Equifax Inc. (EFX) Earnings Call Transcript & Summary

Good afternoon, everyone. Welcome to our 38th Annual Strategic Decisions Conference. My name is Kelsey Zhu. I'm the Bernstein/Autonomous analyst covering the financial information technology space. With me here on stage, we have the CEO of Equifax, Mark Begor; and CFO, John Gamble. Welcome, and thank you so much for joining us today in person in New York and sharing with us your insight on Equifax.

Thanks for having us. It's great to be here. Great to be back in person.

Absolutely. Before we kickstart the conversation, I would like to just remind everybody that there is a pigeonhole where you can submit questions. And I will try to incorporate your questions into my discussion with Mark and John. You can access the pigeonhole link via the QR code in your conference booklet or on the screen. So Mark, I know you joined Equifax at the end of March 2018...

Actually, early April.

Early April, right after the security breach.

Yes.

That must have been an interesting time to join a new company. I just checked yesterday, since the day you joined, Equifax stock has been up 74% versus SPX, at up 58%. So congrats on the visible outperformance. I would like to first dive into one of your key initiatives since you joined, which is really the $1.5 billion spend on cloud migration. I was wondering if you can tell us a little bit more about where we are in the overall cloud migration process. In terms of time line, when do you foresee all the data and solutions will be on the cloud?

Sure. And it was a big move on our part, and we think a transformation move for Equifax back in 2018, when we were coming out of the cyber event, which happened in 2017, we had the opportunity, we had to really need to invest in our security. We made the decision to go well beyond that and become cloud-native. And we launched a $1.5 billion investment to be cloud-native. We're about 4 years into that. We've got probably 2 more years and change to go to complete it. It was a doubling of our tech spend. And it really was driven around the fact that we believe to be a great data analytics company, have to be a great technology company. And the only way to be a great technology company in today's world is to be cloud-native. And we believe we'll be the only cloud-native data analytics company when we're complete. At the end of 2022, we are about 50% complete, and we think about complete as being revenue that's in the cloud, and the new applications and new single data fabric. Our cloud transformation is really too faceted. One is around taking all of our applications to the cloud and all of our data to the cloud and converting our customers into those new capabilities. Second is going to a single data fabric. And that's really a big deal because, at our heart, we're a data analytics company, we have a series of siloed data assets that are now moving to a single data fabric, that allow us to bring new solutions to our customers more rapidly. As we get to the end of '22, we'll be 70% to 80% complete. And that 70%, 80% will be substantially North America, which is 80% of Equifax, which is our USIS business and our Workforce Solutions business and it's the bulk of Equifax. And then International will follow in '23 and '24, and we'll be fully cloud-native in that time frame, which would be a big change for us. We went down the cloud path, number one to enhance our security. After a cyber event, you want to make sure you don't have it happen again. So we've really taken our security to industry-leading capabilities, and we believe that's only possible in the cloud. We're also going to get substantial cost benefits from the cloud. We've talked about that for quite some time. We've been very transparent with our investors. But the idea of moving from the legacy infrastructure with multiple applications, to new cloud-based applications in a single data fabric drives meaningful cost savings. And over the next 4 years, between now and 2025, we'll generate in the neighborhood of 250 basis points of margin expansion from completing the cloud by lower cost. So that's a big deal. Beyond the margin expansion, the real reason we did the cloud was to be a stronger competitor, a stronger player in the marketplace. In a digital world, where the whole world, all our customers' interactions are moving online, so every interaction a bank has, a telco, an insurance company, a fintech, is all digitally with their consumers, increasingly. And in a digital world, you have to be always on as a data provider, meaning you can't be down. And the only way to get the 9 9s, always on, is to be in the cloud. So we think that's going to be a big competitive advantage because we know our traditional competitors are not going cloud-native. And of course, we will be and we're increasingly close to cloud-native. The other big driver around digital is speed of data moving between us and our customers. And with a cloud environment, you can deliver that data in milliseconds, where it's harder to do in a legacy hybrid cloud environment. So that's another advantage for Equifax. The third is really around our ability to bring new solutions to market through new products. And I'm sure we'll talk about new products, but the ability to be -- have our data in a single data fabric versus siloed data assets allows us to bring new solutions to market more quickly and really accelerate our new product introductions. And as you know, we track and disclose the number of new products we introduce. Like in 2019, we did something like 80 new products. Last year was 150, so almost 2x. And we also have a metric that we share called our Vitality Index, which is new products introduced in the last 3 years. And that's now approaching 10%. This year, it will be actually 11%, is our guide for that one. And when you think about our revenue of $5.2 billion at the midpoint of our current guide, that's $520 million of revenue from new products introduced in the last 3 years. So a very vibrant company. And we really believe going to the cloud is going to be transformational for Equifax and really position us for upwards of a decade of lead or headstart versus our competitors with those kind of capabilities.

The only other additional benefit, we also think, is going to be the speed of acquisition integration.

Yes.

And as we continue to accelerate acquisitions and build more bolt-ons, that will help us be able to integrate the data faster and generate new products from not only our current data, but our acquired data more quickly.

Yes. I just want to dive into that a little bit more. I understand there are many key benefits of being cloud-native. You can introduce products faster. You generate significant cost savings. You can be always on. But I'm just wondering, from the customer's perspective, can they really tell, the products and services they're utilizing, what kind of cloud strategy the vendor really has, multi, hybrid cloud versus cloud-native. Can the customers really tell?

So the customer is going to feel it in a number of ways. They're going to feel it with our stability, meaning always on versus having outages in a legacy data infrastructure, meaning mainframe infrastructure. That will be something that customers can feel. And as I talked to customers over the last 6, 9 months, and there's just more and more discussion around we need you to be always on because when you're down, we're down. And if we're delivering 9 9s of stability, that's a very powerful competitive advantage for Equifax. I already talked about the speed of data transmission. Our customers are going to feel that. And think about it, if you're going to one of our customers' applications or websites and you're pressing something on their website and you're waiting for that response, that milliseconds or seconds it becomes, customers drop out. So if we're able to do that more quickly, which we can with the cloud, customers are going to feel that. And then to your question around new products, it's the velocity of new products that really help them grow. All of the products we rolled out are in collaboration with our customers. We're helping them solve problems. Like how do we combine data assets to increase their approval rates? How do we combine data assets to reduce their losses? How do we combine data assets to help them grow their business? That's where all of our new products are focused. And yes, I think our customers feel more of the velocity and they will also feel the speed. There's a time frame between talking about a new product and then bringing it to market, and we're shortening that time frame. So that will be something that the customers will also feel. And it will make Equifax a stronger partner, which should drive our market share with each of our big customers. As you know, most big financial institutions will have a primary, a secondary and sometimes, a tertiary data partner. We're not primary everywhere. This is going to help us move to more primary positions. And in primary, you pick up more market share, meaning you're getting more of their volume. That's why we invested in the cloud. And we're well down the road of completing that and starting to see some traction on market share. And certainly, you're seeing the traction on new products, where our new product rollouts are doubling over the last couple of years.

And we'll also see it in data recency because we can not only deliver data faster, we'll be able to update our own databases more frequently and more rapidly. We're already seeing that occur. We're in the new cloud-based assets. We're able to update the information more frequently, which makes them more valuable.

So you believe the cloud migration will fundamentally change the competitive landscape between the 3 bureaus over the long term?

100%. That's why we spent $1.5 billion incremental, which is a ton of money, obviously, in a fairly short time frame. But we believe it's really going to be transformational for who Equifax is. If you start with the foundation of Equifax, we believe we have data our competitors don't have. That's the heart of Equifax. And now, if you put that in a single data fabric versus siloed data assets and lay the cloud on top of it of how we deliver that data, we think it's going to provide a competitive advantage for a long time for Equifax.

Mark, you talk about having data that your competitors don't have, which I immediately then thought of Workforce Solutions, which will be your key growth driver over the next few years. I find it fascinating. It all started 15 years ago when you acquired The Work Number. Because back then, you had 40 million active worker records, which was 30% of nonfarm payroll, and today, you have close to 70%. In your latest Investor Day presentation, you kind of talked about -- you mentioned that amounts to 13% to 15% organic revenue growth expected for Workforce Solutions. 4% will come from pricing and penetration. So I just want to dig a little bit more into that because your competitors, like Experian, is looking to make significant inroads into this market. Now I know Experian is a relatively small player, but they are able to gather 40 second -- 42 million records, with 8 million of them being exclusive to Experian. So I just wonder how that changes, if that changes your thinking about pricing.

Yes. So maybe I'll just jump back a little bit on the competitive side and then jump into the pricing side. First off, just to put it in perspective for those that aren't as close to Equifax, every pay period, we collect 136 million unique records, every pay period. And as you point out, Experian has moved into the space. They've got 8 million unique records. The difference between 8 million and 136 million is quite a bit, meaning it's a sizable difference. As you know, we get our records from 2 sources. We have a very large, roughly $400 million business that sits inside of Workforce Solutions, that's our employer solutions business, where we deliver regulatory services to HR managers, like I-9 verification, Unemployment Claims management, W-2 management, HCA management, employee retention credits, a lot of regulatory services that we deliver as a business. We're the market leader in that, and then we get records in return, the payroll records, and then we're able to monetize those payroll records. So that's one avenue we get our records. The other avenue we have is in partnerships. We've got a series of partnerships, probably over 30 partnerships, where we partner with software providers and payroll processors and get their records and add to our data set. And that's about 45% of our records. And as you point out, the 136 million is actually 104 million social security numbers or individuals versus that 8 million that Experian has. And we think about the data set we have as being more exclusive. Most of our payroll partnerships are exclusive, meaning they can't go with someone else. And if you think about our employer or the direct connections we have, we think about those as being virtually exclusive because we're providing all these services to that HR manager. So the ability to kind of get records that we have is very hard to do, so we think we have a pretty strong moat around the business. On top of that, we have thousands of integrations with customers. The integrations for The Work Number are different than the integrations from a credit file. So it's not the same API. It's not the same integration with the customers. And we have thousands of those with mortgage originators, credit cards, auto, personal loans, background screeners, government agencies, that are using our data in order to verify income or employment, that is another part of the moat around Equifax. To your question about pricing. Across Equifax, in all our businesses, we increase price every year. We have more pricing power because of the uniqueness and scale of the income and employment data that we have, that we're able to do more price probably in Workforce than we do in USIS or International. But we're balanced about price. And for example, just records are a very powerful revenue and margin growth engine for Workforce Solutions. When we add new records because we're getting inquiries to our database from every application our customers have, as you point out, we're able to fulfill about half of those with our data set. As we add new records, we're able to generate revenue immediately. Our records were up 19% in the first quarter. They were up roughly 19% in 2021 and up about 15% in 2020. So strong ability to add to our data set. And when you think about the available population of income and employment data that we have, today, we have about 104 million, as I mentioned, unique individuals in our data set. There's about 200 million people that work in the United States or receive incomes. So beyond nonfarm payroll, you talk about nonfarm, you have to add the gig economy, and there's also another 20 million to 30 million people that receive defined benefit pension payments. That's income in the eyes of a mortgage company, credit card, auto company, that's the income for someone who's retired. So if you think about 200 million versus 105 million, we have a long runway to keep adding records. And we have dedicated teams that work on it with individual companies. And then we're also working with software companies, payroll processors to bring those records in. And if you think about the scale of the business, Workforce Solutions will be approaching 50% in the next couple of years of Equifax. But this year, at the midpoint of the range, is roughly $2.4 billion of revenue. And just from records, we could double the business because we're already getting inquiries on $5 billion worth of customers because every application comes to us. So the ability to grow the business is multifaceted. It's pricing, it's new products, it's driving penetration, and I'm happy to go deeper on that, it's records additions. Very uniquely is the ability to add records and monetize them day 2 because we're already getting the inquiries on every application that our customers have. So it's a very powerful business. I think, as you know, it's -- you were referring to the long-term growth rate of the business of 13% to 15%. That's on top of our 8% to 12% Equifax long-term growth rate. So we believe Workforce Solutions, which is approaching half of Equifax, is going to grow much faster than the rest of Equifax. They've been outgrowing that 13% to 15% for the last 4 years, but that's our long-term growth rate. In the first quarter, they were up 33%. Even with mortgage down, they were up 33% versus that 13% to 15%. And as you know, they have margins in the mid-50s, I think 55%. So with that high top line growth, I think 13% to 15% long term or higher than that in the near term is it's outperforming that. At 55% EBITDA margins versus our current 34% EBITDA margins for all of Equifax, its growth rate is highly accretive to Equifax going forward. And it will grow through 50% of Equifax in the next couple of years and head towards north of 50% just because we expect it to grow faster than the rest of Equifax. So a very powerful engine for driving our top line and our bottom line and our free cash flow.

One other piece of good competitive advantage is the total records that we have in Workforce Solutions. So we have approaching 550 million total records, think current and historic. And as we know, across credit analysis as well as in hiring as in government applications, that trended information, having 2 years, 3 years, 4 years of employment or income information is extremely valuable. I mean it's something that we have that's fairly unique. And as you look forward, currently, for our nonmortgage applications, the products we deliver in the nonmortgage segment, already over 50% of those products include current and historic records or historic records only. And on mortgage, that's already exceeding 1/3. So what we're seeing is that, that historic data is extremely important as well as the current data.

So I think one of the key competitive advantages for Equifax in the income employment verification space is that you have scale. And I just want to -- I'm just wondering, for any of your competitors, what is the magic number of records they need to accumulate to be considered at scale.

Well, a lot more than 8 million. It's a challenging quest. We've been at it for a decade. We've invested probably $3 billion in the business over that time frame. I don't think any of our "competitors" are talking about doing that. Just in the last 3 years, we put $300 million in the tech stack, and no one's talking about doing that. And then the scale of the business, $2.4 billion business, gives us the resources to invest in continuing to scale the business. And I think what's really powerful, and John touched on this, is that if you go back 5 years ago, we were disproportionate to mortgage in how the data was used. I think everyone in this room knows that every mortgage that's originated, they pull a credit file. Every mortgage that's originated also verifies income and employment as a part of that mortgage process. And that's where the business got its roots from, was really digitizing the income and employment verification through using our data. But even today, we only see 60% of mortgages. 40% are still done with paper pay stubs by the mortgage originator calling around to verify Mark's income. By calling Equifax' HR department, getting them on the phone and getting them to say, yes, Mark works there, making sure it's not a fraudster, we do that all securely and privately for that company. So the opportunity to grow the business is incredibly powerful. And then we've moved way outside of financial services in the last couple of years. We're getting very large in the background screening space, not being a background screener, but being the digital data provider to them. Background screening data that's used for background screening is like a $5 billion TAM. So a very large TAM for us. And if the bedrock, is what John talked about, is the 550 million records, think of that as jobs that we have in our data set. So on the average American in this room, we have 5.5 jobs on the average individual in our data set. So we have a digital resume of job titles and company. It's what a background screener needs to do a background check. So today, we're doing about $300 million of revenue in the background screening space. That's been growing kind of 40% per year in recent years because it delivers massive productivity to the background screener because they're primarily BPO shops that are on the phone calling the companies to knit together and verify Mark's resume, where did Mark work over the last 5 years, we can do an instant decision to them, just send them the data. Government is another big one for us on social services. That's about a $2 billion TAM. We have a $275 million roughly business there today. And as you know, social services, think food stamps, rent support, unemployment claims, childcare support, student loan deferments or write-offs, they're all income-based. So you have to verify. You get more social services at the federal, state, local city level based on your income, and it all has to be verified. So we're digitizing that process at the government level and having really strong growth. That's growing at 40-plus percent as we really digitize that space. So you see a business that's increasingly diverse. More than 50% of Workforce Solutions now is outside of mortgage, 60% is outside of mortgage, 50% is outside of financial services, in high-growth TAMs. And then add to it the employer solutions piece, where we're providing those regulatory services, like unemployment claims, I-9 verification, et cetera, to HR managers, 70% of that is in-sourced, meaning companies do it themselves. We're the outsourcing play. And then we leverage that business by getting more records. So it's a very powerful business with the different levers for growth, more records, different verticals, penetration in the verticals. Like in background screening, I mentioned we do 1 in 10. We'll do 2 in 10 soon. In the government solutions -- government services space, we're doing 15%. We'll move to 20% as we digitize the states that are really delivering that. And at the government level, each agency is their own business. It's not like you can go to the state of New York and say, we want to give you income employment data. You got to go to each agency and develop those connections. So it takes time, but it's really a very powerful business for Equifax.

Mark, you mentioned the mortgage penetration rate is about 60%.

Yes.

What's stopping you from going...

Time.

Okay. Just time. Okay.

So a couple of years ago, we were 50%. It's just a matter of getting to those mortgage originators. There's a lot of them. As you might imagine, we have all the big ones, and there's a big tail there. What you have to remember is Workforce Solutions is a fairly new business. It's been around for a decade, but its scale, it's only 2 years old, meaning, at scale, meaning north of 50% of the data assets, 50% hit rates. Most data businesses when they go out to the market have the full population. So they're delivering that solution with high hit rates, meaning the number of consumers that it can hit. Now that we're north of 50%, we're getting a lot of traction because it's a data asset that's so valuable, pick your vertical. And in mortgage, as an example, it really speeds up the decisioning. It delivers productivity to the mortgage originator. They're not having people on the phone calling around to verify income and employment. They hit our database very, very quickly, like immediately, and we deliver the solution if we have it. Remember, we only have 50-plus percent of the full working population. But every week, we're adding more records, which drives our revenue and our hit rates, and it makes that data asset more valuable in each of those verticals. The other one we didn't talk about is system-to-system integrations. We sell, kind of across the board, about 25% of our revenue comes from customers accessing our website, credentialing in and then putting in my name, social, date of birth, pulling down the report, printing, scanning it and then using it in their workflows. 75% roughly is system-to-system integrations. When we move a customer from web to system integration, we get a 25% lift in pulls or transactions because there's no breakage. It just automatically hits our database. And just as a reminder, a credit file is 100% system-to-system because it's been around for 75 years with 100% hit rates. We have everybody's credit file. So it's just a matter of time before we get from 60% to 100% in as far as penetration, and we go from 75% to 100% in system-to-system integrations.

How sticky are customers? Because my understanding is...

Super sticky.

Awesome.

Well, finish your question about how sticky they are. But if you want income and employment data at scale, the only place to get it is here. So once a customer gets integrated with us, they're super sticky as far as how they use us because we're delivering so much value. It's verified. It's coming from the payroll provider, the company or the payroll processor every 2 weeks, whatever the pay cycle is. Some pay cycles are quicker. It's secure. We know it's the individual, so it's verified the individual. There's a lot of fraud around people generating paper pay subs that are fraudulent when they're not done in the way that we have. So once we get integrated, we stay there, if that's your question.

Yes. Because my understanding is the employer contract comes up for renewal every few years. That's why I was wondering...

And so you're talking about on the contributor or on the usage of the data, meaning people contributing records to us?

Yes.

So the contributor records, I didn't understand your question, that's also super sticky from my perspective. Remember, we get records 2 ways. Individual companies, 55% that we get because we're providing all these services. That's pretty sticky because once we're doing the I-9, unemployment claims, other services for that company, they stay with us because we do it really well. And there aren't competitors at scale. We didn't talk about yet that this afternoon, but like in unemployment claims management, we're the market leader in that. We do 1 in 3 unemployment claims in the United States that are done by third parties. So we have real scale there. We invest in technology. On the payroll partnership side, those are multiyear agreements. The vast majority, as you point out, are exclusive. That's our intention, for all of them to be exclusive. They're not all exclusive. And when they come up for renewal, it's an easy dialogue because remember, we're paying a revenue share that's driven off the network we have. We have so many integrations, and we're growing so rapidly in other verticals, they benefit from that in the revenue share that we pay them. So the idea that they're not going to renew with us is -- they are -- we view them as very sticky too because if they want to go somewhere else, they would have to really start up with someone else versus they continue the momentum they have with Equifax.

Got you. Now I understand that you've expanded Workforce Solutions to Canada, Australia, India and most recently, the U.K.

Yes.

I was wondering if you can talk a little bit about the key challenges you face in these new markets.

Yes. So we were in those 3 -- we were in Canada, Australia, India pre our cloud transformation. Now that we're further down the path and we have -- Workforce Solutions is closer to cloud-native, we launched in Canada a few weeks ago, what are the challenges there? It takes time to build these scale of records. You have to get the data contributed from companies or from payroll processors. Now the advantage we have is a lot of the multinationals that contribute records to us directly today want us to do income and employment verification for their employees outside the U.S. So in other markets, that's kind of an easier connection. Another easy connection for us is a global payroll processor. They're used to doing that relationship with us here in the U.S., the idea of adding another market is a positive. And then we have dedicated teams that are working on adding records in those 4 countries and will likely go to other markets. Now when you think about moving the needle, as far as financial impact, I wouldn't think about the international arm of Workforce Solutions moving the needle in '22, '23 or maybe even '24 or investing for '25, '26, '27 to have a global footprint. The big levers from workforce are here in the U.S. that we already talked about. It's what's really going to drive the business in the next 3 to 4 years.

Got you. And how do you expect the mortgage market headwinds to impact Workforce Solutions?

Yes. Equifax and Workforce?

Yes.

Yes. So it's actually -- there's 2 points there. I think we all know that there was a big refi boom in '20 and '21. And now with interest rates going up, that's clearly coming down. As you know, on our call for the first quarter earnings a couple of weeks ago, we derisked the year by putting a lower mortgage case in under the expectation that the Fed is going to keep raising interest rates to try to manage the high inflation we have, the record inflation that we've had. We don't know how far the Fed is going to go. I'm not sure if other speakers this -- today or tomorrow are talking about that. But our approach was it's clearly going to be more challenging. So we reduced our outlook for mortgage dramatically, down 40% in the second half, which is off our down 20% last year, so dramatically down. And that down 40% is about 20 to 25 points below kind of recent 5- to 10-year trends. So a really severe case was what we reguided, if you will, or updated our guidance for 2022. At the same time, the nonmortgage side of Equifax, which is powered by Workforce Solutions and our other businesses, we guided up. Those businesses are performing exceptionally well. And we took those up to 17% growth for an overall 6% for Equifax, which we think is quite strong with the negative impact from the mortgage market. Now your second half of your question was Workforce Solutions. Workforce Solutions is quite unique in that even with the mortgage market down, I'll use the first quarter, the mortgage market was down 25% in the first quarter. Workforce Solutions was up 8% in their mortgage business. So they grew -- outgrew the market by 33%. How? More records, so higher hit rates, increased penetration, taking that 60% up, more system-to-system integrations, some price, product rollouts, all of those allow them to outgrow their underlying markets. So Workforce is quite unique in its ability to outgrow all of its underlying markets for all the levers that we talked about, including mortgage.

And the mortgage market, Mark already covered it, but it's really driving over 11 points of headwinds to us in 2022 in total. So delivering 6 points of growth with 11 points of headwinds, we think is really a very strong performance. It's all driven by nonmortgage.

Got you. Let's stay on mortgage for a little bit because we've received a lot of investor questions on the topic. In this basically new rate environment, what do you think -- how do you view the sustainability of mortgage headwinds for '23 and beyond?

Well, it's hard to -- you probably have to add to that what kind of economic environment are we in and is there a recession or not. And where are we at in that stage of the recession. As you know, generally, if there's a recession, at some point, interest rates get cut to boost the economy, when interest rates are cut, the mortgage market takes off again, meaning there's refis and activity going through. Kind of broadly, you have to remember, in the mortgage market, that 40 million people a year move in the United States. Half of those roughly are buying new houses every year. Whether the economy is a recession or a boom, people keep buying houses. So there's a level of purchase volume that stays in the mortgage market. It doesn't go away. And we've been in it for a long time, so we see that. Even in '08, '09, there was still a mortgage market, even in the worst mortgage financial crisis we've ever seen that was driven by home prices and really, credit. And then on refis, obviously, in a lower interest rate environment, generally there's a bunch of refis, like we saw in 2021, those were coming down. We expected the mortgage market to normalize in '23, and we expected the mortgage market to be down for us in '23. That's now pulled forward to '22 in our current outlook, meaning that the Fed's interest rates are pulling -- interest rates increases are pulling that mortgage market normalization. And of course, we're saying the market is going to be worse than that. It's hard for us to think about what the mortgage market is in 2023. We'll give an outlook as we get closer to that. But we have a lot of confidence in our nonmortgage businesses and how they're going to grow and how they're outgrowing the underlying market. The other element is perhaps around recession. And Equifax is -- I don't know if that's your next question...

Yes. That was going to be my next question. So...

But we believe we're much more recession-resilient today than we were yesterday. If you go back to '08, '09, Workforce Solutions was 15% of Equifax, and it grew double digit in '07, '08, '09 and '10, is a much smaller business as it was driving penetration, adding records, all the things we talked about, is now Workforce and today, is going to be closer to 50% of Equifax. It increases the recession resiliency because we believe that's a business that can grow through a recession. And again, you got to describe, recessions are kind of a broad term, what depth of recession, what kind of a recession is it. But we have a lot of confidence in that business being able to grow through a recession. And when we look at our businesses, in the last big economic event, about 37% of Equifax was recession growth, meaning it was able to grow through the recession in '08, '09. We now think about that as being over 50%. So a much larger piece of Equifax driven by Workforce is much more recession-resilient because of the diversity of verticals it's playing in, the ability to add new records, the ability to drive new products and drive penetration, really drives that. Would you add anything, John?

No, just -- but as we take a look at 2025, looking through the mortgage market, looking through anything that might happen with a recession, right, as we talked about at Investor Day, we talked about in April, I mean, our expectation is, in any type of normal mortgage market, we can deliver $7 billion of revenue by 2025 and expand our margins to 39%, so up 500 basis points over a 4-year period. And we think that's really outstanding performance. We actually feel even better about that today than we did back in November because of the really strong growth we've seen, much stronger than we expected, again, in nonmortgage. And I know a lot of the questions have been about mortgage, but really, the growth of Equifax, the really outstanding performance, is from those nonmortgage businesses driven by Workforce Solutions, but also in International, that's growing 10% and which is faster than we had expected and good performance in nonmortgage and USIS, online. So we feel even stronger about our ability to deliver on those longer-term goals, when you start to kind of look through some of the economic events that are hard to predict. But the mortgage market has been a good market for decades, right? So we would expect it's going to be a good market for decades to come.

Maybe one last point on the recession. When you think about Equifax, if there is a recession, which I personally don't think there is, but that's not my job to think about, the cloud transformation is really execution. So we're going to continue down the path of completing the cloud transformation. If you think about the 500 basis point margin expansion we expect to deliver between now and 2025, half of that is from cloud cost savings, converting the cloud and decommissioning our legacy infrastructure. That's not recession-dependent. We're going to do that regardless of the economic event, so that margin expansion is going to be there, meaning those cost savings is going to be there, which we think is a big deal.

And a reasonable portion of that is just reduction in investment.

Right.

Right? So because we're nearing the end of the implementation of our transformation and it's starting to slow, we're actually spending less. So yes, we're going to get savings, but a lot of it is extremely easy to predict because it's a reduction in investment, as long as savings from new infrastructure.

Yes. There are quite a few points I want to follow up here. Talking about recession, one of the key debates right now is how strong is U.S. consumer in general. I was wondering if you can point us to some of the data or evidence you've seen in the last 5 to 6 months...

I think you've heard today from some other speakers that the U.S. consumer is super strong, and we would agree with that. We've talked about it. So if you think about the consumer, they're all working. If they lose their job, they get another one. They have wage growth, which is quite strong, meaning salaries are going up, even at the low end, and all the way through the mid-market consumer. They've improved their balance sheets over the last 2 years. Credit scores for the average consumer are up 30 points from 2019. So the consumer is stronger there. There's still a lot of stimulus money around for the lower-end consumer. There's still a lot of spend -- stimulus money that either hasn't been spent or still available to consumers in some of the social support that's there. And then the last one I would say about the consumer, about their strength, is in their home. Home price appreciation is up 30% roughly in the last 24 months, and that's an asset for -- that's the largest asset for most consumers that own homes, is the value of their home. And that's available to them to access through cash-out refis in the future. So those elements are quite strong with the consumer. The consumers that are hurting are those that are most impacted by inflation, which is at the low end. The subprime consumers, the more hourly workers, are being pressured by the high inflation. While they have wage growth, a lot of that's being chewed up by higher gas prices, food prices, et cetera. And you are seeing some uptick in subprime delinquencies. But remember, that's a very small portion of the ecosystem. So when I think about the broad consumer, really strong. And those consumers don't roll over in a quarter, meaning it's hard to see that they're not going to be strong over the next 6 months-plus. They're also spending, meaning there's some -- still some pent-up demand, where they're out there taking advantage of their stronger financial footing. Our customers are also very strong. You think about the last financial crisis in '08, '09, if you want to call that, the last big recession that we've ever seen, maybe the toughest one, that was one where not only the consumer was challenged, but also the banks were challenged. Banks are super capitalized, super strong now. They've changed their regulations, so they're really in a much stronger financial footing. And they also got delevered during the COVID pandemic, meaning consumers were paying down bills. So banks are looking to build their business. And the combination of a strong consumer and strong customers, financial institutions, telcos, insurance companies, tells me that it's going to be a challenge personally to see a recession because of that. If there is one, it's not going to be, in my view, this year.

Got you. John, you also mentioned about growth in international markets. I was just thinking about TransUnion is really strong in India, Experian is really strong in Brazil. I actually -- I know we only have...

We're really strong in Australia, we're really strong in Canada, we're really strong in Latin America, if you're talking about where people are strong.

Definitely. Definitely. I agree with you.

Where we balance the conversation, okay...

Yes. I know you have a 10% investment in Boa Vista. I was just wondering why not double-down in the Brazilian...

And so just, we have about $1 billion-plus our business internationally. We're in 25 markets. As was pointed out, we're a market leader in a bunch of them, I wouldn't necessarily say to you, is a leader in India. I think India is like all 3 of us are kind of in the mix there. U.K. is quite similar. Experian might be a little bit stronger than TU and Equifax. In most markets, there's only 2 of us, which is very unique in international markets and improves the competitiveness. Like in Australia, we're #1. There's an independent company that's a distant #2. We're #1 in Canada. TU is a distant #2. We're #1 in Spain, kind of strongly. Many Latin American countries, we're #1. To your question on Brazil, as you know, Experian is #1 there. They have a very strong business. We have a 10% ownership in what was private, now is a publicly traded credit bureau. If there was the right financial opportunity, we would like to be bigger in Brazil. You saw, a few weeks ago, we bought the #1 credit bureau in Dominican Republic. It was available. We have a strong Central and Latin America presence, where we're #1 in most of those countries. The business we bought is #1 in Dominican. So we've -- when we see opportunities internationally, that's part of our M&A strategy as long as the economics make sense.

Yes. Let's stay on the traditional bureau business for a second. So talking about buy now, pay later, you announced inclusion of buy now, pay later data into credit reports back in December '21.

Yes.

I was wondering if you can share with us your latest progress there. Kind of what's the overall impact on your business? Has there been any difficulties integrating those data onto your cloud...

Yes, there's a lot of momentum there. As you know, there's a couple of factors that are impacting fintechs and the BNPL players. First is most of them -- most of their business is in subprime consumers. And as we talked earlier, that's the consumer that's stressed. So they're starting to see some of that stress. Most of the fintechs and BNPL players are not balance sheet-funded, they're securitization- and bank-funded, so they're getting pressure there because their delinquencies are going up. And what we're seeing is that they're wanting to use more data. And the BNPL players, I think, as everyone knows in this room, historically didn't pull credit data for their BNPL loans. They're starting to do that because they know they have to. The BNPL players don't have any visibility, which is why they want to contribute data and why they're going to increasingly be using our credit data around how many BNPL loans does a consumer have. And you can see a consumer that may have a half dozen different BNPL loans, and it's too many for them to pay back, because they don't have the visibility from the credit underwriting. So we think it's a matter of time before they continue -- they get the fully contributing data to us and not likely to TU and Experian, but also start using our data in credit underwriting with BNPL. The fintechs already do. The other element that's happening here, U.K., Australia, Canada, is regulatory pressure on them from CFPB here, FCA in U.K. and other regulators around, making sure that they're doing the right underwriting so they're not extending loans to consumers that can't pay them back. So that's a big regulatory pressure. I think you've seen the CFPB announcement around BNPL, that they've launched a study or an investigation into that. That's putting pressure on them to contribute data and also use data in order to do their underwriting.

Yes. Mark, you mentioned fintech. I also want to dive into that space a little bit. I was wondering what's your strategy to gain share there because one of your competitors does have scale advantage in that market.

Yes, they were a first-mover, TU was, no secret in that. Just remember, to put fintech in perspective, the total credit bureau space in the United States is about a $5 billion to $6 billion TAM. Fintech is about $400 million to $500 million. So it's an important market, but the positive is it's growing 20%. Now it didn't do that in '20 and '21. It really got under some pressure during the COVID environment, but it's a space we want to be in. When I joined in April of 2018, we started putting more resources in fintech. And we think there's an opportunity as the fintechs get larger to become the secondary player, and we're seeing traction doing that, meaning there's a primary and a secondary partner. And the differentiated data we have is a real advantage. Cloud is an advantage for us with the fintechs. They're cloud-native, and we're going to be cloud-native so that's a real advantage. And then the other one is The Work Number. Most of the fintechs use our Work Number data, the income and employment data. They may not use our credit file data. So the ability to leverage that with cloud, with being secondary and already having a commercial position around our income and employment data, to bring our credit file data in, is our focus, and we're seeing some traction there. BNPL, I would say, is one where it was more of a level playing field. meaning they're only a couple of years old, the BNPL players. So we have a stronger position there than we do fintech, but we have a growing position in fintech.

Some of the alternative data even beyond The Work Number, beneficial as well, right? We have 40 million consumers in our alternative data assets with Teletrack and DataX, that are unique, that is very, very beneficial to both of those segments.

The fintechs and -- the fintechs, in particular, are kind of DNA or data junkies. They want more data. They're very agile around data and analytics. So if we have unique data assets, as John pointed out, we've made 2 acquisitions in the last 2 years and have very sizable data assets, that give them predictability with, they want that data. So that's very powerful for us.

That's very helpful. Can we also talk about capital allocation strategy for a second? I know you're aiming for a dividend yield of 1%, target leverage ratio of 2.5x. You talked about reinitiating share buybacks during your '21 Investor Day. I was wondering...

When the time is right...

When the time is right. Yes. I was just wondering if you can give us a little bit more details on...

Sure. You know what, the last couple of years, we've allocated a lot of our capital to the cloud transformation. And so our CapEx went up. That's going to be coming down as we complete the cloud over the next couple of years. So that's going to free up a lot of our free cash flow. M&A is another important element for us. And as a part of our long-term framework, we have 1% to 2% of our revenue growth from M&A. That means $50 million to $100 million of revenue every year generated from M&A. Last year, we did about -- sorry, we did about 8 acquisitions that were about $3 billion of TEV that generates $300 million of run rate. So well above that $50 million to $100 million, but we saw some unique opportunities for M&A. And then the other thing, I think, as you know, is happening is that 500 basis points of margin expansion between now and 2025 really drives our EBITDA and free cash flow while CapEx is coming down. Our first use of that will be for doing that bolt-on M&A, but we're going to have sizable excess free cash flow in '23, '24, '25, that it's our intention, we've been very clear about that, as you point out, to return that to shareholders when the time is right, through growing the dividend again and doing a buyback. And we'll figure out the right time to do that, but our free cash flow, and John, maybe could touch on that, really accelerates with that 500 basis point margin expansion and CapEx coming down as we get through the next couple of years.

Yes. As we look toward '25, we're looking at being able to generate through free cash flow as well as added leverage that we can add at our current rating levels. And we're looking at on the order of $2 billion of available funding or available capital that we can expend, not just for acquisitions, but also to return cash to shareholders. We think we have a lot of opportunity to do that, which, as Mark said, we'll probably start as we start to move through time here in the not-too-distant future.

Got you. You mentioned M&A, I have a follow-up question there. I know your strategic priorities are differentiated data assets, strengthening Workforce Solutions and then Identity and Fraud...

Yes.

And in those 3, I was wondering, are there specific gaps that you want to fill.

I wouldn't call them gaps, but it's clearly our M&A focus. We think about, no particular order, all 3 are really #1 priorities for us, so more data. We're a data analytics company. If we can find data at scale that no one else has, we want to buy it. We bought Kount, that identity and fraud data that no one else had from the e-commerce world, check that box. We bought Appriss Insights last year, incarceration data that's used in the hiring space and in the government space. No one else has that at scale. So differentiated data. Strengthening our fastest-growing business around employer solutions, we've done 4 acquisitions in the last 15 months there around strengthening the I-9, Unemployment Claims, WOTC, Work Opportunity Tax Credit, capabilities that also brings records. So strengthening that. And then the talent hub, finding more acquisitions, like Appriss, that have unique data that's used in the background screening space is a priority. And then #3 is Identity and Fraud. Identity and Fraud is about a $20 billion TAM, growing at 20%, and it plays into the digital macro. And our focus in Identity and Fraud is unique data that really verifies identity. That's where we're focused. And we have a bunch in the core Equifax business and the addition of the Kount e-commerce data, we would like to find more data like that. And then the fourth area is international platforms, like Dominican Republic. But 1 through 3 are our priority. And we're trying to be very disciplined around finding acquisitions that are growing faster than Equifax. So we want to have revenue acceleration from our M&A. And if you think about Kount was growing 20% when we bought it, it's growing faster than that now, that's a -- versus our 8% to 12% long-term framework. Appriss was growing 20%. It continues that growth rate. So revenue growth rate, accretive to margins, that generates a lot of return on capital. And that's really our focus around M&A. And quite deliberately, we use the term of bolt-on M&A. Yes, we want to focus on strengthening the core of Equifax. And we think there's a long runway of those kind of bolt-on acquisitions, like we've done over the last 4 years, in particular, last year, that can strengthen Equifax for the future.

And a lot of those Workforce Solutions acquisitions drive Work Number rates, which drive a huge amount of synergies, which we think we're uniquely able to take advantage of and makes the acquisitions very, very -- the returns very, very high for ourselves and our shareholders.

Got you. I think we're out of time now. Thank you guys so much for coming to our conference. I learned a lot from our conversation.

Thanks for having us.

Thanks for having us.

Yes. Thank you. And thanks, everyone, for coming.

Thanks a lot.