Equifax Inc. (EFX) Earnings Call Transcript & Summary

All right. Good morning, everybody. Thank you for being here. Welcome to day 3 of our financials conference. For those of you who don't know me, my name is Manav Patnaik. I'm Barclays' information services analyst. I'm very pleased to have with us here again Equifax. And for those of you who don't know, we have Mark Begor, CEO; John Gamble, CFO; and also in the audience down there, Trevor Burns, I'm sure many of you spoken to. So thank you all for being here.

Thanks for having us. Great to be back.

Mark, maybe just to start off with kind of a big picture macro questions, and maybe we'll go by vertical, but we've had a lot of banks, card issuers, all your customers probably who had their own opinion in the health economy, et cetera. So maybe we can just add on the non-mortgage side.

Sure.

And just talk about where you see card, auto, the consumer, and how things are going there?

Yes. I think broadly, the economy still is pretty strong. I think you heard that this week, and we see it for quite some time. The recession that CNBC keeps talking about, although less. So now seems to be getting pushed out and maybe won't happen, at least from our perspective. And way we look at it is low unemployment, high number of people working is a big deal. If people are working, they can pay their bills, they can pay their credit card bills, their auto bills, they can take out new loans. So that is a real positive. And generally, unemployment is aligned with delinquency increases. And when delinquencies increase, our customers pull back. They get nervous about the future, and we just haven't seen that. You've seen delinquency increases in subprime, and that's been happening for the past 4 quarters, maybe a little bit longer, and mostly impacted fintech. Most of our core customers don't do a lot in some [indiscernible], it's more on the fintech side. So broadly, the consumer is still pretty strong. They carried over some savings from COVID that they're still have balance sheets, their credit scores are still above 2019, which is a good sign. So when we look forward, that's a real positive. Our customers are also strong. Back in April, when we had the deposit scare with some of the banks, there was concerns that, that was going to have a broader contagion, it hasn't, which is good news. But customers are really strong. And if we all scroll back to the last big economic event that we had of scale, largest ever actually in '08, '09, it was really the banks were in trouble and consumers. We really don't have either now. So that's a pretty good environment going forward. We put in our outlook for 2023, a slowdown in the second half, and I think we've seen that. We've got some pockets in non-mortgage, particularly in the talent sector, where, as you know, in Workforce Solutions, we sell our employment history data from the twin database into background screeners. And we've seen really a bifurcation of the labor market, where blue collar is still quite strong, white collar really probably a year ago started tightening up. You see it -- start companies over the last year, either doing layoffs we're doing hiring freezes. And those result in less background screens done and also impacts our employer business, where there was onboarding for our I-9 business. So that's one kind of isolated macro that we've seen some impact outside of mortgage, which I'm sure we'll touch on. But broadly, when we look forward to 2024, it feels like the consumer is going to stay pretty strong. It's hard to see an economic event out a couple of quarters right now given how employment is still fairly robust. I forget the number, there's 9 million open jobs, and 4 million, 5 million people looking for jobs. That's a pretty good environment.

Got it. And so if I look at just USIS non-mortgage, in a soft lending scenario, what are some of the drivers that you guys can control? Because I think, right now, we've been run-rating in like low single-digit growth, I think. So I think it's fair to say maybe we're not going to -- the consumer is not going to end much stronger, but let's just say they flat line. How should we think about growth there?

Yes. So USIS has its core credit business, which is more impacted by the consumer and our customers' decisions are around underwriting, what kind of new card originations, auto loans, where their cutoff score is going to be. And with delinquencies being under control, we would expect it to be fairly normal. Meaning, we don't see a tightening there. And that's a business that should grow in the kind of mid- to low single digits longer term. And just as a reminder, for USIS, we think about USIS as being a 6% to 8% revenue growth business for us inside of our 8% to 12%. Obviously, EWS north of that. So in that 6% to 8%, they should be at the lower end of that. We have a couple of businesses that are outperforming that 6% to 8% quite strongly over the last couple of years, and we expect that to continue. One is our Commercial Data business. This is where we sell data to financial institutions, telcos, insurance companies for small businesses. And that's a combination of the entrepreneur's consumer data and then commercial data that we've collected over different verticals, including bank transaction data, leasing data and other data sets that we have. And we've got a fairly robust commercial data set. Last year, that business was up 20% in USIS. So way outperforming at 6% to 8%. So far this year, they end up double digit because of some of the new solutions that we rolled out from our cloud implementation, and really their differentiated data. The second business in USIS that should outperform that 6% to 8% is our Identity and Fraud business. And as you remember, we bought Kount a couple of years ago and the last year Midigator, and those businesses are growing double digit inside of that digital macro, where more and more of our customers' transactions are going online. And when they go online, you have to verify the identity of the individual or small business every time they interact. You got to make sure it's not a fraudster coming in, in that first transaction or when they come back again. And that's really been a strong growth for us. That market is growing kind of high teens, and we've been growing at the same pace. And we're really excited about the integration of Kount now as we put together all the Kount data. And Kount, just as a reminder, brought to us very unique e-commerce identity transaction data. We had a pretty wide array of financial identity data from our credit file and some of the other data sets that we have of people in their bills every month. We know that it's Manav, from you paying your bills to the bank, for your credit card, your loan, your mortgage. And now we have e-commerce data that shows your shopping behavior. It shows you shopping multiple times per week. And the frequency of that Kount data is really quite powerful when it's combined with the bank transaction data we have. And we're starting to put that together, and we're seeing big lifts in the score performance from an identity standpoint, which is really what's driving our revenue growth. So we like identity. It's one of our priorities around M&A. Those are probably the 2 businesses that in USIS are outperforming. I'll make one last point on USIS, as you roll forward to 2024, they'll complete the cloud. They've got a couple of quarters left to finish their cloud transformation. We believe USIS, like the rest of Equifax, is going to be significantly benefited by being fully cloud-native. Delivering those always-on stability. In a digital macro, when you're interacting with a financial institution. If you're a data provider, you got to make sure you never have everything downtime. And we believe the only way to get [ 9 9s ] are always -on stability is in cloud. It's very hard to do in a legacy environment. Also, the latency or speed data transition is another thing that's got a lot of friction when you're in a digital macro. Those 2, along with differentiated data and product rollout, we believe should advance the USIS in '24, '25, '26 for cloud native around picking up some shares, moving from secondary to primary because we're going to be always on. So that's another positive when we look forward for USIS in '24 and beyond.

Okay. I was going to ask about the tech later, which I will, but maybe since you brought up the share gains point of it. So to date, it's been 4, 5 years since the breach. So implying maybe from what you said you're still in that secondary level and there's opportunity to get back to the first. So how do you think about the share opportunity or loss even today?

Yes. So just maybe pulling back, as you know, these market positions are quite sticky. When you get in primary or secondary, and what we're talking about is most financial institutions have a primary credit file data provider typically by vertical. It's generally not the institutional [ those firms are ]. And we're primarily in a bunch of financial institutions, so are our competitors, right? So we're not primary everywhere. We didn't lose much after the cyber event in 2018. Meaning, we didn't go for primary secondary. It was -- as you know, our revenue was only down a few points because it's so sticky. When you get in a primary position, the data analytics payment side of that company gets used to using your data. They have years of history of using the data, so they really understand it. So that switching from primary to secondary is, has to be a catalyst. There has to be a reason to do it. We think cloud is one of those that will drive that. And primary generally means you're getting 70% to 80% of their credit files on business or scores, and the secondary is getting 20% or 30%. So where we're secondary, we want to move to primary. And we believe $1.5 billion investment we made in the cloud, the always-on stability, our differentiated data, the new solutions we're bringing to the market, which I'm sure we'll touch on from our new product initiatives, will make us a stronger partner and allow us to make some of those secondary to primary moves, which will drive -- should drive USIS revenue. And we have active dialogues going around the power of the Equifax cloud as a partner.

Got it. John, maybe just to wrap up USIS non-mortgage. Can you help us quantify commercial and ID and fraud versus the [indiscernible] to serve some directions in the faster-growing business, like the mix shift basically.

Sure. I mean, ID and fraud draws a couple of hundred million dollar business, right, and consumer is $100 million to $200 million -- sorry commercial is $100 million to $200 million business, growing very nicely, right? So -- and we would expect to see that continue to happen and then they become a bigger share of USIS.

So 20%, 25% of USIS way outgrowing 6% to 8%, and then you've got kind of the rest of the businesses inside of that 6% to 8% range. And over the long term, we would hope those businesses obviously average up. And then when you add the cloud capabilities, if that allows them to move up in that 6% to 8% range overall, that's a good thing for Equifax...

And then is it fair to assume that those are 2 areas you'll always be on the lookout for, it sounds like, grow their acquisitions?

Yes. In both areas, we've made -- in the commercial data business, 2 acquisitions, PayNet and Ansonia in the last couple of years. And then obviously, in Identity, we have Kount, Midigator. And that's differentiated data. And Identity and Fraud are 2 of our 3 bolt-on M&A priorities. The third is EWS, strengthening EWS either in employer side or in differentiated data around the talent base. And I think as you know, we've done a number of bolt-on acquisitions in the last 3 years to strengthen the core of Equifax.

Got it. Maybe we can shift gears to mortgage, which has not been a [ friend ] clearly. But John, maybe if you could just remind us of your latest -- you asked mortgage guidance, but sounds like given since the [ update gone out ] volume seems to have come down. So just some perspective on where you stand today with that, some color.

Sure. For the full year '23, we gave a view that we expected originations to be down about 37%, and that we expect increase on the credit file and originations tend to drive the revenue on The Work Number and Workforce Solutions. Increase on the credit files will still be down about 31%. And what you know is that in the credit file, obviously, we see a lot more shopping activity. So people pull credit files earlier, so we tend to see more activity and that's why you see a difference between the activity on increase on the credit file and then what we're talking about in terms of originations. And clearly correct. When we gave guidance back in July, our expectation was using run rates we were seeing back then. And as you said, we've seen rates, the 10 years up, 30 to 50 bps. You've seen mortgage rates pop up in the August and September time frame. So certainly, that has an impact on the mortgage market.

Maybe as a reminder, mortgage is roughly 20% of Equifax. We over-index on mortgage, I think, as the group knows because of our large Workforce Solutions income and employment mortgage business. And when you look at '22 and '23, last year, the mortgage market decline impacted us by about $0.5 billion. The strength of our non-mortgage businesses, which is 80% of Equifax, still allowed us to grow 5% with that decline in mortgage market. This year, the mortgage market is down again year-over-year. And I think John didn't touch on it, but we're at a place now where the mortgage market is 40% to 45% below historic levels, what we would call normal. And we use normal, Manav, as you know, is pick a time frame, we use 2015 to '19. 2019 is before the refi boom during COVID. It is a normal market. And when you look at -- it's never -- the market has never been down at low. We've never seen purchase volumes decline to this level. There's a combination of a lack of housing starts. You've got consumers sitting on 3% and 4% mortgages that aren't upgrading. You've got consumers that are moving a lot, I think there are 7 million or 8 million households relocate every year. A lot of them are renting while they wait to see where rates are going. When we look forward to '24, '25, '26, that 45% below normal, we would expect that to move towards the mid-teens, towards normal over time. Now whether that's going to be next year or the year after or the year after that, we would expect to see some improvement in mortgage. And then the last point is when you look to 2024, we're not giving guidance yet, but when you think about a market, pick what you think the market's going to be. Let's say it's flat versus 2023 in the mortgage market. As a reminder, and I think you know this, both of our business, USIS and EWS, meaningfully outperform the underlying mortgage market, whether it's going up, down or sideways. Meaning, in a flat market, we'll still increase price, we'll still drive penetration, we'll still roll out new products. And then EWS' case will add records that drive revenue growth. In EWS' case, they have a long history of outgrowing the underlying mortgage market by 20 points. So in a flat market, that outperformance will be there. And then as the market improve over time, we think, yes, the question is over what time frame. And USIS, as a more of a single-digit outperformance, but then when there's a meaningful price increases from our partner, FICO, those will go in USIS and become an outperformance of the underlying mortgage market. So I think an important element to understand first is that the dynamics of our mortgage business. And then second is the power of the 80% of Equifax that's non-mortgage that's been way outperforming and allowed us to still deliver kind of mid-single-digit numbers. And we would characterize over the last couple of years has been a mortgage recession, obviously, and what's happened to the mortgage market.

Got it. Yes, I was going to ask you about that. So I'm glad you brought that up. Maybe just one non-mortgage in the -- for the second half of the year, it sounds like there's a lot of your non-mortgage businesses that have a lot of momentum and they've had it for the last year or 2. But unfortunately, [indiscernible] has been a bigger drag. Is there enough of the non-mortgage momentum to kind of offset the mortgage weakness that we might see?

In the second half?

Yes.

We're not here today to change guidance or give guidance on second half. But broadly, when you look at our non-mortgage businesses, they're quite robust. We're very positive about those, whether it's in USIS, International, as you know, over the long term, is a 7% to 9% grower against our 8% to 12%. They've been outperforming that 7% to 9% for a couple of years, and we feel good about that. And the addition of Boa Vista in the second half will be a positive. We'll probably touch on that later. And then we're going to get the Workforce, which is a 13% to 15% grower. And we're very clear that we expect their non-mortgage growth in the second half. And over the long term, to be in that double-digit range.

Got it. Yes. So let's just move the Workforce then. I mean we addressed the Mortgage piece. For the non-mortgage piece, obviously, a lot of questions around the implied assumptions on the government side. So maybe, John, if you could just set the stage on how much non-mortgage is. And within that, just help size government talent and the other key mixes there.

So non-mortgage is on the order of 70% of Workforce Solutions, and it's grown substantially over the past year, right? So you've seen it now much larger, obviously, than the mortgage business.

So it actually is pull back, John, on that 70% non-mortgage EWS today, if you go back 5 years ago, it was the opposite.

Absolutely, yes.

So it's really -- the non-mortgage has been growing so quickly. Obviously, the mortgage market is taking that down.

Absolutely. And within Verification Services, there's really 2 big segments, right, of the -- of non-mortgage. One is government, over $500 million run rate business and it's growing very, very nicely. You've seen it grown double digits, 20%, 30% over the last several quarters. Last year, obviously, much, much more than that. And then our talent business, which Mark already touched on briefly earlier, is the second largest business in EWS. And it's been growing very, very nicely. Obviously, until early this year, we saw a decline in the second quarter, obviously, as hiring declined substantially, and we covered why, as we tend to skew toward the higher end of the hiring market, the higher salary end of the hiring, that's been more heavily impacted in terms of hiring, and we saw some weakness in the second quarter. So -- but the biggest parts of that business are really not even financial services related. It's related to government. It's related to into the hiring markets. And even in Employer Services, the biggest piece of that business, obviously, are unemployment insurance claims processing and processing employer retention credits. The biggest grower again, is our boarding business, which, again, is linked very closely to hiring.

Got it. So let's start on the government business first. Good growth in the first half of the year, but it does imply a pretty big step-up, I think, even in the fourth quarter. So what are some of the drivers there? I know we talked about this last week at the Credit Bureau day, with some of the [indiscernible] there. So if you could just help us...

John, you can jump in. I think it starts with a big TAM. Just as a reminder, what we're doing in government, government for us is at the federal, state and local government. We're using our income and employment data to verify eligibility for social services. And think about food stamps, rent support, child care support, all of those social services are needs based or income based. And if you make less, you get more services. So that's what happens. And as a reminder, that's in all 50 states. That's how it's delivered the social services. And each agency in each state is a different organization that you have to connect to. So we've been building this business over the last 5-plus years. As John said it's a $500 million run rate business today for us. Last year, it was up 50%. This year, we expect strong double-digit growth again. That's inside a TAM of about $3.5 billion. And when we think about $3.5 billion, the difference between $500 million and $3.5 billion, that $300 billion that's left is where it's still being done manually by the agency at the social service level. And manual means a consumer comes in with paystubs and paperwork to the agency or office, an example of a food stamp office, and delivers those to the counter. And they look at them and see if do they qualify. Generally, they'll send them home to get more documents. Using our data, they go home to the food support. So that's really the digitization of that $3 billion market or TAM is the opportunity for us. And we have contracts at the federal level with some of the large agencies like SSA and CMS. And then we have contracts actually at the state level with each of the different agencies. So that's really the play driving the penetration there, driving new products. We take price up every year. Generally, those are longer term contracts. You have to wait until the contracts open. We're in the rest of our business, we do [ 1:1 ] price increases. But there's just a lot of runway growth potential for us to get into government. And John, if you want to add to that.

Yes. John, if you could just address the second half specifically, the ramp.

Yes. It's -- just look at sequentially, right? Things that tend to impact us and benefit us in the second half. We have substantial contract with CMS, under for Medicaid services around ACA enrollment. That tends to grow as you move through the second half of the year. That's just a seasonal effect. And then also this year, we have redetermination, right? So after the health crisis, now states have to go through and redetermine the eligibility of the people that are on their benefit programs where they get several subsidies...

Maybe just as a reminder, that there was a pause on the redeterminations during COVID as a requirement where there's a redetermination every year. So there's like 2 checks that happen. First, there's a check when you join the program and will be involved or most of it's done manually. And then the redeterminations that's done every year to make sure you're still eligible. That was paused during COVID. And when the COVID pandemic was lifted a few months ago, there's a requirement to complete a redetermination of everyone during -- that's currently in the program in the next 12 months. So that's going to span really second half of this year and into the first half of next year. And then we go back into the annual redeterminations, which is part of the power of the business going forward. On the redeterminations, states are all doing at a different paces. Are they going to do it in October? Doing it in February. There's some of that taking place, right?

Absolutely. So we feel very good that we're -- it's a nice revenue opportunity for us, and we're already starting to see some of it. As Mark said, the timing of that can be difficult to determine because the states will determine when they want to do it. We think we offer the best solution because it's a digital solution that involves a lot of mailing and BPO type services, which are just slower and less accurate.

Got it. And to Mike's point about the contract repricing every couple of years, it sounds like there's a big slug of them maybe coming in the fourth quarter.

I wouldn't say there's a big slug, but we have great visibility. We know when contracts are up. So when we look forward, we have a lot of confidence we're going to extend the contract. And we have some visibility around how it's going to be extended. So that, that cadence of contract renewals. And then, as you know, with a $3 billion untapped TAM, we're $500 million, in this $3.5 billion market, we have commercial people in the field. Typically, we have them housed or living at the big state capitals. They've got pipelines, meaning, they're working on converting customers that are -- or agencies that are still manual, that $3 billion going to our digital. And we have a pipeline that we know how far along those discussions are. So that's stuff we lay in for the third quarter, in the fourth quarter. Even into 2024, we have kind of a cadence of how those are operating and what stage they're in.

Got it.

And similar to redeterminations, we feel very confident they're going to happen. Sometimes the timing can be variable, right, yes.

Got it. Okay. Fair enough. If you would just quickly, just on talent. I know you guys said you were more exposed to white collar and therefore, you get to lower the numbers there. But even now, I think this assumes sequentially the talent business gets better in the second half of the year. What are some of the non-volume drivers that allow you to do that? Because it doesn't sound like volumes are rebounding anytime soon.

Yes, it's similar to all of our businesses, you would expect all of our businesses to outperform their underlying markets. The market is going up, down or sideways. And like mortgage, where we described it, where we get that, call it, 20 points of outperformance, same thing happens in talent, where every year, we increase price. We add record service, higher hit rates. And remember, the power of talent, just as a reminder for the broader group, is we collect payroll records every couple of weeks from 2.8 million companies in the U.S. We get 50 attributes every pay period from each individual and from the companies. One of those attributes is job title. What Mark's job title as the CEO. Manav, who's an expert analyst. But we have that job title, and we capture them all. We've been keeping them for 20 years. So we have a digital resume or digital history on job titles. And as you know, one of the things a background screener does is a part of a background screen is to verify prior employment. It's generally, when there's an offer made to employment, the company will then hire a background screener to be a background screen on Mark. They'll do a lots of things, a drug test. They'll do incarceration checks with our data inside of Workforce Solutions. They'll also check where has Mark worked in the past. It varies how deep that is. If you're a blue collar worker, it might just last job work. If you're a white collar worker, it might be 5 years of history. It might be last 5 jobs, and we have that digitally. And if background screener is not using the data from us, they're doing it manually, meaning they're calling the company and they're calling Equifax or Barclays and saying, hey, does Mark work there? Did he work there?" Companies -- the 2.8 million companies that do business with us, when a background screener calls, they say call Equifax. Equifax has the data. We don't do that anymore because we do it for that company for free. We have 630 million, I think, jobs in our dataset. And remember, we have 80 million records every pay period, so we have a large portion of the working population. So we average about 6 jobs on the average working American. So that's what we're digitizing in background screening. So how we grow above market around background screening is the same as mortgage. We take price up every year. Our hit rates grow up as we grow records. We have more jobs. We're driving penetration. So similar to government, and even mortgage, if you think about background screening, that's a $400 million run rate business for us, a fairly new business at scale for Equifax. The TAM is about almost 10x that, almost $4 billion. So there's another $3.6 billion of manual effort taking place. So there's still lots of background screeners that aren't using our solution or out there converting them from manual to digital, is the other play. And then the last is product, rolling out new products for either existing or new customers that have different solutions. Those 4 are how we outgrow a growing market and how we offset a declining market because those continue to happen.

Got it.

And just specific to the second half, right? It's generally around product. And then also, we do see generally a seasonal growth as we move through the second half and hiring season, right, and it's very common. So obviously, new product is something we can drive. It will be dependent on seeing what hiring looks like in the second half to see whether that growth occurs.

Got it. Maybe just briefly on competition in Workforce Solutions. I mean we've talked about it extensively. But in which verticals do you see the experience and Truework that everyone talks about it, is it isolated in one? Or are they dipping their feet into all the different verticals? Just some perspective there.

Manav, as you know, we hear about competition really in these kind of meetings, not in the marketplace. I think we've been very clear about that, that we really don't see an impact from them, where it's not lost on us. The Experian has entered the space a couple of years ago. Not lost on us, there's a thing back called Truework, that now TU has invested in to participate in the space. But just you got to put a reminder, our business will be $2.5 billion of revenue. I don't know what theirs is, but it's a fraction of that. Both of those companies have some unique records that we have which are valuable. Our scale of our operation is very, very strong. And to me, a real proof point in the business is our ability to have records. We grew record in the second quarter, 5 million records, up double digit. And we had a real cadence, as you know, every quarter of growing records. And we had the ability to add payroll processors, new relationships. I think in the second quarter, we added 4 new relationships. In the last couple of years, we've added like 30. So we think we've got a strong market position. We're focused on continuing to grow and expand our business. And we're investing huge amounts in technology and capabilities across all the verticals to continue to grow our participation in the market.

Got it.

Our historical data is incredible.

They're very valuable.

They're very valuable and makes it very difficult oftentimes for others who are just entering the business to have that history. And if you think about the talent business, it's quite our history, right? Government business, it requires high coverage or else it's very difficult to get the interest of a government organization, right? So those are markets where without extremely high coverage or -- and especially in many cases, historical information, it's very difficult to participate.

And how would you respond to, obviously, the competitors, self-serving here? But the idea that you have all your -- most of your relationships exclusive. And at renewal time, maybe they'll be willing to open up to other parties to have the market or the remaining data you don't have maybe the other providers will would share. What is the competitive edge to getting all these exclusives as you?

Just as a reminder, 50% of our records we have are from direct relationships. So those are from individual companies or we're delivering those regulatory services like I-9, W-2, UC claims, Work Opportunity Tax Credit et cetera, directly to company. So that's half our records. That is very difficult to replicate, right? So we have a large commercial team. We have a $400 million business. And those relationships -- and again, we do income and employment verification for those companies for free, so it's tough to compete again. And we have those services that become very embedded in the company. So we feel very good about those. And we had a very strong track record, as long as I've been here, where -- when -- one of our partner, 50% of our records come from partner relationships, and its payroll processors, HR software companies, pension administrators, tax preparation services. So a wide array of different partner relationships that we have. We generally pay a rev share on those. Those -- when the contracts come up, they extend. And your question is why. The track record, it's the scale of our capabilities, the regulatory [indiscernible]. If you're a partner, you don't want to be involved in regulatory side of this. We do it really well. But I think it's our 20-year history of being in the business. When I meet in the C-suite of partners like that, their dialogue is mostly around don't screw up my core business. We want to make sure you're going to do this really well. And when we've invested $400 million in our tech stack over the last 3, 4 years, they've -- we have a lot of credibility about doing it really well. So those contracts when they come up, we find them extending. And as we pointed out, we have the ability to monetize records over a wide array of verticals -- government, talent financial services, auto, cards, P loans, and of course, in mortgage. And those are different integrations. We have tens of thousands of direct customer relationships that, again, have been built up over 20 years as a part of the scale of the business.

That's fair enough. I'm going to quickly shift over to margins. I think the fourth quarter margins implied 36%. I was just wondering, embedded in that run rate, John, maybe 2 parts. One, can you remind us of the cost saving initiatives you took this year and how their run rates and what's left to for the help next year? And then the second question I [indiscernible] USIS cloud and the transition.

We announced $210 million worth of spending reductions that would impact 2023. And then in 2024, there's an additional $50-plus million. So it carries into 2024. About 60% of that spending reduction benefits cost and about 40% benefits capital. The bulk of the actions get executed during the year. They didn't really start in the first quarter, they ramped in second and third. So obviously, we're seeing almost the full run rate of cost benefit. Not quite, but almost the full run rate of cost benefit as we get into the fourth quarter. And that really does benefit substantially, obviously, our margin doesn't look into the fourth quarter. Also, what we're seeing is we're expecting to see, as you've talked about, some improvements in revenue as we move through the fourth quarter. So as that happens as well, then the very high variable margins we have as well as the cost benefit we're getting from these actions is what allows us to drive the margins higher.

Got it. And then just on the cloud, maybe first, what is the latest timing in terms of which business lines, country? When do those sunset? How [indiscernible]?

No change from our recent dialogues on that. We -- first off, EWS is substantially complete. I think the real positive is we're seeing the benefits of EWS being in the cloud. So they completed last year, and I'll use one metric on new products is the group knows we have a metric we share we really use internally, called the Vitality Index, which is a percent of our revenue from new products introduced in the last 3 years. Historically, we were 5% to 7% vitality. When we made the move to the cloud and we put our long framework in place in 2021, we moved that to 10% vitality from 5% to 7%. And just -- I think, as you know, 13% last year, we were 14% in the second quarter, and we expect to be 13% this year. And while we're not Apple, we think that's a very vibrant company that has 10% of its revenue new products that weren't around 3 years ago. So that's the focus. And I think as you know, new products generally drive higher price points, which means higher revenues and they drive our climb. And also drive margins, because that incremental growth is very high incremental margins. In a business like ours, our incremental margin is in the 78%. So very attractive margins. So back to cloud, EWS completed last year. Pre-cloud, they were south of the 5% to 7%. They were 3% to 4% vitality. Post-cloud, they're over 20%. So they're almost double what we're performing. And that's a real proof point for us about all the many benefits of being cloud native. We were convinced it was going to allow us to innovate more, which would bring more solutions to our customers to drive our top and bottom line, but also to make us a more important partner to our customers. So EWS last year. USIS could be complete, call it, midyear next year, which is a big milestone to get complete. That was a more complex cloud migration for us because of the scale of the data assets that they have. EWS really has TWN and our Insights data. USIS has multiple data sets. So there will be complete. A handful international countries will be complete by year-end. Spain, some Latin American completes by year-end. Canada completes, which is similar to North America in first, second quarter next year. U.K. in the same time frame and then Australia will follow. So in '24 and '25, like a year from now when we're back to your conference, we'll have North America done. And we'll have much of international done. It's really a big deal. And you asked earlier about cost savings. As John pointed out, we got the carryover this year of the cloud cost savings from completion that we have. And then that continues in '24 and '25 when we finish it up. And remember, part of the cloud cost saving is we're running [indiscernible] environments today. In USIS, we had the legacy mainframe infrastructure still operating, plus our new cloud advisers, we move customers and legacy up to the mainframe. So we're super energizing. I think the other power for us is that for the last, as you point out a long time, 4, 5 years, we've been running the business and migrating to cloud. Not for the faint of heart, a super hard project. But everyone in the company has had basically 2 jobs. When we complete the cloud, we really focus on one, running the company. So that's going to be a really big change. These are not easy exercises. We're convinced it's going to transform Equifax and give us a competitive advantage for 5 years, 10 years versus our competitors, because they're doing a different version. They're kind of going slower. They didn't have the window to go fully cloud native that we had. We think that's a big deal for Equifax as we move forward to '24, '25...

Capital comes down at the same time, right? So capital comes down to about 7% of revenue and potentially below that. And then also significantly an increased percentage of our capital moves to product as opposed to transformation or infrastructure. So it really does help accelerate our NPI process because we can shift funding there. And as Mark said, also shift the focus of people there as opposed to focusing on [indiscernible].

And as John pointed out, as CapEx comes down and our EBITDA expands as we go forward to '24, '25, '26, our free cash flow expands. So when you get out to a year from now, '25, '26, we'll have significant excess free cash flow from that lower CapEx and higher margins that we intend to return to shareholders.

Got it. All right. I think we're just almost out of time, so we'll stop it here. But thank you, Mark and John for being here. And thanks, everyone else as well.

Thanks, Manav.

Thank you.