Equifax Inc. (EFX) Earnings Call Transcript & Summary

All right. Good afternoon, everyone. Thank you for being here. I'm Faiza Alwy. I'm Deutsche Bank's business services analyst. Very pleased to welcome Equifax to the conference. We have CEO, Mark Begor; and CFO, John Gamble, here today. Thank you both for being here.

Thanks for having us.

Great. Thank you. So maybe just to start, Mark, I'll start with you, just for those who may not be as familiar with the Equifax story, maybe just give us an overview of where Equifax has been, what the transformation has been like over the last sort of 3 to 4 years.

Oh, my. How much time do we have? Yes. It's been obviously a quite eventful and purposeful 4 years. I joined in April of 2018. John has been here longer. And as you know, we had a cyber event in 2017. In 2018 and '19 were big years to really earn the trust back of our customers, the regulators, the politicians. And at the same time, in 2018, we launched an initiative to go to the cloud, which we think is fundamental to be a great data analytics company, to be a great technology company. And as you know, we launched a $1.5 billion cloud-native transformation. When we're complete, we'll be the only cloud-native data analyst company, which we think is going to advantage us for another decade. It's hard to do a big tech transformation like this. It's not easy, but it's one that we thought was fundamental. And we had a window after the cyber event. We knew we had to improve our security, and we knew the best security comes with having great technology. So that was really the focus. And 2018 and '19, we started down that path. 2020 and 2021, of course, the COVID environment. But Equifax really got back on its, really, footing, I think, in late '19, early 2020. 2020 and 2021 were very strong financial results for Equifax. We delivered really record results in the last 2 years. And even this year, with the mortgage macro, which I'm sure we'll talk about, the nonmortgage portion of Equifax, which is 75%, our latest guidance is that's going to grow 17%, which is really quite strong, well above our new long-term framework. So we're well down the path on the cloud. At the end of last year, we were about 50% complete. This year, we'll approach 70% to 80% complete, most of North America. And then as we get into '23 and '24, we'll really start -- be able to start leveraging the cloud capabilities, which we think is going to drive our top line and our bottom line. Of course, some meaningful cost benefits coming from that, but we also guided up our margins broadly in November, and again in -- after the first quarter, we talked about at 2025, it will be $7 billion of revenue versus our $5.2 billion at the midpoint this year and margins of 39%, up from 34% or 500 basis points of margin growth over the next 4 years, which we think is quite powerful. It's driven by the cost savings from the cloud, which is really just execution in the next couple of years and then driving our top line at a higher growth rate, 7% to 10% historically and long-term framework now 8% to 12%. So that 100 to 200 basis points really drives that incremental margin growth going forward. And then post-2025, we expect to grow the top line to 8% to 12% and continue to grow our margins in the neighborhood of 50 basis points a year. So it's been a busy 4 years. And as I like to say, we're just getting started as really the next launching point or the next chapter of Equifax is completing the cloud and really driving it forward. Of course, we'll touch on, I'm sure, Workforce Solutions, which is a very unique business at Equifax. It's growing faster than the rest of Equifax and really powering our results, along with the rest of the company. So it's an exciting time.

Maybe we'll just pivot to Workforce Solutions, talk about that, talk about some of your initiatives. You've talked about new product innovation. That's been a big focus for the company. Maybe dive a little bit more in that and sort of what's driving as well -- on Workforce as well.

Yes, on Workforce. Yes, so NPIs are a big initiative broadly at Equifax. I'll come back to just Workforce. But as you know, as a part of our new long-term framework we rolled out in November, we put a guided place around new products being 10% of our revenue annually from new products introduced in the past 3 years. We call it our Vitality Index. Other companies do something similar. If you think about 10% in 2022 for all of Equifax, that's over $0.5 billion of new product revenue in 2022 from products in the last 3 years. So a pretty vibrant company and new products are a big part of how we're going to leverage the cloud and our differentiated data assets. We're actually guided up from 10% to 11% for this year. And you may remember, the first quarter was 12.5%, so we're north of the 11% and north of the 10%. So we have some good momentum, even though we're in the early days of the cloud, yes, meaning only halfway complete. So just pivoting to Workforce Solutions. It's the most unique business we have. It's income and employment data. As you know, we'll probably go a little bit deeper into that. It -- back in '08, '09, it was 15% of Equifax. This year, it's approaching high 40s of Equifax because it's outgrowing the rest of Equifax. And in the long-term framework, if you think of the 8% to 12% for Equifax, we expect Workforce Solutions to grow 13% to 15%, a very high growth rate. I think, as you know, their margins are in the mid-50s. So highly accretive, with the top line and with the margin accretion at 55% margins. And then NPIs are a big part of every Equifax business and Workforce is actually indexing above the Equifax average, primarily because they're further along in the cloud. And so they've been able to leverage that. And when I think about new products broadly at Equifax and in Workforce Solutions, it's really leveraging a lot more of our historical data. That's kind of the #1 way to think about new products. The other is combinations of data. In Workforce Solutions' case, the idea of combining our work history for the talent space, which is a big, fast-growing background screeners space, is about a $4 billion TAM. And we provide data to that. And in Workforce Solutions, we have income and employment data that we collect every pay period from companies and payroll processors across the United States. As you know, we're now up to 136 million active records, 105 million SSNs, but we also keep every record. So we now have a history, a job history, not only of income, but also job titles. So using the talent space, some of the new products we're bringing out is really leveraging that work history. We have 0.5 billion total jobs in our data set, which equates to about 5.5 jobs for the average working American. So to productize that, we have now different products for the background screening or talent space, where you can have last job worked, last 3 worked, last 24 months, last 36 months because every background screen is different, whether it's a warehouse worker or a white-collar worker, and we're able to bring that product together. And now, we're actually going to be combining not only the work history data, which is at the center of Workforce Solutions with the income and employment data, but then adding to it education data because that's verified as where did someone go to school; incarceration data, were you arrested in the past and imprisoned; and other data around that hiring space. So that's really a big focus of our product capabilities, is historical data and combining data elements. And that's really fueling our top line. And as you know, incremental growth is very high incremental margins. When you think about that next dollar of growth, if you think about Workforce at 55% overall margins, the incremental margins are very, very high, 70%, 80%, 90%, in some cases, on that new product, that next dollar of revenue, so as we move into new verticals or leverage the data in other ways, it really helps accrete in the margin expansion.

And in Workforce, very fast growth in the nonmortgage segments. Mark already mentioned talent, very fast growth in government, which is growing double digits and accelerating, and it's benefited not just by our income and employment history, but also by the information we got with the Appriss acquisition around incarceration, criminal data as well as we're seeing very nice growth, what we indicated, 40%-type growth in our nonmortgage financial services segments, think card, think personal loans, and then also onboarding. We help companies onboard employees through remote services that allows them to onboard either in their office or remotely, to get people on the floor faster, right? So I know we'll talk more about it, but that entire Employer Services segment of the Workforce Solutions business is critical to our ability to differentiate and grow records, grow records with companies directly, but also, we have -- we sell those services through the channel. So we're building out very broad relationships with payroll processors and other partners, where not only are we a partner to them on records, but also a partner to them in unemployment insurance claims, work opportunity tax credits, I-9 validations, a broad set of services that they can sell on to their customers, deepening the partnership we have.

Maybe we can pivot to talent, go a little bit deeper on that. So where are you in the process? I think you've talked about very low penetration compared to something like mortgages. Sort of how do you see the cycle...

Yes, I think it's a great question really broadly at Workforce Solutions. And it's -- I have to remind myself, and I think we often remind each other, this is a fairly new business for the industry and for Equifax. It's a business we've been in for a decade, but at scale, it's only a couple of years old. And just a reminder, when you think about the 105 million active records every pay period, that's basically 50% of the working population. And most data businesses have all the records, and we'll come back to the ability to grow our records as a way to grow the business. But when you think about mortgage, I'll start over there and then come to talent. Mortgage, we've been in for a decade. As you know, every mortgage pulls a credit file, but also, generally, all mortgages also verify income and employment, is someone working, how much do they make, is a part of that mortgage application. Historically, the income employment was done by paper pay stubs. A mortgage originator would say, how much do you make and then they call your company to verify it, a lot of labor involved in it. Now we've digitized that. So 10 years later, we actually sell our data in 6 in 10 mortgages. Now you might say why isn't it 100%, which the credit file is 100%. Now the credit file has been around for 70 years. It's just a matter of time before we get down the bell curve, if you will, on the smaller mortgage originators and convert them from using paper pay stubs using our income employment data. So I think 60% there, 40% opportunity, even in a highly penetrated space for us. And again, credit file is [ 100% and 60% ]. So move over to talent. Talent is about a $4 billion TAM. We calculate that our data is used roughly in 1 in 10 background screens. The other 9 in 10 are done manually through their BPO operations. They have big operations offshore in the Philippines and India, et cetera, where their calling companies are using other databases to verify someone's resume and collect those other data elements. Now that we are in the cloud, and we're able to leverage that work history, remember, we collect every pay period 50 different attributes on each individual from each company or payroll processor. So we have gross pay, net pay, deductions, 401(k), stock compensation, incentive compensation, job title, all those different elements. So that job title is very valuable in the hiring space to verify where someone worked. There are 75 million people a year who change jobs in the United States, and every one of those job changes, there's some level of background check done by the hiring manager. And generally, they're going to check where did they last work. Like if you're a warehouse worker, they will check where was your last employment. If you're a white-collar worker, they might want to see 5 years or 5 jobs. It varies, but they need some of that work history. So very central to Equifax is the depth of data we have, and we're helping the background screeners digitize their process. So they get productivity, but most importantly, they get speed. And if you're a hiring manager, you initiate a background screen when you offer employment. The individual doesn't start until it's complete. And that could be days or weeks. And if the background screeners can shorten that time frame, the more valuable to hiring managers. So that's really what we're doing with talent. And again, $4 billion TAM. We're about $300 million -- $250 million -- $275 million, somewhere in that, between $250 million and $300 million today. As John pointed out earlier, that's growing like 40-plus percent for us, really from penetration and digitizing into that space. We can jump to government, which is another vertical in social services...

Maybe just on talent, like how much time do you think -- is it instantaneous? Like how much time are you saving employers on the background screening?

Well, they've got to do other things. And we don't -- remember, because we only have kind of half of the population, we don't have every job. So we can fulfill a lot of the requirements with one pull from Equifax. In many cases, they have to go get other fill in the rest of the resume because we don't have the data on our data set. So that adds time to it. But we're shortening that time frame, which is incredibly valuable. And work history is only one element. John talked about Apriss Insights. We bought the business last fall, which has incarceration data. Virtually every background screen, polls, have you been in prison or jail before, not to deny employment, but so the hiring manager can have a conversation with the applicant about, well, tell me more about what happened. I don't -- that's what they do. So that's a data element. If you're in the medical profession, they're going to want to pull all your doctor's licenses. That's another data element that's pulled. If you're a long-haul truck driver doing 18-wheelers, they're going to pull your driver's license, you're driving record. It's all different dependent upon the job category. And what we're working to do is build out what we call our Workforce Solutions talent data hub. So we have our work history. We have incarceration data. We now have exclusive API for university and college degrees in the United States. With one pull on my SSN, I can get all of my university degrees. We're we have some medical credentialing data from the Apriss acquisition, and we're working on other partnerships. And what we would like to do is be the kind of one-stop shop for data for the talent space. So we can give that to them quickly and instantly.

Okay. Would you work -- is just a thought that just came to my mind. Would you work with like potential employees, where I could contact you and I could send in my degree, sending all my data...

Well, the degrees we have, so that we have -- the National Student Clearinghouse has every college, university in the United States. We've got an instant API here. We haven't thought about that, about going directly to the consumer or to the prospective employee, but we're all around adding more data. More data is really who we are. And I think what's powerful in Workforce Solutions is most of our investors think about the income and employment verification for financial services. But now, we're approaching 50% of Workforce Solutions outside of financial services, with the employer space, the talent space and the government space. And those 3 verticals which are half of our $2.4 billion Workforce Solutions, are growing faster than financial services because of the low penetration, the value of data, the value of instant data.

Yes. And what would get you from the 10% penetration to 20% or 30%? And how long do you think it will take to get there.

Yes, it's just a matter of time. We've been large in the talent space in the last 24 months.

Pretty much.

You go back, 3, 4 years ago, we were just fairly nascent in it. The cloud investment that we made really allowed us to deliver some of the products I've talked about. So we think that there's -- you've seen in talent or government in the last 4 quarters kind of 40-plus percent growth that's really driving from 1 in 10 to 1.5 in 10, 1.6 in 10, working our way towards 2 in 10. And there's real value for our partners around productivity because you don't have to have people making those calls, and then second is speed. They become more valuable to their customers.

You've seen huge growth in the total database over the past 3 years, and that's really coincided with the really accelerated growth that you've seen in the last, let's say, 6 to 8 quarters in talent, right, and now, that we can really provide a more complete resume for a much larger number of people, right, and you're seeing really nice growth in our penetration. It's still 10%, 11%, 12%, still not where we want it to be. But it's really starting to grow nicely. And we're starting to move toward the top of the waterfall in people's decision priorities, so that they will come to us first to see if we have it before they will go someplace else.

Yes. Yes. Okay, okay. We can move to government now, yes.

Now great.

Sure.

So another great vertical for Workforce Solutions that you wouldn't typically think about. I just think about, when I first joined Equifax 4 years ago and coming to a conference like this, we didn't talk about talent, we didn't talk about government, we didn't talk about employer. It just shows how Equifax has really changed literally dramatically in the last 4 years. And again, I'll use that point of Workforce Solutions. I'll go back a little further in time. But in '08, '09, the last economic event, Workforce Solutions was 15% of Equifax. It's going to be high 40s this year. It will be over 50% in the next year or 2. So it's really transformed Equifax going forward. So government is about a $2 billion TAM, and government is really around the delivery of social services in the United States. There's all kinds of social services delivered to those that need it in the United States, whether it's food support, food stamps, rent support, child care support, unemployment claims, student lending support or abatement of the loans that they have. And all of those services are income-based, meaning you get more support depending upon what your income is. So you have to verify either employment or income for all those services. And as you know, they're delivered at the federal level, at the state level. Some counties have their own social services. Some cities have their own social services, and they're all needs-based. And what we've been doing is really using the same data, either is someone working or not, the employment or the income, what's their income level, in order to speed up the delivery of services. And much like the talent vertical, we're probably 15% penetrated in the government vertical, a $2 billion TAM. We've got a $250 million to $300 million business growing at the same rates. And it's really the same play. It's around instant and it's around productivity. If you've ever been to an unemployment claims office or to a food support office, they're all separate agencies and they're done at the state level, and we have to connect to all of them. So it's been -- we're working on that very diligently. In the last 2, 3 years, we've added Equifax people at most of the big state capitals. So they're focused on the ground to really work on those integrations. And the opportunity for the state agency is if you go into an unemployment claims office, it will be a big room like this and there will be lines of people waiting to get to the counter all lined up, with papers under their arm, to verify either I'm not working or for its food stamps, here's my income, so I qualify for these kind of social services. And what we do is verify instantly by one click into our website or at system integration. And it also delivers accuracy. You don't have to send that person home to get more paperwork. The social services are delivered now when the people need them. So it's been growing quite rapidly at the federal and state and local level. And you may remember, we won a big contract with SSA, Social Security Administration, a little over a year ago, went live last August, it's still ramping. But that contract alone is a $30 million to $40 million a year contract, and we're ramping with that one. So it shows the scale of that $2 billion TAM and again, another way to reutilize our data, financial services, talent and now government. And it's a space that, as you know, whether it's Republican or Democratic administration, social services don't go down, they're only going up, and they're all needs-based.

We also have a substantial business supporting the Affordable Care Act. So if you go on to the federal website or in many of the states' websites and you try to sign up for ACA benefits, they validate your income to determine your support level using the work number, and it's done with every application. And you're starting to see more and more states move on to the federal website because when you do that, there's subsidies provided to the state in terms of the cost of execution. When that occurs, with that, it actually increases the volume that we see. So we're seeing nice performance there as well.

Yes. Okay. Maybe we can delve a little bit deeper on sort of on just the new products. And really, I would love to understand a little bit more in terms of how these new products are introduced, how they're created. Like how do you go from ideation to commercialization? Like are you pricing? Like is each product a different price? Like what type of contracts do you have? How is the sales force structured? Just a little bit more detail about that...

Yes. So it's big priority of ours. Again, I mentioned earlier, when I think about the next gear for Equifax, when we're cloud-native, it will be leveraging our differentiated data. And we believe we have data that our competitors don't have, meaning scale data. And think income and employment data, we're the only ones really to have that, but we have other big data sets, so differentiated data with the cloud to deliver new products. And really, 2 vectors for that. One is kind of historical data. We have history of data, and I'll use the example of someone applying for a mortgage. They will look at what's the trend in someone's income, is it going down over the last 3 years, or is it going up. Many of them are advancing their career, that can help support a bigger mortgage. We charge for that historical data. Another is combining data elements. And when -- if anyone remembers their stats class from college, they know that when you have more data, it drives predictability. The answer is more apparent and higher predictability when you add those data elements. So the combination of data is another very powerful one. About 2-plus years ago, we started ramping our new product resources, meaning people. Knowing we were going to invest in the cloud, knowing we had differentiated data, we wanted to get a whole resource team in place and really start building a DNA and a culture that has always been at Equifax and with our competitors around new products, but to take it even deeper. We have now, on my leadership team, a Chief Product Officer, a woman who's -- we never had that before. And so that whole infrastructure product -- John and I meet with the product team every month for a couple of hours and go through the pipeline. And to your question about how do we generate the new products, the best products we have and where we spend most of our time is collaborating with customers, helping solve a problem, what's the issue a customer has. And I'll give you a couple of examples. I'll go to mortgage with one. In the mortgage process, there's a lot of co-borrowers, husband and wife, both working. And they will use the Workforce Solutions. To verify their income and employment, you would have to pull the husband and then the wife's income and employment data in 2 separate pulls, but it's against the same mortgage. The mortgage originator said to us we would like to have something that's simpler, where we're -- for the mortgage, we can pull both applicants in one. So we have a product now called Mortgage Duo, where you can pull both. We generally price those more sophisticated solutions more than just pulling twice. So if you think about pulling twice, it's $30 to $40 per pull, so I think $60 to $80 for the 2. Mortgage Duo is $150, but it provides productivity and value to the customer. And there's -- those are really how we really try to solve solutions. In USIS, it's taking our credit file data and then adding some of the alternative data we have on payments that's outside of the credit file. Think rental payments, cellphone payments, other alternative data. Combining those together, it means you can approve more consumers if you're a bank doing credit cards, mortgages, auto loans, p loans. Give them a higher loan at a lower interest rate and have lower losses because you have more information. So those are the kind of solutions that we're really bringing to market. I don't know, would you add anything, John?

So Identity and Fraud [ in there ], we invested in, we did a substantial acquisition with Kount, and we launched a product last fall that combines Kount data with, let's call it, traditional Equifax identity validation data, that provides lift to some customers as they're trying to validate people as they're acquiring products.

Maybe like double-digit lift...

Double-digit lift, yes.

By combining the data elements.

So again, similar, very same concept, but how can we provide lift to either reduce losses or approve more customers.

And just to maybe put a point on it, the way we think about products is like a product we had last year and we have product that we had this year, that's not a new product. It has to be new, new. And that's how we define our Vitality Index we shared with you and our other investors, it's products introduced in the last 3 years that are new, new. Our core products, you mentioned price earlier, when we think about price, we have pure price, which is a product that we had last year, we still have this year, we take the price up. So we do that across the board, and we have more price leverage in Workforce Solutions than we do in other parts of Equifax, what I would call pure price. But then you have the product lift that we get in our margins and our revenue by like Mortgage Duo. If you think about, we used to sell 2 pulls for $80, now we're selling Duo for $150, you can call that product or price, but it's margin and revenue for Equifax.

Yes. Yes. Okay. Great. Can we -- maybe just pivoting to mortgages. There's obviously been a big focus around that. We don't have to spend too much time, but just curious on your thoughts around how your -- how the mortgage market has trended relative to your expectations. Just a few weeks ago, I know you've talked about derisking the year. Do you still stand by that? Do you think it's -- is it going to be worse than expected? Like how do you...

It's certainly hard to forecast. I think none of us in the room here are economists. Even the economists are struggling with how far is the Fed going to have to do to tame this inflation we haven't seen in 40 years. What we attempted to do a couple of weeks ago with our first quarter earnings announcement was derisk the mortgage market assumption that we had in the second half of the year. Mortgage is about 25% of Equifax between the credit file and USIS and then income and employment data and Workforce Solutions. It's a business that we've been in for a long time. We like it a lot. It generates a lot of cash. There's a cyclicality really to the refi market. Generally, refis go up or down based on interest rates. And as you know, we had an uplift in the market in '20 and '21. As the Fed took rates down during the COVID pandemic, a lot of refis came through. And we knew that the mortgage market would normalize, that this refi volume wasn't sustainable long-term, meaning people complete the refi and generally wait until there's a change in the interest rate environment to refi again. So we knew a normalization was coming. And as we got into kind of February, March, April, it was clear that inflation was in a place that we've never seen before and that the Fed was being clear about they're going to take strong actions. How many actions, we don't know. So what we attempted to do, and I'll use my words, to derisk the second half of the year, we put a stress scenario in case -- in place, de-risk case, but really our best view of a stress scenario on where the mortgage market could go. And we took the second half of the year down to almost minus 40%, which is 20% to 25% below what it's ever been kind of in recent, the last 10 years. We felt that was a very strong stress. That took about $0.5 billion out of our total revenue on a year-over-year basis, about 10% down from mortgage. The 75% of Equifax has actually been improving. In February, we took it up from -- our nonmortgage outlook, up from 15% to 16% for the year. And then, in April, we took it from 16% to 17%. So very, very strong performance at Workforce Solutions and talent and government, employer. The nonmortgage ports of financial services are quite strong and all of our businesses, whether it's cards, auto or p loan, so 17% in the rest of Equifax, which means overall Equifax at the midpoint of our guide, is up about 6% for the year, which we think is still quite strong.

And we're -- as Mark said, 25% below average, and this is the lowest level, what we guided in terms of down 40% in inquiries, lowest level we would have seen in 10 years across the board. So we feel like we derisked it meaningfully. So I guess we'll see. But the other thing to keep in mind is we do inquiries. We're forecasting inquiries. Inquiries, during a period of rising interest rates, tend to outperform originations, right? So if people do -- talk -- look at originations a lot because other people publish originations, if you looked at the first quarter, right, inquiries obviously substantially outperformed originations in the first quarter. And it's because of shopping, right? Generally, what happens as rates rise, people start looking more aggressively at multiple lenders to see where they might want to go, potentially get a loan, either for a purchase or in some cases, to see if they can still refinance. So we see pulls during the shopping behavior even if the origination doesn't occur. So that's -- so we would think our down 40% is the equivalent of something that's meaningfully above that in terms of originations.

Right. And then you tend to outperform even the originations in terms of your revenues.

We do, both businesses do. Even when you think about how do we outperform all of our underlying markets, we'll stay with mortgage, but you would expect us to outperform the underlying market macros. Price allows us to outperform in both our credit business, USIS and in Workforce Solutions. New products allow you to outperform as you bring new products in. If you go to Workforce Solutions, adding records because you monetize them as you have higher coverage allows you to outperform. And as you know, in the first quarter, we were up 19% in records on a year-over-year basis, and that's directionally double-digit revenue, just alone there. And Workforce Solutions, I think their mortgage business was up 30-plus-percent in the first quarter?

Mortgage was stronger than the market by over 25 points. So they actually grew their mortgage business in the first quarter when the market was down almost [ 25 points ]...

Which is very strong. When the mortgage market is down over 25 points and they're growing [ north of 30 ], that shows price, product, penetration, more pulls, all of those levers, records allows you to outperform the underlying market.

Yes. Yes. I guess there's a lot of consternation around a potential recession. I'm curious how you -- we've talked about the mortgage market. But outside of that, like how do you think about the resiliency of the business in a potential recession, even if it's 12 to 24 months out?

So I'm pleased you're not asking me if I think there's going be a recession because I personally don't, but again, I'm not an economist. So let's assume there is a recession. I think Equifax is better prepared than ever. Now just if I could spool back to the last big economic event that we all lived through, was '08, '09. In '08, '09, Equifax grew in '07, was down a couple of points in '08 and grew in '09, '10. That's overall Equifax. Workforce Solutions grew all through those, double digit, each year. So never had a down year and hasn't had a down year since we've owned it, so through any economic event. If you think about we can add records, whether the economy is up, down or sideways, and just the breadth of diversity of the verticals that they're in, in talent and government, we're delivering productivity, which means, in a downmarket, we can drive penetration, more usage of the solution. So fast forward, in '08, '09, Workforce Solutions was 15% of Equifax and grew through that whole economic cycle. Fast forward to today, it's approaching 50%. So that gives us a lot of confidence in an economic event that we've got an even stronger portfolio of Equifax if there is an economic event. If you get outside of the income and employment business and into like the credit business, there's some countercyclicality to that business. When there's a slowdown in the economy, there's less originations of credit cards and auto loans, but there's more money spent on managing the existing book, credit line decreases, collections, et cetera. So there's some countercyclicality there. Another element of Equifax, which is different going into an economic event, is our Identity and Fraud business is, we believe, more resilient in an economic downturn because digital is just so powerful. And then the last element is our cloud transformation. I mentioned earlier. As you know, we're in the final chapters of that, meaning '22 and '23. And I don't know what, you said 12 to 24 months, I'll stick with that. In the next 12 to 24 months, we're going to deliver a whole bunch of margin benefits or cost savings from completing the cloud transformation and shutting down our legacy data centers. That drives our margins up. And as you know, as I mentioned earlier, we have a goal of going from 34% to 39% margins by 2025. Half of that is from cloud execution. So that's not economic-driven, that's us, execution. And we have a really clear path of which data centers we're going to decommission wins. So we have a lot of confidence in that. So even if the economy is challenged, we still have that margin benefit. And then you also get the cloud benefits that come from being a more strategic partner. That should drive some market share going forward. So we've got a lot of confidence in our ability to operate in this new economic times going forward.

How much of the income and income verification data is used for things outside of mortgages within sort of financials, like outside, not government and talent, [ just with the finance, credit cards, yes ]...

Like credit cards, auto and p loan, it's much smaller. If you think about financial services, including mortgage, is about half of Workforce, it's half in and half out. The vast majority of the financial services is -- revenue is mortgage, but we're growing rapidly in auto, cards and p loans. So those are the 3 other verticals of financial services. And p loans were fairly well-penetrated, meaning most personal loans, whole and incumbent employment report from us, because it's an unsecured loan at a fairly high ticket. Cards, very low, but we have one large card issuer who is now pulling a credit file and our income and employment flag on every origination. So that's going to grow as penetration grows of the number of records we have. In auto, it's generally used in subprime and near prime, but we're seeing that expand also, meaning income and employment data. So those are growth for -- I think John mentioned that those are growing at -- first quarter, they were up 40%. So the nonmortgage pieces of financial services in Workforce Solutions were up 40%. It's very strong.

And again, in Workforce Solutions, 60% of revenue, right, is nonmortgage and outgrowing substantially. And it's about half of Verifier. So very, very strong. Yes.

Yes. Yes. And then just in terms of -- there's been some potential talk around your competitors getting into the verification business. They're obviously very small. You guys are well ahead. Like how do you think about the competitive risk there? Sort of what makes your position sort of unique? And how sustainable...

Yes. I think it's not -- no secret that Experian is doing some work in this space. We heard TransUnion was. I'm not sure if they still are. You should ask them. We don't see either of them really in the marketplace. But we don't see TransUnion, but we definitely know Experian is doing some work there. They made a couple of acquisitions. And we didn't talk about where they made the acquisitions in the Employer Services space. We talked briefly about that. John touched on it, but that's really the core of Workforce Solutions, where we provide regulatory and compliance services to HR managers around I-9 verification, work opportunity, tax credit, unemployment claims, W-2 management, HCA, all of those services. They've done a couple of acquisitions there, but they're quite small. And remember, our records are, at the end of the first quarter, 136 million active records every pay period. They have, we think, something like 5 million. So a lot of records, but not 136 million. And then the other thing we have is the historical records we've been collecting over the last decade. We've got 0.5 billion total records. So it just gives us a lot more coverage. As you know, we get records in 2 ways, which is really how I think about the moat. 55% of our records come through the Employer Services business we've been in for a decade, where we have real scale. Like in unemployment claims, we do 1 in 3 in the United States for private, not done by a company. So real scale there, and those are individual company relationships. And we think about those as being exclusive, meaning the HR manager isn't going to provide those records to 2 companies because we're delivering all those services. 45% of the records come through partnerships with payroll processors and HR software companies and others like that, where we have an agreement with them that they're generally exclusive. So if they're exclusive with us, it means they can't give the records to anyone else. And all the records we've -- all the deals we've signed since I've been here and those partnerships, have been exclusive in the last 4 years. Some of the more legacy contracts were not. But it's our intention, is they come up to make them exclusive. And we announced, I guess, in February, we signed 3 new payroll partnerships, all exclusive. We signed a couple more that we announced in April that are all going to come online in 2022, that will add records. And the companies you mentioned were meeting with those payroll processors about trying to get their business, and they all came to us. They're all coming to us. Why? We've invested a couple of billion dollars in the business. We put $300 million in the tech stack just in the last couple of years. We have a high degree of competence and skill around privacy, security. And if you're a payroll processor, the last thing you want to do is screw up your core business of processing payroll with your clients. The idea of going with someone who's just starting, who are smaller in the business, or someone who has the scale of Workforce Solutions, is kind of an easy equation, which is why we've been able to move forward. The other piece is we pay revenue share to those partners. And the revenue share, we can monetize their records this afternoon as soon as we add them in. Remember, we have connections to thousands of government agencies, to talent background screeners, to mortgage companies, credit cards, auto, p loan, all those integrations. So we're getting inquiries to our database for every applicant they have. We have roughly 55% of the U.S. population. As we add the next set of data, we can monetize it instantly for Workforce Solutions and for our partner, so we can give a revenue share, day 2.

And in terms of differentiation, as Mark said, we already -- we have access to the vast majority of records already. So our peers have a very small number of records we don't have access to. But also, it's the historic records. As Mark already talked about, having the historic records, which we don't really think any peer has, is such a huge differentiation because so much, not just in mortgage, but certainly in nonmortgage, of the inquiries we get are for trended information that involve historical, right? So for -- in the nonmortgage business, over 50% of the inquiries involve historical records. And then mortgage, a substantial percentage, not quite 50%, but a substantial percentage, also involves historical records. So those -- that historical database is very important.

Maybe one last point. It's not lost on us that someone like Experian is working in this space. We view ourselves as being on offense, meaning to broaden the moat, broaden the business. And I think, as you know, we've done 4 acquisitions in the Employer Services solution space and Workforce Solutions to strengthen those capabilities just in the last 15 months. So we're investing in tech. We're investing in product. We're investing in people and in M&A to make Workforce Solutions stronger.

Yes. Yes. Makes sense. Maybe just if we can talk about the International business just a little bit. It seems to me that you're not -- I don't want to say that you're not focused on it, but it just feels like less...

Please, I just came back from South America. I was in Uruguay, Argentina and Chile last week.

I just -- I don't hear you talk about it as much as maybe even some of your competitors. And I wonder if it's because you have so much going on in the U.S. and so much more to talk about. Like how much of a focus is the International business?

It's a big focus. We like our International business a lot. We're in 25 countries. We're $1 billion -- $1 billion and change. It's about 20% to 25% of Equifax. We like the diversity of it. We like the ability to take products from the U.S. and move around the globe and vice versa. We're going to take all of our countries to the cloud, which is going to give all the same benefits we talk about in the United States, are going to happen in all of our markets. We have very strong market positions in a number of countries. Like we're #1 in Canada. We're #1 in Australia. We're in every Latin American country, except Colombia, really, in Latin America. U.K., all 3 of us are there. We're #1 in Spain. So we like the International business. It's one that we're investing in. We just bought another smaller credit bureau in Dominican Republic in February, so another expansion to our Latin American franchise. And no, we like it a lot. We're investing in it. And just jumping from Workforce Solutions, you may remember that before the cloud transformation, we took Workforce to 3 countries, Australia, Canada and India. And then we announced U.K. a few months ago. So we've got Workforce Solutions, we're building in the U.K. And you'll see us take Workforce to other markets. There aren't any other companies outside the U.S. We look for them because we like to buy them, that are doing what we do in income and employment data. So now, we have a cloud tech stack that we can easily move into other markets very economically. And then we also have the leverage. If you're a multinational, think about an IBM and General Motors, and we're doing income and employment verification for you here, they want us to do it everywhere. And then the same thing, a payroll processor that's in the states and has a Canadian, Australian, U.K. arm, they want to have the same relationship with us. So that's kind of the starting point, and then we just run the play with all the other relationships there. So that's an area of growth for us in International.

Great. Great. Just on M&A, you've been very active in the M&A market. Sort of what -- and I know it's part of your long-term guidance. Sort of what are the types of acquisitions that are most compelling to you at this point?

Yes. And just on that point, our goal is to add 1% to 2% to our revenue from M&A annually, so 100 to 200 basis points, which if you think about our free cash flow, that's, think about, on average, $700 million or so of M&A. And as you know, with our margins expanding 500 basis points, our free cash is really expanding over the next 2, 3, 4 years. So we can fund that M&A to the 100 to 200 basis points inside the 8% to 12% long-term framework, and we're still going to have a sizable excess free cash flow. So really 3 priorities for M&A. Number one is Workforce Solutions. We want to strengthen our largest and most profitable and fastest-growing business. So it's around the core of Employer Services or the talent hub, Appriss Insights, so strengthening that. Number two is more broadly differentiated data. And we bought a company called Teletrack, DataX, some others. So unique data assets is our second priority. And number three is really Identity and Fraud. We bought Kount last year. We want to be bigger in Identity and Fraud. And we try to be very disciplined around our M&A. We look for businesses that are growing above our long-term growth rate, meaning revenue-wise, that can have margins that will be in our ZIP code on margins, meaning they're going to be accretive to our margins, and follow that strategic framework. And I'm very deliberate about using the term doing bolt-on acquisitions. And you maybe heard me say that, but I use it every time we talk about it. We want to do acquisitions that strengthen our core. We really don't think about buying a fourth or a fifth or a sixth business, if you think about business units. There's so much opportunity for us in Workforce, differentiated data and Identity and Fraud. That's where we're focused.

Yes. Yes. Maybe in just the last 30 seconds, I just want to touch on sort of there was something in the industry report about a coding error on Friday. Maybe if you just want to talk about how material that is...

Yes. We think it's -- obviously, any error is an error, and it's something we have to fix with our customers. So we had an issue back in April as a part of our tech transformation in one of our legacy environments that's going to move to the cloud in the next couple of months. A coding error was made and we sent out some incorrect data. So we've been collaborating over the last month with our customers around fixing that and getting it cleared up between us and them. The discussions are very collaborative. We talked to the CFPB about this. So we've been talking to them also. We believe the issue is going to be small in the scheme of Equifax, but it's one that we take very seriously because the quality of our data is quite high. And it's one that was in an environment that was frozen. We opened it up in April and this coding error happened, and we're going to keep it frozen now until we move it to the cloud in the next couple of months.

And for the vast majority of scores that were provided in that period, the impact was negligible.

Yes. Yes. Great. Well, thank you so much. Really appreciate you being here.

Thanks for having us.

Thank you.