Mark Begor
Chief Executive Officer at Equifax
Thanks, Trevor, and good morning. Turning to slide four, we executed well in the second-quarter against a challenging mortgage and hiring markets, while delivering on our 2023 financial objectives. We continue to outperform our underlying markets with broad-based 6% non-mortgage growth against a tough 22% comp last year. We continued strong mortgage outperformance and challenging market and very strong new product growth with a record 14% vitality index. We also executed well against the $200 million cloud and broad-based spending reduction program we announced in February and delivered 350 basis-points of sequential margin expansion in the quarter.
Globally, with the exception of the U.S. mortgage at hiring markets, we continue to see good consumer demand across our consumer -- good customer demand across our consumer, commercial and government lines of business. However, the U.S. mortgage market weakened relative to our expectations as we move through the latter portion of the second quarter when mortgage rates moved about 7%, which will impact our results in the second half.
In the quarter, we delivered adjusted EPS of $1.71 per share and adjusted EBITDA margins of 32.7%, both above the guidance we provided in April. Execution against our cloud and broader spending reduction programs is also very strong and drove the 350 basis-points of margin expansion in the quarter.
Revenue at $1.318 billion was close to the midpoint of guidance with USIS and International delivering strong quarter, both above our expectations. EWS non-mortgage revenue up 4% was below our expectations, but off a very strong 52% comp last year, principally due to the weaker hiring market that impacted our talent solutions and onboarding businesses. EWS had outstanding operational execution in the quarter, delivering a new product vitality index of 25% and expanded current twin records by 12% to a 161 million records, a growth of 5 million records sequentially.
EWS also had strong cost management as they are fully operational in the new cloud capabilities, delivering adjusted EBITDA margins of 51.5%, up over 100 basis-points sequentially and stronger than our expectations.
USIS had an outstanding quarter and delivered almost 6% revenue growth, much stronger than our expectations. Total non-mortgage revenue grew 8%, led by 9% growth in our B2B online and 10% growth in Consumer Solutions, and adjusted EBITDA margins at 36% were also stronger than our expectations, expanding over 300 basis-points sequentially.
Total U.S. mortgage revenue from both USIS and EWS was down about 13%, or 24 points better than the 37% market decline from pricing actions, new products, records and penetration. We continue to see stronger than expected consumer shopping behavior in these higher interest-rate environments. So, the weaker mortgage market we saw in June had a much smaller impact on USIS than in EWS, where their mortgage activity is more aligned with closed loans.
International delivered 7% growth in constant-currency, also stronger than our expectations, with double-digit growth in Latin-America and high-single-digit growth in Canada and the U.K. CRA. International delivered 24.2% adjusted EBITDA margins, up 70 bps sequentially and stronger than our expectations.
New product innovation, leveraging our differentiated data assets and new capabilities delivered by the Equifax Cloud is also executing at a very-high level. Our new product vitality Index of over 14% in the quarter was a record for Equifax and 400 basis-points above our 10% long-term vitality goal and up over 100 basis-points sequentially. This is encouraging for the future and reinforces our long-term strategy of leveraging our differentiated data assets, our new Cloud capabilities to deliver new solutions for our customers.
We continue to make-good progress on completing our cloud transformation. At the end of the quarter, over 70% of North American revenue was being delivered from the new Equifax cloud. We are convinced that our Equifax cloud single data fabric and AI capabilities will provide a competitive advantage to Equifax for years to come.
As we look to the second half, we expect the weaker-than-expected U.S. mortgage market that we saw in the latter half of the quarter to continue through the remainder of the year. Our updated guidance is for U.S. mortgage originations to be down about 37% for the year, and about 20% in the second half, a reduction of five points from our prior full-year framework. We expect the EFX mortgage origination outperformance to continue to be very strong in 2023.
We're also expecting to see weaker US hiring market continue for the remainder of the year, impacting Workforce Solutions talent and onboarding businesses. However, we expect to offset the hiring weakness principally from strengthening the Workforce Solutions government business and continued solid performances at USIS and International.
EFX non-mortgage revenue growth was up 6%, up a very strong 22% comp last year. We expect non-mortgage revenue growth to strengthen in the second-half to up 11%, and up over 300 basis-points sequentially relative to the first-half from continued commercial execution and strong new product rollouts.
Our 2023 cloud and broader cost-reduction program executed well in the quarter. As we continue to operate more of Equifax in the new cloud environment, we're seeing more opportunities for efficiencies and expect an additional $10 million of spending reductions in the second half. These new actions will deliver additional run-rate savings of $25 million next year. So, we now expect to deliver spending reductions of $210 million this year and over $275 million in 2024. And as a reminder, the 2023 savings are weighted to the second half, and will deliver $65 million of 2024 run-rate benefit.
We expect the weaker mortgage originations to impact our mortgage revenue by about $40 million in the second-half. Despite the weakening in U.S. hiring, we expect to deliver 2023 non-mortgage revenue growth of about 8% from strong growth in EWS government, USIS non-mortgage in international and stronger NPI growth. This above 8% non-mortgage growth is against a strong 20% non-mortgage growth last year, and well within our 8% to 12% long-term growth framework.
The net impact of the weaker-than-expected mortgage market of about $40 million, partially offset by positive FX is a reduction of our 2023 revenue guidance at the midpoint by $25 million to about $5.3 billion. The impact of the lower mortgage revenue results in a reduction of our full-year 2023 adjusted EPS guidance at the midpoint of $0.22 to $698 per share. We remain focused on delivering EBITDA margins of 36% and over $2 in adjusted EPS per share in the fourth quarter, which we believe sets us up well for 2024 and beyond.
In June, we received shareholder approval for the acquisition of Boa Vista Servicos, the second largest credit bureau of Brazil. We are energized to complete the strategic and financially attractive acquisition. We expect the transaction to close in early August and are actively planning for integration and the transfer of our cloud capabilities, global platforms and products to help accelerate BBS growth. The BBS acquisition will add approximately $160 million of year-one run-rate revenue in the fast-growing Brazilian market, and we expect the transaction to be slightly accretive to year-one adjusted EPS.
The guidance we provided for 2023 does not include BBS. We intend to provide more details on our expectations for BBS in 2023 at our October earnings call after we closed the deal.
Before I cover results in more detail, I wanted to provide a brief overview of what we're seeing in the U.S. economy and the U.S. consumer. Since our April update outside the challenging mortgage in hiring markets, I already discussed, the U.S. consumer, and our customers remain broadly resilient. We continue to navigate a higher interest-rate environment that's negatively impacting the U.S. mortgage market.
Mortgage interest rates have trended upward since April and were slightly above 7% at the beginning of July, and we're just under 7% at the end of last week, which is clearly impacting originations. We expect mortgage originations, as I mentioned earlier, to further weaken in the second half with originations down about 37% in 2023 or 500 basis-points weaker than our April framework.
Broadly, consumers are still strong and working with unemployment at historically low levels, and the market is resilient with 10 million -- roughly 10 million open jobs against 5 million people who are looking for jobs.
Inflation is starting to abate at 3% in July, which should mean we are approaching a peak in Fed interest rates. Consumers are spending and borrowing with average credit card and personal loan balances back above pre-pandemic levels. With consumers working and still leveraging pre-cloud stimulus and savings, delinquencies are still at historic levels, historic low levels, and close to 2019 pre-pandemic levels. Subprime DQs [Phonetic] are the only areas of stress that we're seeing.
We're also seeing credit card and personal loan utilization increases in some delinquent -- with some delinquency increases in subprime, but more broadly, delinquencies are back at pre-pandemic levels, which is, we all know were very low, although there remains significantly below levels we saw in the last economic event in 2009 and '10.
Auto delinquency rates for subprime consumers are above pre-pandemic levels as well as above levels we saw in '08 -- sorry, '09 and '10. We believe there's been some credit tightening by our financial customers, -- principally in FinTech and subprime, and looking-forward, consumers holding student loans will need to resume making payments beginning in October, and we believe removing student loan payment freeze will have a modest increase on -- a decrease in average credit scores.
Beyond the weaker mortgage market and slowing white-collar hiring market, which had a larger impact on EWS than we anticipated in the quarter, the combination of white-collar job reductions and broad hiring freezes has reduced both background screening and onboarding activity. As I mentioned earlier, we expect this to continue in the second half.
Turning to slide 5. Workforce Solutions revenue was down 4% in the quarter. Mortgage revenue was down 20%, but about 3 -- but up about 3 percentage points sequentially. The decline of 20% compares to a mortgage origination down 37% as estimated by MBA based on data through May.
As I mentioned, overall mortgage market performance in the latter part of the quarter weakened relative to our expectations, resulting in lower mortgage revenue than we expected in our April framework.
Strong record growth, the positive impact of 2023 price actions and strong NPI performance, driven by the adoption of our mortgage 36 solution, which is a 36-month trended mortgage product, drove to 17 points of mortgage outperformance by EWS in the quarter. During the quarter, about 50% of TWN mortgage increase were from products that include EWS trended or historical information. And of course, these are all at higher price points.
In the quarter, Workforce Solutions saw declines in low-margin Manual Mortgage Verification Services revenue as some customers moved some of these activities back in house. And this negatively impacted mortgage outperformance by about 300 basis-points in the quarter. EWS had another very strong quarter of record additions with an incremental 5 million records added to the TWN database, ending the quarter with 161 million current records, which was up 12% with 120 million unique records or assets ends, which was up almost 10%. Over the past five years, EWS has doubled the size of the TWN database, a strong testament to the record acquisition strategy EWS has executed across the multiple segments of direct employers, third-party payroll providers, HR software management companies, pension administrators and self-employed individuals.
As a reminder, TWN'S 120 million unique records represent individuals or SSNs on the TWN database and there are 161 million current records represent current active jobs on the database, which means there is close to 40 million individuals in our dataset that have more than one job.
Including self-employed or 1099 employees and people on defined-benefit pension plans, we now cover just over 50% of the 220 million working and income-producing individuals in the United States. And, through our cloud tech transformation, we're expanding our capabilities to ingest all levels of records, including 1099 based self-employment records.
And as a reminder, about 50% of our records are contributed directly by individual employers as they are customers of our expanding Employer Services business, and the remaining are contributed through partnerships, principally with payroll companies. During the quarter, we signed agreements with four new payroll processors that will deliver records during the rest of the year.
Between database, now has 631 million total current and historical records from over 2.8 million employers in the United States. Increasingly more of our new products are incorporating current and historical records with about 50% of second-quarter verification services revenue coming from products that included historical records.
Turning to slide six. Workforce Solutions delivered non-mortgage revenue growth of about 4% with non-mortgage revenue now representing over 70% of Workforce Solutions revenue. And as a reminder, EWS non-mortgage revenue was up a very strong 52% in second-quarter last year, which was a very tough comp.
Verification Services non-mortgage revenue, which now represents about two-thirds of Verifier revenue delivered 4% growth both sequentially and versus last year in the quarter, which was below our expectations. This was also against a very challenging 90% non-mortgage growth comp by Workforce Solutions last year. The miss versus expectations was predominantly in talent solutions from weaker white-collar hiring. Government performed exceptionally well, consistent with the high growth that we had expected, and consumer finance declined somewhat in the quarter. In government, we saw continued very strong growth with revenue up 21%, off over 100% growth last year in second quarter. And revenue also up almost 10% sequentially, driven by strong growth with CMS at the state-level, new products in TWN record growth, and government now represents about 45% of Verifier non-mortgage revenue. We expect to see accelerating sequential growth in our government vertical in the second half, driven by growth from CMS, Medicaid redeterminations, ACA open enrollment volume, further state penetration and pricing from state contract renewals.
We began to see incremental volumes from CMS redeterminations in May and expect to see this accelerate in the second half. This strong sequential growth will also the result in accelerated second-half EWS growth rates.
Talent Solutions was down 6% in the quarter, but up about 1% sequentially, as we're comping off a very strong 130% growth last year from record levels of hiring in the second quarter. Also, as a reminder, we are currently more heavily penetrated to white-collar workers, including technology, professional services, healthcare and financial services, which has seen greater reductions in hiring activity and broader hiring freezes, than the about 7% decline that BLS is reporting through May.
Approaching 70% of Talent Solutions revenue in the quarter was from industries that had negative hiring growth versus last year with many of those industries having significant double-digit negative growth in the quarter. We are outgrowing the declining market from penetration of our digital solutions with background screeners, strong new product growth, continued expansion of TWN records and favorable pricing. We are also seeing continued customer penetration of our new differentiated educational products. We expect these new products to continue to drive above underlying market talent revenue growth through 2023 and into 2024 and beyond.
The consumer lending vertical in Workforce Solutions, which includes P Loan, card, auto and debt management was about flat sequentially but down 11% versus last year to lower auto volumes with financial services and P loan declines with FinTech lenders both principally in the subprime space. We expect modest consumer lending sequential growth in the second half driven by record growth penetration in pricing. This will result in revenue growth in second half as we lap 2022 headwinds in the auto and P loan verticals.
In total, we expect to see accelerated sequential growth in Verifier non-mortgage in the second half, driven by strong government growth as well as moderate sequential growth in Talent and Consumer Lending.
Important Services revenue of $109 million was up 4% driven by growth in our I-9 and onboarding businesses despite the negative impact of U.S. hiring. In total, our UC and ERC businesses were up slightly. Despite the slowdown in U.S. hiring, we have not seen an increase in UC revenue yet. As a reminder, first-quarter employer service revenues were seasonally higher than other quarters due to the higher affordable Care Act and W2 volumes. In the third and fourth quarters, we expect to see overall growth in Employer Services sequentially from second-quarter levels, driven by penetration and I-9 onboarding.
Workforce Solutions adjusted EBITDA margins of 51.5% were up 110 bps from first-quarter, and in-line with our April guidance from strong operational execution. EWS team continued to perform well, despite the macro headwinds for mortgage and U.S. hiring, outperforming the underlying markets from strong record growth, new products, penetration and price.
As shown on slide 7, USIS revenue of $445 million was up 6% and much better than our expectations due to stronger mortgage and non-mortgage performance. USIS mortgage revenue was down less than 1% and outperformed the mortgage market credit inquiries that were down 33% by more than 30 points. This strong pricing environment that we discussed in April both from the addition of telco and utility attributes to our new mortgage credit solution and the increased pricing for credit scores drove the very strong outperformance. At $113 million, mortgage revenue was 25% of total USIS revenue in the quarter.
Mortgage credit inquiries again outperformed MBA's current estimate of originations by about 5 points from increased shopping behavior. We expect this increased shopping behavior to continue as we move through the remainder of the year.
Total non-mortgage revenue of $332 million was up 8% in the quarter with organic growth of about 4% and better than our expectations. B2B non-mortgage revenue of $278 million, which represented over 60% of total USIS revenue was up 7% with organic revenue growth of 3%. B2B non-mortgage online revenue growth was up 9% total and 3% organically. During the quarter, online revenue at strong double-digit growth in commercial and Identity and Fraud with auto approaching 10% growth, and telco and insurance growing low-single digits.
Banking was up slightly, consistent with first-quarter with market volumes at larger financial institutions offsetting declines with smaller financial institutions and FinTechs that were more principally focused on subprime. Financial Marketing Services, our B2B offline business had revenue of $56 million that was up 1%. Strong revenue growth and fraud and header as well as risk and account reviews was partially offset by declines in marketing, principally pre-screen marketing with ISI wealth revenue growth about flat.
Pre-screen marketing revenue was at similar levels at first-quarter as we continue to see significant weakness from smaller FIs and FinTechs in the subprime space, which was partially offset by growth from larger FIs. USIS is using the power of their Ignite platform along with the proprietary data to ensure customers -- to enable customers to drive deeper marketing insights and identifying extending offers to better prospects, delivering better marketing performance management. USIS has seen incremental penetration and growing pipeline from our advanced Ignite capabilities.
We did see limited growth in our portfolio review business, but I've not seen a meaningfully increased -- a meaningful increase in our risk-based portfolio reviews that typically pick-up during challenging economic times. USIS Consumer Solutions direct-to-consumer business had another strong quarter with revenue up $54 million, up 10% from very good performances in both our consumer-direct and indirect channels. USIS is winning in the marketplace with strong momentum from new solutions and differentiated data in key verticals of identity and fraud, commercial and auto.
We're also in active dialogs with USIS customers about the competitive benefits of the Equifax Cloud that will deliver always-on stability, faster data speeds and Equifax cloud-enabled new products, which is driving a strong active new deal pipeline, which was up from the first-quarter. Todd, in the USIS team are on offense as they complete their cloud transformation and pivot to leveraging our new cloud capabilities to deliver new products.
USIS adjusted EBITDA margins were 36% in the quarter, up 340 basis-points sequentially and the strongest USIS margins since the beginning of the mortgage market decline a year ago. EBITDA margins were up sequentially from better-than-expected revenue performance and good execution against their cloud and broader cost-reduction program.
Turning to slide 8. International revenue was $290 million, up 7% in constant-currency and better than our expectations. Europe local-currency revenue was down 2% due to the expected about 16% decline in our U.K. debt management business. As we discussed previously, our U.K. debt management business was very strong in the first-half last year as the U.K. government made large catch-up debt placements following COVID debt collection moratoriums. As a result, we expect to see declines in the first half versus last year, we expected to see those declines. However, we do not expect -- we do expect to see consistent sequential debt management growth as we move through the second-half, and we expect debt management to return to revenue growth later this year.
Our U.K. and Spain CRA business revenue was up 7% in the quarter in a very good performance. This strong performance was driven principally by strong growth within identity and fraud decisioning, consumer and direct-to-consumer.
Asia-Pacific delivered solid local-currency revenue growth of 4% with growth in commercial identity and fraud and D2C, as well as continued very strong growth in our India business, which was up 38% in the quarter. Latin-America local currency revenue was up a very strong 23%, driven by double-digit growth in Argentina, Uruguay, Paraguay and Central America from new product introductions and pricing actions. This is the ninth consecutive quarter of strong double-digit growth for Latin-America, which we expect to continue in the second-half.
Canada local-currency revenue was up 8% with broad-based growth in consumer identity and fraud decisioning and commercial. In Canada, we recently-completed a full migration to our new cloud-based fraud IQ exchange, and now have all of our Canadian fraud exchange customers on this new cloud-based solution.
International adjusted EBITDA margins of 24.2% were up 70 basis-points sequentially and better than our expectations. The improvement was driven by good execution against their 2023 cost-reduction plans.
Turning now to slide 9, in the second-quarter, overall non-mortgage constant dollar revenue growth of 6% was lower than our expectations, but against a very strong 22% growth last year. USIS and International both delivered stronger non-mortgage growth than we expected. This was offset by the slower growth in EWS non-mortgage that I mentioned earlier in Talent and onboarding, despite their very strong growth in their government business. As we look to the second-half, we expect non-mortgage revenue growth to grow sequentially in third and fourth quarter, led by very strong growth in the EWS government business and growth in EWS Talent and Consumer Lending from new products.
We also expect continued strong performance in USIS and International, resulting in third quarter Equifax non-mortgage revenue growth above 9%, which is well within our 8% to 12% long-term growth framework.
Turning to slide 10, new product introductions, leveraging our differentiated data and the Equifax cloud are central to our EFX 2025 growth strategy. In the second quarter, we launched over 30 new products and delivered a record 14% vitality index. Our second quarter VI was again led by strong performances in EWS in Latin-America. In the second-quarter, over 80% of our new product revenue came from non-mortgage products, leveraging the Equifax Cloud.
Leveraging our Equifax cloud capabilities to drive new product rollouts, we expect to deliver a Vitality Index of approximately 13% in 2023, which is 300 basis-points above our 10% long-term Vitality goal index. This equates to about $700 million of revenue in 2023 from new products introduced in the past three years. New products leveraging our differentiated data, Equifax cloud capabilities and single data fabric are central to our long-term growth framework and driving Equifax top-line and margins.
On the right-side of the slide, we highlighted several new products introduced in the quarter. These new solutions are a testament to the power of the Equifax Cloud and driving innovation that can increase the visibility of consumers to help expand access to credit and create new mainstream financial opportunities. We launched a new product this quarter, Talent Report Flex 2.0, a customizable pre-hire employment verification solution that helps solve the challenge background screeners and HR professionals may experience when seeking to verify a candidate specific employment records. With unique and first-to-market employer preview option, a list of employer names is now available on the work number using the candidate's SSM. This allows the customization of the employment history report by selecting only the records want it. With the power the Equifax Cloud, we're bringing new solutions to market to meet the needs of our customers.
Turning to slide 10, we are very excited to receive shareholder approval for our new Boa Vista acquisition in late June. BBS in the second-largest credit bureau in the fast-growing Brazilian market with over $2 billion TAM. We expect the transaction to close in early August, and Equifax will be able to provide Boa Vista with access to expansive Equifax international capabilities, our cloud-native data, products decisioning and analytics technology for the rapid development of new products and services and expansion into new verticals like identity and fraud in Brazil.
As a reminder, we mentioned earlier, we expect Boa Vista to deliver approximately $160 million in run-rate revenue to Equifax and to be accretive to adjusted EPS in the first year. And as I mentioned earlier, Boa Vista results are not included in the guidance we're providing today, we'll provide more detail and Boa Vista's impact in 2023 during October earnings call, after the transaction is closed.
Given the size of the transaction, we plan to pause on M&A activity in the second half to focus on integration of BVS and our '21 and '22 acquisitions, and our intention is to use excess free-cash flow over the coming quarters to pay down debt and reduce our leverage.
Turning to slide 12, we believe that artificial intelligence is fundamentally changing Equifax business capabilities and is becoming table stakes for data analytics companies to manage increasingly large, diverse and complex datasets within a highly regulated data, bringing unique complex challenges around AI explainability.
On the left-side of slide 12, our large and diverse proprietary database -- dataset is a big differentiator for Equifax, including our income and employment data, traditional alternative credit data, cellphone utility and pay TV data, identity and fraud data and our Commercial and Wealth data. This proprietary data at scale linked in our new single data fabric gives us significant advantages in using AI to build advanced models, scores and products, including identity and fraud solutions enabled by our best-in class Equifax cloud-native technology.
To date, Equifax as about 70 approved AI patents supporting our AI neuro decisioning technology which we call NBT and explainable AI, which is critical to ensuring that the correct data is used to make credit decisions that is surfaced by AI models and Scores.
Equifax will continue to invest in AI, as we remain on off rents, leveraging Google's Vertex AI capabilities combined with our own Equifax NDT capabilities, will be building more predictable and valuable models and scores with our expanding dataset and accelerating at speed at which we develop new models Scores and products to bring more current solutions to our customers. We believe Equifax is uniquely positioned to capture the value of AI going forward.
Now I'd like to turn it over to John to provide more detail on our third quarter and full-year guidance. We're executing very well against our strategic priorities and delivering revenue growth and expanding margins in a challenging macro environment.
