Mark W. Begor
Chief Executive Officer at Equifax
Thanks, Trevor, and good morning. Turning to slide 4, we continue to face a very challenging U.S. Mortgage market that weakened substantially in August and September beyond our July framework, with mortgage rates moving above 7% and now approaching almost 8% over a 20-year high. Revenue in the third quarter was $1.32 billion, was up 6% on a reported basis, 6.5% on a constant currency basis, and 3.5% on an organic constant currency basis. And adjusted EPS of $1.76 per share was up 2% versus last year.
In the quarter, BVS, the Brazilian credit bureau that we acquired in August had revenue of $23 million and contributed $0.02 per share to adjusted EPS, which was not in our July framework for the third quarter. Overall, Equifax revenue of $1.32 billion was $34 million below the midpoint of the guidance we provided in July, which excluded Brazil, driven primarily by the weaker U.S. mortgage market and FX. Together, these items impacted revenue by about $28 million and adjusted EPS by about $0.10 per share. Adjusting for the mortgage market and FX impact, revenue in the third quarter would have been just below the midpoint of our July framework, and both adjusted EPS and EBITDA margins would have exceeded the framework we provided in July.
Overall mortgage market volumes measured based on our credit and twin [Phonetic] inquiry volumes were on the order of 650 basis points weaker than we expected in our July guidance. Mortgage rates increased substantially during the quarter, with a 100 basis point increase in the 10-year treasury rate driving mortgage rates to almost 7.5% in September. The mortgage volume decline negatively impacted mortgage revenue by about $22 million, and the strengthening dollar negatively impacted revenue versus our July expectations by about $6 million. U.S. mortgage revenue from EWS and USIS was down about 8%, reflecting the significantly weaker mortgage market conditions. Mortgage outperformance relative to the mortgage industry volumes I referenced remains strong in both USIS at over 30% and EWS at 22%. Non-mortgage constant dollar revenue was up a strong 11% in the quarter and was up 8%, excluding revenue from BVS against a strong 20% growth last year. Non-mortgage constant dollar organic growth was up 7% versus last year, with our non-mortgage growth rate strengthening 300 basis points sequentially from the second quarter. Non-mortgage growth was led by EWS that was up over 11% and up 800 basis points sequentially, and USIS that was up almost 8.5% and up 50 bps sequentially. International organic non-mortgage revenue growth at 3% was slightly weaker than our expectations, principally due to lower revenue in our U.K. debt management business.
We had another very strong quarter in new product growth with a record 15% Vitality Index, which is well above our 10% long term growth framework for NPIs. As I referenced earlier, despite the much lower-than-expected mortgage revenue in the third quarter, we delivered adjusted EPS of $1.76 per share and adjusted EBITDA margins of 33.1%. Excluding BVS, we delivered adjusted EPS of $1.74 and adjusted EBITDA margins of 33.3%, up 60 bps sequentially, both in line with the guidance we provided in July, while absorbing the significant impact of the $22 million of lower mortgage revenue. The impact of lower mortgage revenue and FX negatively impact adjusted EPS by about $0.10 per share.
We delivered very good execution against our $210 million cloud and broader spending reduction programs, which allowed us to grow margins sequentially in the quarter, despite the lower mortgage revenue. We continue to expect to deliver spending reductions of $210 million in 2023, with $120 million benefiting operating expenses and over $65 million of incremental run rate savings in 2024. We also continue to make good progress on completing our cloud transformation with large North American customers migrating to the cloud during the quarter. We expect both USIS and Canada to complete their credit exchange cloud migrations in the first half of 2024. At the end of the quarter, about 75% 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 in the future.
As we look to the fourth quarter, we expect revenue of $1.317 billion, adjusted EPS of $1.77, and adjusted EBITDA margins of 34%, at the midpoint of our guidance ranges. This includes about $38 million of revenue from BVS, which adds about 3% to our revenue growth. We expect fourth quarter revenue would be up 10% with organic constant dollar growth of 7%, adjusted EPS to be up over 16%, and adjusted EBITDA margins will expand about 300 basis points versus last year. Non-mortgage constant dollar growth is expected to be strong at about 13%, with organic growth of about 9% led by EWS, which should deliver over 15% non-mortgage growth. However, excluding BVS, this framework is about $70 million below the implied fourth quarter revenue guidance of $1.35 billion at the midpoint we provided in July. The sharp decline in the mortgage market and FX drive the majority, or about $60 million, of this decline.
Our guidance assumes the substantially weakening trends in the U.S. mortgage market that we're currently seeing continue through the remainder of the year, and that we also see normal seasonal mortgage declines in November and December. On this basis, we're assuming U.S. mortgage credit inquiries will be down about 22% in the fourth quarter, driving a reduction in overall mortgage volumes of about 18 percentage points versus the guidance implied for the fourth quarter in our July framework. This negatively impacts mortgage revenue in the fourth quarter by about $47 million. At these levels, U.S. mortgage activity will be down an unprecedented more than 50% from 2015 to '29 [Phonetic] averages, which we consider to be normal mortgage market levels.
We expect FX to negatively impact revenue in the fourth quarter versus our July guidance by $13 million. The net impact of this $70 million reduction in revenue is driving the reduction in EPS and EBITDA margin from our original fourth quarter goals of $2 a share and 36%, respectively. The second half of 2023 has clearly been very challenging, as the accelerated decline in the U.S. mortgage market in August and September, as well as FX, negatively impacted revenue by almost $90 million. Like many, we are struggling to forecast the bottom of the mortgage market in this unprecedented environment of Fed rate increases, driving mortgage rates up over 2 time to 20-year highs in such a short 20-month timeframe.
Outside the unprecedented mortgage market decline, we are executing extremely well. As I'll cover in the remainder of my remarks, we are delivering accelerated non-mortgage growth, executing on our cloud customer migrations, and overall cost plans, outperforming our expectations for new products and adding new EWS record partnerships and records at an accelerated pace, adding over 25 million records since the beginning of last year. In both our mortgage and non-mortgage businesses, we are continuing to outgrow our underlying markets.
Before I cover our business unit results in more detail, I wanted to provide a brief overview of what we're seeing in the U.S. economy and consumer. Outside of the challenging U.S. mortgage market, the U.S. consumer and our customers remain broadly resilient. Employment remains at record historic levels, with low unemployment and about 10 million open jobs against about 5 million people who are looking for jobs. Excess consumer savings built up during the pandemic still exist; however, have declined to the lowest levels since the second quarter of 2020, particularly amongst lower and middle income households. Credit card utilization is increasing. Credit card delinquency rates for prime consumers, which represent about 20% of the market, are stable, but are above pre-pandemic levels and less than 1%. However, subprime borrower delinquencies, which have been increasing over the past year, are now above pre-pandemic levels and approaching the levels we saw in 2009 and 2010. Auto delinquency rates for prime consumers, which represent about 20% of the market, are also stable but above pre-pandemic levels and still well below 1%. Delinquencies for subprime consumers are above pre-pandemic levels as well above levels that we saw in 2009 and 2010. And any customer credit tightening has largely been in fintech and subprime, which started over a year ago. Overall, still a solid market for Equifax outside of mortgage and hiring. When consumers are working, they largely have the capacity to keep current on their financial obligations.
Turning to slide 5. Overall Workforce Solutions revenue was up 3% in the quarter, a return to growth, which is a very positive sign as we look towards 2024. Strong twin record growth, the positive impact of 2023 price actions, and strong NPI performance driven by the adoption of mortgage trended data, drove a strong 22 points of mortgage outperformance again in the quarter. EWS had another very strong quarter of record additions, with an incremental 2 million current records added to the twin database. EWS closed the third quarter with 163 million current records on 121 million unique individuals, or SSNs, which was up 12% and 9%, respectively, versus last year. Total records, both current and historic, are now over 640 million, and we now have current records on over 70% of U.S. non-farm payroll and over 50% of the 220 million people in the U.S. with employment and income records relevant to the Twin database.
The EWS team has acquired over 11 million records so far in 2023 that are driving top line growth and will significantly benefit verifier revenue growth when the U.S. mortgage and white-collar hiring markets recover. During the quarter, we signed agreements with four new payroll processors that will deliver records in the fourth quarter and 2024, and over the past three years, we've added partnerships with 27 payroll processors. As a reminder, about 50% of our records are contributed directly by individual employers from our Employer Services customer relationships. The remaining 50% are contributed through partnerships with payroll processors, HR software companies, pension administrators, and other relationships. Increasingly, more of our new products are incorporating both current and historical records, with about 50% of our third quarter Verification Services revenue as well as about 50% of our mortgage Verification Services revenue coming from products that include historical records.
Turning to slide 6. Workforce Solutions delivered strong non-mortgage revenue growth of 11%, a return double-digit revenue growth with the growth rate up about 800 basis points sequentially. And as a reminder, EWS non-mortgage revenue was up a very strong 40% in the third quarter last year, which, of course, was a very tough comp. Verification Services non-mortgage revenue, which represents just under 70% of verifier revenue, delivered 11% growth versus last year in the quarter. This was also against a very challenging 72% non-mortgage growth comp last year.
In government, we saw continued very strong growth with revenue up 23%, compared to over 90% revenue growth last year in the third quarter. Government revenue was slightly lower than our expectations due to timing of Medicaid redetermination volumes. We continue to expect that EWS will capture significant volume from these redeterminations as they complete prior to the end of the second quarter of next year. During the quarter, we signed a contract extension to provide income verification to the U.S. Centers for Medicare and Medicaid Services as a part of a contract valued at up to $1.2 billion over the next five years. This contract is the largest in Equifax's history and extends our services via healthcare.gov for ACA-related determinations, while allowing Workforce Solutions to continue to work to penetrate the state level Medicaid Verification Services market.
Also during the quarter, USDA's Food and Nutrition Service awarded a national contract to Equifax Workforce Solutions to provide verification services in support of the Supplemental Nutrition Assistance Program, commonly known as SNAP. The award is for $38 million in the base year, which we began on September 30th, with a potential total contract value of $190 million. These large new EWS government contracts reflect the uniqueness of the twin data supporting the delivery of social services at the U.S. federal, state, and local level. These new contracts give us confidence in strong future EWS growth in the large $4 billion TAM for our government vertical. We expect to see accelerating sequential growth in our government vertical in the fourth quarter, driven by growth from CMS Medicaid redeterminations, ACA open enrollment volume, further state government penetration, and pricing from state contract renewals, as well as revenue from the new SNAP agreement with the USDA.
Talent Solutions was up 6% in the quarter versus a very strong over 110% growth last year in the third quarter from record levels of U.S. hiring. As a reminder, we are currently more heavily penetrated to white collar workers, including technology, professional services, healthcare, and financial services, which has seen a greater reduction in hiring activity and broader hiring freezes than the about 10% decline that the BLS reported in the third quarter through August. We outperformed the hiring market by about 20 percentage points in the quarter as we delivered new digital solutions and background screening, strong new product growth, continued expansion of twin records, and pricing.
Employer Services revenue of $118 million was up 13%, driven by growth in our I-9 and onboarding businesses, despite the negative impact of U.S. hiring as well as growth in our ACA business. In the fourth quarter, we expect overall Employer Services revenue to decline slightly as growth in I-9 and onboarding is offset by declines in ERC revenue as the U.S. government has suspended processing new ERC claims.
Earlier this year, we announced the launch of PeopleHQ, a workforce solution, cloud-native solution that brings together multiple best-in-class employer compliance services in a single unified customer experience. PeopleHQ will help companies of all sizes access EWS Employer Services, including income verification, I-9 and ACA from our new self-service portal. Since the launch of PeopleHQ in the first quarter, EWS has onboarded about 45,000 companies, which also delivers new records for twin. Workforce Solutions adjusted EBITDA margin of 50.9% was up 140 basis points versus last year but down 60 basis points from the second quarter from the mortgage market decline. The EWS team continued to perform very well despite the macro headwinds from mortgage and U.S. hiring, outperforming their underlying markets from strong twin record growth, penetration, new products, and price.
As shown on slide 7, USIS revenue of $426 million was up over 7% and down slightly from our expectations due to the impact of the much weaker mortgage market. USIS delivered strong non-mortgage revenue growth of about 8% in the quarter. USIS mortgage revenue was up 4% and outperformed the mortgage credit inquiries that were down 29% by 33 points. The strong pricing environment that we discussed in July drove very strong outperformance. At $101 million, mortgage revenue was 24% of total USIS revenue in the quarter.
B2B non-mortgage online revenue growth was up a very strong 10% total and up 6% organically. During the quarter, online revenue had strong double-digit growth in commercial and banking and lending from strong identity and fraud revenue and mid-single-digit growth in auto and insurance, offset by declines in telco and direct-to-consumer. USIS also saw strong double-digit growth in count from very good new business and NPI performance.
Financial Marketing Services, our B2B offline business, had revenue of $51 million that was down just under 1%. In marketing, declines in prescreen marketing revenue in the quarter that were consistent with declines in the first half, more than offset nice revenue growth from our IXI consumer wealth data business. In prescreen, we continue to see weakness with the smaller FIs and fintechs in the subprime space offset by growth with larger FIs. Within risk and account reviews, we did see limited growth in our portfolio review business, but we have not seen a meaningful increase in risk-based portfolio reviews that are typical during challenging economic periods.
USIS Consumer Solutions D2C business had another very strong quarter with revenue of $56 million, up 12%, from very good performances in both our consumer direct and our indirect channels. USIS adjusted EBITDA margins were 34.2% in the quarter and slightly below the 35% we had guided from the impact of weaker mortgage market as well as higher technology spend as we migrate customers to the new cloud data fabric. Todd and the USIS team are on offense as they work to complete their cloud transformation and pivot to leveraging their new cloud capability to deliver new products and drive share gains. In the third quarter, USIS onboarded a new large FI customer to our new cloud platform, which we expect to deliver share gains moving forward.
Turning to slide 8. International revenue was $316 million, up 12% in constant currency and up 3% in organic constant currency and below the 4.5% growth we had guided to in July due to the greater decline in our European debt collection revenue than we expected. Europe local currency revenue was down 2% in the quarter. Our U.K. and Spain CRA business revenue was up a very strong 8% in the quarter, a very good performance offset by the weaker-than-expected 17% decline in our U.K. debt management business. We expect Europe to deliver almost 10% growth in the fourth quarter from continued strength in the CRA business and a return to growth in our debt management business as we lap difficult comps from last year.
Latin America local currency revenue, including Brazil, was up a very strong 21% comping off a very strong 34% growth in the third quarter of last year, driven by double-digit growth in Argentina and Paraguay and from new product introductions and pricing actions. We expect LATAM to deliver strong double-digit revenue growth again in the fourth quarter. Canada and Asia Pacific both delivered low-single-digit growth in the quarter as we expected. International adjusted EBITDA margins of 26.3% were up 210 basis points sequentially. Excluding Brazil, adjusted EBITDA margins of 26.8% were up 260 basis points and in line with our expectations, the improvement was driven by revenue growth and good execution against their 2023 cost reduction plans by Lisa and her international team.
Turning to slide 9. In the third quarter, overall non-mortgage constant dollar revenue growth grew a strong 11%, with organic growth of 7%, both inside our long-term framework. Positively, this was up 300 basis points sequentially. The acceleration in organic revenue growth was driven by strong 11% EWS non-mortgage growth and improvement of about 800 basis points sequentially. As we look to the fourth quarter, we expect non-mortgage revenue growth to be about 13%, with organic growth of about 9% above the levels we delivered in the third quarter. The acceleration in organic growth is expected to be led again by EWS with growth of over 15% driven by their government and talent businesses.
Turning to slide 10. New product introductions, leveraging our differentiated data and new EFX Cloud are central to our EFX 2025 growth strategy. In the quarter, we delivered a record 15% Vitality, again led by very strong performances in EWS and Latin America. EWS non-mortgage VI in the quarter was over 25%, a very strong performance. And in the third quarter about 85% of new product revenue came from non-mortgage products leveraging the EFX Cloud. Leveraging our new EFX Cloud capabilities to drive new product rollouts, we expect to deliver Vitality Index of approximately 14% in 2023, which is about 400 basis points above our 10% long-term Vitality Index goal. Importantly, second half USIS VI is expected to be up about 100 bps higher than first half as we are closer to cloud completion and able to leverage our new cloud-native infrastructure in USIS for innovation and new products. This is broadly positive momentum for 2024. On the right side of the slide, we've highlighted several new products introduced in the quarter. These new solutions are a testament to the power of the Equifax Cloud and AI in driving innovation that can increase the visibility of consumers to help expand access to credit and create new mainstream financial products while driving Equifax's top line.
Turning to slide 11. We're very excited to have closed the Boa Vista acquisition in early August and welcomed the Boa Vista team to Equifax. We're focused on driving growth in Brazil and expanding BVS's capabilities by deploying our cloud-based decisioning and analytical products, as well as expanding in new verticals like identity and fraud. In the third quarter, for the period after our acquisition closed on August 7, EFX Brazil delivered revenue of $23 million and was accretive to adjusted EPS by $0.02 per share. Going forward, Brazil will be included in our Latin American region for reporting. And as a reminder, we expect Brazil to deliver approximately $160 million in run rate revenue to Equifax and to be accretive to adjusted EPS in its first year.
And now I'd like to turn it over to John to provide more detail on our fourth quarter and full year guidance. John?
