's more of the newspaper than it is in the consumer, their results. I don't know, you want to touch on the header business again?

[John W. Gamble, Chief Financial Officer at Equifax]

Yeah, I think Mark covered Shlomo, really what -- what's going on with the fraud or header business within FMS right. We have just -- we are seeing lower volumes and we're seeing lower levels of activity and for transactions that are occurring, we're looking -- we're seeing smaller volume transaction. So what we're doing is what we talked about which is working to try to enrich our datasets, so that we can again make it more valuable to drive greater differentiation in that market, but we're just seeing it, we're seeing that market slow currently and given that it has, we just made the assumption its going to stay slow for the rest of the year. And as we launch new products, we'll talk to you about them as we do with anything with NPI, and we can give your perspective on how we think that that product area may grow.

[Shlomo Rosenbaum, Analyst at Stifel Nicolaus]

Great, thanks. Just for the follow-up, the other part of the business that you would start to see slowing down would be the background screening area and are you seeing anything that's indicating that given the layoffs and stuff that you are hearing from some of the bigger technology companies that the pulls are really starting to slow or significantly changing?

[Mark W. Begor, Chief Executive Officer at Equifax]

No, we're not. And remember, when you think about our business, it's obviously different than the background screening industry, because we're so new in kind of dealing with the industry. We have so much penetration opportunity, it's our view that even if the market slows our ability to digitize and help background screeners digitize their businesses will mitigate if you will or offset some of that and add to it new products that will be rolling out for the background screeners that include other data elements. So when an economic event happens, and there is some slowdown there. We think we'll be able to offset that with some of the new products as well as penetration because we fairly new. Remember, the TAM for that, the talent and backward screeners is about $4 billion, and our business is a couple of hundred million bucks. So we've got the opportunity to continue to grow into the data elements of that even in economic event.

[Operator]

Thank you. Your 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 talk a little bit further about how you think your verification service business will do if we go into elongated recession here? And that you guys adding more and more records here, and significant part of your business, how do you think it will do in an elongated recession?

[Mark W. Begor, Chief Executive Officer at Equifax]

Yeah, I think we've been pretty clear, we think it'll do pretty well. As we pointed out in the comments and in prior calls, you go back to '08-'09, which was a pretty brutal economic event, the toughest I think we've seen in our lifetimes, it grew through that whole period. I think in 2008, it grew 17% or something like that. And now it's got more levers. Remember, back then, it was mostly a mortgage business, and now it's highly diversified into other verticals, government, talent, its Employer Services business, and then non-mortgage verticals inside of financial services. And the ability to add records is one of many levers that the business has that we think is what makes Equifax so different today versus our last economic event, if you want to call '08-'09 that our ability to grow is significantly enhanced by workforce being such a big part of Equifax and having so many different levers that are either unaffected by a recession or allow them to actually benefit from a recession like the unemployment claims business.

[Craig Huber, Analyst at Huber Research Partners]

And then also the 50% or so of record you get from the outside the partnerships, can you talk about the pitch there that you used to get those records.

[Mark W. Begor, Chief Executive Officer at Equifax]

Yeah.

[Craig Huber, Analyst at Huber Research Partners]

Companies etc. And then also, could you just also touch on the historical records that you've built up in your database, which I believe in total is like 25%, 30% of your revenues that you get were historical records, not the current persons' employment.

[Mark W. Begor, Chief Executive Officer at Equifax]

Yeah. So, first on the direct records that we have, remember, at the core of Workforce Solutions is what we call our Employer Services or Employer Solutions business and that's where we deliver regulatory and compliance services to companies through their HR managers and that's where they outsource these activities to Equifax. And that's about a $6 billion TAM, we have about $400 million business there and where we deliver those services like unemployment claims, management for a company, we do the processing for them, I-9 verification in the onboarding side, work opportunity tax credit, employee retention tax credit, we do W2 management for employees meeting a someone needs a W2 will deliver it for them. So all those services that are outsourced by an HR manager is what we do as a business and as you know, as I pointed out earlier, we've invested heavily in our cloud transformation to make those services and capabilities, more efficient, more effective. And just a better service for the HR manager.

So to play, there is to continue through our commercial coverage is to drive more outsourcing of those activities to Equifax. And for example, like an unemployment claims we process either one and four, or one in five unemployment claims in the United States that are done by third parties, meaning not individual companies, those companies still do it today. So we have real scale in these businesses. And then as a part of that commercial relationship where we're delivering these regulatory services to the HR manager at our company, we also do income and employment verification for free. And they will deliver their payroll records to us and then of course we monetize, in return we'll do income and employment verification securely, we'll do it with a high degree of privacy and it allows the HR manager to outsource that activity to us, because if we're not doing it for them, they have a call center inside of their HR shop or they're doing it in their fielding calls from mortgage originators, auto lenders, background screeners, government agencies to verify income and employment other employees. So we do that all for free.

So, a very powerful value prop that we have for the HR manager, which is why we've developed a bunch of relationships and that's why we're also expanding through M&A and like LawLogix the company that we announced this morning that we're acquiring strengthens us in the I-9 verification space and delivers records. So those are the five or six acquisitions we've done in the last 24 months to strengthen our Employer Services business, it's really at the core of who Workforce Solutions is. So we want to continue to invest in technology, in capabilities and bolt-on M&A to strengthen that because not only do we have a very attractive business growing at $6 billion TAM, it also delivers records we can monetize very effectively.

The second half of your question was around our historical records you write on, it's a very big part of our business model, a lot of our verifications are around where it is Mark work today, how much as you make today, but a lot of the verifications are want to -- need and want to have historical data in order to complete the process. And as you point out, we keep every record every week, every pay period, and we're now up to 570 million records, which as I mentioned earlier equates to about 5.5 jobs from a job history status on the average American, in my case it would be my Equifax records, my Warburg Pincus records and my GE records. So we have those historical records and they are incredibly valuable and it's a big part of the competitive position or mote We have around the business is those historical records are a big part of that, because the only way you can develop those is over time and of course we've been at this for a decade of building out the dataset and maintaining all those records.

[John W. Gamble, Chief Financial Officer at Equifax]

And importantly a non-mortgage verification services businesses about 50% of the revenue is generated from record -- from transactions that involve historical record, either historical records only or historical records and current records. So it's 50% penetration of historical records in the transaction. So very, very high and huge differentiation. thank you.

[Operator]

Thank you. Our next question is coming from Simon Clinch from Atlantic Equities. Your line is now live.

[Mark W. Begor, Chief Executive Officer at Equifax]

Hey, Simon.

[Simon Clinch, Analyst at Atlantic Equities]

Hi. Hey. How is everyone and thanks for taking my call, my question here. I just wanted to cycle back to the comments you made about the outgrowth in the mortgage and EWS and I was just wondering in terms of how to think about the core growth generally that you outlined for Equifax overall? Historically, my understanding was that we should think about as effectively a static opportunity versus the market that each of those very segments plan in, but it sounds like with the comments around EWS here that's actually, they should be considered to be some level of beta I guess to the macro, to the [Indecipherable] as market. Is that how we should think about things going forward?

[Mark W. Begor, Chief Executive Officer at Equifax]

Well, as John pointed out, and we can hit it again, is that in the mortgage application process, there is a difference in this market than there is in a normal market. As John pointed out that there is more consumers or homeowners that are, when they're doing a home purchase that are doing shopping for rates and generally when a consumer does rate shopping our credit file will be pulled by the mortgage originator, make sure that consumer can qualify for the mortgage that they're rate shopping on and then they'll deliver some kind of a response around what rate they can deliver. And the consumer will get a bunch of mortgage companies in this higher rate environment in order to check rates, and that results in credit pulls, which is good for USIS and part of their outperformance if you will, the number of pulls that they have.

Conversely in workforce when you're rate shopping, they don't pull income and employment further into the application process, it might be when an application is actually filed versus rate shopping and of course it's always pulled during the closing the application. I think John was pointing out, a change from a more normal mortgage environment because of rate shopping benefits the credit file and somewhat doesn't benefit the income and employment data. Now of course Workforce Solutions has all the levers to outperform the mortgage market, it starts with as we add more records. We have higher hit rates. So they get more revenue as they add records and records were up 22%. So that's a benefit for them in a -- in any mortgage environment, it's still benefiting them today. New products are benefiting them, pure prices, we did a price increase in January, so that's benefiting their business penetration is still a benefit.

Remember, they're only seeing what now 65% of mortgages --

[John W. Gamble, Chief Financial Officer at Equifax]

Little over 60, yeah.

[Mark W. Begor, Chief Executive Officer at Equifax]

Little over 60% of mortgages. So as they get out there and remember the credit file is used in virtually every mortgage, because it's been around for 50, 60, 70 years. So the ability to drive commercially into those mortgage originators that are not using in our income and employment data from Workforce Solutions. And then as we pointed out system-to-system integrations, which are grown dramatically, but there's still a lot of web access and we know that with web access we don't get every application for mortgage originator, they're doing manual verification. So you've got multiple levers for workforce to continue to outperform the mortgage market, be it at a bit lower level than in a normal environment.

[Simon Clinch, Analyst at Atlantic Equities]

Okay, Yeah, understand that. And then just when I'm thinking about the sensitivities to the up and the down here. Is it -- would it be fair for me to take the -- how you reduced your guidance for revenues and the subsequent flow through to EBITDA? If that was mortgage upside, should I expect that same high level of incremental margin to drop through?

[Mark W. Begor, Chief Executive Officer at Equifax]

Yeah. Any change in revenue is high incremental margin up or down. And I think as we pointed out earlier, we've opted to continue to invest in the second half for the future of Equifax. So meaning as our mortgage revenue came down, we're not taking cost out, we're focusing on redeploying some cost or still continuing to invest going forward. I don't know, John, would you add to that?

[John W. Gamble, Chief Financial Officer at Equifax]

No, we see very high variable margins on the upside and the downside. They aren't necessarily always exactly the same for the reasons that Mark indicated, but the variable margins on our revenue is -- are certainly quite high.

[Operator]

Thank you. Your next question is coming from Seth Weber from Wells Fargo Securities. Your line is now live.

[Seth Weber, Analyst at Wells Fargo Securities]

Hey. Good morning and thanks for taking my question. I actually had a similar question on the margin side. I heard the comments about some increased spending as for this -- for the second quarter and through the back half of the year. I was just wondering if you could give us any additional color on what this increased spending is, if that's opportunistic or is this kind of the new normal sort of framework that we should be thinking about from a margin perspective? Thanks.

[Mark W. Begor, Chief Executive Officer at Equifax]

Well, a couple of layers in there. So we still are confident in our plan to increase our margins. So no change in our outlook for 2025 or 39%, no change in the cost benefits that we're going to deliver this year, next year 2023 from the cloud transformation, no change in the broader margin expansion. In the near term, we are continuing to invest in new products, obviously we're still investing and completing the cloud transformation. We have some additional investments on onboarding some of the new partnerships we have for records in Workforce Solutions. So we're continuing to do opportunistic, our maybe target is a better term investments that we think will benefit '23, '24, '25 in 2022. So there's no question that we're doing that. Would you add to that, John.

[John W. Gamble, Chief Financial Officer at Equifax]

Yeah. Just current margins and we talked about it on the call that are being significantly impacted by the large reduction in mortgage, right, and our very high variable margin. So if the question was, if this has been the new level of your margins now, as Mark just said, we expect our margins to reaccelerate as the market recovers. But in terms of the exact pace of that reacceleration we'll give you guidance on that as we get into each individual year.

[Seth Weber, Analyst at Wells Fargo Securities]

Okay. And then just as a follow-up the international -- the guidance for international margin for the year sort of implies a pretty big step-up in the second half versus the first half. Is there something there, is it just seasonality, is there something from lower tech transformation spending or something like that that's happening in the second half versus the first in international? Thanks.

[Mark W. Begor, Chief Executive Officer at Equifax]

So, historically you've seen international margins are generally higher in the second half than the first. So we've seen some of that, but we weren't -- we should probably be clear in the call that in terms of the level of acceleration in the margins in international, there is some pressure on that because of the fact we're seeing great growth in our debt management business, but that does have lower margins. So we do expect to see the improvement we talked about, but there is a little bit of pressure on those margins because of debt management.

[Operator]

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

[Mark W. Begor, Chief Executive Officer at Equifax]

Hey, Heather.

[Heather Balsky, Analyst at Bank of America]

Hi, thank you for squeezing me in. Just a follow-up on Toni's question earlier, regarding outperformance on the mortgage side for EWS. I'm just curious where is the softer mortgage market and it sounds like it's little bit of a lighter outperformance outlook, where lightness is coming from to sort of what is the toggle in sort of weaker mortgage market that kind of flows through to that outperformance? Thanks.

[John W. Gamble, Chief Financial Officer at Equifax]

Yes, so, in terms of the drivers of outperformance, it's actually -- workforce is actually performing better than our expectations, they've added records faster than we thought. And so that's actually a greater benefit to outperformance than we would have expected when we started the year and they've executed very well on both new products and then the pricing programs they put in place at the beginning of the year, which tend to go into January. So we know about all those right. The issues, the reason why the outperformance looks lower than what we saw last quarters, twofold, one is because all of those factors I just described are all variable with volume. So since volumes declining like that level of outperformance in absolute dollar shrinks. So that's why you see a smaller outperformance relative to the market, because it's just the math in the measurement. The other thing is what Mark talked about right. We measure the mortgage market. We define it right as USIS credit inquiries.

Well since USIS credit inquiries are benefited by shopping and Workforce Solutions isn't benefited by shopping to the same degree, okay, then what we end up having is USIS gets somewhat of a benefit, and so therefore the market itself is measured as stronger and that provides a little bit of a greater headwind to outperformance to EWS. We don't think that's that in any way indicates an outperforming as well they're performing extremely well. And as I said, the actual drivers, they can control. They are actually outperforming our expectations in terms of record additions, products and then obviously good execution on price and as Marc mentioned, they're also doing very, very well on system-to-system integration. So we feel very good about the execution that's occurring during the year.

[Heather Balsky, Analyst at Bank of America]

Okay, thank you. And as a follow-up, just given sort of stock price performance in the market and you're expecting next year much stronger free cash flow and returning cash to investors. What are your thoughts regarding using your balance sheet today to potentially return cash versus waiting for next year? Thanks.

[Mark W. Begor, Chief Executive Officer at Equifax]

Yeah, it's a great question. We certainly think about it, Heather. But we think the timing is not right for us to do that. As you know, we announced this morning another bolt-on acquisition, which we think will benefit Equifax quite strongly. Going forward, and we're still digesting some of the M&A, we did in 2021. So it's certainly on our mind when the times right to return cash to shareholders, both through restarting our dividend and doing a buyback. We don't think the time is right today, but its common. As we look to '23, '24, '25 with our margins expanding and n our free cash flow expanding, we clearly believe we have ample resources to invest in that bolt-on M&A, but also have excess cash in the future to return to shareholders and we'll do that at the right time.

[Heather Balsky, Analyst at Bank of America]

Great. Thank you for the answers. Thanks.

[Operator]

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

[Mark W. Begor, Chief Executive Officer at Equifax]

Hey, George.

[George Tong, Analyst at The Goldman Sachs Group]

Hi, thanks. Good morning. In the mortgage space new purchase originations have been declining relatively sharply in recent months, what assumptions around new purchase volumes? Are you embedding in your 46% plus mortgage volume decline forecast in the second half of this year? And how would you frame the downside risk to your forecast?

[Mark W. Begor, Chief Executive Officer at Equifax]

Yeah. So in terms of the way we structure the forecast and we obviously look very closely at the current trends we're seeing, we obviously took very -- look very closely at the last 14 days, right, what we're seeing in early July, and we saw were down 40%. So what -- and we also look very closely at the trends we're seeing in the movements in inquiries between April, May and June. We think that the forecast that we put together are the estimate we used in our financial guidance is very consistent with what we're seeing in terms of movements in the mortgage market itself. We think it's very consistent with the information we shared on new home purchases and the fact that they are certainly weakening as we go through the year relative to what we've seen earlier in the year. We think, we think it's consistent with that. We think it's also consistent with the very low levels of refinance that are currently occurring and really that refinances at this point, almost, completely driven by cash-out refi.

Also I think you saw last night that all three of the major parties at forecast mortgage originations, refreshed their forecast yesterday evening, Freddie, Fannie and NBA. NBA came out and said they expect originations to be down in the neighborhood of 43.5% and I think all three indicated there was origination unit, sorry. And I think all three indicated that origination dollars will be down on the order of 46% in the second half. So we feel like with us indicating you're going to see over 46% reduction in the inquiries, which would imply a 200 to 300 basis points, I think 14% to 15% decline in origination units. We think we've given a very reasonable forecast. We think it's consistent with other third-party forecasters. And so we feel like we've done a fairly good job and encompassing the information we have today.

But obviously, to be fair, very hard to forecast the mortgage market and what we'll do is we'll just keep letting you know what we're seeing. And then any changes that we're seeing that that might drive in our output. But right now we feel like we've done a nice job of including all the information available and we feel relatively good about the fact that the that other third parties who come out and look to be at or slightly stronger than us.

[George Tong, Analyst at The Goldman Sachs Group]

Got it. That's helpful. Gross margins in the quarter fell 210 bps year-over-year, how much additional gross margin pressure do you expect with input cost inflation trends, and changes in revenue mix?

[Mark W. Begor, Chief Executive Officer at Equifax]

Yeah. I think the big driver obviously for us, what's occurring right now is the impact of mortgage market overall right, on our --

[John W. Gamble, Chief Financial Officer at Equifax]

There really isn't any inflation effect, George, from our perspective in that margin. It's really the loss of that mortgage revenue. It's just a big impact on us.

[Mark W. Begor, Chief Executive Officer at Equifax]

That's all.

[George Tong, Analyst at The Goldman Sachs Group]

Got it. Very helpful, thank you.

[Operator]

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

[Jeffrey Meuler, Analyst at Robert W. Baird]

Yeah, thank you. So I understand the argument that Equifax on a consolidated basis, including the recession-resistant, and countercyclical businesses is relatively resilient. I guess I was surprised that you said that even in your recession impacted businesses, you think they could potentially be flat at the high end of the range in a recession? So could you flush out the argument behind that for us. I'm guessing the short answer is NPI, and the other structural growth drivers and Verifier, but help us understand how you could potentially flat in those businesses in a recession?

[Mark W. Begor, Chief Executive Officer at Equifax]

Yeah, I'm not sure when I said that or John said that, Jeff. We didn't intend to say that. So when we think about our view of Equifax today versus the last recession, we think we're much better positioned, it starts with workforce being so much larger than it was before, and kind of broadly in workforce as we point out in '08-'09 it grew 17% when Equifax was down 6, and it was a very small business in the scheme of Equifax and it's got more levers today. So we think workforce is positioned to grow in a recession because of all those levers. So we're very clear on that and with that being approaching 50% of Equifax, that's a big factor.

We talked about identity and fraud being a kind of a business that we expect to grow through a recession, just because of the digital macro is benefiting there. There's a couple of businesses that are quite uniquely positive in a recession like our unemployment claims business, which is part of workforce. So those are kind of 60% of Equifax. And then the 40% was kind of the rest which is our credit business is primarily in international and in USIS, and those are generally impacted negatively by a recession. Inside of that negative impact, I think I tried to say that the negative of pre-screens and volume coming down and originations coming down is dampened somewhat, not offset, but dampened somewhat by account management increasing by credit line actions, and line management actions increasing. So there's more volume there, but we would expect those to have some pressure.

Now you also got to think about the timing of the recession as you point out, which is different Equifax today than '08-'09, if you think a recession is going to be in 2023 for example, we've got unique levers, we didn't have it in '08-'09. We're in the throes of completing our cloud transformation and the cost savings they'd come from that are not impacted by the recession. We're going to execute the cloud transformation, the benefits that 250 basis points is going to flow through. As you also point out new products is a different game at Equifax today than it was in '08-'09. The kind of focus the resources and the vitality we're delivering that's going to benefit us in a recession, having more solutions in market and being cloud native. So those are benefits.

And then the fourth point I hit earlier in our comments was around M&A. The acquisitions we've made in the last 24 months, which as you know is well above historical trends, meaning, we've done a bunch of M&A, the 11 acquisitions over $3 billion of TEV, those are in our run rate revenue. But the synergies are kicking in, in the latter parts of '22, '23, '24. So that's going to be a positive for us as we think about the recession. So those are all the factors we put together. We haven't done a revenue, EBITDA, EPS forecast on a recession, but we've tried to share with you some of the factors we think about that are positive and negative, and there's a whole bunch more positives at Equifax certainly today than there was in the last economic event.

[Jeffrey Meuler, Analyst at Robert W. Baird]

Helpful. Thank you.

[John W. Gamble, Chief Financial Officer at Equifax]

And those recession impacted businesses would decline, right, so yeah.

[Jeffrey Meuler, Analyst at Robert W. Baird]

Got it. Thank you.

[Mark W. Begor, Chief Executive Officer at Equifax]

Thanks, Jeff.

[Operator]

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

[Faiza Alwy, Analyst at Deutsche Bank Aktiengesellschaft]

Yes, hi, good morning. Thank you. My first question. I just wanted to clarify on the margin impact of mortgages and product development costs, are you able to size the incremental product development costs, because it seems like your overall EPS guidance is a lot lower than I would have thought, just given the implied revenue decline from mortgages. So I'm curious on how big of an impact, the incremental impact there is from product development costs? And are these new products something that you had plans to invest in 2023 and is that something that you're maybe pulling forward this year?

[Mark W. Begor, Chief Executive Officer at Equifax]

So, by far the largest impact in the reduction in our adjusted EPS, we tried to walk through the drivers right. But in terms of the margin piece, right, outside of interest and outside of the impact of FX, right. By far that the largest driver is obviously the reduction in mortgage and mortgage has very high variable profit, right. So that's what's really driving the reduction in our margin dollars and therefore driving the reduction in our adjusted EPS. And yes, there is some incremental cost that we're investing going forward and as we invest going forward in new products, but that's not the driver. The driver is really the movement in mortgage, right. While we're trying to do is to give you a perspective on, there is a substantial driver and there's some other things that are impacting margins as well. We talked about investments in the development costs, we talked about some mix issues in international as we grow the debt management business and we also talked about the fact that we get a little bit of a benefit because our variable compensation goes down. We are just trying to give you a perspective on the different side levers that are playing within the larger impact of the decline in the mortgage market.

[Faiza Alwy, Analyst at Deutsche Bank Aktiengesellschaft]

Got it. Okay, thank you for that. And then just as a follow-up. I'm curious if -- Experian talked about how there now Fannie Mae has certified them for uncertainty and I'm curious how you think about that like is that relevant or important, like, are there any considerations for your business at all?

[Mark W. Begor, Chief Executive Officer at Equifax]

Sure. It's Mark here. We're aware that Experian is doing some work in investing around the income and employment space. We don't see them commercially yet, meaning that we haven't seen any impacts from their work that they've done. They've got a -- our understanding is a very small dataset compared to our 44 million records or 110 million actives and so we just haven't seen an impact. That said, it hasn't slowed us down in our investments in technology and products and of course in our M&A focus where one of our priorities, one of our top priorities around M&A is to strengthen Workforce Solutions to ensure that we continue to build a moat and the competitive position around the business and including the acquisition we announced this morning of LawLogix is making that business stronger. So we're clearly focused on continuing to build out workforce, which is our largest and fastest growing business.

[John W. Gamble, Chief Financial Officer at Equifax]

In addition to Equifax, there have been multiple companies, that have had uncertainty for several years.

[Mark W. Begor, Chief Executive Officer at Equifax]

Yeah.

[John W. Gamble, Chief Financial Officer at Equifax]

So this is not, this is not anything new.

[Operator]

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

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

I just want to say thanks for everybody for joining the call. If you have any follow-up questions, please feel free to reach out and have a great day. Thank you.

[Operator]

[Operator Closing Remarks]

Participants

Corporate Executives

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

Analysts

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