Equifax Inc. (EFX) Earnings

Management highlights

- Overall Financial Results * Q2 2026 total revenue was $1.7 billion, up 11% reported / 10% constant currency, $5 million above the prior guidance midpoint. Excluding FICO mortgage royalties, revenue grew ~7% year-over-year. * Adjusted EPS was $2.25 per share, up 13% year-over-year and 5 cents above guidance. Adjusted EBIT was $552 million, up 10.5% year-over-year. Adjusted EBITDA margin excluding FICO was almost 35%, up 120 basis points year-over-year and 40 basis points above guidance. * Equifax returned $366 million to shareholders in Q2: $300 million in share repurchases and $66 million in dividends. Over the last 12 months, the firm has returned $1.6 billion, equal to 100% of operating cash flow. - Strategic Milestones * Definitive agreement signed to acquire Circulo de Credito, the fastest-growing credit bureau in Mexico, for an enterprise value of $750 million, representing a 9.4x EBITDA multiple including expected run-rate synergies. Circulo has 23% historical CAGR revenue growth, 31% LTM revenue growth, and mid-40% adjusted EBITDA margins, with 40% of 2025 revenue coming from fast-growing FinTech clients. The acquisition is expected to close in Q4 2026 and be accretive in year one. * 54 new AI-enabled products launched in H1 2026, driving a 16% new product vitality index, above the 2026 full-year target of 15% and the long-term target of 10%. Over 50% of new products launched in H1 have embedded AI capabilities. * EWS government signed $300 million in total annual contract value (ACV) over the last four months: $100 million in new business (primarily for 2027 revenue) and $200 million in contract renewals, with a 2x larger deal pipeline than last year, supported by new OB3 legislation requirements for income verification in Medicaid and SNAP programs. * Active Twin records grew 10% year-over-year to 217 million, with 124 million current active records representing 108 million unique Social Security numbers, against a total TAM of 250 million income-producing Americans. - AI Deployment * Management doubled the AI-driven internal productivity savings target from $75 million to $150 million for 2026-2028, driven by faster-than-expected adoption across operations, technology, and G&A functions. Early gains are already visible in call center authentication, document processing, dispute resolution, software development, cybersecurity, and cloud cost optimization. * Equifax maintains a strong proprietary data moat: over 90% of revenue comes from unique, regulated contributed proprietary data sources across 100 global data exchanges that cannot be accessed by third parties. New AI-powered customer solutions include Ignite AI Advisor (generative AI chat for customer analytics, launching in Canada in Q3) and Equifax IQ (AI-powered policy optimization, currently implemented in Latin America with expansion to the US in 2026-2027). - Capital Allocation * Equifax expects 2026 free cash flow of over $1 billion with over 100% cash conversion. With over $1.5 billion in available financial capacity, the firm will complete the Circulo acquisition, maintain debt leverage below 3x EBITDA, and continue share repurchases in H2 2026 at a slower pace than H1.

Guidance

- Full Year 2026: * Reported full year guidance is unchanged from April. Constant currency guidance was raised to reflect the Q2 revenue beat, offset by negative foreign exchange impacts. * Excluding FICO mortgage royalties, full year 2026 revenue growth is expected to be 7.2% to 8.4%, aligned with the long-term 7-10% organic growth framework. * EBITDA margin excluding FICO is expected to expand 75 basis points, 25 basis points above the long-term framework target. * Free cash flow is expected to exceed $1 billion with cash conversion of at least 100%. * U.S. mortgage revenue is expected to grow just above 20%, despite overall mortgage originations expected to be down low single digits (at the lower end of the prior guidance range due to recent rate increases), offset by ongoing share gains. - Third Quarter 2026: * Total revenue is expected to be $1.68 billion to $1.71 billion, up almost 10% year-over-year on a reported basis at the midpoint, with 9.5% constant currency growth. * Excluding FICO, revenue is expected to grow ~7% year-over-year at the midpoint. Diversified markets revenue is expected to grow mid-single digits in constant currency, up sequentially from Q2 driven by stronger EWS growth. * EPS is expected to be $2.15 to $2.25 per share, up ~8% year-over-year at the midpoint. * EBITDA is expected to be $547 million to $564 million, up ~10% year-over-year at the midpoint, with an EBITDA margin of 32.8% at the midpoint. Excluding FICO, EBITDA margin is expected to be 34.6% to 35%, up over 90 basis points year-over-year at the midpoint. * Guidance assumes limited VantageScore revenue in 2026, with updates planned as adoption clarity emerges.

Segment performance

1. Workforce Solutions (EWS): Total revenue grew 7% year-over-year (above management expectations). Diversified markets (talent solutions and consumer lending) grew 7%, with both segments delivering high double-digit revenue growth. Government revenue declined 4% year-over-year due to challenging 2025 comparables. Mortgage revenue grew 8% year-over-year, outperforming underlying market volumes by high single digits. EBITDA margins were 52.1%, consistent with Q1 2026 and above expectations driven by operating leverage from stronger diversified markets revenue. This segment contributes approximately 47% of total Equifax adjusted EBITDA. 2. U.S. Information Solutions (USIS): Total revenue grew 17% year-over-year, or 6% excluding FICO mortgage royalties, in line with long-term targets. Diversified markets revenue grew 6%, accelerating 300 basis points sequentially and above expectations. B2B revenue grew 5%, accelerating 300 basis points sequentially, with high single-digit growth in financial institutions (FI) and auto, partially offset by weakness in third-party bureau sales to competitors. Consumer Direct D2C revenue grew 11%. Mortgage revenue grew 40% year-over-year, or mid-single digits excluding FICO royalties, despite industry origination volumes coming in below expectations. Total EBITDA margins were 32.8%; excluding FICO, EBITDA margins were 40.5%, up 140 basis points year-over-year driven by stronger revenue growth and cost management. VantageScore transaction volumes grew almost 3x quarter-over-quarter to 2.2 million. This segment contributes approximately 38% of total Equifax adjusted EBITDA. 3. International: Total revenue grew 4% year-over-year in constant currency. High single-digit growth in Asia Pacific, mid-single-digit growth in Canada, and low single-digit growth in Latin America and Europe, with headwinds from market weakness in Canada and the UK. Brazil, Chile, and Argentina delivered solid mid-to-high single-digit growth. EBITDA margins were 27.6%, up 120 basis points year-over-year driven by technology cost savings from the final stages of cloud transformation and strong cost management. This segment contributes approximately 15% of total Equifax adjusted EBITDA.

Risks & headwinds

- Ongoing Middle East conflict has sustained higher inflation, which disproportionately pressures lower-income/subprime consumer credit quality, though high current unemployment has limited broad-based credit impacts to date. * Elevated and rising mortgage interest rates have suppressed U.S. mortgage origination volumes below prior guidance expectations, with continued weakness expected in the second half of 2026. * Market weakness in Canada and the UK negatively impacted Q2 2026 international revenue growth below expectations. * VantageScore adoption in mortgages remains gated by FHFA regulatory approval, limiting the near-term pace of conversion from FICO. * FICO has proposed alternative pricing models for mortgage scores that could slow VantageScore adoption, though management sees no meaningful market traction for this proposal to date. * AI infrastructure and token costs could rise over time, though Equifax maintains disciplined cost management for AI deployment built on its existing cloud infrastructure, with early sustainable savings already realized.

Analyst Q&A

• Q: With $300 million in recent government ACV bookings, are gross retention rates still stable and is pricing integrity holding? /

  A: Management confirms that the government deal pipeline is 2x larger than last year, with conversion happening faster than expected. Gross retention is very high, and pricing and commercial terms remain stable. The $100 million in new business is primarily from new state customers or win-backs, while the $200 million is renewals of existing contracts. Most new government revenue will flow to 2027, with the business operating against a large $5 billion TAM, creating a long growth runway. Some new contracts use subscription structures that help with state budgeting, which has been a positive for sales. All new contracts reflect strong demand driven by new OB3 requirements for income verification in social service programs.

• Q: Why did you double the AI internal productivity savings target from $75 million to $150 million, and how much of these savings are already reflected in current results? /

  A: The increase comes from faster-than-expected AI adoption across the firm, starting in operations (call centers and document processing) where deployment is already delivering strong productivity gains. AI has also delivered rapid improvements in technology and code development, which was a larger-than-expected source of savings. Of the $2 billion total gross labor spend at Equifax, 60% is in operations and technology, where AI is driving the biggest gains. A portion of the savings is already reflected in the strong Q2 2026 margin performance, with the full $150 million in cumulative savings to be realized by 2028 across 2026, 2027 and 2028. Savings impact both operating expense and capital spending, and Equifax's pre-built cloud-native infrastructure makes rapid AI deployment easier and more cost-effective than for peers with legacy infrastructure.

• Q: What is the current adoption status of VantageScore in mortgages, and what is the timeline for full conversion? /

  A: The 1,200 lenders currently pulling free VantageScore alongside paid FICO scores are all testing their technology systems and workflows to prepare for full adoption. FHFA currently only approves ~20-23 lenders for VantageScore use in agency mortgages, so adoption growth depends on FHFA expanding access. Management expects adoption momentum to continue increasing in H2 2026, driven by the $1 billion annual cost savings opportunity for mortgage originators. Equifax will keep VantageScore priced at $1 through the end of 2027 to drive adoption. Full conversion to VantageScore would add $40-50 million in incremental annual margin for Equifax, but even if conversion is slow, it does not impact Equifax's long-term 7-10% ex-FICO growth framework, since Equifax currently earns no margin on FICO scores.

• Q: What are Equifax's M&A priorities going forward, and what is your appetite for additional deals after the Circulo acquisition? /

  A: Equifax maintains a disciplined M&A strategy focused on four core areas: 1) International credit bureau platforms to expand in high-growth underpenetrated markets, following prior acquisitions in Brazil and the Dominican Republic; 2) Add-on acquisitions to strengthen Workforce Solutions, which is Equifax's fastest-growing, highest-margin business; 3) Acquisitions of unique proprietary data assets that expand Equifax's data moat, particularly in alternative credit data; 4) Acquisitions in the fast-growing identity and fraud prevention vertical. All acquisitions must be accretive to Equifax's long-term growth rate, accretive to margins, and purchased at attractive valuations. Equifax generates over $1 billion in annual excess free cash flow after CapEx and dividends, so it has capacity to continue doing bolt-on acquisitions while continuing to return capital to shareholders via buybacks, maintaining leverage below 3x EBITDA.