Equifax Inc. (EFX) Earnings Call Transcript & Summary

I'm Jeff Meuler, Baird's Information Solutions analyst. Pleased to introduce Equifax, the leading provider of employment and income verification, one of the 3 global credit bureaus and a provider of other information solutions businesses. With me on stage is CEO, Mark Begor. He's been CEO since 2018, previously ran the card business at GE, was previously on the FICO Board as well. And then we also have John Gamble, who's been the CFO of Equifax since 2014; and then the Head of IR, Trevor Burns, is in the audience.

Maybe to just start out, you had your earnings call, I guess, the third week of April when macro concerns were maybe peaking. You said at that time that there was no meaningful change in consumer or end market behavior. Is that still the case?

Yes. I'm not sure if the macro concerns are peaking. It's still a lot going on in Washington that we're all dealing with. But that was certainly an unusual time kind of in late March and into April. And certainly, from my perspective, still continues. But broadly, the consumer is still quite resilient. While their confidence is down, they're working. That's a big element in financial services. If unemployment is low, then consumers generally can pay their bills and then they're generally going to continue participating in the financial markets, meaning new financial products, whether it's a credit card, auto loan. And of course, we have a lot of verticals that are outside of FI that are really impacted differently. But that's kind of the perspective on the consumer. We saw a little uptick in kind of pre-tariff buying in auto perhaps, but not meaningful. That was happening in the early days of April when kind of after Liberation Day. But we would say that the market is somewhat normal in how it's operating. And then our customers, again, in FI, we've got a lot of non-FI customers, particularly in Workforce Solutions with the government and background screeners and so on. But the customers, the banks, financial institutions and fintechs are quite strong. The regulatory requirements and capital requirements that were put in place after the global financial crisis, I think, are serving that customer base well. And they're still operating -- there's no kind of recession mode in how they're operating. They're still operating, I would call it, quite normally. Obviously, everyone is watching to see what's going to really happen with tariffs, how is this going to get resolved. But we had a very good first quarter. We beat our expectations and yours. And we'll probably touch Jeff on the mortgage market. I think it's hard to talk about our markets, financial markets without including mortgage, but mortgage obviously has been significantly impacted not only in '25, but really in '24, '23 and '22 with the rapid rise in rates, the mortgage market and activity in mortgage has come down dramatically. And when we entered 2025, really in November time frame, we thought we'd have a flat mortgage market. And as you know, rates went up late in the year, and we entered with a framework in February of being down 12% for the year from an activity standpoint, that being hard inquiries for Equifax. That's the metric we use for the mortgage market. was actually a little bit better in the first quarter, primarily before Liberation Day when rates came down, we saw some element of increased mortgage activity and refi activity. It doesn't take much to generate some refi activity. And then as we got into April and it's continued in the rest of the second quarter, rates have just stayed persistently higher. So that mortgage market guide we gave in April for the rest of the year being minus 12% is kind of what we expect it to be as the year unfolds unless there's some element of either tariffs getting organized and then a view of what inflation is or isn't going to be and then is the Fed going to cut some rates.

And then there is student loan collections are just starting, right? That's a relatively large population. It's going to likely hit heavily more in subprime and near prime. So that's something we'll be watching closely. It hasn't really started to hit credit yet. but it's something that will start to occur. Again, we remind people that the bulk of our customers are really focused on lending in the prime segments, somewhat near prime, but principally in the prime segments. So not so clear it will have a significant impact on us, but we'll be watching closely what it does overall to the consumer.

And then on the mortgage untapped earnings power, if you go back to pre-COVID volumes, I think you're saying $4 plus. Hasn't that moved to closer to $4.50 of earnings with your structural market outgrowth that you've been experiencing? And is the plan still to fully flow that through to EPS?

Yes. So last year, we used a number of $1.1 billion of revenue when we started 2024 of where the mortgage market was. It's actually come down more and our revenues have gone up because we increased price on our products. We have more penetration records, et cetera. So we started this year with $1.2 billion number for 2025, which is about $700 million of incremental EBITDA. And as you point out, $4 a share incrementally. That's going to grow as the mortgage market declines and as our business unfolds as we're rolling out new products and really driving growth in our business. And to be crystal clear, we're running the company today, and you would expect us to do that, expecting the mortgage market to stay where it is going forward, meaning we're not holding back investment. We haven't cut investment. You would expect us to invest in people and products and CapEx in a normal environment, which we've been doing. So to answer your question, when the market comes back, we've been very clear that, that incremental $1.2 billion, $700 million of EBITDA and $4 a share will flow through to investors. We're not going to do more CapEx. We're not going to do more investment in Equifax. We're not going to do more bolt-on M&A. We have a kind of an organized framework around that. That will show up in higher dividend growth if we have higher EPS, and it will show up in a larger buyback when that comes through, which we think is the right way to run the company.

And the other big news for the sector lately has been FHFA Director Pulte commentary. Just what was your reaction? Or what's your perspective on his commentary? And what are your expectations for either the prospect of going still from Tri-merge to buy merge and/or any changes in scores requirements?

Yes. I think it surprised all of us, his comments first at the MBA conference a couple of weeks ago and then a tweet a week before last and a tweet last week, which seems to be a way to communicate in Washington. I haven't met with him, but we're working to do that to really share our perspectives. Everything that we read through on the tweet, it was principally focused on FICO pricing, which we all know has been quite strong and where FICO has taken pricing of the credit score that we deliver in the mortgage market along with our credit report and so does TU and Experian. And that seems to have got his attention. Coming into his tweets kind of pre tweets, my inputs from Washington, and I've been there, and I'm sure we'll touch on this. I've been there every couple of weeks. I'm going to be there tomorrow actually, really focused on our Workforce Solutions business for delivery of government social services. That's where most of our attention and there's a positive macro there. But what I heard prior to his tweets was the 2b,3b was kind of dead. It was never something the industry thought made sense. There's enough differences between the 3 credit files from TU, Equifax and Experian that pulling enhances the credit underwriting that takes place. There's almost 10 million consumers in the U.S. that are only on 1 of the 3 credit files. So if you're only pulling 2, you're not going to pull that consumer's credit. There's 40 million consumers, a large portion of the population and many in this room, if you check your credit score on the Equifax TU Experian website, you'd see a credit score difference in there of like 30, 40 basis point difference because not every financial institution submits data to every credit bureau. So that difference requires the 3B pull. And actually, if you go outside of mortgage, the most sophisticated underwriters in the U.S., I would call it the really powerful DNA shops that are underwriting financial products, they pull 3B on everything because there's enough differences there. So 3B, 2B, our view was even if that was changed, the industry would still pull free, and we expect that to continue. I will hit on the credit file polls. There has been a change in behavior in the shopping process in mortgage, which is pre-application. We've seen because of the cost of the FICO credit score, a decrease in credit polls going from 3B to 2B or 1B pre-application. So the FHFA requirements for Fannie and Freddie require a 3B poll in the application process today as well as a FICO score. In the application -- I'm sorry, in the shopping process, because of the higher costs, we've seen 1 and 2B polls. And that's been a change because of that price. We'll probably touch on it, but one of the things we're trying to do is differentiate our credit file by adding more data to it versus our competitors for mortgage, in particular, but also for auto and others. We're adding our cell phone utility attributes we call NC+ to the credit file to make it more valuable and more predictive than our competitors. And we're also rolling out in the last couple of months, we're starting to roll out an income indicator on our mortgage credit file to differentiate our mortgage credit file in that shopping process because mortgage auto P loans, they all verify credit and they verify income and employment. But upfront in the shopping process, when a mortgage originator is looking at a consumer, they pull the credit report, but they don't know if that individual is working. Can they close. So we want to provide some visibility to differentiate our credit file. What the director does with regards to the FICO score, whether it becomes the -- continues to be the only score. As you know, the prior administration was suggesting FICO and Vantage. That never made sense to us to pull credit scores on every mortgage application because they're very similar. It's not going to add a lot in the predictability. There's a scenario where you go down the path of lenders choice, but goes down the path of FICO or Vantage. So even if that happens, FICO is very embedded in the workflows. It would take a while for someone to convert from using FICO over a long period of time to using Vantage as an alternative either in part of their process or in the entire process. just because of the long history and track record of underwriting of using the FICO score. But there are some customers outside of mortgage that have switched from FICO to Vantage. So there's a different competitive dynamic in mortgage where it's a required score versus in the other verticals, there's not that requirement and there is the ability to -- for a customer to decide what score they use.

And to be clear, you're a joint venture owner or minority owner of VantageScore. So if it would be 2 scores, that would be upside for you. If it's a choice market, there's a lot of mitigating factors.

Correct.

Yes. I think as Jeff was pointing out, Vantage is a 3-way joint venture between Equifax. We've had it for 20 years. So it's not a new Equifax, TU would Experian equally own it. It's a score that we bring to market, but we have access to that algorithm. The score is just an algorithm that we buy from FICO or we buy from Vantage. We don't have any cost when we buy from Vantage. We have to pay a royalty fee to FICO when it's used in the different verticals and dependent upon their pricing structure.

Government is the largest revenue stream for you now in the employment and income verification business. You just said you were spending a lot of time in Washington. Can you just comment on the big beautiful bill? It looks like there's a proposal for Medicaid redetermination frequency to be increased. So what are you expecting there? What's the potential impact? And anything else that jumps out to you from the bill?

Yes. And maybe I'll go to the bill, but let me just frame again for the group. I think you know this. Inside of Workforce Solutions, which is about $2.5 billion of our revenue, it's slightly less than half of our revenue. Our largest vertical, it's larger than mortgage now is what we call government. And it's where income and employment solution is used in the delivery of social services. In the United States today, there's about 90 million Americans that get some level of social services. Think about Medicaid, think about food stamps, think about rent support, child care support, think about earned income tax credit. All those different services are delivered by the states and programs that are set by the federal government and the needs. So if you make less, you get more social services you have to verify income. So we've been growing really rapidly in that business is basically a $750 million run rate today. It's up in the last 4, 5 years, 20-plus CAGR fasting. And it's operating in by our math, $5 billion TAM. And the difference between $5 billion and our $750 million. The $4.2 plus billion is really manual verification that are still done by the majority of the states and agencies. So that's our growth potential to convert from doing that manual verification to doing the instant verification. And we have been really driving a lot of growth there. About 2/3's or 75% of the TAM is it the state level because the way social services in the U.S. work as there set at the federal level there are local in the New York City, New York state benefits but the majority of the benefits are federal benefits that are paid for by the federal government. There is some sharing between the states and the federal government but that are delivered by the states so the states have to deliver to them to their -- citizens the people live in their states and they do the income and employment verification based on standards that are set at the federal level. And every time you go for a social service you have to get a verification of your income. And as I said, that's an area that's been growing rapidly for us because we deliver speed. The recipient can get that social service this afternoon. We deliver productivity. We sell the solution for $5 to $10 to $15 depending upon what data is in there. So big productivity versus a $30, $40 an hour case worker in New York or California or Minnesota, whatever the state is that they're doing that, big productivity. And then we also deliver accuracy because it's verified data. I think as you know, we have about 60% coverage in the data set, 138 million individuals or SSNs in our data set. So we deliver a broad array of coverage there. And the programs are all set with the different agencies that they have. So to your question about Washington, we've seen just kind of a sea change in momentum by the current administration around focusing on the deficit focus on reducing costs in Washington. And then one of the costs that they quantify is there's $160 billion a year of improper social service payments. And this is generally someone who qualified when they got the payments, but somewhere along the way, they've got a higher paying job are still getting the benefits and no longer qualify. That's the $160 billion. So we've seen a lot of momentum in the new agency heads. Obviously, there's a new administration in the last 3 months focused on that $160 billion of improper payments, and we're a very strong solution of just deploying our solution more broadly. There's been studies done that we have like an 80:1 payback of using our solution to deliver against those social service improper payments. So really high ROI on the improper payments and then really high productivity opportunity. So we have big relationships with like Medicaid with CMS we have with food stamps. We have some programs we've been working on for quite some time, like the earned income tax credit in the United States is basically a cash transfer from the federal government to lower no-income employees and you get that individuals, you get that by filing your tax return. And if you're below a certain level, you get a cash payment, a refund. That has $16 billion of fraud as quantified by the IRS on it. That's a program we're working to get into. We've been after that for 5 years. We see some opportunities there to get in. We've got new programs we're working on with SSA around disability income. Someone who's on disability income because they're not working, they start working and no longer qualify. They have to come off disability income. There's improper payments that happen there. As you point out, there are some elements of the House reconciliation bill that are tailwinds for Equifax. One is, today, most programs, including Medicaid, have a 12-month redetermination of the individual if they're on the Medicaid benefit. So you get benefits today. 12 months from today, they have to determine again and do another income verification to see if you still qualify. The current House reconciliation bill wants to move that into every 6 months, so twice a year. So we have more transactions. That's a positive for Equifax. The pitch we give to Washington is the variability of that demographic is so rapid, meaning they're going in and out of the workforce because of life events, they qualify, then they're working again, then they have another challenge in their working environment that those should be done even more frequently than 6 months, but the reconciliation bill moves it from 12 to 6. The second one is that there's been a goal of the Republican party for quite some time to add a work requirement, particularly around Medicaid and really broadly on all the social services. So in the House bill, there's a work requirement for Medicaid. So if you're a single household that you're going to be required to show that you're trying to work in order to keep getting the -- Medicaid benefits we have hour's work as one of 50 attributes we have so we can deliver that solution not only what there income is but we can do the hours work requirement which would likely be part of that. So there some element of the tax reconciliation bill that is going to be positive for Equifax. I would say the broader macro is just the -- really focus around financial discipline in Washington is real positive for Equifax. So I have been going there every month or so and then my counterpart who runs our workforce solutions business is there when I am not there. Meaning every couple of weeks we are in there meeting with the new administration. As you know there are still being formed like the SSA administrator Frank Bisignano who use to be the Fiserv CEO he only started two weeks a go. So the IRS administrator hasn't been confirmed yet. So there still getting themselves in place and we just feel a real positive macro. So just going back to Equifax. And you pointed it out, it's our largest business inside of Workforce Solutions, our income and employment vertical. We expect it will stay our longest vertical as long as you can see. And mortgage, of course, is larger today at Equifax when you combine credit and income and employment data. But we expect our government vertical to grow in excess of Workforce Solutions over the long term. And because of that penetration opportunity, the ability to add records, the ability to bring new solutions to the market, and we expect that business to really grow into that $5 billion TAM. So we're super energized around the business broadly. As I said, it's grown 20% CAGR the last 4, 5 years, even during the last administration when a lot of the income verification requirements were relaxed during COVID and those COVID relaxed requirements are still in place and are about to come off, we've still been growing the business. So we see just a lot of potential there.

And one of the other big use cases for that data and those products is the background screening, the pre-employment market. That market, there's been several large providers that have been consolidating. What impact have you seen from that? Or what impact do you expect to see?

Yes. So that's another great example of kind of diversifying Equifax and Workforce Solutions beyond FI. We're increasingly having verticals that are less impacted by financial services macros and background screening is economic generated. But as you know, there's close to 70 million people a year change jobs in the United States. So very large churn in the workforce, which from a data requirement, having that payroll data is super valuable. In the case of background screeners, one of the data elements we get every pay period is someone's job title. So we have a digital resume on the average American because we keep every job title. And as you know, we've been selling that into the background screeners to help drive their competitiveness. One of the things they check when they do a background check on someone when they get it from a company is prior work history. We can verify that in instant in a single transaction. So that's one of the products that we're selling into the background screening phase. We make them more valuable to their customers. We deliver speed. We also deliver productivity because they generally are doing that manually when they're not using our solution. We also have other products we're selling into that space. We're the sole partner of the National Student Clearinghouse, which is education data. They verify education when you do a background chest. We deliver that instantly. We made an acquisition 3 years ago. called Appriss Insights, and we've got the only incarceration data set that's used in most background screens. Actually, 90-plus percent will check prior incarceration, not to deny employment, but so the hiring manager can have a conversation with the prospective employee about what happened, how you're dealing with that? Is it a new employee at our company. We have that data. We're the only ones that have that. We also sell that into the government space because you're not allowed to get social service benefits if you're in prison. So you have to come off the benefits. So more data that we're selling into there. That market has been impacted by economic indicators. Really last year coming into the election, there was some tightening by most corporate belts around hiring. We felt that because we generally skew to more of the white collar, higher ticket background checks that we do. That continued coming into the election and actually the uncertainty around kind of what's happening with tariffs, most companies are metering hiring. Some companies have hiring freezes. There aren't big layoffs taking place, but I think everyone is being cautious. So kind of the transaction level is down year-over-year, but we're able to grow with penetration with new products. And of course, as we add records every period, we have higher hit rates. To your question about consolidation, there's really been one First Advantage in Sterling. We have great relationship with both companies and now in particular with the Sterling. We haven't seen an impact on our business. We're delivering and bringing more solutions to that market. Just to define the TAM for background screening, the way we look at it, the data that's used, it's about a $4-plus billion TAM and our business is about $400 million. So we have a lot of growth potential to sell more data into that background screening base. That's our intention is to be the data provider at scale to the background screener to help them become more competitive, deliver the background screens more quickly and also at a lower cost because we deliver productivity.

Records growth is a driver that cuts across end markets and use cases. It's been a really good new story, but it's also been contributing more to Workforce Solutions growth than, I guess, the target intermediate tier model. You mentioned this. You're at 138 million SSNs, nonfarm employment around 160.

I think it's 166 million.

Okay. 166. What's the runway? Or do you have proof points, I guess, on pension and 1099? And are those records similarly valuable to W-2 records?

It's a great question. And very unique to Workforce Solutions is, look, we've got the ability to raise price. We roll out new products. Very uniquely, we have massive penetration opportunities in Workforce Solutions because we compete against manual. When you think about the overall Workforce Solutions market, the TAM for the overall market, $5 billion in government, $4 billion to $5 billion in talent is about a $15 billion TAM versus our $2.5 billion business. So big penetration. And then super uniquely is the ability to add records. And the day we add a new set of payroll records, we monetize them because we're already getting the inquiries from our network of distribution. So when you think about a mortgage originator, an auto lender, a personal loan lender, a background screener or a government social service, they send us every applicant. We return the records we have. And when we grow our records, our revenue goes up because we have a higher hit rate. The 138 million records was up 11% in the quarter. We've had, as you point out, our long-term framework for record growth is 3 or 4 points per year of revenue contribution. We've been outgrowing that over the last 5 years, principally because we've added more partner records -- we get our records 2 ways. We get them direct from individual companies. That's a little under half of our records that we get by delivering employer solutions to companies. The other half are in partners. So just going to the full TAM for records. When you look at the 138 million, there's about 225 million income-producing Americans. And as we pointed out, almost 170 million, 167 million, I think, is million nonfarm payroll. There's about 40 million self-employed individuals. Remember self-employed could be a doctor, dentist, lawyer architect, small business owner. It's also an Uber driver, a Lyft driver, a DoorDash driver. So a wide array of people in there that's increasingly complex and harder to get to those records. And then there's about 25 million defined benefit pensioners, and that's income for a 55-year-old that retires as a teacher, a fireman or a government employee. So our goal is to go after all those records, and we're adding records in all 3 categories. We have deeper penetration in nonfarm payroll for sure. But we're growing in gig and we're growing in pension. We're adding in pension. There's pension administrators that are really -- think of them as like a payroll processor for pension companies that have pensions. We've added some partnerships there. We're basically monetizing their records and paying a revenue share. We go direct on pension to large legacy companies. And then a lot of the pension records are with federal, state and local governments because they still have defined benefit pensions. There's like -- aren't many companies left that have defined benefit pensions. They're just legacy. On the Gig/1099, we're getting some of those records through like tax prep services where you have to do estimated income. We're going after -- some payroll companies will do 1099 payroll for businesses where they have self-employed. And then we're also going to be rolling out later this year a consumer consented solution integrated with our government -- for our government business, where we'll waterfall from our TWN vertical with a twin record in it, a Work Number record in it that we have in the $138 million. And then if we don't have the record, we'll have in the workflow an ability for that applicant to put in their bank user ID and password and we'll pull in their other payroll deposits and categorize those so we can give a full picture. So we're really deploying all those avenues. And just back on records, we have a dedicated leader at Workforce Solutions. All they do is add records. So they've got teams assigned to each of those different workflows and verticals. And there's still a long runway with another 90 million plus to go of individuals out there with payroll records. I'll just give one more data point on it. While we have 138 million individuals in our data set, we have 198 million active records. That delta is there's 60 million people, think about that in our data set that have at least 2 jobs because they're -- we're getting 2 records on them, meaning they've got a W-2 job typically, they're working part-time at McDonald's, part-time at Walmart at Amazon, pick your company, typically nonfarm payroll type companies. So the complexity of the working population in the United States is just massive and requires all the different avenues we described in order to keep growing our data set. And we had at the end of the quarter, 4.2 million companies giving us data every pay period. And there's about 10 million, 15 million companies in the United States. So a lot of runway still for growth.

You talked about kind of building consumer permission API connectivity to demand deposit accounts. I would think that, that's a less valuable data asset than what you're getting. But I want to ask you on -- we'll also get asked about like potential competitors or alternatives that will do consumer permission API connectivity to payroll systems. You have a lot of data partnerships with payroll companies. You pay them revenue share. They make a lot of money off of it. Why do the payroll companies allow that type of connectivity why they shut it down?

They're trying to block it because they view it as a security risk and they really don't want to do it. We're not going to do a payroll consented. We're going to do bank transaction data really to broaden our distribution. I didn't answer your question about the value of records. And I think your question was what's more valuable in a record? Is it low income, high income? Is it a high credit score, low credit score. And if you go back as recently as 5 years ago, prime consumers were the most valuable income records for us to get because they were getting a mortgage. They were generally buying a car. They were generally doing other financial products. They were generally changing jobs. Government growth has made every record more valuable. So really our value of our records is so diverse now because we participate in so many different verticals. To your question on the consumer consented solution, our experience is that most consumers don't want to be a part of that process, and there's meaningful breakage in most workflows. Where we believe we're going to have traction in government social services is that individual is trying to work hard to get food stamps. They're trying to get rent support, Medicaid support. So they're willing to give their bank user ID and password in order to get that data that we don't have so that verification can be completed in order to give them the social services. So that kind of desire to invest in their own financial lives, we think, is a lot of traction there.

Got it. That's all the time we have for questions in this room. Please join in thanking Mark and John for their insights. They will be available for additional questions now and after Suite A and a breakout. They also have an Investor Day coming up in 2 weeks. So tune in, lots of good information coming out there.