Equifax Inc. (EFX) Earnings Call Transcript & Summary

Good day. Welcome to the Equifax Investor Update Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Dorian Hare. Please go ahead, sir.

Thanks, and good afternoon. Welcome to today's conference call. I'm Dorian Hare. 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 Investor Relations section in the About Equifax tab of our website at www.equifax.com. During the call today, we will be making reference to certain materials that can also be found in the Investor Relations section of our website under Events and Presentations. These materials are labeled Q4 Investor Update Presentation. During this call, we will be making certain forward-looking statements 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 inherent in our business are set forth in filings with the SEC, including our 2019 Form 10-K and subsequent filings. Also, we will be referring to certain non-GAAP financial measures, including adjusted EPS attributable to Equifax, adjusted EBITDA and adjusted operating income, which will be adjusted for certain items that affect the comparability of our underlying operational performance. Our non-GAAP measures for completed periods are detailed in reconciliation tables, which are included with our prior period earnings releases and are also posted on our website. Now I'd like to turn it over to Mark.

Thanks, Dorian, and thanks, everyone, for joining our fourth quarter investor update. We know that businesses and consumers around the world continue to face challenges brought on by the COVID-19 pandemic as caseloads have recently trended upwards here in the United States and in other countries. I hope you and your families are continuing to be safe during this holiday season. At Equifax, we continue to make the health and safety of our 11,000 employees a top priority. This is our third mid-quarter call during the COVID pandemic. Our goal is to be transparent with you as the -- as revenue trends change in this unprecedented environment. We plan to cover 4 areas this afternoon: First, an update on our fourth quarter revenue trends, which have improved meaningfully since our third quarter earnings call in October; second, an updated framework for our fourth quarter revenue and earnings, which has also improved; third, our first look at 2021 market drivers and our framework for 2021 revenue and earnings, where we expect to deliver approximately 6% revenue growth at the midpoint of our range over a very strong 2020; and last, we'll also give you a framework for our cloud transformation costs and benefits in '21 and '22. Turning first to Slide 4. Equifax continues to perform exceptionally well during the COVID recession, and we now expect to deliver approximately 19% revenue growth in the fourth quarter, which is up over 800 basis points from our October framework, driven by Workforce Solutions strength, a strong mortgage market and improving customer activity broadly. For the year, we now expect to be up approximately 16% overall, which is the strongest revenue growth in our history. We certainly did not expect to see this level of outperformance coming into the year or into the COVID pandemic. Our outperformance is a reflection of the strength, breadth and resilience of our business model and the dedication of our team throughout the COVID recession, coupled with the cloud transformation benefits beginning to take hold. During the fourth quarter, we have continued to see strong growth from the Workforce Solutions as well as sustained strength in the U.S. mortgage market. Workforce Solutions is now on pace to grow a strong 57% in the fourth quarter. I'm also encouraged by some of the trends we are seeing in our U.S. non-mortgage in international markets. We continue to see more commercial activity in our U.S. non-mortgage verticals. And based on trends through early December, we expect fourth quarter growth in Australia and Canada and the U.K. to get back to flat with last year. This momentum is encouraging as many of our international markets were hit hardest by the COVID recession. We look forward to International returning to growth in 2021 as the impact of the COVID virus dissipates. As we indicated a few weeks ago on the third quarter earnings call, our strong financial performance this year has enabled us to accelerate our cloud data and technology transformation. We're still on track to migrate the majority or over 10,000 of our USIS customers to our new cloud environment by the end of the year. Our focus as we move into 2021 will be on completing our North America migrations and continue our international cloud transformation. Our team remains laser-focused on completing the cloud transformation to revolutionize our capabilities and to service our customers, which will benefit our top line, deliver cost reductions to Equifax and enhance our margins and cash flow. Today, we'll also be providing a framework for 2021 based on our current view of the COVID recovery and the mortgage market for next year. Based on our current economic assumptions for 2021, we expect Equifax to deliver revenue growth of approximately 6% at about the midpoint of our range in 2021, which follows our very strong 2020 growth of approximately 16%. We'll provide that framework for 2021 a bit later. Moving now to Slide 5. We'd like to -- we'd like again to highlight the continued improvement in Equifax' core growth. As a reminder, we define core growth as Equifax revenue growth, excluding growth driven by the underlying U.S. mortgage market and from our unemployment claims insurance business. Essentially, core growth revenue is a sum of the growth in our U.S. non-mortgage and non-UC businesses, our International businesses, GCS and the growth in the U.S. mortgage market businesses in excess of the market. We believe core growth is the right way to look at Equifax' long-term growth as it reflects the ongoing growth driven by our investments and our execution. We expect our long-term growth will exceed our core growth as we also benefit from the continued long-term growth of the U.S. market and benefits from our cloud transformation. In the fourth quarter, our current framework implies about 19% overall revenue growth at the midpoint of our range with approximately 2 percentage points of the growth from UC -- our UC business growth and 10 percentage points from the strong U.S. mortgage market. Core revenue growth continues to expand with 7% in the fourth quarter, up from 6% in the third quarter. This improvement reflects continued strong outperformance relative to the mortgage market and improvements broadly across our U.S. non-mortgage businesses and International. This momentum is positive as we move towards 2021. For the full year, Equifax is expected to grow approximately 16% overall, with 3 percentage points of the growth from UC claims revenue and 9 percentage points from the strong U.S. mortgage market. Core revenue growth of 4% is driven by the almost 7% core growth in the second half of 2020, which provides good momentum going into 2021. We are energized by the strong core growth, while many of our businesses are still impacted negatively by the COVID recession. Slide 6 provides a view of the continued, very strong outperformance of Workforce Solutions. For the fourth quarter, Workforce Solutions revenue is expected to grow approximately 57% with core revenue growth continuing at the very strong level of 30% we delivered in the third quarter. For the full year, Workforce Solutions revenue growth is expected to be at record levels of approximately 50% with core revenue growth of about 25%. This outsized performance reflects the strength in multiple structural growth levers at Workforce Solutions. Importantly, Workforce Solutions growth has accelerated over the past 24 months and in the past 6 months, which is positive for the future. Future growth in Workforce Solutions will be driven by investment in new products and verticals, penetration in pricing and continued record expansion. A key to Workforce Solutions growth has been the accelerating record growth over the past several years. As you can see on the chart in the bottom right, Workforce Solution records grew 20% in the third quarter following growth of 7% in the third quarter last year -- through the third quarter last year and 9% in third quarter '18. As you know, we are able to instantly monetize new records, and we have a long pipeline of new record targets. The TWN database has current employment records of over 113 million U.S. jobs, up 2 million from the 111 million we discussed with you in October. As a reminder, about 2/3 of our TWN records are obtained through direct contributions from employers that we have built up over the past 10-plus years and about 1/3 through partnerships in payroll -- with payroll companies, software providers and others. As you know, we have a dedicated team focused on expanding our TWN database. And we're also expanding our records to include nonemployee information -- income information through 1099s and integration with other employee and contractor software management solutions to broaden our database even further. We also continue to aggressively grow the number of systems and customers with which we have direct system-to-system integrations. Over 60% of our TWN mortgage transactions are generated on a system-to-system basis, which gives the Workforce Solutions team plenty of room to grow these valuable connections. Workforce Solutions is clearly Equifax' most valuable and differentiated business and will likely be our largest business unit in 2021. We remain confident in Workforce Solutions' sustainable, long-term growth prospects, which are highly accretive to Equifax' overall growth rates and margins. Slide 7 highlights the continued outperformance of our U.S. B2B mortgage businesses, which includes USIS and Workforce Solutions, relative to the growth in the underlying mortgage market. Equifax U.S. mortgage revenue is expected to grow over 80% in 2020, much faster than the just over 45% growth in the U.S. mortgage market, our proxy for which is growth in U.S. credit mortgage inquiries. The Equifax growth of over 35 points faster than the overall market is driven by Workforce Solutions, which is driving above-market growth of about 75 percentage points. USIS also continues to outgrow the market -- mortgage market with above-market growth of 8%. Now I'd like to turn the call over to John to provide more detail on our improving fourth quarter revenue trends.

Thanks, Mark. As Mark pointed out, we are seeing significant improvements in our revenue trends from the discussion we had on October 22. This improvement is broad-based across U.S. B2B as well as International and GCS. On Slides 8 through 10, we are providing an update to the BU level trends we shared during our October earnings call. The chart show the implications on 4Q '20 revenue growth rate if the trends we are seeing through last week were to continue for the rest of December. As shown on Slide 8, starting from the bottom right, U.S. B2B online revenue is strengthening substantially. We now expect U.S. B2B online revenue, which reflects USIS online and Mortgage Solutions and Workforce Solutions Verifier, to be up almost 40% in 4Q '20 year-to-year. U.S. mortgage market inquiries remain strong but are stronger than our expectations in late July by only on the order of 1%. The improvement in online revenue was broad-based and driven by accelerating Equifax outperformance in the mortgage market as well as improvement in non-mortgage revenue, which is positive for the future. Overall, USIS non-mortgage online revenue is showing nice improvement relative to our discussion in late October broadly across verticals, including banking and lending as well as in commercial, auto, telco and ID and fraud. The improving trends we discussed in October in government, principally driven by our identity validation products and in rental, are also continuing. Workforce Solutions non-mortgage online verifications revenue has seen significant revenue acceleration in the quarter, with trends pointing to 15% growth in the quarter, driven by strong growth in talent solutions, principally driven by new products as well as improving trends in government, auto and debt management. Employer Services is also stronger than expected, driven by higher growth in unemployment insurance claims than in the framework we provided in October. UC revenue is expected to be on the order of $45 million in the quarter, down slightly from the third quarter. The remainder of the Employer Services business is about $25 million, which is related to employee onboarding, ACA compliance and tax services. These hiring-related businesses are performing slightly weaker than we expected, although our I-9 onboarding businesses, now just under half of this business, continues to grow strongly driven by new products. Turning to Slide 9. International is delivering stronger improvement than we'd expected in October with overall revenue approaching flat in the quarter if current trends continue. All regions are showing improvement with both Australia and the U.K. improving nicely relative to the trends in October. GCS has also improved -- showing improvement, specifically in Consumer Direct revenue, our consumer subscription business with the improvement principally in the U.S. and Canada. Slide 10 provides an updated, illustrative fourth quarter framework, reflecting the improving trends we just discussed. Should current trends and FX rates continue, 4Q '20 revenue would likely be $1.065 billion to $1.085 billion, up 17.5% to 20% year-to-year with no material impact from foreign exchange. As Mark discussed earlier, excluding the impact of the mortgage market and our UC claims business, we expect to deliver approximately 7% core growth in the fourth quarter. At these revenue levels, adjusted EPS would be in the range of $1.75 to $1.85 per share, up 14% to 21% year-to-year. This is markedly stronger than the framework for 4Q we discussed in October. For your reference, Slide 10 also provides a bridge of pretax income and adjusted EPS performance for 4Q '20 versus 4Q '19. The ranges provided for 4Q revenue and adjusted EPS reflect current variability in trends, not a view of potential fourth quarter outcomes. Importantly, at these adjusted EPS levels, Equifax could deliver almost $400 million in adjusted EBITDA in the fourth quarter, about equal to 3Q 20's record levels. We hope the detail and framework we provided on the impacts we have seen to date are helpful as you estimate Equifax' fourth quarter results. I'd now like to turn it back over to Mark to discuss some of the levers and assumptions behind how we expect Equifax to continue to perform well into 2021 and beyond.

Thanks, John. And as John said, as we get closer to 2021, we thought it would be helpful to share how we think about '21 and '22. Of course, we're still in the midst of a challenging COVID recession, but there are some macro and Equifax drivers that are meaningful for our future. Starting with the revenue growth levers on Slide 11, we've divided these into overall macro drivers and those more specific to Equifax. Starting with the macro drivers. Digitization for speed, efficiency and accuracy and the value of data in making better decisions have and will continue to be positive macro drivers for Equifax in our industry. We are seeing more consumers and customers move towards digital interactions, which requires more data around identity, fraud, credit and income and employment. Clearly, U.S. mortgage market has been a very strong macro in 2020. With record low interest rates continuing into 2021, we expect the mortgage market to continue at fourth quarter levels into the first half of 2021 and to taper down in the second half of next year. And COVID-19 has obviously had a brutal impact on the global economy during 2020. As we look towards 2021 and vaccination programs begin to take hold, economists are generally expecting meaningful improvements in GDP and there could be further tailwinds from pent-up demand in certain sectors next year. Turning to the drivers more unique to Equifax. First, I already discussed our Workforce Solutions' strong growth is accelerating and should continue in '21 and beyond, given the multiple growth levers available to our strongest business. Second, our cloud data and technology transformation will transform our entire business and allow us to deliver multiple data assets and products and services that can only be delivered in a cloud data and technology environment. These new capabilities have and will be accretive to our revenue growth, reduce our costs, expand our margins and drive free cash flow. The completion of the most significant elements of the cloud transformation during 2021 will deliver benefits next year and power Equifax in '22 and beyond. Our cloud transformation and expanding product resources will drive innovation in new products. We are now on track to deliver 120 new products this year, which is up from the 110 we discussed in October and the 90 we delivered in 2019. My goal is to further expand our NPI rollouts into 2021 and beyond by leveraging our new cloud data and technology capabilities. Our USIS business was most impacted by the 2017 cyber event. Over the past 3 years, we've regained our customers' confidence in USIS. We are competitive in winning in the marketplace and expect continued USIS growth as the COVID recovery unfolds. Our International business was most negatively impacted in the COVID recession or seeing some positive signs of recovery that should accelerate in 2021. We look for our International businesses to grow in excess of their underlying GDP next year as their markets recover. We're also expanding our M&A focus to take advantage of our strong operating performance and cash generation and the cloud transformation to reinvest and accelerate our bolt-on M&A activity. Our areas of focus include identity and fraud, unique data assets, commercial data assets and businesses and acquisitions to expand Workforce Solutions, including employer services. Now I'd like to move into a discussion of 2021 and provide a framework to help you as you considered Equifax -- as you consider Equifax' continued and accelerating progress. Given the continued significant uncertainty in the overall U.S. and global economy as well as in the U.S. mortgage market, we wanted to provide you with the assumptions we've been using at this stage in developing our framework for 2021. We were also aware that the pace and direction of the recovery is uncertain as we see spikes in COVID cases in regions like California implementing new lockdowns. We plan to update this framework in our fourth quarter earnings call in February based on changes that occur in underlying economies relative to our current assumptions. Based on our assumptions for 2021, are provided on Slide 12, we expect the U.S. mortgage market, our proxy for which is U.S. mortgage credit inquiries, to remain strong in the first half of '21 but to decline in the second half. We assume 2021 credit inquiries overall to be down about 5% for the year versus 2020, with first half credit inquiries up about 10% and second half credit inquiries down about 20%. Equifax U.S. B2B mortgage revenue will continue to significantly outperform the overall mortgage market with growth of over 10%. Our overall framework is based on a U.S. economic recovery starting in the second quarter of 2021 with about 3.5% GDP growth for the full year. We expect our USIS and Workforce Solutions non-mortgage businesses to outperform their underlying markets. EWS talent solutions and government businesses should also outperform -- significantly outperform with the latter government business benefiting from our new contract with the SSA, Social Security Administration. Workforce Solutions unemployment claims business should be down over 35% versus 2020 as unemployment declines with the under -- recovering economy. We also expect the international economies will recover in 2021, beginning in the second quarter. We expect full year GDP growth of about 2.5% in Australia, 5% in the U.K. and 4.5% in Canada. Our International businesses are also expected to outperform their underlying markets. The U.S. mortgage market has continued to be exceptionally strong through November, driven by both record refinancings and home purchases. As shown on the left side of Slide 13, as of September, Black Knight estimates that there's still about 18.5 million U.S. mortgages that would benefit from refinancing based on the current record low interest rate environment. This is up 2x from the previous peak in refinance activity in 2016 and much larger than the recession of 2008. Given the current pace of mortgage refinancings at under $1 million per month, based on this data through June, the current high pace of refinancing should continue well into 2021. As shown on the right side of Slide 13, there were about 6.5 million existing home purchases on an annualized basis as of September, which is at levels we have not seen since before the financial crisis in 2006. The propensity for new home purchases may continue well into 2021 as families are seeking more space, and while heads of households or working couples are working from home in this COVID environment. Record low interest rates should also stimulate new home purchase activity. Based on these and other data points, we expect the U.S. mortgage market to continue at high levels again in 2021. Slide 14 provides a historical view of U.S. mortgage credit inquiries, and the strong growth we have seen has started in the third quarter of 2019. As I referenced earlier, our planning assumption is that the strong market will continue through the first half of next year, and we'll begin to see declines in the second half of 2021. To the extent that the current record low interest rate environment continues, it's certainly possible that the market could continue to be stronger well into the second half of next year than what we have included in our planning assumptions. I'll now hand it back over to John to walk you through the details of our 2021 financial framework, and then I'll come back to wrap up.

Thanks, Mark. Slide 15 provides an illustrative framework for Equifax 2021 financial performance relative to the midpoint of the range for 2020 range provided on Slide 22. As a reminder, in 2021, Equifax will include all cloud technology transformation costs and adjusted operating income, EBITDA and EPS. These onetime costs have been excluded from adjusted operating income, EBITDA and EPS in 2017 through 2020. In 2021, Equifax will incur onetime cloud technology transformation costs of approximately $145 million, a reduction of almost 60% from the $350 million incurred in 2020. The inclusion in 2021 of this about $145 million in onetime costs will reduce adjusted EBITDA by about $0.90 per share. So let's talk through the numbers. Based on the economic and revenue assumptions Mark shared, Equifax revenue in 2021 would be about $4.275 billion to $4.375 billion, up 4.5% to 7% over 2020. The 2021 adjusted EPS, which includes the negative $0.90 per share of onetime tech transformation costs, would be about $6.10 to $6.40 per share, down 4% to 8% from 2020. Looking at 2021 on a comparable basis to 2020, excluding the onetime tech transformation costs in 2021 that are not included in 2020, 2021 adjusted EPS would be $7 to $7.30 per share, up a strong 5% to 9% from 2020. The bottom right of Slide 15 provides a bridge of pretax income to adjusted EPS performance for 2021 versus 2020. As a reminder, this is not guidance but a framework at a point in time based on the assumption shared that we hope is helpful as you determine your view of Equifax in 2021. This framework will certainly be impacted by changes in underlying markets and other factors. As Mark discussed earlier, we believe core revenue growth is an important measure of our performance. As a reminder, we look at core revenue growth by excluding the impact of the mortgage market and our UC claims business. We believe this metric provides a good view of the long-term performance of our underlying core businesses. Slide 16 provides a view of the progression of core revenue growth for Equifax from 2019 through 2021. In 2021, we expect core revenue growth to accelerate to about 10%, as we continue to significantly outperform the U.S. mortgage market and deliver growth in excess of the mortgage market. U.S. B2B non-mortgage revenue growth accelerates in USIS and Workforce Solutions with a recovery in U.S. economy and Equifax performance outperforming the underlying markets. And International delivered substantial revenue growth as markets recover. And again, Equifax outperforms the underlying markets. Although 2021 overall revenue growth in the framework we are providing is about 6%, at about the midpoint of our range, as both the U.S. mortgage market and our UC revenue declined, negatively impacting Equifax revenue by about 4 percentage points, we believe core growth of about 10% provides a strong base as we look forward to our 2022 performance. Slide 17 provides a view of the cost impact of Equifax from the cloud transformation from 2020 to 2022. We are sharing these current estimates to assist your modeling of Equifax in 2021, 2022 and beyond. As onetime technology transformation expense is excluded from adjusted earnings in 2020 but is included in adjusted earnings in 2021 and 2022, for the sections of this chart on both transformation expense onetime and pretax earnings impact, we are sharing both the impact on adjusted earnings and the impact on GAAP earnings. As you review this slide, we believe some of the important takeaways include: in operating cost impacts, the redundant system costs reduced substantially going from 2020 to 2021 and turned to net cloud cost savings in 2022 and beyond. Beyond 2022, we expect legacy system savings, which were $50 million in 2022, will be at the $90-plus million level we have discussed with you in the past, and depreciation growth will return to more normal patterns of growth and no longer benefit by -- no longer be impacted by significant headwind as CapEx declines below 8%. Transformation expense of $145 million is a substantial headwind to adjusted earnings in 2021 due to this change in reporting. In 2022, however, transformation expense will decline to -- on the order of $45 million or below, resulting in a substantial positive to adjusted earnings of over $100 million. In 2023, transformation expense will again decline substantially, resulting in a substantial positive to future earnings. The pretax adjusted earnings impact, which is the combination of operating cost and transformation expense, again, principally due to the change in reporting of transformation expense in 2021, is a substantial headwind to adjusted earnings in 2021 of about $190 million. In 2022, however, this reverses, and we have a positive impact on adjusted earnings of about $140 million. And in 2023, we will see an additional positive impact on adjusted earnings as cloud cost benefits accelerate. We will see reductions in capital spending in 2021 and 2022 as CapEx as a percent of revenue moves to below 8%. As we move through 2021, the substantial benefits of the cloud transformation are starting to be realized with acceleration as we move into 2022. And now I'll turn it back over to Mark to complete our prepared remarks.

Thanks, John. Slide 18 includes an outlook for 2020 and 2021 EBITDA and EPS using the midpoint to the framework range as John provided earlier. The first 3 bars provide data for '19 through 2021, excluding onetime cloud transformation expenses. We believe this view allows a good comparison for 2021 on a basis comparable to 2020 and 2019. On this basis, we see strong growth in adjusted EBITDA and EPS throughout the 2019 to '21 period, with annualized revenue growth of 10.7%, EBITDA growth of 15.5% and adjusted EPS growth of 12.8% over that 3-year period. On the far right of Slide 18, the bar shows 2021 on the basis for which we will report adjusted EBITDA and EPS next year, including the onetime cloud transformation costs in our adjusted results. As a reminder, these onetime cloud transformation costs were excluded from our adjusted results in 2019 and 2020 and 2018. The $145 million of onetime transformation costs included in 2021 adjusted results negatively impact EBITDA by $145 million, EBITDA margins by 330 basis points and adjusted EPS by $0.90 per share. As shown, even on this basis over the 3-year period from 2019 through 2021, we are delivering annualized growth in EBITDA of 10% and adjusted EPS of 5.5% in that 3-year period. Turning now to Slide 19. This highlights our continued focus on new product innovation, which is a key component of the next chapter of Equifax. We continue to focus on transforming our company into a product-led organization empowered by the best-in-class, cloud-native data and technology to fuel our top line. As I mentioned previously, we now anticipate releasing over 120 NPIs this year, well up from the 100 which we guided towards at the start of 2020 and the 110 we were forecasting a few weeks ago in October. As of today, we've already released about 120 new products into the marketplace. In the fourth quarter, we continued our strong focus on recession-based product launches, including our Response CONFIDENCE product offering, which enables businesses to visualize new customers and market trends, provides the data-driven insights needed to support consumers in this challenging economic time and offers tools that empower people to share alternative data not currently available in credit reports for a more complete financial picture. In USIS, we launched OneView. OneView combines all of Equifax data assets and information into an easy to read and digestible format that can be tailored to a specific vertical or customer. Customers are not only looking for better data for decisioning but are looking for help in managing these insights and making them more easily digestible. OneView will soon incorporate both TWN income and employment information and the traditional credit file and is the next generation of the existing Equifax TotalView credit solution. In Workforce Solutions, we continue to focus on the hiring process as a significant growth opportunity for our business to support the 70 million new hires per year in the United States. We've released a new product called Talent Report Select All, which provides an enhanced VOE solution that services all available data on a candidate with fulfillment-based billing. We've also launched a new global product called Biometric Document Verification. This is a product built on our cloud-based Luminate global identity platform, and this capability provides a real-time, simple method to allow our customers to confirm that their consumers are who they say they are by capturing images of their state IDs using their mobile devices. NPIs continue to be an important lever for Equifax' growth and a priority for me and the team. As we look to 2021, we are excited to leverage our new cloud data and technology transformation to build new products to fulfill our customers' ever-evolving needs. Wrapping up on Slide 20. Equifax is operating exceptionally well during the COVID recession, well above our and your expectations. Our strong business model is resilient and delivering as we invest for 2021 and beyond. We remain confident in the drivers of our business model and our growth strategy. Our estimated 19% growth in the fourth quarter reflects the strength of the Equifax business model. The continued strength of the U.S. mortgage market and expectations for global post-COVID recovery will fuel Equifax growth in 2021. Our strong and outsized financial performance from the mortgage and UC market allows Equifax to continue to be aggressive about investing in our cloud transformation while expanding new investments in innovation, new products, data and analytics and accretive M&A. We are excited to see the benefits of these investments as we look to deliver approximately 6% growth at the midpoint of our range in 2021. Workforce Solutions continues to power Equifax as it's estimated to grow by 50% in 2020 while delivering 25% core growth. Rudy Ploder and his team have a broad set of growth levers, including new records, new products, penetration and expansion into new verticals. The progress that we've made on our system-to-system integrations has driven incremental pull throughout 2020 that we expect to continue next year. While the mortgage market has certainly outperformed anyone's expectations this year, Workforce Solutions' underlying 25% growth in 2020 reflects the power and breadth of the Workforce Solutions business model with Workforce Solutions likely being our largest business in 2021 for the first time. USIS is expected to deliver over 13% growth in 2020. U.S. mortgage market continues to outgrow the underlying mortgage market, and we're seeing consistent improvement in our non-mortgage performance. USIS is competitive and winning in the marketplace and will deliver growth in 2021. We're also encouraged by the improvement that we've seen across our International portfolio, with growth in the fourth quarter expected in Australia and Canada and continued recovery in Latin America and the United Kingdom. We are looking forward to seeing this recovery accelerate in 2021. We're finishing 2020 focused on executing our cloud technology and data transformation as we have completed the majority of our significant customer migrations. We're energized about the significant top line, cost, cash and cash benefits that will come from this transformation to the cloud. These benefits will include always-on stability, speed to market and the ability to rapidly move products around the globe, which we expect will help us improve our position in the marketplace. As we continue to deliver our above-market results through 2020 and invest in our cloud transformation new products, we're well positioned for growth in 2021 and beyond. I'm more excited than ever about our future as a leading data analytics and technology company. With that, operator, let me open it up for questions.

[Operator Instructions] We'll take our first question from Manav Patnaik at Barclays.

My first question is what percentage or what part of that 10% core growth you're assuming in '21 that you assumed is coming from the mortgage share gains that you include in there?

So what we're seeing in 2021, right, is the fact that we're now getting contributions really across all of the -- all of our businesses not just outsized growth in mortgage but also substantial growth out of USIS non-mortgage, International non-mortgage, really all the businesses, right? So in 2021, to the extent that the -- kind of the framework we put together would be executed against, we would end up -- we think we'd end up seeing less than half of that growth being driven by our excess performance in mortgage and the remainder would be -- being driven by the performance in the other parts of the business I just referenced.

Okay. That's helpful. And John, I guess, Slide 17, I lost you there for a second. But the $40 million of cost savings in 2022, maybe you can step back a bit. So you spend close to -- or you would have spent close to $2 billion on this tech transformation, but the savings is only going to be $40 million. Am I reading that right? Maybe you can you just help me there.

No.

No, no. So...

You don't have it right, Manav.

Yes. So we -- I think we pretty consistently talked about the fact that we're looking to save about -- on the order of $125 million per year once everything is completely done. This is just to try to give you a walk from '21 to '20. We've been indicating consistently that we won't be at the full run rate of savings in 2022. And also, there will be substantial benefit from the technology transformation on revenue growth, none of which is really covered on this page. So we'll -- what you're seeing here is just the savings going from '21 to '22 specifically related to legacy system savings less cloud cost. I think that's what you're referring to, which is that top line. And there, you're going to see a $75 million benefit.

And Manav, you used a $2 billion number. I'm not sure where you got that for the cloud transformation. We're pretty consistent that -- in the last couple of quarters that the incremental spend is $1.5 billion.

All right. We'll take our next question from Toni Kaplan at Morgan Stanley.

On the 15% growth in non-mortgage verification, I heard you mention talent management and debt solutions. I'm curious if you're seeing any acceleration in the non-mortgage lending use cases because I know you've been talking about that a lot in the past as something that could potentially be an opportunity. So just wanted to hear how that's going and how you expect that to continue into '21.

Yes, Toni, that's still very positive for us. We're seeing momentum and -- as we go through COVID, really across all verticals. I'll leave mortgage aside because you asked about non-mortgage, but whether it's in auto or P loans or cards, we're seeing real acceleration there of use cases and customers putting it in market. I think on the third quarter call, a few weeks ago, we may have talked about 2 large card issuers now using our TWN data at -- for their underwriting, which is a big move that is new. And of course, in the government vertical, which is part of non-mortgage and Workforce Solutions, we've got the growing government applications that we have, and of course, the Social Security Administration contract that we talked about at length throughout 2020 begins kicking in, in 2021 in earnest. That actually starts to begin kicking in, in the first quarter. So that's another element of Workforce Solutions growth in 2021 and Equifax growth.

That's great. And we saw a large industry deal last week in Information Services. And so I was hoping you could just share your thoughts on whether you think we might begin to see a pickup in industry consolidation and how you're thinking about large M&A right now. I know you mentioned bolt-ons being helpful to your growth, but just how are you thinking about large deals?

Well, you have to describe large, Toni. Certainly, the deal you're referencing was exceptionally large. I don't see any of those in our gunsights at this stage. But we're looking at multi-hundred million dollar opportunities that are sizable bolt-ons, if you want to call them bolt-ons. And we see some really interesting opportunities for Workforce Solutions around Identity and Fraud. We've done some smaller deals that, I'd say, enhance our commercial business here in the United States. And I think I've tried to be consistent, particularly in the last couple of calls with you around how we're ramping up our focus around M&A. As we look forward to the rest of this year and certainly in '21 and beyond, our cash generation is going to accelerate post the cloud transformation, which is going to give us a lot of options to put that cash to work, and M&A is one lever that we want to pull. We also believe we're going to be advantaged with the cloud transformation in doing M&A. By having a technology stack and a data environment, that will allow us to more easily integrate new data sources through M&A or new acquisitions and, we believe, advantaged our synergies as well as the pace of the synergies, so that's giving us more confidence about moving forward. And you probably saw -- I guess it's almost 2 months ago, we brought on a new M&A leader that's a direct report to me. And he's off to the races with his team of looking for opportunities for us.

We'll take our next question from Kevin McVeigh at Crédit Suisse.

Okay. I wonder, can you give us a sense of how much the kind of increased data pulls? And really, Mark, the question is you made a lot of investment in new products, going from kind of 60 to 120. And clearly, it seems like there's a structural component to the business in terms of increased frequency. Is there any way to frame how much of that you think is -- as you think about the revenue outperformance, because clearly, expectations have been a lot stronger in the last 3 quarters relative to what you initially guided, is there any way to think about how much of that is just structural versus maybe just macro? I know it's a hard question, but I think it's a key part to the story, is the increased frequency and the secular changes you're driving through vis-à-vis EWS. But is there any way to think about that, just framing that relative to where your expectations were?

Yes. I think there's no question from -- versus our expectations. The outperformance in the mortgage market has been accelerating. I think that's probably a great vertical to look at to show the value of data, in particular, the Workforce Solutions data. We talked at length in this call and we have for a couple about our performance versus the underlying mortgage market. And Workforce Solutions is way outperforming and why, well, there's just so many levers there. First off, when they have more records, their hit rates go up, and we monetize those instantly. And of course, we've been adding records. And as we pointed out on this call, since we talked a few weeks ago, we've added another 2 million records in the fourth quarter. That's a big lever. And then driving new products and new solutions drive the -- their outperformance. And if you think about the -- our performance in 2020, a lot of it obviously has been driven by mortgage and Workforce Solutions because remember, a lot of the non-mortgage businesses in the United States are really just starting to see some recovery. And outside the United States, same thing. So we're -- when we look forward to 2021, we're obviously going to get the macro of the recovery from that. But underlying, we believe there's some structural elements that relate to Workforce Solution strength, the power of the income and employment data. Our new product rollouts, as you pointed out, we think will be quite accretive. The products we rolled out, the 120 now that we've done in 2020, I think, as you know, those will really benefit us in '21, '22, '23. They're not really helping us this year to a great degree, although some of them are starting to kick in. All of those elements, we think, bode well for the future, which is why we opted to share our framework at this stage for 2021.

That's super helpful. And then is there any way you can hazard a guess as to where you think the records settle in 2021 if you ended kind of Q4 at $113 million? Any thoughts as to where that number goes to in 2021?

Well, we would certainly say with some confidence, higher. But beyond that, we don't want to give that kind of guidance. But I think if you look at the chart we included, you see a track record over the last 3 years of not only growing records pretty consistently. There can be a little choppiness. Like remember, in the second quarter, we were flat with the first but then had a pretty good quarter in the third quarter, and we're on track to have a pretty good record growth in the fourth quarter. But number one, a consistent addition of records; and number two, an acceleration, meaning we're growing them faster, the records. And part of that is additional resources. Part of it is our focus on it. And remember, we still got a pretty large environment or opportunity to add records. There's still a lot of records out there that we don't have. I think that's the uniqueness of Workforce Solutions. And then maybe just one last point on that, remember, we've talked pretty consistently the last couple of calls with you about our focus of going beyond nonfarm payroll or W-2 income. So we're focused on 1099 for self-employed. We want to go well beyond, call it, the 155 million population out there for nonfarm payroll and really expand the database even further to really all elements of people's employment and even including pension income for those U.S. consumers that are retired and receiving a defined benefit pension payment every month. So there's just a lot of opportunity there.

Great. Congrats on the results.

[Operator Instructions] We'll now take our next question from Andrew Nicholas at William Blair.

Just wanted to ask a question about CapEx. I think on one of the slides, it noted CapEx in 2022 of just under 8%. I think you originally contemplated a range more like the historical range of 6% to 7%. So I'm just wondering, one, if there is an adjustment, what are the main drivers of that change; and two, if the 8% figure for 2022 is more of a long-term rate. Or is that something you would also expect to trend down over time maybe in 2023 and beyond?

I think...

I'm sorry. Go ahead, John.

I think the chart just says under 8%. And there's really no change in our view in terms of where our CapEx is headed. I think we've been talking about likely some level, just over 7%, which is on the order of what our peers are at, actually slightly lower. And I don't think we have -- I don't think, at this point, we have any change in view.

There's no change on that. I'd say it's still early. I think the other thing to note and will help with some disclosures on this as we get into 2022, but the mix of our CapEx is going to change dramatically. If you look at our CapEx pre our cloud transformation, we spent a lot of money maintaining our legacy infrastructure. As we've gone through the 2018, '19 and '20, we've obviously increased our CapEx dramatically and not only maintaining our legacy infrastructure but transforming it to the new cloud infrastructure. As we go forward to, call it, '22 and beyond, we're going to have a very sizable CapEx investment in new products and innovation. There's just going to be more money going to solutions that drive new products that will drive our top line. I think that's the biggest story of our CapEx post 2022. And as John pointed out, the chart says below 8%. We're not ready to put a long-term framework out there. We'll do that in due course. But I think a bigger story is going to be around what we spend our CapEx on, which is really going to be fueling our top line around new products. It will be a big, big portion of that going forward that will be driving that.

Makes sense. That's helpful. And then just quickly as a follow-up, I think you noted in your prepared remarks the desire to expand your M&A focus. And you mentioned the identity and fraud space is one area of particular interest. I think you also mentioned seeing some outside growth in the identity business or the identity validation business broadly. So I'm just kind of wondering, higher level, if you could speak to that business a little bit further. How big is that business today? Anything you can say about the competitive positioning relative to some of your peers? And then where does M&A make sense or make the most sense within that business in terms of enhancing your solution set?

Yes. We've got Identity and Fraud Solutions. Globally, it's done in lots of verticals, whether it's in financial services. We have solutions to bring to that marketplace. We talked a lot about our investment in our new Luminate platform for Identity and Fraud that's now in the marketplace. That's been an investment over the last 24 months or so, and that's been in the marketplace for a number of months and is starting to accelerate from a rollout standpoint. From an M&A perspective, we have -- well, first off, one of the assets we have is all the multiple data assets we have. They all provide signals or data elements around an individual's identity and who they are. And whether it's the credit file, whether it's our NCTUE database, which is the Work Number database that we have, we just have so many different data elements. That's asset #1 that we leverage today and we'll leverage even more in the future. We've been expanding our partnerships to bring new data elements in. We talked about this new Biometric solution that we have that we're doing through a partnership. That's a very unique, cloud-based solution that's added to our identity suite that we'll be taking globally. And then from an M&A perspective, it's really, I would say, primarily around data assets can we get some additional signals or data assets that are unique and differentiated that either we can't buy or by owning them, we're going to be advantaged. Those are the kind of things that we're looking at to grow out our Identity and Fraud space. It's a very big space. The 3 credit bureaus are in it and have sizable positions. There's others that are in it, too, but we view it as a macro space that's really growing because of digitization. As more consumers are operating by not being face to face with a financial institution, using that example, the verification that Mark Begor is Mark Begor is just increasingly important. And doing it quickly and accurately is critically important. And that's why we're energized about our investments in Luminate. We're energized about our differentiated data assets, but it's also why it's way up there on our M&A focus list.

We'll take our next question from Kyle Peterson at Needham.

I just wanted to touch a little bit on EWS. It seems like you guys are definitely continuing to way outperform the mortgage market, in particular. Just wanted to see if you could give us a little more color on what's been driving that outperformance, whether it's just more user engagement, new products or record growth and kind of what's been driving that in the past and what you expect to drive it in the next few quarters here.

Well, it's not new. I'd start with that. And if you look at the chart that we included in the deck, you'll see -- if you go back and look at history, there's been a pretty consistent performance by both Workforce Solutions and USIS to outperform the market. And the levers they pull are similar in some cases and dissimilar in others. What's similar is obviously customer engagement, adding new customers, picking up market share. Pricing is an element, that we increased pricing for our products. It's new products, and that's a big fuel for growth for Workforce Solutions and also for USIS. And then, of course, the one that's very different in Workforce Solutions is records. In our credit file business, we have all of the U.S. consumers in our credit file. In Workforce Solutions, we don't. So as we add records, that drives the outperformance to the mortgage market. And then we've talked at length on a number of the calls around the number of pulls that we get. In the credit file, there's been some growth in credit pulls over time. So that's a positive outperformance to the underlying mortgage market on the credit side. And then the Workforce Solutions, that has even been increasing more rapidly. The average mortgage pulls 4 to 5 credit files but only pulls, call it, 2 Workforce Solutions reports. And that's up from maybe one a few years ago. So that growth in Workforce Solutions income and employment data in mortgage is also another catalyst for growth, and that's driven by using it more often in the mortgage application process. It's driven by system-to-system integrations. And just as a reminder, we only see -- John, what is it -- what percentage of the mortgage applications do we see at Workforce Solutions?

Order of 60%.

Yes. So there's 40% of the mortgage applications today that are still done by pay stubs or other means in order to approve the mortgage, where they're pulling a credit report, and that's a growth opportunity for us. We've been growing the number of mortgages that are using Workforce Solutions for that income and employment verification process. So there's just a lot more levers in Workforce Solutions, which is why you see the very strong outperformance of Workforce Solutions quite consistently but also accelerating in the near term.

Got it. That's very helpful. And then just a little bit on the trajectory of the transition costs. I appreciate the color in the slide deck you guys provided. But I guess -- so in some of these costs and the trajectory in '21 and '22, I guess, should we expect some of the costs to be a little more kind of front-end loaded and then use up a little bit as 2021 progresses? Or will the trajectory be a little more even?

No. They'll be highest early in the year, and then they'll trend down during the year. And it's kind of what you see as you look at '21 to '22, right? And even as we move into '22, our P&L starts to look fairly -- like it's going to look on an ongoing basis, right? The amount of transformation expense we're talking about at under $45 million is starting to get to the point where it's now back into kind of what you call a normal run rate level. So I'd say as we move through '21 and get into '22, '22 looks a lot more business as usual for Equifax as the transformation is principally complete.

We'll now take our next question from Andrew Steinerman at JPMorgan.

It's Andrew. Two questions. First one is super quick. When we talk about the 6% revenue growth for 2021, I just want to make sure that we talk about organic revenue growth and the M&A will be separate for that. And the second question is just about what would drive mortgage outperformance in '21? I'm just thinking that perhaps different types of innovative products that drive outperformance for Equifax' mortgage revenues versus the mortgage markets when mortgage applications are down versus in 2020 when mortgage applications are up.

Yes. It's the same comments that I just had in the last question, Andrew, that it's new products, it's more usage of our products, it's new solutions that we're bringing. Obviously, Workforce Solutions has a wider array of levers to pull in the mortgage market, whether it's increasing number of pulls. We talked about -- maybe on the last call about the new solution we are rolling out as we speak, that there's a new product that allows a customer to pull a borrower and co-borrower report at the same time, and obviously, a higher price point than doing individual pulls. And remember that metric, that if only 60% of the mortgage is, today, in Workforce Solutions are using Workforce Solutions for their income and employment verification, as we go from 60% to 61%, 62%, 63%, that's all growth in a market that's either up or down because it's going to provide incremental revenue growth for us. So there's just a bunch of levers that -- and of course, records are one. The same reminder, you know this well, [ used this ] forever, that we only fulfill roughly half of the inquiries we get. So as we add 2 million records so far in the fourth quarter, those are monetized right away and will be monetized all the way through the next 12 months. So those would be positive for us as we go through 2021. And then just our last point, we're not good mortgage forecasters. We're trying to take the best data elements that we see. But there -- if you look at the 18.5 million households or mortgages that would benefit from refinancing today and if you use 1 million a month are being refinanced, that's a longer runway than we've portrayed in our framework right now. But we try to provide what we think is a balanced look at 2021. We'll continue to update that as we go forward given the volatility of this COVID environment.

And we also expect to see an increase in the number of system-to-system integrations that we'll have. So you'll see an increasing pace of system-to-system integrations, which also increases the pace at which we'll see more inquiries into Workforce Solutions and continue to increase the number of pulls for mortgage. So we think that will help as well. And to your first question, just to make sure we answered it, that 6% was organic. Yes.

[Operator Instructions] We'll now take our next question from George Mihalos at -- of Cowen.

A lot of good stuff to digest here. Just quickly, a point of clarity. I know we're talking about '21, but there's already a lot of focus on '22 and you provided a lot of sort of incremental data as it relates to the tech transformation. But just to be clear, as we think of modeling '22 versus '21, right, the other element that we need to think through is that there should be some acceleration in your sort of normalized rate of growth going forward from the tech transformation. Is that the appropriate assumption?

Yes. I think we included a slide in there, George, where we tried to lay out more in a subjective way some of the levers we think about as we get out to '21 and '22. And there's no question, part of our investment in the cloud transformation is to do what you described. When you think about 2022, that's getting way out there, we're not ready to provide any kind of economic forecast around the mortgage market or the general economy in that time frame. But what we do know is we have real clarity around what we're going to spend on the cloud transformation and the cost benefits in the cloud transformation and what we're going to invest in CapEx. And we wanted to give you that visibility because that structural lever, we believe, is real for Equifax regardless of the economy as you get out to 2022. We know what we're going to spend, and we have a lot of confidence around the benefits from a cost standpoint that are going to be delivered. It's too early for us to talk about the revenue benefits or even what the revenue environment is from 2022, but we wanted to give you some real specifics around the cost side of the cloud transformation.

And just to make sure we're clear, given the first question, right, and there are additional cost benefits that accrue to us as we fully complete the cloud transformation as you move through 2022. So the numbers we're showing you on this -- on the chart on Page 17 for 2022 are not the end-state benefits. They're the benefits that we're able to generate just in that period.

Yes. Totally appreciate that. I also wanted to ask, just how should we be thinking about sort of capital allocation going forward? Obviously, you talked about M&A or sort of bolt-on M&A. But as CapEx goes down, as you're generating more of this free cash flow, how are you guys thinking about returning to things like buybacks and the like? Is that -- is there a path to that going forward?

Yes. I think it's early on this call to talk about that, George, but credits for the question. I think we've been clear that we clearly -- we have a real -- we have some clarity around what we want to do. But we think the timing to share that with investors is when we can provide some, really, more traditional guidance around our revenue and earnings, and we're not at that stage yet. But I think it's safe to say, and we said that before, that a framework for Equifax in the future is certainly -- or likely will include -- likely is probably a better term, will likely include an M&A element. As in the past, we've been making -- doing M&A for the last couple of years and that's a part of our core strategy. And then we've been clear, too, that our framework in the future will likely include the elements of returning cash to shareholders. And as you point out -- through dividend and buyback. And as you point out, we're very aware that our cash generation will be accelerating as we go through '21, into '22 and beyond, which will give us the opportunity to both reinvest more in M&A and focus on returning cash to shareholders. The actual framework of that, we're just not ready to share on this call tonight.

We'll take our next question from Brett Huff at Stephens Inc.

A quick question on the mortgage stuff again. I know, Mark, you said that the crystal ball of mortgage is tough. As you guys thought about the inflection in the middle of the year that's kind of implied in your outlook, was there a -- is there -- was there a -- what is the inflection sort of driver? I know probably some of it's a little bit of conservatism, but wondering what in the middle, half of the year is changing. Is it just comps? Or is there something else that we see out there?

I think it's probably more the conservatism. I think it's hard to -- as you pointed out, it's very hard to forecast, particularly at these very high levels. I think I was clear in my comments that I think an argument could be made about -- particularly, look at the refi metrics we shared with you, the available refi population of 18.5 million households. And if they're being refi-ed at something under $1 million a month, there's a lot more than 6 months of runway left there. So I think you're fair in challenging on -- us on that. And I would have to tell you that we're trying to give our best view that at some point, it's going to come down. It's not going to stay at these elevated levels forever. We've been getting a lot of questions in the last, call it, 3, 4, 5 weeks that it was going to be happening sooner than sometime in the mid part of 2021, which we didn't believe. We believed that there's some legs on this as we go through at least the first half, and that's why we've decided to put this framework in place. But I certainly wouldn't want to argue too long with you about how long this mortgage market could hold up. But we all know it's going to come down at some point, the refi piece of it.

That's helpful. And just a quick follow-up. As you think about the incremental margin, we think about those a lot, coming out of the tech transformation, when will we see kind of sustainable, clear, better incremental margin just because of all the work you guys have done under the hood? Is that -- I mean is it starting now? Or is it really kind of going to roll in '21 and '22?

Well, it's in our P&L now. There's no question that in our 2020 P&L, we have savings as we decommissioned our data centers and reduced our resources. And of course, that's offset by duplicate cloud costs. That will continue to -- through 2021 and start to flip. And then really, you start getting into a run rate mode as we get into the early parts of 2022? What would you add, John?

It's really late '21, we start turning net positive, where the savings are over the cloud costs and then it really starts to accelerate in 2022. And that's the $50 million we tried to show with an improvement of $75 million year-on-year in the presentation.

We'll now take our next question from Jeff Meuler at Baird.

Yes. Mark and John, so you gave us a couple of 60% metrics, but one that was new to me, the 60% of Verifier transactions that are coming at you a system to system, so 40% are coming at you for more...

No, no, no, that wasn't -- the metric we tried to give you was if you look at the overall mortgages in the United States, on a monthly annual basis, whatever, pick your time frame, we're -- we see 100% of those in our credit business. And I think you know that every mortgage pulls a credit file. It's virtually 100%. On the income employment side, Workforce Solutions, roughly 60% of the mortgages use our data for the income employment verification, meaning it's used in the mortgage process. And that's been growing. We're really just pointing out the runway, meaning there's another 40% that are still done with a pay stub, are still done by calling a company's employer, maybe not using income and employment data for certain consumers, but that's another lever for our business that we've been exercising to go to mortgage originators and convince them that using our income and employment data provides productivity, provides a better decision, meaning higher predictability of that consumer repaying the mortgage, all of the above, but it's just another opportunity for the business.

Separately, we did say over 60% currently of the TWN inquiries we get, we fulfill system to system, right? And the remainder of those are filled through our website, right? We have something called the consumer storefront that people can go in and purchase -- mortgage originators purchase the TWN verification through the consumer storefront. They also can purchase a broad breadth of products through the consumer storefront at the same time.

And as you know, having a mortgage originator or underwriter key into our website is friction, meaning we don't get every pull. They might do it once. They don't do it 3, 4, 5 times -- or 2, 3 or 4 times like we do in some of our system-to-system integration. So we're -- that's the other side of the lever for Workforce Solutions. And mortgage is trying to convince an originator, you've got a lot of productivity in just taking the system-to-system interface so you don't have to have your people keying into it. So -- and we have great traction there. We actually have pipelines of existing customers that key into our website that we go to the company and say, you should be using our system-to-system integration that delivers productivity and speed and everything else. So that's just another lever for that business.

And those integrations are broad, right? Those integrations are broad because of the number of data elements we integrate. So they're relatively substantial integrations because we have a large number of data elements integrated system to system for a mortgage pull.

And I guess -- all helpful perspective. What I'm wondering -- in terms of me trying to size up the opportunity, is there a good rule of thumb around what percentage of the transactions you're capturing if somebody is not system to system? So I'm assuming if you're system to system, you're capturing 90% to 100% of the transactions. But if you could just maybe verify that I'm correct in that assumption. And then can you give us any sense for if they're not system to system, roughly what percentage are you capturing? I guess I'm wondering, ultimately, when somebody goes that's -- when someone's going system to system, how big of a lift do you see?

Yes. And it's meaningful in the system to system. We know that and we see that. What's harder to determine is when it's a -- key into a website, how many of those mortgages from that customer we're getting in Workforce Solutions because we don't know their overall population. We do when we meet with the customer and talk to them about it, and that's what our teams do, but we don't have that data. We know if we have a customer that moves, what -- we can see it. If they were a website key in customer and they move to system-to-system integrations, we see the lift. And then the other thing, just it improves our whole process. Speed is very important to the more sophisticated mortgage originators because they want to get to the next mortgage and their labor costs are high. They don't want to lose the customer to a competing mortgage refi or a mortgage application. So those are all the elements that's a part of our commercial sell of why go system to system or in the other bucket is why use ours versus pay stubs. And then you got fraud and all the other elements in that conversation.

And we'll now take the next question from David Togut at Evercore ISI.

Just 2 quick questions, please. First, you referenced the big growth in Work Number records, 20% year-over-year, an increase in hit ratio. Where could hit ratio go next year based on the rate of new record additions?

Well, the records we've added become accretive to our revenue over the 12 months after they're added, right, and then maybe get into our run rate. So the additions that we've made so far this year, the $2 million we added in the last 60 days, are going to benefit us for the next 10 months, right, on a year-over-year basis. And of course, we're continuing to add records. Is that what you mean on -- as far as where it takes -- so our hit rates go up, I don't know the basis points -- a hit rate increase from the additional records in 2021. Dorian, maybe we could follow up on that, but it's a meaningful number.

That's helpful. And then just as a follow-up, you referenced a few acquisitions in the pipeline in the couple hundred million dollar range. Can you give us a broad sense of what areas you're looking at? Is this new data versus enhanced new geographical presence?

Yes. It's all of the above and more. And I talked a little bit about it. It's -- certainly, core for us is enhanced data sources, like PayNet that we bought last year or DataX in 2018. Those are strike zone kind of acquisitions, and we've got those in our pipeline. You mentioned geographic expansion, which would be primarily outside the United States. So new markets is another one. Those are more opportunistic. They don't come along very often, but we actually have some of that in our pipeline. I talked a lot about our focus on Identity and Fraud. That's what I would call a renewed focus or a stronger focus of our team of looking to expand our capabilities there. We think that's a macro in our industry, and we'd like to be larger in Identity and Fraud. And then the last area I would say that's probably a renewed focus or enhanced focus is around Workforce Solutions. Workforce Solutions is obviously a very large-scale business. As I said earlier, it will likely be our largest business for the first time in 2021 and probably stay there, given its growth rates going forward. And we'd like to expand Workforce Solutions around data assets, around the employment space, around new solutions that could enhance its capabilities, either in income and employment or in talent solutions in the hiring process. So that's another area that we've got a lot of focus on. It's such a powerful, strong business if we can widen it up and deepen it. We think that's advantageous, particularly given its scale of distribution and its capability. So I'd say that's another area of focus.

We'll take our next question from Andrew Jeffrey at Truist Securities.

Just following up a little bit on the attach rate of EWS and mortgage. Can you help us understand what that was maybe a year ago or 2 years ago, if you're at 60% today? And I guess the other question would be, to the extent you're taking share, and I assume that's essentially largely what's happening within EWS, mortgage and non-mortgage for that matter, can you speak to where that share is coming from? Is it internal systems? Or is it competitors?

Yes. I don't have the number in front of me on the kind of growth, but it would be positive on a year-over-year basis. From a share standpoint, our biggest competitor is pay stubs in Workforce Solutions. And mortgage is a great example of that. With 40% of the mortgages don't come our way, that's been growing as we reach out to customers and share the authentication benefits, the lower fraud, the speed, everything else of using our data. But that's our biggest competitor. Outside of that, the competitive set is -- there are other companies that have a data asset like ours. Our biggest competitor is someone calling a company to verify employment, someone printing off their pay stub. Of course, you can go to PayStub.com and print off your own pay stub of whatever company you want it to be. There's websites out there that allow you to do that, which is why our verified and authenticated solution is so valuable and is growing so rapidly. But as we pointed out, there's a lot of growth potential because we don't have the deployment that the credit file has, where the credit file is used in virtually every mortgage. It's not the case in income and employment because mortgage originators either don't use an income and employment verification in the mortgage process, which is increasingly less -- not happening or they use some other version of getting a copy of a pay stub. That's our biggest competitor.

Okay. That's helpful. And then is there anything, Mark, about this point in the cycle that would inform yield and/or growth in EWS, new records notwithstanding as we come out of COVID? In other words, it sounds like what you just described is in its accelerated digital shift, which we've seen across industries. Is there -- once you go digital, do you ever go back? And then how sustainable are the yields you're getting, I guess, as we normalize?

Yes. Our experience is you don't. Every mortgage originator should be system to system because of the benefits it provides. But as you know, there's less sophisticated companies out there. They have different technology stacks. As John pointed out, a system-to-system integration is not simple. It's one that we work a lot with our customers. We have a dedicated team on that. So there's clearly a big opportunity going forward. But when you talk about the structural elements of Workforce Solutions, clearly, records are at a very unique opportunity. Adding new records drives revenue in that business and drives the hit rates up. Yes, it's a big opportunity. We talked about new products. We talked about penetration. They're quite uniquely positioned in the kind of opportunities they have going forward, which is why they've been growing. When you talk about structural, some of the elements we're seeing of auto originators moving into near-prime to use our TWN income and employment data from just subprime previously. We've talked about card issuers starting to use it in their origination side of their business versus portfolio management. That's a very big structural change for us that we think will be positive going forward. I think we've mentioned we've got a couple of the large card issuers that are implementing TWN as a part of their origination engine, which is new. And remember, it's always been positive for them from a predictability standpoint. They get KS lift by adding more data and there's a big lift by adding is someone working and how much they're making to the credit file. What was missing is what's the catalyst to get it in there. The ROI was always positive. It's higher in this COVID environment. And we believe once you get in those workflows, you stay there because the predictability is still there, meaning the return on the investment of buying the data from us and using it in the solution provides real benefits.

We'll take our next question from Hamzah Mazari at Jefferies Capital.

This is Mario Cortellacci filling in for Hamzah. I mean this might be beating a dead horse, just on core solutions. And just kind of looking at the core of the business, I was trying to figure out what the normalized growth CAGR should be for that business. And obviously, this is once we're past the benefit of the unemployment claims and kind of the boost that we're seeing in -- on the mortgage side. And I know you guys have provided a lot of great color around the opportunity within this business. And I know there's been a lot of numbers that were announced, so maybe I missed it. But I guess just -- I guess how should we think about that normalized growth rate for the business? Does it return back to the 11% to 13% experienced from '17 to '19? Does this -- is it 15%? Or do we stabilize it like a 20% over the next few years? I know it's an ideal question, but again, just trying to get a better idea or a better grasp on it.

Yes. That's a tough question, Mario, that I don't think we can answer because it would really lead into our long-term financial framework, which we're not ready to talk about this afternoon. But we try to point out that this business has levers unlike any other that we have, number one. Number two, the levers, like records, there's a lot of runway to add records. And when you add records and they're monetized instantly, that becomes an equation that drives the core growth of that business. And then you add all the other things we've talked about, new products, pricing, new verticals. We talked about the SSA contract next year that gets to run rate in 2022. There's just a lot of levers for this business. And of course, when you think about the Workforce Solutions from an Equifax perspective, it's clearly, from our perspective, going to grow long term higher than the rest of Equifax. So we believe it's going to be accretive long term to Equifax' growth rates. And its margins are clearly much higher than the Equifax average. So with that higher revenue growth than the Equifax average, it's going to be accretive to our margins going forward, which is what makes it a very attractive part of our portfolio.

Great. And so this one might be a little easier. It's -- I just wanted to just understand what your view of the credit cycle is at this point and maybe where you think we are. I don't think your number suggests it, but I guess, are you seeing any kind of tightening on bank lending versus last quarter? And then, I guess, in conjunction with that would be, I think stimulus is supposed to come very soon. Do you expect that to be a potential benefit or additional growth on top of whatever we're seeing in the USIS ex mortgage? And how much of that is baked into your guide?

Yes. The credit tightening that maybe you're referencing started really early in the COVID environment. And I think we talked in the third quarter call that we started to see some customers in the card space, in particular, return to originations. So I would say it's starting to thaw. And that -- our expectation is that will continue, and that will continue as we go into 2021, and it's certainly a part of the framework that we put in place that we shared with you about how we think about 2021 going forward. With regards to a stimulus, I'm not a good predictor of what happens in Washington. I don't think we explicitly put a stimulus in our framework. But I think it feels like there's pretty high probability, there will be one. At least there's some momentum there, which will be positive for Equifax and for our industry and for the consumer and for companies. There's no question a stimulus should be helpful.

And we -- and just as a reminder, we did mention in our prepared comments that in the fourth quarter, banking and lending, which is card and personal loans for us, improved. We're seeing an improving trend relative to the third quarter. So we're seeing that improvement already occur.

Let's take our next question from George Tong at Goldman Sachs.

Your framework for 2021 includes 10% core revenue growth, and you mentioned that over half of that will come from factors other than excess mortgage performance. As you look across USIS, International, EWS and GCS, where do you see most opportunity for non-mortgage acceleration in 2021? And how would you rank order new product launches, share gains and market penetration as drivers?

Yes. First, John, you should jump in, too. But I think the way our framework is put together is it's fairly broad-based. We're really expecting and you can decide whether you agree or disagree with us. But an economic recovery post this health pandemic, if you want to call it, the COVID pandemic, there's -- our view is that there will be a recovery, and the low interest rates, the other stimulus actions are going to drive that. So I think the recovery is fairly broad-based. And remember, our portfolio has different growth rates in our specific businesses. And clearly, Workforce Solutions is stronger than the other Equifax businesses. And then you add in there the Social Security Administration contract that starts rolling in next year, which will be a benefit for that business on a non-mortgage basis. Clearly, Workforce Solutions will be stronger in non-mortgage than the other parts of Equifax, but call it broad-based. And then you also appropriately talked about what are some of the levers there, start with just underlying economic activity. That's part of that economic recovery. But then new products, there's no -- there's a reason why we're investing and accelerating our new product introductions in 2020, is we expect them to benefit us in '21 and '22 and beyond. And the increase from 110 to 120 is a part of that. In 2021, we'll be hopefully gaining share in some of our businesses. As they recover, that's a part of our approach. We'll have pricing out there. We talked about new products. We talked about penetration in some of our businesses. So really broad-based on the other levers. Of course, workforce has record additions, which helps both mortgage and non-mortgage in Workforce Solutions because of higher hit rates.

I think you covered it all.

Got it. That's very helpful. And then to follow up, you expect cloud -- the cloud transformation costs to be $145 million in 2021. Can you talk about the pacing of when you expect those costs to be incurred, whether they'll be front-end loaded, linear or back-end loaded?

So the $145 million, it will be more heavily toward the front end and decline as we move through the year.

We'll take our next question from Gary Bisbee at Bank of America.

Just one quick one. So the -- in the 2021 framework, the gross margin implied by that is 14 or 15 percentage points if I calculate it as a percent of a year-to-year revenue increase less than what the Q4 2020 and the full year 2020 frameworks shows. So I guess I just wondered if you could help us understand what that is. Is that just weaker mortgage and claims down and those were high margin?

The adjusted EPS?

No. So if you look at 2021, right, the overall growth rate of the business is lower, right? And so with our -- the way our gross margin grows aggressively is kind of the first couple of points of revenue growth covers the general cost increases that you have across our cost of goods sold. And then once you cover those, then you start seeing the accelerating margin growth that you see across the business. So the reason that you're seeing such very high flow-through in 2020 is the revenue growth is still very high. But in 2021, we still see very good variable margins, but we do have COGS increases that occur across personnel and other parts of our cost of goods sold. And that's all you're seeing using a difference of the fact that we have to cover those cost increases before you can start seeing accretion.

We'll take our next question from Jake Williams at Wells Fargo.

Of the 120 new products developed or being developed this year, are they weighted towards a certain business line or geography? And do you anticipate that changing in the near future?

Yes. It's a great question, and we actually haven't talked about it, but it's fairly broad-based, which I'm really pleased with. I think we've talked in prior calls that we've added product resources in all our businesses. We've got more people working on this. And that we also expect, and we're seeing it, that the cloud transformation is allowing us to do things we couldn't do before and also do them more quickly. So it is fairly -- like USIS has a bunch of new products in 2020. EWS, we've talked about some of theirs. I talked earlier about the -- what's it called, Mortgage Duo, I think, is their new product. It's the co-borrower solution. It's really broad-based International rolling out products. So it is broad-based.

The International tends to have a higher number of product launches simply because they can be market specific and they have more individual markets, but the dollar value of their product is also smaller.

[Operator Instructions] We'll now take our next question from Shlomo Rosenbaum at Stifel.

Just a couple of things on the clients. You talked about 10,000 clients or so targeting to be cut over by the end of the year. What's really left after that and like which areas? You had given out milestones, I think, earlier in the year. Maybe you could give us a little update on that.

Yes. I think we use the dialogue that the most significant migrations we're completing in 2020, but there's still more work to do in 2021. A lot of that in the first half. I don't think there's anything unique about those, but just we got a lot of customers. And we're going to complete those as we go through 2021 with the bulk of those being in the first half of the year.

So is there one particular part of the business where you need more migration? Or it's just -- you did the bigger customers first and you moved down the stack?

Yes. So it's all of the above. For -- when we talk about migrations, the bulk of the customers that we're doing in 2020 and in 2021 are in USIS and Workforce Solutions. I think we've been pretty clear about that -- and in Canada. So North America, which is 80% of Equifax or thereabouts, is where we focused our efforts around the tech transformation and the migrations because that's where we're going to get the biggest benefits. And that's what gave us the confidence, our progress there, of sharing kind of a framework for not only 2021 but also 2022 around the benefits.

As products transform, we move customers, right? So we have moved a large number of customers around the online and fraud businesses, and then you'll see us continue to do that as we go through next year.

Okay. And then if I start thinking about trying to come up with a little bit of a free cash flow number, is there anything in -- next year other than what you put out in the slide that's like about $245 million benefit between CapEx and lower onetime transition costs that I should think about?

So related to the transformation, no. I think we covered it fairly fully. And that's what's really included in the slide. So you can use the numbers that are provided there to come up with your estimate. And then beyond that, it's really driven by the growth that we're going to drive in the business, which should also obviously drive margin performance and the same things that drove the performance and cash flow of the company for years before 2017. So...

We still have one large item, John, that, I think, as you know, we still haven't funded the class action settlement. That will be $340 million?

Yes.

Thereabouts. That will likely be in the early part of 2021. But that hasn't happened yet. I think that's the other large item, obviously, outside of operating cash flow, but it will impact our cash flow in 2021.

Okay. And when does GCS get updated with the better technology?

Already is. GCS, we -- they're actually the furthest along. They're virtually complete. And we're, I think, finishing up the customer migrations in the fourth quarter, the consumer migrations. We have to move consumers from our old legacy infrastructure to the new infrastructure. And that actually opens up some opportunity for the GCS team to start cross-selling to our 8 million myEquifax customers and provide much better interactions with our D2C, direct-to-consumer relationships around paid protection products.

We're actually moving the same technology to the U.K., Australia and Canada in the first half of next year. So as Mark said, a lot of the transition has already started here. If you're a GCS customer, you should have already been contacted.

All right. There seems to be no further questions at this time, I'd like to turn the conference back to you for any additional or closing remarks. Please go ahead.

Thanks, everybody, for joining us today and for your interest in Equifax. I just want to reiterate that we will be around, certainly in either this evening or in the days or the weeks ahead to answer any questions that you may have. And with that, this does conclude today's call.

This concludes today's call. Thank you for your participation. You may now disconnect.