EQUIFAX INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Cloud Transformation: USIS completed migration of remaining customers/services for consumer credit, telco, and utilities to Equifax Cloud; ~80% of revenue in Equifax Cloud by end of Q3, expecting 90% by year-end; International completed migrations in Canada, Argentina, Chile, Dominican Republic; Restructuring charge of $42 million for cost reduction, expected ongoing savings over $70 million/year by early 2025.
• Product Innovation: Vitality Index at 13% in Q3, above 10% guidance; 30 new products launched; EWS Vitality Index 16%, USIS 9%, International 11%; Raising 2024 Vitality Index guidance to 11% due to EFX Cloud capabilities.
• Mortgage Performance: U.S. mortgage revenue up 17% in Q3, 20% of total revenue; Lower mortgage rates in late September drove modest inquiry activity increase; EWS mortgage revenue up 4%, outperformed twin inquiries.

Segment Performance

• Workforce Solutions: Revenue up ~7.5%, slightly below July guidance; Non-mortgage verification services revenue grew 19%; Government revenue surged 29%, with expected strong sequential growth in Q4; Talent Solutions revenue rose 9%, but saw weaker volumes in late September; Employer Services revenue dropped 19% due to lower ERC and I-9/onboarding revenues; Adjusted EBITDA margins were 51.6%, slightly above expectations.
• USIS: Revenue increased 12%, above guidance; Non-mortgage revenue grew 5%, above guidance; Mortgage revenue jumped 36%, better than guidance; Adjusted EBITDA margins were 33.9%, up sequentially; Completed migration of U.S. consumer credit and cell phone utility databases to Equifax Data Cloud Fabric.
• International: Revenue grew 18% in constant currency and 12% organically; Europe local currency revenue rose 9%; Latin America local currency revenue soared 58% (partly due to Boa Vista acquisition) with 31% organic growth; Canada revenue grew 1%; Asia-Pacific revenue increased 2%; Adjusted EBITDA margins were 27.7%, up sequentially.

Guidance

• Fourth Quarter 2024: Total revenue between $1.438B - $1.458B, up ~9% midpoint; Organic constant dollar revenue growth ~10%; Mortgage revenue up almost 30%, non-mortgage constant dollar revenue up over 7%; Adjusted EBITDA margins ~35.5% midpoint; Adjusted EPS $2.08 - $2.18 per share, up 18% vs Q4 2023 midpoint.
• Full Year 2024: Constant currency revenue growth ~10%, organic ~8%; Total mortgage revenue up ~12.5%; Non-mortgage constant dollar revenue up almost 10%; Adjusted EPS $7.30, Adjusted EBITDA margins 32.4%; CapEx expected $485M, down ~$100M y-o-y.
• 2025 Outlook: Expecting mortgage market recovery to add to revenue growth, margin expansion, and free cash flow; Target cash conversion of 95% or greater; Bolt-on M&A to add 1-2 points of revenue growth.

Risks

• Market Volatility: Impact of mortgage rate fluctuations, economic conditions, and hiring trends on revenue.
• Competition: Threat from competitors in data and verification services.
• Regulatory Changes: Impact of new regulations on business operations and compliance costs.

Question and Answer

Q: Guidance philosophy despite mortgage improvement, why lowering guidance?

A: Mark Begor states no change in philosophy, transparency about marketplace, and some vertical volatility like employer services and talent solutions affecting guidance.

Q: Tech transformation benefits for USIS?

A: USIS vitality improvement, cost savings from cloud transformation, share gains from cloud-native provision, and 'only Equifax' initiatives combining data assets.

Q: Consumer lending growth in Workforce Solutions?

A: Combination of credit file with income/employment data from EWS, new product launches, and customer penetration driving growth.

Q: Mortgage revenue opportunity and pricing?

A: $1B+ annual revenue opportunity as mortgage market recovers; Expect price increases in 2025 as customary in the industry.

Q: International segment, Boa Vista and margin expansion?

A: Boa Vista performance post-acquisition, expected share gains, and margin expansion from cloud completion in international markets.