Equifax Inc. (EFX) on Q3 2024 Results - Earnings Call Transcript
Operator: Greetings, and welcome to the Equifax Inc. Third Quarter 2024 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Trevor Burns, SVP, Head of Corporate Investor Relations. Thank you. You may begin. Trevor Burns: Thanks, and good morning. Welcome to today's conference call. I'm Trevor Burns. With me today are Mark Begor, 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 Investor Relations website. During the call, we will be 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 3Q 2024 earnings conference call. Also, we will making uncertainty forward-looking statements including fourth quarter and full year 2024 guidance as well as certain 2025 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 2023 Form 10-K and subsequent filings. We will also be referring to certain non-GAAP financial measures, included in adjusted EPS 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 in our earnings release and can be found in the Financial Results section of the Financial Info tab at our IR websites. In the third quarter, Equifax incurred a restructuring charge for cost reduction actions aligned with the completion of the migration of significant data exchanges and applications in the United States and Canada in certain countries in Latin America to the Equifax Cloud as well as cost taxes to streamline our workforce globally. These charges totaled $42 million and are expected to be -- and expected to deliver ongoing savings when completed in early 2025 of over $70 million a year. We expect to generate greater savings as we complete cloud migration in Europe, the remainder of Latin America and Brazil and Australia and New Zealand, principally over '25 and '26. Now I'd like to turn it over to Mark. Mark Begor : Thanks, Trevor and good morning. Before I cover our strong third quarter results, I want to update you on the strong progress of our cloud transformation. In the quarter, USIS completed the migration onto the cloud data fabric of the remaining customers and services for their consumer credit and telco and utilities exchanges, which is a huge milestone. Along with EWS, the work number exchange, which we completed migrating to the Equifax Cloud over two years ago, we now have our three largest data exchanges in the new Equifax Cloud. As of the end of September, we have about 80% of Equifax revenue in the Equifax Cloud and expect to approach 90% of our revenue in the Equifax Cloud by year-end. The cloud migrations have been a huge effort across Equifax over the past four plus years, requiring a ton of focus by the entire Equifax team. We expect to have a significant competitive advantage as we fully deploy our new cloud capabilities and pivot from building to leveraging the cloud in 2025 and beyond that will allow us to fully focus on customers' growth, innovation, new products and AI. Leaving the USIS consumer and telco and utility migrations to the Equifax Cloud allowed us to begin decommissioning legacy on-prem systems and software in USIS in the third quarter supporting our goal of cloud spending reductions in 2024, which expand our operating margins and are lowering the capital intensity of our businesses -- our business in 2025 and beyond. In the third quarter, we also made substantial progress in our international technology transformation activities with Canada completing migration of all customers off of their consumer and commercial credit exchanges onto the new EFX Cloud Data Fabric. This is another big accomplishment for the international team with cloud migrations in Argentina, Chile and the Dominican Republic completed earlier in the year, adding to Canada's completion a few weeks ago. Our international cloud migration efforts will continue in '25 and '26, resulting in additional cloud savings as those migrations are completed. It is energizing to be approaching the finish line of our cloud transformation. We are entering the next chapter of the new Equifax as we pivoted from building the new Equifax Cloud to leveraging our new cloud capability to drive our top and bottom line. Turning to Slide 4. We had a strong third quarter with reported revenue of $1.42 billion, up 9% and at the top end of our July guidance. With organic constant dollar revenue up 10%, which is at the top end of our long-term growth framework. Adjusted EBITDA margins at just under 33% were in line with our expectations and adjusted EPS of $1.85 per share was the top end of our July guidance. Our global non-mortgage businesses, which represent about 80% of total revenue in the quarter had strong 10% constant currency revenue growth which was in line with our expectations. Non-mortgage organic constant currency revenue growth was 8% in the quarter. The strong non-mortgage performance was driven by 9% growth in EWS and with very strong 19% non-mortgage growth in EWS Verifier, led by very strong 29% growth in government and talent that was up over 9% in EWS. USIS non-mortgage revenue growth of almost 5% was stronger than our expectations, principally from our consumer business and financial marketing services, our off-line batch business. International delivered just under 18% constant dollar revenue growth and strong 12% organic growth, led by continued strong growth in Latin America and Europe. Total U.S. mortgage revenue was up 17% in the quarter and above our July guidance. U.S. mortgage revenue was 20% of Equifax revenue in the quarter. In late September, as mortgage rates declined to just over 6%, we saw modest mortgage inquiry activity increases. We believe this improvement was likely led by mortgage refi activity off the lower mortgage rates. New home purchase activity appears to have remained at the lower levels we've been seeing throughout 2024, reflecting continued low home inventory levels elevated home prices impacting affordability and prospective homebuyers waiting for further mortgage rate reductions. As mortgage rates increased in early October to over 6.6%, we have seen mortgage activity reduced to levels closer to what we saw in July and August. John will cover our expectations for mortgage activity in the fourth quarter shortly, but we continue to believe that activity will improve towards 2015 and 2019 levels as mortgage rates come down in the future. In the third quarter, the growth in mortgage revenue was driven principally by USIS where mortgage revenue was up a strong 36% and slightly above our expectations. This strong growth was again driven by the benefit of strong vendor pricing actions and the performance of our new mortgage pre-qual products. The lower mortgage rates we saw in late September did drive a small increase in mortgage application activity, which benefited USIS in the quarter. EWS mortgage revenue returned to growth with revenue up 4% and was also slightly better than our expectations. As a reminder, EWS mortgage inquiry volumes lagged USIS credit inventory volumes as credit is pulled earlier in the mortgage application cycle than income and employment, which is typically pulled in the middle and of course, the closing of the mortgage application. USIS typically sees the benefits of mortgage shopping behavior earlier and to a greater extent than EWS. As a result, EWS did not see the same level of incremental inquiry volume as USIS did from the slight increase in mortgage activity that occurred in late September. EWS mortgage revenue exceeded twin inquiry volume by about 9.5% in the quarter, up a very strong 300 basis points sequentially from second quarter, principally from strong twin record growth. Equifax had another strong quarter of new product innovation with a VI or Vitality Index of 13%, above our 10% guidance for the year and our long-term framework of 10% Vitality. We saw strong broad based new product rollouts with double-digit growth in EWS and International and a VI of 9% in USIS, which was up 100 basis points sequentially from the second quarter. We expect our NPI revenue to grow -- revenue growth to remain strong and are increasing our 2024 Vitality Index guidance to 11%, up 100 basis points from our prior framework for 2024, as we further leverage our new EFX Cloud capabilities in EFX.AI to drive new products into the marketplace. Turning to Slide 5. Workforce Solutions revenue was up about 7.5% and slightly below our July guidance, principally due to lower-than-expected employer services revenue. Non-mortgage verification services revenue, again, delivered very strong 19% growth, which was in line with our expectations. Government had another outstanding quarter with very strong 29% revenue growth from continued penetration in their large $5 billion government TAM. Government revenue grew sequentially from strong growth in state penetration and insights incarceration data solutions. We expect continued strong sequential growth -- sequential government revenue growth again in the fourth quarter. Growth rates in the fourth quarter are expected to continue to show strong double-digit performance, but will be lower than third quarter levels, principally due to comping against very strong growth we saw last year. We expect our government vertical to continue to deliver very strong double-digit growth in the future and outgrow both Equifax and EWS. Talent Solutions revenue was up a strong 9% in the quarter. Talent Solutions continues to benefit from their new total verified data hub, which includes trended employment data as well as insights incarceration, education and licensing and credentialing data. Based on data through August, EWS Talent Solutions outperformed the BLS white-collar hiring markets by approximately 18 percentage points from additions of records, the rollouts of new products and penetration into the talent vertical during the quarter. We did see somewhat weaker volumes late in September, which we have assumed will continue and is expected to impact talent revenue growth in the fourth quarter. EWS mortgage revenue was up 4% in the quarter and slightly better than our July guidance. Twin inquiries in the third quarter were down about 5.5% and slightly better than our July guidance. Total EWS mortgage revenue outperformed Twin inquiries by about 9.5% and again over 300 points sequentially from strong record growth during the quarter. We expect strong growth in twin records to benefit mortgage and our other EWS verticals again in the fourth quarter. EWS consumer lending revenue was up 16% from strong double-digit growth in P loans and high single-digit growth in debt management and auto. Employer Services revenue was down 19% in the quarter and weaker than we expected. Compared to last year, employer declined principally from lower ERC revenues and to a lesser extent, lower I-9 and onboarding revenues as the slower white-collar hiring we saw in late September impacting talent solutions also impacted our onboarding business. There was also some onetime post-COVID related project revenue that benefited onboarding in the third quarter of last year. Third quarter I-9 and onboarding revenue was consistent with the first and second quarters, and we expect fourth quarter employer revenue to be down mid-single digits as the ERC comparisons mitigate. Workforce Solutions adjusted EBITDA margins were 51.6% and were slightly above our expectations and continued to be very strong, reflecting strong Verifier revenue growth and continued strong cost controls. Turning to Slide 6. The EWS government team continued their very strong performance in the quarter with revenue up 29%. The government team continued to focus on penetration of our unique VOI and VOE solutions for social services at both the federal level and across the state agencies. In the quarter, the EWS government team signed an extension to their SSA redetermination contract to provide income and employment data for individuals applying for or currently receiving social security disability income and supplemental security income benefits with a potential contract value of about $500 million over the next five years. EWS services support program integrity for the SSA as well as reducing the administrative burden for consumers seeking these important services. Chad and the government team are on offense driving penetration in the big $5 billion government TAM. Turning to Slide 7. EWS had another outstanding quarter of new record additions. A few weeks ago, we announced a new strategic partnership with Workday to provide verification services to Workday's large customer base. Later in the fourth quarter, we'll begin rolling out the free value-added EWS income and employment verification services to Workday's U.S. customers and expect to onboard a sizable number of new records through 2025 from this new strategic relationship. Also in the quarter, we signed agreements with five additional new strategic partners that will contribute over 5 million records collectively to the twin database in the future. Through September, EWS has executed 12 strategic partnerships during 2024 and since the beginning of 2021, EWS has completed 45 strategic partnership agreements. We expect these five new partnerships signed during the quarter to come online and begin generating revenue late in the fourth quarter and substantially in the early parts of 2025. In the third quarter, EWS added 2 million active records to the twin database, ending the quarter with $182 million active records, up a strong 12% on 134 million unique individuals. EWS now has 3.8 million companies contributing income and employment records to the twin database every pay period, a very strong 40% CAGR since 2020. Total records are now over $700 million and up 11% in the quarter, supporting our trended or historical solutions with about half of Verifier revenue from products, including historical records. At 134 million unique active records, we have plenty of room to grow the twin database towards the TAM of 225 million income producing Americans. Turning to Slide 8. USIS achieved a major milestone in the third quarter, completing the migration to the new Equifax Data Cloud Fabric of both the U.S. consumer credit and our cell phone utility databases. This big milestone makes U.S. consumer credit, telco and utility data fully available across our new data fabric for use in advanced AI based solutions to enhance our identity and fraud solutions and to accelerate our only Equifax solutions leveraging both EWS and USIS data assets. It also allows our U.S. commercial product and technology teams to fully shift their focus to delivering these new advanced Equifax solutions to customers that will drive new product rollouts and top line growth for Equifax. USIS revenue was up 12% in the quarter and well above the July guidance of up 8.5% and their long-term revenue growth framework of 6% to 8%, despite the continuation of some weakness in the FI and auto end markets. This was driven by both strong performance in non-mortgage revenue as well as stronger mortgage revenue, reflecting the slight increase in mortgage activity that we saw in late September. Total non-mortgage revenue was up 5% in the quarter and was also well above our July guidance of over 2% growth for USIS. We saw strong double-digit growth in Consumer Solutions and Financial Marketing Services which were offset by a less than 1% decline in USIS B2B online revenue from softer consumer and end market demand, which importantly was up about 300 basis points sequentially. We USIS B2B online saw double-digit growth in insurance and commercial, high single-digit growth in telco and low to mid-single-digit revenue growth in banking and auto offset by declines in third-party bureau sales and identity and fraud. We expect third-party bureau sales to be about flat in the fourth quarter as we lap the weakness that started in late 2023. Identity and Fraud revenue was also down and weaker than our expectations, principally due to weakness in chargeback management volumes. Payment and transactional identity revenue grew in the quarter from penetration in large strategic accounts identity and fraud is starting to launch their new Kount 360 solutions platform and products, which will help strengthen growth in 2025, as these solutions take hold in the marketplace. Financial marketing services, our B2B offline business was up a very strong 14% in the quarter, reflecting substantial new wins and customer expansion across banking services and payments verticals and as well as continued strong growth in prescreen marketing and our unique IXI wealth data. USIS consumer solutions D2C business had another very strong quarter, up 17%, and from strong double-digit growth in our consumer direct channel and from strong customer acquisition trends. We expect fourth quarter revenue to grow mid-single-digits as we start comping against very strong D2C growth last year. USIS mortgage revenue was up a very strong 36% and better than our July guidance. Mortgage credit inquiries were up 1% and were also better than our July guidance of down 7%, principally due to the slight increase in mortgage activity that we saw in late September. This was the first quarter of mortgage credit inquiry growth since the first quarter of 2021, which is a big milestone and reinforces for us that the mortgage market is clearly bottomed and poised for recovery in the future. Consistent with the first half, the strong pricing environment along with the strength in our new mortgage pre-qual products also drove the very strong mortgage revenue growth. At $137 million, mortgage revenue was just under 30% of total USIS revenue in the quarter. USIS adjusted EBITDA margins were 33.9% in the quarter, up 70 basis points sequentially and in line with our expectations from higher-than-expected revenue growth, offset by higher technology costs to complete cloud customer migration activities. With the USIS consumer and our cell phone utility and data cloud transformation is complete, Chad and the USIS team are clearly focused on offense and growth. Turning to Slide 9. International revenue was a very strong 18% in constant currency and up a strong 12% in organic constant currency, excluding the impact of BVS due to continued very strong growth in Latin America and Europe. Europe local currency revenue was up a very strong 9% in the quarter with continued strong 7% growth in our credit and data businesses and 12% growth in our debt management business. Latin America local currency revenue was up 58%, principally due to the acquisition of Boa Vista with very strong organic growth of 31%, led by 28% Vitality Index from new products in the region during the quarter. And as a reminder, we closed the BVS acquisition in August last year. Canada delivered 1% growth in the quarter, which was below our expectations from a softer economy. I previously mentioned that Canada completed their consumer and commercial credit exchange customer migrations to data fabric a few weeks ago. And similar to the U.S., we expect to see accelerating NPI and revenue growth going forward from the Canadian team. Asia-Pacific revenue returned to growth up 2% as expected. International adjusted EBITDA margins of 27.7% and were up 210 basis points sequentially from strong revenue growth and good cost execution. Turning to Slide 10. We continue to make very strong progress driving innovation with 30 new products launched in the quarter that delivered a 13% vitality from broad based performances across all of our business units. EWS had very strong third quarter with Vitality Index of 16%, expanding solutions in the government vertical as well as incorporating incarceration education into new talent solutions products. USIS saw continued sequential improvement with a Vitality Index of 9%, up 100 basis points sequentially from the second quarter. We expect USIS to continue to show strong vitality improvement from the cloud completion as they leverage our new cloud native infrastructure for innovation in new products as well as free up their product and technology resources that previously were working on cloud transformation in key verticals such as identity and fraud, commercial and our new mortgage pre-qual products. International also had strong 11% vitality in the quarter with a strong focus on identity and fraud solutions. We expect strong double-digit vitality in the fourth quarter, leveraging our Equifax Cloud capability to drive new product rollouts and we're raising our full year Vitality Index guidance from 10% to about 11%, reflecting the strong innovation performance across all our businesses so far in 2024. AI and ML are changing the way we develop our new products in our single data fabric and build higher performing model scores and products for our customers. We are accelerating the pace at which we are developing new EFX models and scores using our advanced AI and ML capabilities in areas such as identity and fraud and consumer loan affordability, it will drive higher performance and predictability. In the quarter, 100% of our new models and scores were built using Equifax AI and machine learning, which is up from about 89% last quarter and ahead of our 2024 goal of 80% and last year's 70%. We're clearly on offense deploying our proprietary EFX AI capabilities that will drive higher performing model scores and products for our customers. Now I'd like to turn it over to John to provide more detail on our third quarter financial results and to provide our fourth quarter framework. Our fourth quarter guidance builds on our strong third quarter performance from new products, penetration, record growth and pricing. John Gamble : Thanks, Mark. Turning to Slide 11. As Mark discussed, we started to see an improvement in the run rate of USIS credit inquiries in late September as mortgage rates declined to just over 6%. We believe the improvement principally reflected higher refinance activity in late September. New home purchase activity does not appear to have increased meaningfully at this point, likely reflecting continued low home inventory levels, home prices at near all-time highs and respective homebuyers waiting for further mortgage rate reductions. As a reminder, the normal mix of mortgage originations and defined as the average over the 2015 to 2019 period is about 55% purchase and 45% refinance. In the first two weeks of October, we have seen mortgage inquiry volumes for both credit and twin slow versus September as mortgage rates have increased to above 6.5%. The run rate over the last two weeks of both credit and twin inquiries is relatively consistent with the expectations we had when we provided guidance in July. Consistent with our practice in 2024 and the last several years, our guidance for credit inquiries is based on our current run rates over the last two to four weeks, modified to reflect normal seasonal pattern. This effectively assumes market conditions will continue for the quarter. Our fourth quarter guidance reflects mortgage credit inquiries to be up about 9% versus 4Q '23 and down 16% sequentially. Calendar year '24 mortgage credit inquiries are expected to be down about 7%. For the fourth quarter, we expect USIS mortgage revenue to be up over 4% and much stronger than the underlying mortgage market, reflecting both strong performance in mortgage pre-qual products as well as vendor pricing actions. Our guidance reflects TWN inquiries in the fourth quarter to be up about 6% versus 4Q '23 and down about 12% sequentially. For the full year, TWN inquiries are expected to be down about 11%. We expect EWS mortgage revenue to be up over 16% in the fourth quarter and much stronger than the underlying TWN inquiries, again, principally reflecting strong record growth in 2024 and as well as annual mortgage pricing that occurs early in the first quarter each year. As a reminder, the fourth quarter is historically seasonally the lowest quarter of the year for both credit and TWN inquiries. For perspective, as we look to 2025, carrying these current run rates with normal seasonality TWN '25, mortgage credit inquiries would grow versus 2024, up just over 5% for the year and also just over 5% in the first quarter of 2025. Slide 12 provides the details of our 4Q '24 guidance. In 4Q '24, we expect total Equifax revenue to be between $1.438 billion and $1.458 billion, up about 9% at the midpoint. Organic constant dollar revenue growth at the midpoint is about 10% and at the high end of our long-term financial framework. At the midpoint, mortgage revenue is expected to be up almost 30% and non-mortgage constant dollar revenue up over 7%. Equifax 4Q '24 adjusted EBITDA margins are expected to be about 35.5% at the midpoint of our guidance. The sequential increase in EBITDA margins reflects revenue growth and cost management across Equifax, including the decommissioning of USIS legacy consumer and telco and utility systems and Canada legacy consumer and commercial systems. This is our first ever quarter with EBITDA over $500 million. This would be a very strong performance. Adjusted EPS in 4Q '24 is expected to be $2.08 to $2.18 per share, up 18% versus 4Q '23 at the midpoint. The midpoint of our fourth quarter revenue guidance is about $15 million below the levels implied by the guidance we provided in July. The primary driver is lower revenue in EWS and in the employer business driven by lower revenue and onboarding as well as ERC. And this is consistent with the factors that impacted the third quarter and also the slower U.S. hiring Mark referenced earlier that is impacting both onboarding and talent solutions. We believe we are centered at the midpoint of our guidance. Business unit performance in the fourth quarter is expected to be as follows: Workforce Solutions revenue growth is expected to be up about 10%. Non-mortgage revenue should be up about 8% year-to-year. Verifier non-mortgage revenue growth will continue to show strong double-digit growth, although below the levels we saw in the third quarter. Verifier non-mortgage growth will again be driven by strong growth in government and talent. Government revenue growth is expected to grow sequentially and year-to-year. However, year-to-year growth will be below the levels we have seen year-to-date in 2024, as we lap very strong 4Q '23 revenue growth in government. Both Verifier mortgage and non-mortgage revenue growth should benefit from the continued strong growth in TWN records we are seeing throughout 2024. EWS adjusted EBITDA margins are expected to be up slightly from the third quarter at about 52%. USIS revenue is expected to be up over 10% year-to-year. Non-mortgage revenue should be up about 3% year-to-year, slightly lower than the third quarter, principally due to lower growth in USIS D2C and as they begin to lap periods of strong growth that started in 4Q '23 and financial marketing services, which is expected to be about flat in the year-to-year. Adjusted EBITDA margins are expected to be over 38%, up very strong sequentially as USIS decommissions legacy consumer and telco and utility systems. International revenue is expected to be up over 9% in constant currency. EBITDA margins are expected to be over 32%, up very strong sequentially, reflecting both revenue growth and good cost control. Slide 13 provides the specifics of our 2024 full year guidance. Constant currency revenue growth is expected to be about 10%, with organic constant currency growth of 8% and within our 7% to 10% long-term organic growth framework. Total mortgage revenue is expected to grow about 12.5% despite the 7% decline in U.S. mortgage credit inquiries. Non-mortgage constant dollar revenue is expected to grow almost 10% with organic growth of over 7%, led by very strong non-mortgage growth in our Workforce Solutions verification services business and in international. This is within our long-term framework. FX is about 180 basis points negative to revenue growth. Adjusted EPS is expected to be $7.30 per share and adjusted EBITDA margins are expected to be 32.4%. Adjusted EPS and EBITDA are both expected to grow 9% in 2024, all at the midpoint of our guidance. Capital expenditures in the third quarter are $123 million, down $8 million sequentially. We expect fourth quarter capital expenditures to be just over $105 million, as USIS has completed customer migrations to the U.S. consumer data fabric and Canada has completed customer migrations to their consumer and commercial data fabric. Capital expenditures for 2024 are expected to be about $485 million, which is a year-to-year reduction of about $100 million. As we accelerate our cloud migrations, we are seeing increasing levels of depreciation and amortization. In 2024, D&A, excluding acquisition amortization, is expected to be about $410 million, up about $50 million versus 2023. In 2025, we expect D&A to increase slightly above the $50 million increase we saw in 2024. As of the end of the third quarter, our leverage ratio was 2.8x, and we expect to further reduce leverage in the fourth quarter. We believe this leverage is nicely within the levels required for our current BBB, Baa2 credit ratings. Turning to Slide 14. And as we discussed in July, the U.S. mortgage market is on the order of 50% below its historic average inquiry levels. As the mortgage market recovers towards historic norms that presents -- represents over $1 billion of annual revenue opportunity for Equifax in 2025 and beyond at current product pricing, TWN records contracted and products. We expect this opportunity to increase as we enter 2025 from pricing actions, TWN records and new products. At current mortgage gross margins, this over $1 billion of incremental mortgage revenue would deliver on the order of $700 million of EBITDA and $4 per share that we would expect to move into our P&L as the mortgage market returns to normal levels in 2025 and beyond. Now I'd like to turn it back over to Mark. Mark Begor : Thanks, John. Turning to Slide 15. An important part of our long-term financial framework is delivering strong free cash flow and returning cash to shareholders. We're adding a new cash conversion goal for our long-term framework of 95% or greater, with cash conversion defined as free cash flow as a percent of adjusted net income. During the cloud technology transformation over the last four years, we saw elevated cloud capital expenditures which impacted our free cash flow and cash conversion. Our cash conversion ratio is expected to improve significantly in 2024 to about 80% and as we reduce CapEx and drive higher relative levels of free cash flow. We expect our free cash flow to accelerate in 2025 post our cloud investments as CapEx reduces to 6% to 7% of revenue, supporting cash conversion of over 95%, while strong margin expansion and growth in net income from our underlying operating leverage and cloud cost savings. This strong cash generation positions Equifax to continue to invest in growth with CapEx and bolt-on M&A and begin returning excess free cash flow to shareholders from dividend growth and share repurchases in 2025 and beyond. It's energizing to be approaching this important milestone for our investors as we complete the new Equifax Cloud. Turning to Slide 16. We are entering the next chapter of the new Equifax as we pivot from building the new Equifax Cloud to leveraging our new cloud capability to drive our top and bottom line. We are convinced that our new Equifax Cloud differentiated data assets in our new single data fabric leveraging Equifax.AI and machine learning and market leading businesses will deliver higher revenue growth, expanded margins and accelerating free cash flow. In the middle of Slide 16, we've added the new cash conversion metric to our long-term growth framework. And our long-term growth framework, as you know, is made up of strong revenue growth of 7% to 10% and is led by very strong 13% -- 15% EWS revenue growth. EWS is clearly our largest and fastest-growing business led by strong double-digit non-mortgage verification services revenue growth from our government and talent solutions verticals. As a part of our long-term financial framework, we expect to add 1 to 2 points of revenue growth from bolt-on M&A aligned around strengthening the core of Equifax. Our bolt-on M&A strategy will continue to be focused on strengthening Workforce Solutions adding differentiated data assets across Equifax and growing in the big $20 billion identity and fraud space. As John covered a few minutes ago, the pace of mortgage market recovery will add to our revenue growth as the market returns to normal 2015 to 2019 levels in 2025 and beyond. The mortgage market recovery will also drive our margins and free cash flow from the very high incremental margins from this incremental revenue that we expect to come into Equifax's P&L in 2025 and beyond. We expect operating leverage off our strong 8% to 12% revenue growth to generate 50 basis points of annual EBITDA margin expansion and very strong cash conversion of 95% and above. As margins improve, CapEx declined to 6% to 7% of revenue with the completion of the Equifax Cloud transformation and leverage continues to progress towards 2.5 turns by year-end. We expect our free cash flow to accelerate and that will enable us to start returning cash to shareholders in 2025 and beyond through growing the dividend in a multiyear share buyback program. We are energized to be pivoting from building the Equifax Cloud over the past four years to leveraging our new industry leading cloud and EFX.AI capabilities to drive revenue growth, margin expansion and free cash flow. Wrapping up on Slide 17. Equifax delivered another strong quarter with 11% constant dollar revenue growth, which was at the upper end of our 8% to 12% long-term revenue growth framework work, reflecting the power and breadth of the Equifax business model, strong execution against our EFX 2026 strategic priorities, the resiliency of the U.S. consumer and the strength of our customers. Our very strong 19% EWS non-mortgage Verifier revenue growth, 12% EWS active record growth, strong 13% broad based Vitality Index give us momentum as we enter the fourth quarter and move towards 2025. And as we talked earlier, we took another big step in the quarter towards cloud completion with 80% of our revenue now in the Equifax Cloud, which will enhance our competitiveness, drive innovation and new product development. Entering 2025 with 90% of Equifax revenue in the new Equifax Cloud is a really big milestone, so the team can move towards fully focusing on innovation, new products powered by EFX.AI, customers and growth. I'm energized now more than ever about the future of the new Equifax that will deliver strong 8% to 12% revenue growth, 50 basis points of margin expansion lower capital intensity and expanding free cash flow to invest in Equifax and add bolt-on M&A. And in the future, growing our dividend and positioning to start a multiyear stock buyback program in 2025 and beyond. And with that, operator, let me open it up for questions. Operator: [Operator Instructions] Our first question today is coming from Manav Patnaik of Barclays. Manav Patnaik : I just had a question around kind of the guidance philosophy. So in the prior years, every time you had lowered guidance, I guess, it was mainly due to the mortgage weakness, so we all got wrong but there were some other non-mortgage areas that were weak. And this year, even though mortgage is getting better, you're still lowering guidance. So I'm just curious, is there something about the philosophy in not being conservative? Or is it execution? I was just hoping you could help us clear that up. Mark Begor : Yes, Manav. So there's no change in our philosophy. Our goal is to be super transparent with you and our investors about what we're seeing in the marketplace and what the growth levers are and where we're taking the company. We work to provide guidance that we know how to meet and beat. That's our -- no change in that goal. I've been here six years. And I think as you point out the mortgage decline in '22 and '23 was really quite unusual. But if you look around that, I think we've been pretty consistent about meeting and beating. And if you look through our non-mortgage performance during that '22 and '23 time frame, we think we were pretty consistent. With regards to the third quarter, I think -- I don't think that's your question. I think it's more around the fourth quarter. And we highlighted in our earlier comments that there is some volatility in the marketplace that we're certainly dealing with in some of our verticals. We're really pleased with our third quarter performance. We're pleased with the guidance that we have for the fourth quarter, which is super strong. And as you point out, it's slightly below the guidance that we had last quarter. principally from the EWS employer business. I think we've talked for the last couple of quarters about the impact of the employee retention credits that were really stopped by the IRS earlier this year. We thought there'd be some activity there. There's none. So that's obviously impacting that business inside of Workforce Solutions. And then we also talked over the last couple of quarters about the change the federal government made around work opportunity tax credit and the state's response to getting that in place, we thought the states would be responding a little bit quicker. They haven't, which is pushing some of that revenue likely out of the fourth quarter and into 2025, it's not going to go away. And then to a lesser degree, I think we talked about -- I won't touch mortgage because I don't think that's your point. I'll touch non-mortgage. We talked about some of the slowdowns we saw the background screeners late in September. That was unexpected on our part. I think you've seen a number of corporations across the United States announcing layoffs, whether Boeing is 10% or companies like that. But I think coming into the election, it feels like companies are being a little more prudent about new hiring which is we saw in the background screening volumes late in the month. These are, from my perspective, fairly small impacts when you look at the strong performance in the third quarter and the strong guide we have for the fourth quarter, as John pointed out, in the fourth quarter, we're going to be in the neighborhood of $500 million EBITDA and over $2 a share, which we've never done before. So I think that's strong performance earlier in the year. I think some questioned our ability to deliver the kind of performance we've laid out in the fourth quarter, both from a top line and a margin expansion. I think we're in that direction, admittedly a bit below that but still very, very strong numbers. But just really to the point of your question, no change in our philosophy. We want to put out numbers that are super transparent. We're going to give you what's behind those numbers. And our goal is to have numbers that we can meet and beat. And that has never changed and it won't change in the future. Manav Patnaik : Okay. Fair enough. And just on the tech transformation, I think we're all looking forward to the benefits that can provide to USIS. Can you give us some maybe early signs or examples of what maybe you did with tech transformations in other divisions that give you confidence that we should see some outperformance outside of just the macros on the USIS side? Mark Begor : Yes. it's a great question. We talked about in the last quarter, we did this much on this call, but it's obvious that USIS was clearly impacted in '23 and in the -- really through the third quarter in many regards around all the effort they had to put in the cloud transformation. Canada is in the same boat. These are big, big projects, very intrusive with our customers. The good news is it's done. What we're really encouraged by when we think about USIS, even with that in the second quarter and third quarter, you saw their vitality go up, meaning they were able to start taking advantage of being in the cloud to start moving forward on innovation in new products. That's going to benefit USIS in the fourth quarter, but really principally in 2025. And as you know, they increased their vitality in the second quarter, 100 bps and then again in the third quarter, 100 bps. So we would expect them to move towards that 10% vitality as we get into 2025 and which is really going to be a positive. The cost savings, John already talked about, you saw the charge we took that was expected. That's -- we're executing that, and that's a real positive for our margins, which we've committed to and we're executing on. And the other benefit is two other benefits actually, we'll start to see now that they're in the cloud, as those share gains that we expect to have, we have the close in flight. Those will start showing up in the P&L, some in the fourth quarter, but I think principally in 2025 of being always on and being a cloud-native provider. And then the last one is one that we'll talk more about in February during our fourth quarter call and in 2025 is what we're internally calling only Equifax initiative where we're focused on solutions that combine TWM, our income and employment data with the credit file to make our credit file more valuable. When we talked on the last call about new solutions that we're piloting in the marketplace as we speak around a flag on our credit file that someone's working for mortgage shopping to make our mortgage shopping credit file never valuable, a flag on our auto credit file, same thing that someone is working. That will differentiate our credit file. We think it will drive share gains with our credit file. It should make our credit file more valuable. And I think as you know, we're also adding to our credit file solutions, including our differentiated data from DataX, Teletrack and NCTUE, our cell phone utility data. And these are all solutions only Equifax can do. Our competitors don't have these data assets, so we can strengthen the underlying credit file, which arguably can be commoditized in some solutions and make our product more differentiated. Those are the things that you're going to see going forward. It's what we've been talking about for four years. The good news is now is we can actually execute on it because we're in the cloud with USIS. And I can't really reinforce enough about the impact of the distraction. You could say over the last four years, but your question is around USIS really over the last 18 months, 24 months, of all the efforts that went into complete is really massive technology transformation. The good news is it's done. So that whole team now can take all their energy and effort it was balanced between growing the company, rolling out new products, executing our AI solutions and doing the cloud migrations to just focus on growth. And that gives us a lot of energy as we look to the fourth quarter and then as we move into 2025. Operator: The next question is coming from Kelsey Zhu of Autonomous Research. Kelsey Zhu : Have you sized the incremental record additions from the Workday partnership? And can you talk a little bit more about the time line for those new records to come online? Is it more towards kind of Q1, Q2 next year? Or is it towards second half of next year? Mark Begor : Yes. So maybe a couple of points on that. I'll respond to your specific Workday question, but maybe just make it a little bit wider because Workday is one of many partners we added during the quarter. I think we added a total of six in the quarter. Workday, obviously, a very significant one, a very strategic partnership, but all six of them are. I think we sized that we expect from the other $5 million to something like 5 million records coming on over the coming quarters. It takes time to make those integrations. They're super complex for really our partners side. You've seen very record growth. We're up 12% in the quarter. So you can see that we're executing. We talked about the sizable number of partners we added this year as well as last year and over the last couple of years. And with every partner we have is they add new clients and they're all growing their business every quarter, if you think about an HR software company or payroll processor, when those new clients come on board, they're typically boarded to TWN. So there's growth that's happening with one of our clients. Most of our clients have records going back to clients we added even two, three, four years ago that we haven't fully deployed into Equifax, meaning we're working with them through their technologies through the different databases they have, they're typically not a single tech stack to bring those records in. So we have a lot of opportunity both with current new partners use Workday and the others we added this quarter as well as those we've had over the last couple of three years to add records. And Workday specifically, we haven't sized that except to say it's sizable. I think it's well known that they're a very big company and a big partner, and we're super excited to have that move on board. We expect some records to come on in the fourth quarter, but really the substantial growth from Workday and the other partners we added in the third quarter and those that we expect to add in the fourth quarter to come on in 2020. And I think the other point to remind everyone on the call about, as you know, we talk -- tend to talk a lot about our partner record additions, but we also have a very sizable direct record approach where our employer business is adding new clients. And when we bring those new clients on, we offer that free value added evasive income and employment verification and those become records that become a part of Equifax. And one last reminder, and I think you're seeing the benefits of that in December last year, we changed the organize in EWS. So we have one leader and one team that is solely focused on record additions from HR software companies from payroll processors for 1,099 records and pension records, so really the whole gamut. So we've got a very large focus because you're seeing that pay off. We're really pleased that record additions to 12% are way outgrowing our long-term framework for record additions, which are more in the single-digit range is admittedly, we've been doing that for five plus years. So we've had a lot of really positive momentum there. And I think you know the power of adding a record. The day we add a record, we monetize it across all of our verticals because we're already getting inquiries for that record because our customers send us every query. And then the breadth of our ability to monetize is just scale so substantially from even three, four, five years ago when you go across the spectrum from, call it, higher income consumers, mid-market consumers that are doing mortgages and through auto and auto and P loans and cards and then go to the other end of the spectrum, those that are going after social services at the federal and state level is a very -- there's over 100 million people a year that are getting social services and we've got a big opportunity to grow there. You've seen the growth in Workforce Solutions government vertical that's been, obviously, impacted positively by record additions. So records are a big focus of ours, and we see a lot of momentum going forward. We still have a lot of records to go after with the 225 million working Americans, there's close to 100 million of records we don't have yet. So that's why we added resources and people to keep growing this valuable data set. Kelsey Zhu : Also curious to hear a little more about what's driving the reacceleration of growth in consumer lending vertical within Workforce Solutions, especially because of against the backdrop of a pretty soft end market. So just curious, is it really to new product launches? Is it the pricing? Is it increased customer penetration? Yes, I appreciate your thoughts on this. Mark Begor : Yes, it's really the value of the data set. When you think about consumer lending and I'll use P loans, you could use auto, the value of someone's credit score is super important. It's really, as you know, is a reflection of their past payment behavior of other loans they have and it's really a prediction where they keep paying going forward. So very valuable. When you add to that someone's ability to pay, which means their income and their employment, meaning they're working. Because remember, if you pull a credit report, you have no idea if that individual is actually working today. Did they lose their job last week? Did they retire? What's changing? So the combination of income in employment from EWS with the credit file is very, very valuable. And we have increasing numbers of our customers. As you point out, we roll out new products as well as we drive penetration of customers understanding the value of pulling the credit report with income and employment, they can approve more consumers and approve more consumers with lower loss rates. So that's a really strong combination and very positive for our customers. So that's what we're really seeing in the outgrowth of the underlying market. As you point out, there is in some of those verticals, some end user, meaning consumer demand pressures primarily because of higher APRs, particularly in bigger ticket transactions, think about P loans or cards, we have a solution between -- by combining credit with income and employment that allows our customers to approve more of those applicants with a higher degree of confidence around their ability to repay the loan when you add the income and employment data to it. John Gamble : Those segments are also benefiting substantially just by record growth, right? So since records are up over 10% that drives their hit rates higher, so it's a direct benefit to those segments. Operator: The next question is coming from Andrew Nicholas of William Blair. Andrew Nicholas : I wanted to first ask on SSNs really good order. And I'm just curious if there's anything for us to read into that. It sounds like it was primarily batch. Is that kind of customers thinking about being more aggressive with marketing is that portfolio review? Just help me understand if there's anything to read into that strength? John Gamble : Sure. It was a very strong quarter. And stronger than we expect to see when we gave guidance part of it was because we signed -- we executed a couple of large transactions with new customers in the payments industry. And we think that's very important to us, not just in the fact that it delivered a strong quarter, but also because we think it's an ongoing revenue source, not just in batch but increasingly in our mind. So we're very excited about the fact that we signed those partnerships and delivered revenue in the quarter, but also we think it bodes very well for us across the payments industry as we continue to grow the use of our data in payments. Andrew Nicholas : So it doesn't sound like anything major sort of like a macro read-through perspective, more often? John Gamble : No, not a read through at all. It was really just great execution by the team on winning new customers and delivering in period. Andrew Nicholas : And then maybe changing gears a little bit on the mortgage business and the mortgage business within EWS in particular. If I heard you correct, John, you said you expect 16% growth in mortgage there in the fourth quarter on 6% growth in inquiries, 10% outperformance, certainly better than what you saw in the first half, but I think a little bit lower than what you had messaged earlier this year. So just curious about the puts and takes there, what if anything, has changed in terms of record growth relative to your expectations, pricing, new product development, anything like that, that would help bridge that gap? John Gamble : Look, I think the big thing we were talking about as we started the year, we were expecting very good progression in terms of the outperformance with EWS mortgage that would happen as we went through the year. And I think we saw it consistently every quarter. We saw improvements in second, third and now we would expect to be stronger in the fourth than we were in the third. So we feel very good about that progression. And again, it is driven by records. So record growth has been extremely strong. And given the partnerships that were signed this quarter, and I'm sure more they'll be signed in the fourth quarter. And then boarding those partnerships, we would expect to see very good record growth again next year. So I think overall, a really nice job by the team in driving that number back into the long-term framework that we expect, which is around 10%, right? That's kind of a level we talked about 10% to slightly above 10% as the long-term growth algorithm or the way we should outperform the mortgage market at EWS, and I think we're back to delivering in that level. Operator: The next question is coming from Faiza Alwy of Deutsche Bank. Please go ahead. We'll move on to the next question. Our next question is coming from Surinder Thind of Jefferies. Surinder Thind : Following up on the mortgage question here. Any color on how important the mix is in terms of the revenue recovery when we think about the $1.1 billion in terms of purchase versus refinance? Do we have to kind of get back to the historical average? Or are there other considerations that we should be thinking of? Mark Begor : Yes, that really assumes historical averages in that 2015 to '19 level. As you know, purchase is generally a very large part of the underlying market and it was in that 2015 to '19 level. That's super depressed now. As we pointed out, there's a lack of inventory. People are sitting on those lower interest rate loans and not upgrading from the condo to the three bedroom home with the yard that should. We believe that's going to loosen up and there'll be more activity on the purchase side. And then we should see both a combination of rate refi and cash-out refis as rates come down. We saw just that blip, I would call it, for a couple of weeks until the 10-year went up, where I think John mentioned in his comments that the bulk of that increase was rate refi. So you can see just a very small think about 20, 25, 30 basis points change, some consumers that had taken out mortgages, say, a year or two years ago, at higher rates, and now are looking at picking up that rate arbitrage. So there's clearly pent-up demand that as rates come down, gives us still a lot of confidence in the framework of that $1.1 billion plus of kind of tailwind in the mortgage market. And I think as John said in his comments, just as a reminder, we'll reset that number in February next year, but the $1.1 billion is based off today's pricing, meaning 2024, ‘24 product mix, ‘24 record hit rates. That will be a higher number likely when we get to 2025 and kind of reset what that opportunity is going forward in 25, 26, 27 as the market moves back with rate declines. Surinder Thind : And then as a follow-on to that I believe in the prepared comments, you mentioned that additional pricing benefits in 2025. And any color you can provide there in terms of the strength of the pricing benefits that you expect maybe next year relative to what we've got -- what we saw this year? Mark Begor : Yes, it's really early for that. We're not providing any '25 guidance. We tried to give you some kind of what we're seeing that we would expect to happen where we maybe have some confidence in it for next year. But I think it's too early on that. Just as a reminder, we will be doing increases on January 1. And we'll give some visibility to that when we have our February call and we laid out a framework for 2025, but you should expect price increases for EWS and from USIS as we've done over the last number of years. We think that there's a lot of value in the solutions we deliver. And you should expect and we plan to increase prices. Surinder Thind : Just as a clarification, I think is the commentary that you'll try and do pricing consistent with historical without talking about guidance. Is that the idea that pricing? Mark Begor : I think we're trying not to give any framework on what the level of pricing is, but just reinforcing that there will be price increases as this customary in our industry, given the value of the data we have. And we'll give you real clarity on that when we get to February and our 2025 guidance. Operator: The next question is coming from Kyle Peterson of Needham & Company. Kyle Peterson : Just wanted to see if you guys had any color I know on kind of some of the thoughts on purchase mortgage still being pretty subdued kind of partially due to rates and pursuing prices and affordability. Do you guys have any thoughts on how much rates would need to fall before purchase starts to improve? I know I know some of the inventory and home price issues are a little tougher to piece together. But at least on the rate side, I guess how much do you guys think rates need to fall before there would be some relief at least from that end of the market. Mark Begor : That's a tough one. As you know, we've never -- I'll say it in our lifetime, maybe it's a little shorter than that. But we haven't seen in 20 years a rate increase at this pace and at this level ever. So the shock of the where mortgage rates have gone from the, call it, super low levels during COVID timeframe to where they are today is unprecedented. So I think it's hard to correlate that back. I think what we saw in late August is just a great indicator of even a very small change in rates down, stimulated the market. In this case, our view principally in refi but there's clearly some purchase activity. There's purchase activity even at these higher rates. People are buying homes at either variable or a 30 year fix rates. It's just that there isn't a lot of inventory. The real question, I think, is when will it stimulate those that are, call it, 3% or 4% mortgages that want to upgrade to a larger home. That's a normal part of the housing economy. And when -- how -- what's the gap have to be from where they are today at call it 3% to 4% versus 6% plus, is it 50 bps? Is it 100 bps? It's clearly lower. And I think we'll see that as it goes forward, we'll be super transparent with you. But I think you should be encouraged that when rates come down, the market responds pretty quickly, which we saw in late September, yes. Kyle Peterson : And I guess just a follow-up on capital return. You guys can tease the potential for buybacks and dividends -- potential dividend increase in 2025. How do you guys think about priority and balanced between the two whether it's the firms you guys kind of want to do some of both. I know it's been a while since you guys have raised the dividend. But yes, just some more thoughts on how you guys are thinking about capital return and what the relative priority is? Mark Begor : Yes. And no change to how we've communicated since I've been here. We've always been working towards a goal to return cash to shareholders. And as you know, the last four, five years, we've invested really substantial parts of our excess free cash flow in CapEx with the cloud transformation, we're getting at the finish line on that. So that's really good news. And our CapEx is going to come down meaningfully, which will free up more cash for available to return to shareholders. We've also, as you know, as a part of our long-term framework, plan to continue a bolt-on M&A strategy, very disciplined on the financial returns and very disciplined around the strategic swim lanes that we're focused on, whether it's differentiated data, strengthening EWS or growing in identity and fraud. And I think as you know, we've done a sizable amount of bolt-on acquisitions, while we were doing the cloud. And we would expect to continue to do those bolt-ons. Most recently, we did Boa Vista last August. We're continuing to build a pipeline of strategic and financially attractive acquisitions, but we try to frame for you that we would expect over the long term to have 1 to 2 points of revenue growth from that bolt-on M&A. So you think about 1 to 2 points of revenue growth annually, that's $50 million to $100 million, Boa Vista delivered north of that. But in that kind of a range, and if you think about the cash required for buying the kind of companies that would be financially attractive to us that fit that $50 million to $100 million of revenue, obviously, at attractive margins and returns that's somewhere in the $500 million a year roughly of capital or cash bolt-on M&A. And your model, I'm sure looks like ours, when we get into 25,26, 27 our free cash flow really accelerates well in excess of what we would use for CapEx. It's 6% to 7%, that's south of $500 million. if you think about $500 million on the average, some years, it will be lower. Some years, it might be a bit higher on bolt-on M&A, there's substantial excess free cash flow to grow the dividend and buyback -- we've talked on the last call and we've talked, I think, on most of our earnings calls and when we're out with investors, when we think about returning cash to shareholders, we believe growing the dividend in a consistent way is a great way to return cash to shareholders and very disciplined. We frame that and this isn't -- we haven't made decisions, but we framed that in the direction of growing the dividend in line with our earnings growth. I think that's where we're working towards at the right time to do that. And then the excess free cash flow, which is meaningful, we would do in a buyback. And we'd be in the market kind of every day with that and use the buyback as another mechanism to return cash to shareholders. This has been our strategy since I joined Equifax is to complete the cloud transformation. We're getting towards that stage at 80% now and 90% by year-end and then bring CapEx down, bring our margins up off of the strong revenue growth rate we had that excess free cash flow to return to shareholders. And I think you caught in our comments earlier this morning, we shared with investors that we've added to our long-term framework structure, which is how we run the company and how we measure our teams a cash conversion metric. That's always been in our plan to do that. We thought it was the right time now to put that into our long-term framework. And I think it shows to you the discipline that we're going to have in running the company to generate that excess free cash flow to invest in Equifax, but as importantly to return cash to shareholders. And we look forward to getting to the stage to do that as we move into 2020. John Gamble : And just as a reminder, free cash flow is strengthening and very strong but also we're delevering. So we had to not only execute what Mark's talking about through free cash flow we generate, but also we'll have significant leverage available to us. given the substantial growth we're seeing in EBITDA. Operator: The next question is coming from Kevin McVeigh of UBS. Kevin McVeigh : I just want to circle back to the mortgage revenue opportunity. It's been pretty consistent in framing $1 billion plus, but that's based on kind of current pricing more to your point penetration and TWN records, things like that. if I go back, right, to kind of the '15 to '19 time period, you had 71 million records as opposed to 182 million today. So what I'm trying to understand is, is there any way to think about kind of what your yield is to get to that number today as opposed to what the inquiry or interest rate number has to be? So I guess said another way, you've got a lot more product and higher records, things like that. So do you need the same level of interest rate to kind of drive that revenue? Or is there any way to think about that aspect of it? Mark Begor : Yes, that's a tough one. We've worked hard to try to model that. It's just so unprecedented what's happened in the last three years with rates we've never seen it before. And we've picked you can agree or disagree with what we've been using, but we pick 2015 to '19 as being a normal level. But if you go back like a decade, go back the last time there was really a kind of an unusual mortgage environment was '07, '08, '09 during the global financial crisis, and that was more an underwriting crisis from a consumer mEFX Ratings Summary
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Equifax Inc. (NYSE:EFX) Earnings Report Highlights
- Earnings Per Share (EPS) of $2.12, aligning with estimates and showing growth from the previous year.
- Reported revenue of $1.42 billion fell short of the estimated $1.44 billion.
- Valuation ratios such as the price-to-earnings (P/E) ratio of 55.08 and price-to-sales ratio of 5.55 reflect high market expectations and investor confidence.
Equifax Inc. (NYSE:EFX) is a leading global data, analytics, and technology company, known for its comprehensive credit reporting services and data analytics capabilities. The company competes with major credit reporting agencies like Experian and TransUnion, operating across various segments including Workforce Solutions, US Information Solutions, and International.
On February 6, 2025, Equifax reported an EPS of $2.12, which was in line with the estimated EPS of $2.12. This performance marks a positive trend, with the company having reported an EPS of $1.81 in the same quarter of the previous year, indicating a growth in earnings. However, Equifax's actual revenue of approximately $1.42 billion fell short of the estimated $1.44 billion, according to Zacks Investment Research.
The company's strong performance in the fourth quarter of 2024 was driven by robust growth across its various segments, despite missing revenue targets. The price-to-earnings (P/E) ratio of 55.08 and the price-to-sales ratio of 5.55 suggest high market expectations for future earnings growth and reflect investor confidence in its revenue-generating capabilities.
Further financial metrics such as the enterprise value to sales ratio of 6.44 and the enterprise value to operating cash flow ratio of 27.23 provide insights into Equifax's valuation relative to its revenue and cash flow generation. The earnings yield of 1.82% offers a perspective on the return on investment for shareholders. Additionally, Equifax's debt-to-equity ratio of 1.11 indicates a moderate level of debt compared to its equity, while the current ratio of 0.88 suggests potential challenges in covering short-term liabilities with short-term assets.
Equifax Inc. (NYSE:EFX) Sees Positive Analyst Outlook Amid Strategic Expansions and Innovations
- The consensus target price for Equifax Inc. (NYSE:EFX) has been steadily increasing, indicating growing analyst optimism.
- Strategic international expansions and innovations in fraud detection and identity verification are key drivers of Equifax's positive outlook.
- Equifax's strong performance in non-mortgage businesses and anticipated growth in mortgage revenue due to potential interest rate cuts are bolstering confidence.
Equifax Inc. (NYSE:EFX) is a prominent player in the information solutions and human resources business process automation outsourcing industry. The company operates through three main segments: Workforce Solutions, U.S. Information Solutions (USIS), and International. These segments provide a variety of services, such as employment and income verification, credit information and scoring, fraud detection, and identity verification. Equifax serves a wide range of clients across industries like financial services, healthcare, and government, and has a global presence.
The consensus target price for Equifax's stock has been on an upward trajectory over the past year. A month ago, analysts set the average price target at $320.50, up from $317.18 a quarter ago, and significantly higher than the $299.89 target from a year ago. This trend suggests growing optimism among analysts about Equifax's stock performance, as highlighted by the recent strong quarterly earnings report. The company's robust performance in its Workforce Solutions and USIS segments has likely contributed to this positive outlook.
Equifax's strategic expansion in international markets, particularly in Asia and Latin America, is another factor driving analyst confidence. This expansion is expected to fuel future growth, as evidenced by the anticipated revenue growth in Europe and Latin America for the third quarter of 2024. Analyst Georgios Mihalos from Cowen & Co. has set a price target of $295, reflecting a positive outlook for Equifax's international ventures.
Innovations in fraud detection and identity verification are also bolstering Equifax's competitive position. The company's investment in advanced technologies is likely to enhance its service offerings, contributing to the optimistic target price outlook. Equifax's strong growth in non-mortgage businesses and expected recovery in mortgage revenue further support this positive sentiment, as indicated by the 'Strong Buy' rating and a one-year price target of $360 per share.
Equifax's recent achievements, such as an 8% organic revenue growth in the second quarter and a notable 13% increase in non-mortgage sectors, demonstrate its resilience and adaptability. Despite a decline in mortgage credit inquiries, the company has maintained strong performance. The anticipated interest rate cuts by the Federal Reserve are expected to boost Equifax's mortgage revenue and overall Workforce Solutions, potentially accelerating growth from fiscal year 2025 onwards, as supported by analyst Georgios Mihalos.
Equifax Stock Plunges 9% After Q1 Results
Equifax (NYSE:EFX) shares tumbled more than 9% in premarket trading Thursday following the company's announcement of second-quarter and full-year financial guidance that didn't meet analysts' forecasts.
In its fiscal first quarter of 2024, Equifax reported earnings per share (EPS) of $1.50, beating the consensus estimate of $1.44. However, its revenue for the quarter was $1.39 billion, slightly below the expected $1.4 billion.
For the upcoming fiscal second quarter, Equifax expects its adjusted EPS to be between $1.65 and $1.75, which is below the analyst forecast of $1.86. The company also anticipates revenue for the quarter to be between $1.41 billion and $1.43 billion, which falls short of the expected $1.44 billion.
Looking ahead to the full year of 2024, Equifax predicts adjusted EPS to range from $7.20 to $7.50, whereas analysts had projected $7.64. The company maintained its full-year revenue forecast, expecting it to be between $5.67 billion and $5.77 billion, slightly below the analyst consensus of $5.8 billion.
Equifax Posts Q3 Miss Due to Weaker Mortgage Market
Equifax (NYSE:EFX) reported its third-quarter results, which fell below Wall Street expectations, primarily driven by a weaker U.S. mortgage market.
In the third quarter, the company reported revenue growth of 6% to reach $1.319 billion, slightly missing the Street estimate of $1.33 billion. Adjusted EPS increased by 2% to $1.76, also falling short of the Street estimate of $1.79.
For the full year, Equifax revised its revenue guidance downward by $44 million to $5.256 billion, and its adjusted EPS guidance was lowered by $0.31 to $6.67 per share. These figures also fell below the Street expectations of $5.29 billion and $6.91, respectively.
Equifax anticipates the challenges in the U.S. mortgage market, driven by current high-interest rates, to persist in the fourth quarter. As a result, the company now forecasts a 34% decline in Equifax mortgage credit inquiries for the full year, which is a 3% reduction from its previous forecast.
Equifax Inc Investor Day Takeaways
Analysts at RBC Capital provided their views on Equifax Inc. (NYSE:EFX) following the Investor Day, where the company unveiled its long-term financial framework, which came in slightly below the analysts’ expectations.
The brokerage sees cloud transformation driving sustainable top-line growth moving forward in the 8-12% range (7-10% organic) in combination with around 39% EBITDA margins, around $1.9 billion in FCF, and EPS of $12.75 by 2025. While the $12.75 figure came in modestly below expectations of $15, the analysts believe the company has baked in conservatism. Bottom line, RBC Capital sees the cloud transformation and technological leadership driving further upside to conservative estimates. With greater visibility and confidence into the longer-term revenue and earnings growth outlook, which should help the stock re-rate higher, the brokerage increased its price target to $294 from $270, maintaining its sector perform rating.
