Equifax Inc. (EFX) Earnings Call Transcript & Summary

Greetings, and welcome to the Equifax Second Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the call over to your host, Mr. Trevor Burns, Senior Vice President, Investor Relations. Thank you, sir. Please go ahead.

Thanks, and good morning. Welcome to today's conference call. I'm Trevor Burns. With me today are Mark Begor, Chief Executive Officer; and John Gamble, Chief Financial Officer. Today's call is being recorded. An archive of the recording will be available later today in the IR Calendar section of the News and Events tab at our Investor Relations website. During the call, we will be making reference to certain materials, it can be found in the Presentations section of the News and Events tab at our IR website. These materials are labeled 2Q 2026 earnings conference call. Also, we'll be making certain forward-looking statements, including third quarter and full year 2026 guidance, [indiscernible] and its business environment. These statements involve a number of risks uncertainties and other factors that could cause actual results to differ materially from expectations. Certain risk factors that may impact our business are set forth in our filings with the SEC including our 2025 Form 10-K and subsequent filings. During this call, we will be making certain non-GAAP financial measures, including adjusted EPS, adjusted EBITDA and adjusted EBITDA margins and cash conversion, which are adjusted for certain items that affect the comparability of our underlying operational performance. All references to EPS EBITDA, EBITDA margins and cash conversion or references to non-GAAP measures. During the second quarter, we recorded a $40 million charge net of insurance proceeds for a legal settlement associated with the resolution of claims related to a previously disclosed coding issue. These non-GAAP measures are detailed in reconciliation tables, which are included with our earnings release and can be found in the financial results section with the Financial Info tab at our IR website. Now I'd like to turn it over to Mark.

Thanks, Trevor, and good morning. Turning to Slide 4. Equifax had strong results in the second quarter with revenue of $1.7 billion, up 11% on a reported basis and 10% in constant currency, which was $5 million above the April guidance midpoint. Next FICO Mortgage royalties reported revenue was up about 7%. We also delivered very strong margin performance, driving strong EPS growth of 13%. Organic diversified markets constant dollar revenue grew about 5.5% in the quarter and better than our expectations, principally in Workforce Solutions benefiting from strong execution in Talent Solutions and Consumer Lending. EWS government revenue declined slightly in the quarter as expected due to a tough 2025 comp. We were very pleased with the commercial execution in government in the first half signing principally state government contracts that total in the last 4 months to about $300 million, with about $100 million of the new business that will principally benefit 2027 and $200 million of contract renewals. This is a strong indicator of the unique benefit our proprietary twin data provides to government customers and the long runway for government against their $5 billion TAM. UIS diversified markets revenue was slightly better than we expected, accelerating over 300 basis points sequentially, and international revenue was slightly lower than we expected at up 4%, principally reflecting market weaknesses in Canada and the U.K. U.S. mortgage revenue was up 25% in the quarter and up 7% at FICO. This was stronger than our expectations against a weaker-than-expected U.S. mortgage market from higher interest rates. During the quarter, U.S. mortgage rates increased meaningfully with a current 30-year fixed rates up 30 basis points to about 6.6% versus the 6.3% when we gave guidance in April. As a result, we saw overall industry transaction volumes run below our expectations that were offset with new products and some share gains. U.S. macroeconomic in remained relatively consistent with the environment we saw in April. The ongoing Middle East conflict has resulted in continued higher levels of inflation that has disproportionately pressured the lower income or subprime consumer demographic. [indiscernible] inflationary pressures, low unemployment continues to support overall consumer health. Continued high employment levels have acted to it more broad-based credit impacts, which gives lenders the confidence to continue originating loans. We have not seen financial institutions increase their portfolio management views or decreased consumer credit lines, which are actions they would typically take when they anticipate an economic turn. [indiscernible] the Equifax team is to leverage the power of AI to expand our margins and free cash flow through accelerating growth of high-margin proprietary database products and driving operational productivity through accelerated AI and deployments across Equifax. Second quarter EBITDA of $552 million was up about 10.5% and with an ETO margin, excluding FICO of almost 35%, up a very strong 120 basis points year-to-year and 40 basis points above the midpoint of our April framework. EBITDA margin expansion was well above our 75 basis point target for 2026 and 70 basis points above our 50 basis point long-term financial framework. The strong EBITDA margins were driven by operating leverage and AI-driven cost productivity principally in operations. Equifax reported EBITDA margins, including the impact of FICO, were 32.5% in the quarter, flat with last year. EPS at $2.25 per share was up a very strong 13% and $0.05 above our April guidance midpoint. Equifax returned $366 million to shareholders during the quarter, including repurchasing almost 1.8 million shares or over 1% of shares outstanding for $300 million, taking advantage of the lower Equifax stock price. Equifax paid $66 million of dividends in the quarter after increasing our again by 12% in February. Over the last 12 months ended June 30, Equifax has returned over $1.6 billion of cash to our shareholders or 100% of our operating cash flow. We continue to expect strong free cash flow in the future of over $1 billion in 2026 and cash conversion to continue at over 100%. With our financial capacity of over $1.5 billion, we can execute the Circular to Credit acquisitions while maintaining a strong balance sheet with debt leverage at under EBITDA and while continuing to repurchase shares in the second half, but it is a slower pace than the first half. Equifax continued its strong execution against our EFX 2028 strategic priorities as listed on the right side of Slide 4, and with several big milestones during the quarter. We further accelerated our implementation of AI and genic capabilities across our global analytical decisioning and operational platforms for new products. In the first half of the year, we launched 54 new products that have AI capabilities directly embedded in the product architecture, which directly benefit our customers and contributed to our strong 16% vitality index of water. We also expanded the deployment of AI [indiscernible] and agents across Equifax in internal product and model development, operations, technology and our G&A support functions. The pace of AI adoption inside Equifax is accelerating rapidly, which allows us to double our AI for EFX productivity goal from $75 million to $150 million from 2026 to 2028. We know we are in the very early innings of our deployment of AI agentic automation inside Equifax, both on enabling new products based on our proprietary data and driving speed, accuracy and productivity across every corner of Equifax. In the second quarter, we delivered a very strong $0.16 new product Vitality Index leveraging the Equifax Cloud and EFX.AI capabilities. New products based on differentiated proprietary data, including our twin indicator solution continue to drive strong new product growth and share gains. We energized to sign a definitive agreement 2 weeks ago to acquire Círculo de Crédito, the fastest-growing credit bureau in Mexico an enterprise value of $750 million with a very attractive EBITDA multiple of 9.4x, including run rate synergies. Turning to Slide 5. Workforce Solutions revenue was up 7% and better than our expectations, principally in Verifier diversified markets, which grew 7%. EWS diversified market revenue growth driven by outstanding performance in Talent Solutions and Consumer Lending both up high double digits in the quarter. Talent Solutions continues to outperform the underlying white-collar labor market with strong growth in employment-based solutions and increased product penetration across our incarceration and education data, new solutions built co-interveting with background screeners and pricing. Talent volumes were up mid-single digits in the quarter relative to an overall market decline in the first 2 months of the quarter. If the team continues to execute very well. Consumer Lending also had another very strong quarter with strong double-digit revenue growth across the portfolio in card, consumer finance and consumer finance, principally due to strong volume and new product rollouts. As mentioned earlier, the EWS government team delivered an outstanding quarter, signing about $300 million in principally state customer agreements in the last 4 months. including renewals, win backs and new customer wins. This is a very strong performance reflects the unique twin position in government and strong commercial momentum post OB3 legislation that was signed last July. The contract signings were a positive and stronger than our expectations. Second quarter government revenue was down about 4% and reflects a challenging comp from a large win in 2025. EWS mortgage revenue was up 8% in the quarter and continues to outperform underlying market volumes by high single digits from record growth, new products and pricing. In Workforce Solutions EBITDA margins of 52.1% were consistent with the first quarter. However, margins were higher than we expected, given strong rating leverage from better-than-expected diversified markets revenue performance. Win record additions continue to perform well again in the second quarter, with strong 10% growth in active records up to $217 million and $124 million total current active records, which was up 10%, which represents 108 million unique SSNs. EWS has a long runway for record growth against the $250 million income-producing Americans. Turning to Slide 6. In the first half, we made outstanding progress with our government customers converting our record commercial pipeline with renewals, extending existing relationships and adding new principally state government customers. In the last 4 months, EWS signed agreements with state agencies for the provisioning of income and employment data from Equifax supporting CMS and Snap, totaling about $300 million in annual contract value including about $100 million in new business and $200 million in renewals, an extremely strong result that will deliver some benefits in the second half, but principally drive 2027 growth. The substantial contract signings, along with our current deal pipelines up about 2x versus last year, reinforces our confidence in the medium and long-term growth opportunities for EWS government at the federal level and in supporting states and meeting a new OB3 requirements regarding accuracy and frequency of income validation in Medicaid and Snap. On Slide 6, we provided examples of some of the recent government wins, including an almost $60 million annual contract value win back supporting a state in delivering CMS fits. The win back is a key proof point of the value of the twin data relative to other sources of income verification data, including state wage data and consumer permission data. We're also seeing expanding opportunities with multiple federal agencies in support of their big focus on reducing improper payments. Equifax is serving as a key adviser at the federal and state level, leveraging our differentiated income and employment data to drive speed accuracy and productivity of social service benefits delivery. The EWS team is clearly on offense, supporting the states with the social service program requirements and have significant opportunities for long-term revenue growth supporting the federal and state programs in EWS' big $5 billion [TAM]. Turning to Slide 7. USIS' second quarter revenue was up a strong 17% and up 6%, excluding FICO and consistent with their long-term framework. This performance was delivered despite a weaker-than-expected U.S. mortgage market that I discussed earlier. Diversified markets revenue grew 6%, accelerating over 300 basis points sequentially and slightly stronger than our expectations. B2B revenue was up 5% and also up over 300 basis points sequentially. Within online, we saw high single-digit growth in FI from stronger volumes, new business and pricing and high single-digit growth in auto from pricing and new business wins. The spin FI in auto was partially offset by weakness in third-party bureau sales from our sales to Experian and TransUnion. Consumer Direct, our D2C business delivered continued strong growth with revenue up a very strong 11%. USIS mortgage revenue was up 40% and up mid-single digits, excluding FICO, with hard mortgage inquiries up only 1%. As I referenced earlier, mortgage rates were up from the levels we saw in April throughout most of the quarter. And as a result, mortgage origination activity was lower in the second quarter than the levels we expected when we gave guidance back in April, partially offset by share gains in prequal and pre-approval products. As a reminder, USIS has began to deliver significant share gains in the second quarter of last year from both pre-qual and pre-approval products that included both the twin indicator in our NC-plus data. USIS EBITDA margins were 32.8% in the quarter, excluding FICO, and USIS EBITDA margins were 40.5% and up over 140 basis points versus last year with a very strong performance. The improvement was driven by stronger diversified markets revenue growth and good cost management. Turning to Slide 8. In April, the FHFA activated use of Vantage score for over 20 mortgage lenders. This was a big milestone to bring score competition to the mortgage industry. While the vast majority of these mortgage lenders have begun using Vantage score, we have also seen a groundswell of Vantage score adoption with about 1,200 additional mortgage lenders pulling our free vantage score alongside a paid FICO score from Equifax. On the left side of Slide 8, you can see that our second quarter vendor volume is up almost 3x compared to the first quarter. The vast majority of the 2.2 million transactions were pulled by the 1,200 lenders pulling a free score alongside a paid FICO score as they drive their adoption of the new Vantage score opportunity. We also have 100 mortgage lenders, principally smaller non-GSE lenders and lenders underwriting HELOCs or home equity loans, we have moved exclusively utilizing Vantage score at our $1 price point for their mortgage originations. Although volumes remain low at about 10,000 transactions in the quarter, we saw significant acceleration as we move through the tail end of the quarter. And as a reminder, we make no margin on the sale of FICO scores. HEICO Mortgage Scores revenue is about 50% of USIS mortgage revenue and almost 7% of total Equifax revenue delivering 0 margins. We continue to expect strong adoption of Vantage score given the substantial $1 billion annual cost savings opportunity for the mortgage originators and consumers. Equifax plans to maintain the $1 Vantage score price through the end of 2027 to continue driving Vantage score adoption with our customers. The FHFA decision in July -- last July to allow mortgage score choice between Vantage and go as a big win for consumers and for the industry. Turning to Slide 9. International revenue was up 4% in constant currency. International saw a high single-digit revenue growth in Asia Pacific and mid-single-digit growth in Canada. Latin America and Europe delivered low single-digit revenue growth in the quarter. International saw market headwinds in both Canada and the U.K., which dampened their growth rates. In LATAM, we saw solid mid- to high single-digit growth in our largest markets like Brazil, Chile and Argentina, with lower growth rates in some of our other smaller Latin American markets. International EBITDA margins were 27.6% quarter, up a strong 120 basis points versus last year. EBITDA margin improvements driven by technology savings at the final stages of our cloud tech transformation gets a and strong cost management. Moving to Slide 10. Two weeks ago, Equifax signed a definitive agreement to acquire Círculo de Crédito for an enterprise value of $750 million. This represents an 11.7x EBITDA multiple based on Círculo's expected 2026 EBITDA. With the addition of expected run rate savings, the EBITDA multiple is expected to be about 9.4x and which is attractive and significantly below our current EBITDA multiple. We expect the Círculo acquisition to be completed in the fourth quarter, subject to customary closing conditions and regulatory approvals and for the acquisition to be accretive in year 1. Círculo is the fastest-growing [indiscernible] in Mexico and the only credit bureau licensed to operate both the consumer and commercial credit bureau service, with more than 1,700 bank retail fintech and small business lending microfinance and telecommunications customers. And importantly, 2 billion trade lines covering 80 million validated identities in Mexico. Círculo is a leader in alternative data or information not included in traditional credit reports in Mexico, including Giga transactions and utility payment history. This alternative data can responsibly expand access to credit and support a more inclusive economy critical in a country where nearly 33 million people are engaged in an informal employment, such as unregistered micro businesses or [indiscernible]. This acquisition will offer Círculo de Crédito customers access to Equifax's industry-leading cloud-native capabilities, decision in the analytic platforms and patented FX AI technology and award-winning identity protection and fraud prevention offerings for the development of solutions designed to help their customers grow and expand functional inclusion in Mexico. The acquisition fits perfectly in our balanced capital allocation framework with our focus on highly accretive bolt-on acquisitions while continuing significant undoing return of capital to shareholders and maintaining our strong investment-grade balance sheet. Turning to Slide 11, Círculo's unique market position has delivered very strong financial results. Círculo's compound annual revenue growth rate was a very strong 23% from '23 to '25 in with revenue growth for the 12 months ended June 30, up a very strong 31%. Círculo revenue growth has been led by their unique [indiscernible] credit data advantage enabled by deep relationships with fintechs with over 40% of Circulo's 2025 revenue generated from fintechs with a growth rate of over 50%. Círculo's unique alternative data and the team's strong relationships with their fintech customers are a key driver of future Círculo revenue growth in a market where consumer credit is underpenetrated and growing rapidly. Círculo delivered very strong mid-40s adjusted EBITDA margins in both 2025 and in the last 12 months through June 30. For the full year of 2026, Círculo revenue is expected to grow high double digits, maintaining very strong mid-40s adjusted EBITDA margins. The very attractive Círculo financial results are accretive to the Equifax long-term financial framework of 7% to 10% organic revenue growth, consistent with our capital allocation plan and drive shareholder returns. Turning to Slide 12. Equifax is executing a broad AI and an genic strategy that leverages EFX.AI along with our cloud-native technology, our Ignite analytics platform and our scale proprietary data to deliver higher-performing EFX.AI-powered scores, models and products to our customers. Equifax has a strong AI data mode around Equifax's unique and proprietary data with over 90% of Equifax revenue generated from proprietary data sources included in over 100 unique data exchanges globally. These exchanges receive contributed proprietary data directly for data owners that is not publicly available, such as our income and employment exchanges, credit exchanges, alternative credit data exchanges and other unique proprietary data assets. Said differently, only Equifax and our credentialed customers can access our data. The use and protection of our data has another layer of moat from both the national and laws that restrict the data's usage and by agreements with our contributors, including requirements regarding the accuracy and currency of this date and the requirement to provide consumers into 24 countries in which we operate these exchanges with the ability to review and dispute the data managed in these unique Equifax exchanges. For example, in the U.S., our EWS income and employment data, our broad credit and alternative credit data exchanges are not only governed by the agreements with the contributors, but also by the U.S. Fair Credit Reporting Act or FCRA. The contributory nature of the factory data and the complex regulatory and contractual compliance requirements that govern our data, along with the coverage and historical data these exchanges contain created a strong data moat around Equifax's proprietary data. Through industry-leading technology, EFX.AI capabilities and proprietary data, Equifax is accelerating a strategy to utilize AI and ingenic capabilities to improve our customers' ability to utilize Equifax data and advanced technology to improve their decisions by incorporating more data and more effective AI defined algorithms using patented capabilities that deliver explainable results to our customers. We are expanding from the provider of data analytics to be an essential partner for the AI-powered decision intelligence that our customers are driving. We are realizing this vision through a growing suite of global EFX.AI-enabled solutions. In the first half of the year, we rolled out 54 new products that leverages EFX.AI capabilities that over our strong 16% Vitality Index. This includes the commercial launch of IGNITE AI adviser and Equifax IQ on our integrated Ignite analytics and Intertek decisioning global platforms. Ignite AI adviser is a multi-agent system that delivers AI-driven real-time personalized sites and actual recommendations delivered through our natural language user interface to our customers. Lender can ask questions through a generative AI chat with complementary visual dashboard illustrations and dynamic charts and grass. This enables our customers, particularly those with limited in-house data and analytics staff to easily compare information, discover new trends and drive more informed decisions to drive their growth and returns. For example, we have customers identifying missed opportunities to capture business from existing customers who have loans with another bank or FI, and customers comparing payoff and paydown speeds against competitors to determine if their rates and terms are competitive to drive application conversions and growth for their business. This is now being used by U.S. customers in auto, P-loan and credit card to pinpoint new opportunities to improve their portfolio performance expanding to Canada in the third quarter with further global expansion through the balance of 2026. Complementary to Equifax AI adviser, Equifax IQ is a multi-algorithm AI system that allows customers to transition policy management from a manual rigid process to an AI-driven multidimensional optimization engine. Equifax IQ uses EFX proprietary data and contributed data to help our customers better understand new market opportunities, grow their business with the right customers, reduce fraud and confidently extend more credit. It also delivers portfolio overdue delinquency analysis, affordability assessments, fraud identification and policy adjustments while streamlining workflows were seamless user experience. Our first implementation of FX IQ are helping customers across Latin America. In Argentina, we established an advanced origination risk policy for a global vehicle manufacturers entry into the financing market evaluating banked and unbanked populations. Equifax IQ will help -- will expand in the U.S. and other regions globally as we move through the balance of the year and early in 2027. Ignite AI adviser and Equifax IQ are great examples of the advantages derived from our global cloud native infrastructure, which is structured for the rapid expansion of AI and agentic advancements globally. These optimizations improve customers' processes and outcomes by improving analytical outcomes and more effectively using the breadth of data assets available to customers from FX. We believe our investments in EFX.AI will drive our new product rollouts, share gains, revenue growth and margin expansion. I'm super energized about the momentum and pace of change in the big performance from EFX.AI in our product models and scores development for our customers. Turning to Slide 13. In the second quarter, we delivered a very strong 16% new product vitality index, leveraging the Equifax cloud and EFX.AI capabilities which is above our 2026 Vitality Index goal of 15% and our 10% long-term framework. In the first half, over 50% of our new products and AI capabilities embedded in the product architecture, which the customer directly interfaces with using LMs New products based on differentiated proprietary data, including our twin indicator solution for mortgage, continue to drive strong new product growth and share gains. As discussed over the last few quarters, our only Equifax twin indicator solutions in card, auto and P-loans are starting to see early customer interest for these unique solutions. And as a reminder, we're providing the twin indicator solutions in all those verticals at no cost in order to drive differentiation of our credit file and deliver share gains to Equifax. Turning to Slide 14. We are also rapidly expanding the implementation of AI and agentic across our internal Equifax processes to improve operational speed, accuracy and productivity. Agentic and AI-assisted process redefinition improvement is occurring across operations, technology, product development and support functions, including HR, legal and finance. The pace of adoption is ramping very quickly and delivering big productivity to us in every corner of Equifax. As you can see from the chart on the left slide of the page, total gross labor spending at Equifax on both expense and capital is currently about $2 billion or about 40% of total gross spending. Of this amount, about 60% of our gloss labor spend is within global operations and technology organizations where we are seeing early and big gains from AI adoption. As we continue to rapidly drive rollouts and adoption of AI tools and agents that are delivering meaningful process improvement, we now expect run rate spending savings from these AI for EFX efforts to be about $150 million from 2026 to 2028, which is double the $75 million of savings we discussed with you in February. These AI efficiencies are expected to improve our financial performance while providing increased capability to reinvest in and further accelerate our AI and genic deployments for speed, accuracy and productivity. The foundation of our rapid AI deployment is our new Equifax cloud-native architecture in our engetic AI development and management platform that is now in production broadly across Equifax, which enables efficient AI agent process development and management that is designed to ensure our engetic processes and capabilities fully comply with our extensive security and compliance requirements. In operations, we are executing a rapid rollout of operational AI across our business units in our call centers and document processing options. In USIS, we are rolling out conversational AI and call centers and already seeing big lifts in customer authentication and fulfillment rates and AI-assisted processes have delivered decreases in back-office dispute handle times, which are delivering productivity. In technology, we're seeing early but big benefits in our software development IT operations, cybersecurity and cloud cost optimization functions. With our agentic AI platform, we have moved beyond pilots to [indiscernible] agents operating core internal processes built and run on a standardized secure agentic platform with governments human in the loop checkpoints and model risk evaluation built in. We are super energized about the pace of our AI adoption inside Equifax. We know that we are in the very early innings of our rollout. We are confident there is significantly more opportunity to borrow revenue and reduce costs as AI and in genic capabilities become fully embedded across Equifax. Now I'd like to turn it over to John to provide our third quarter and full year framework.

Thanks, Mark. Slide 15 provides specifics of our 2026 full year guidance. We are holding our full year 2026 financial guidance on a reported basis to be unchanged from our April guidance. On a constant currency basis, we raised our guidance consistent with our second quarter the impact of weakening FX on our full year results offset our 2Q. Our second quarter performance was stronger than our guidance driven by very good performance in both EWS and USIS diversified markets. Diversified March's revenue growth at the midpoint is expected to be up high single digits for the year. The U.S. mortgage market was slightly weaker than expected in the second quarter and has shown further weakening over the last several weeks as long-term interest rates have again increased. Our guidance reflects improved share performance in mortgage as well as continued good performance in diversified markets, offsetting the weakness in the U.S. mortgage market. U.S. mortgage revenue is expected to be up just above 20% with mortgage market originations weaker and down low single digits. For your perspective, as you determine your view of the 2026 U.S. mortgage market based on a review of Equifax data on mortgage home purchase issuances since early 2022. We estimate that there are over 16 million mortgages that were issued with an interest rate over $0.5 including almost $15 million with rates over 6% and over $9.5 million with rates over 6.5%. This provides a perspective on the pool of mortgages potentially available to refinance as mortgage rates change. business unit revenue growth rates and EBITDA or expectations are unchanged from our April guidance. This slide also includes additional detail on revenue growth rates and EBITDA margins excluding FICO mortgage score royalty pass-through revenue and expected BU revenue and EBITDA margins. We expect to deliver revenue growth of 7.2% to 8.4% excluding the impact of FICO mode royalties in 2026 within our long-term financial framework. And we expect to grow EBITDA margins, excluding the impact of FICO mortgage royalties by a strong 75 basis points, which is 25 points above our long-term framework. In 2026, we expect to deliver over $1 billion of free cash flow and a cash flow conversion of at least 100%. As we discussed in April, with EBITDA increasing to about $2.1 billion at the midpoint and strong free cash flow, this creates $1.5 billion in capital available in 2026 for M&A and return of cash to shareholders, while maintaining leverage at under 3x EBITDA. As referenced earlier, this provides the capability for us to complete the Circulo acquisition plan in 4Q '26, while still executing share repurchases in the second half of '26 although at lower levels than the $560 million and 3.1 million shares we repurchased in the first half of '26. Slide 16 provides the details of our 3Q '26 guidance. In 3Q '26, we expect total Equifax revenue to be between $1.68 billion and $1.71 billion, up almost 10% on a reported basis year-to-year at the midpoint. Constant dollar revenue growth at the midpoint is up almost 9.5%. Excluding the impact of FICO mortgage scores, 3Q 26 reported revenue is expected to be up about 7% at the midpoint. Diversified markets revenue is expected to be up mid-single digits on a constant currency basis and up sequentially from second quarter, principally due to stronger EWS diversified markets growth. U.S. mortgage revenue is expected to be up about 20%. EPS in 3Q 26 is expected to be $2.15 to $2.25 per share, about 8% versus $3.25 at the midpoint. Equifax 3Q '26 EBITDA dollars are expected to be $57 million to $564 million, up about 10% at the midpoint. EBITDA margins are expected to be about 32.8% at the midpoint of our guidance. And excluding the impact of FICO mortgage royalties, EBITDA margins in 3Q '26 would be 34.6% to 35% and up over 90 basis points at the midpoint from our 3Q '25 on the same basis. We believe that our full year and 3Q '26 guidance are centered at the midpoint of both our revenue and EPS guidance ranges. As a reminder, our guidance for 3Q '26 and fiscal year '26 assumes Equifax will calculate and sell FICO scores for all mortgage credit transactions, and there will be limited Vantage score revenue. As we move through 2026 and their additional clarity on Vantage conversion and the FICO direct license program, we will update our guidance to reflect the shift and opportunity for the mortgage industry, consumers and Equifax. Now I'd like to turn it back over to Mark.

Looking at Slide 17. Equifax had another strong quarter, executing very well against our EFX 2028 strategic priorities. The new Equifax is leveraging the Equifax Cloud, EFX.AI and proprietary data assets to accelerate innovation and help our customers grow. Our second quarter financial results are an excellent proof point of the broad-based Equifax operating model, including the strong from 20 basis points of EBITDA margin expansion in the quarter. We have strong momentum as we enter the second half of the year. EWS signed agreements principally of state agencies with a total ACV of about $300 million. We signed a highly accretive Círculo de Crédito acquisition and we doubled our AI for EFX productivity goal from $75 million to $150. Our strong execution and momentum in '26 sets us up for '27 and beyond. Given our strong free cash flow generation and cash conversion over 100% in 2026, we're also delivering on our commitment to return substantial excess free cash flow to shareholders. In the first half of the year, we returned $56 million to shareholders, repurchasing 3.1 million shares or about 2.5% of shares outstanding. In the second half, we can complete the circular acquisition and continued ship purchases, although at a slower pace than we saw in the first half, while maintaining a strong investment-grade balance sheet with leverage below 3x EBIT I'm energized about our broad-based performance, but even by energized about the future of the New Equifax. And with that, operator, let me open it up for questions.

[Operator Instructions] Our first question comes from the line of Jeff Meuler with Baird.

So you were obviously calling out the tougher Twin government year-over-year this quarter in advance on the true-ups and the comping of onboarding of the large contract. The bookings figure is kind of a new figure. Obviously, we have the context of the overall size of the business, but it sounds good. Can you just comment maybe on if gross retention rates are still stable and high and if pricing integrity is holding as we think of kind of using the new business to kind of build on the future revenue?

Yes, Jeff, thanks. We telegraphed, I think, in the April call that our deal pipeline government had been growing rapidly. I think we've been talking about that really for the last year and change since the new administration came into Washington and with the OB3 passing on July -- in July last year, we just saw a real uptick in momentum around commercial activity, and that's continued. And our deal pipeline continues to be 2x over last year, and we're starting to convert some of that pipeline. Some of it faster than we thought, but we know that there was real momentum, which we talked about really in February and again in April. So we were pleased with the $100 million of new wins. So these are new principally state contracts that hadn't been doing business with Equifax before or not in the last couple of years and then extensions and renewals of another $200 million. So great indicators of the real value of our solution in the marketplace, the commercial momentum in there around the value of our services be used. As you know, there's a huge TAM here. To your question around pricing and commercial terms and activity, really no change. We are continuing to have a really strong success in the government vertical. We've got a long runway for growth. We've got the right solution. As you know, we're investing in new products like the gig solution we launched late last year that we're having some traction on and then some of the new solutions we're starting to bring to market to address some of the new OB requirements around Medicaid and Snap that principally benefit 2027. So we remain quite bullish about the government vertical. We have talked in a couple of calls over the last year and change that -- in some cases, we're using subscription agreements versus transactional agreements with some of our new customers. That's been something that helps them with their budgets at the state level in particular. So that's been a positive for us. But we're quite enthusiastic and quite energized around the momentum in government and to land some large contracts. We thought it was meaningful to share those with you because they're really going to benefit principally 2027. So it gives us a great momentum as we move towards next year.

Very helpful. And then on the Vantage score only the 100 score only in mortgage lenders. I get it's only priced at all or at least through '27, so it wouldn't be big revenue dollars for you yet. But does that mean that those 100 are paying for Vantage score at this point? And can you contextualize if there's anyone sizable or what do they look like?

No, they're not sizable yet. All of the mortgage customers that we have, which is really every more customer are focused on Vantage because of significant cost savings. As you know, the FHFA is still gating the agency mortgages, a number of lenders that can be utilizing Vantage. We expect that to increase as time passes, meaning the lenders are all engaging with FHFA about their interest of accessing Vantage. So we expect that momentum to continue as we move into third quarter and into the second half. And as we pointed out in the prepared comments, we intend to keep our pricing at $1 in 2027 to really continue to drive that engagement with our customers, but also giving them visibility now that they can count on as an attractive scoring solution along with our credit file for their mortgage underwriting going forward. But just maybe summarizing 1 more time, there's a lot of momentum here. by the mortgage lenders, and we expect that activity to continue as we move into second half.

Our next question comes from the line of Toni Kaplan with Morgan Stanley.

I wanted to start with the government business also. You talked about some win backs in the presentation. And so I was hoping you could maybe expand on the opportunity that you see for those win backs and basically maybe thinking about 3Q for government, how are you looking on that, especially based on you have this really good pipeline, but maybe some of that isn't flowing into the growth rate as quickly?

Yes. Yes. So again, we were pleased, Toni, I hope you are, too, with the commercial momentum in government. It was above our expectations, but we knew it was coming when you got a deal pipeline that's up 2x year-over-year, we've got a lot of discipline around our commercial pipelines. It was just a matter of time when those convert from pipeline into contracts. You'll remember that you go back to July of 2024, the bid administration changed some of the Medicare cost savings. And I think we were clear with you really in the second half of '24 and into '25 that we were able to work with many of the states to resolve the challenges they had with their budgets with that kind of unexpected sharing that happened in 2024, where the states had to pick up incremental costs for the data that was used. And there were some states that couldn't manage it. And they had to turn our solution off. And I think you -- that's kind of well discussed best over the last year and change. and it was reflected in our P&L, we're winning back some of those states. And I think it's a great reflection of the value of the income and employment data that we deliver to social services at the state level, and there was a large 1 which you can see on the slide here that was included that's going to be on a run rate basis, net new revenue for us principally late in the year, but really in 2027 is where that will benefit. As I said in my comments earlier, that kind of $100 million of ACV from new relationships and win backs is principally benefiting 2027. And then, of course, there's another $200 million of renewals, which meaning it stays in our run rate, which we are very pleased with. So the commercial activity is strong, and we're really pleased with the momentum and really set up we have for 2027 in government. Again, as a reminder, you've got a business that's approaching $800 million of revenue in government and Workforce Solutions, but it's operating against a $5 billion TAM. And again, a reminder that the OB3 requirements that were put in place in the July bill that was signed last year, really go into effect late this year and in 2027, and we expect that to be a catalyst for growth, and you're seeing the $100 million is at least a piece of that which will be positive for us as we get into the new year in '27.

Great. And then I wanted to ask about the 1,200 lenders that are using Vantage score with FICO I guess, I know you're giving Vantage for free if someone is using FICO. So out of the 1,200, is there a way that you know that -- how many are testing? Or are they just getting it and hopefully, they're testing it and will convert it...

No, no, no, no. Now you should think about the 1,200 is all are testing their technology systems, their processes, their workflows as -- and we talked over the last year or so that this is a big change for the industry that's been using 1 credit score for 3 decades almost. So that technology and process flow change was important. That's why we made the decision last fall to offer a free Vantage score with ever repaid FICO score. So our customers could test their tech, their product as well as their other workflows. So you should think about and we think about that 1,200, meaning lots of mortgage lenders are really preparing to use Vantage. As a reminder, the FHFA in April, they're in spent, I think it was 22 or 23 lenders that were approved, and that's only 22 or 23, we would expect that to increase moving forward because those 1,200 lenders using that example, they all want to take advantage of the value, get their share of that $1 billion worth of cost savings that's available to them by using the Vantage Score. So we would expect that adoption to continue to grow as the FHFA opens up more lenders to be able to utilize the Vantage Score and the actual origination versus FICO.

Our next question comes from the line of Andrew Steinerman with JPMorgan.

This is Alex Hess on for Andrew. Just a couple of points of clarification. On the government ACV number, I think it was asked earlier, but what was the associated retention dynamic? Like Were there churn...

$100 million is all new business for us versus think about 2026, meaning still additive to our revenue and principally in '27. The $200 million is renewals of existing contracts that's in our revenue in '26.

Understood. So no churn of note. Then just switching to mortgage, mortgage revenues in USIS were up 60% in 1Q, up 40 in 2Q. Can you just sort of walk us through the bridge of that come down, if you will?

Sure. The biggest driver, obviously, is the mortgage market weakens, right? If you take a look at what occurred year-over-year, and we talked about that, we saw weakening as rates rise as we went through the second quarter. And also in the second quarter of last year, we started gaining share in prequel. So we had a little more difficult comp because we had picked up some share that we had, had in place in the first quarter of 2025. So those are 2 big drivers that are impacting why the overall growth rate is lower in the second quarter, year-over-year growth rate is lower in the second quarter versus the first.

Understood. And final clarification, please. you say Vantage score transactions were up roughly 3x to $2.2 million. How are you defining a transaction in this case for the quarter? So what is the transactions?

This is a delivery of a vantage score, right? So that's effectively what they are. Yes.

Our next question comes from the line of Shlomo Rosenbaum with Stifel.

Mark, can you talk a little bit more about the Twin indicator in the progress seeing in auto and credit card? Are you seeing more evidence of volume shifts? And just anything maybe quantitative that you can point to that, hey, this is -- this could be a longer-term game changer?

Yes. It's still earlier days in those verticals were further deployed, as you know, in mortgage because we launched that really last summer/fall when we launched it in mortgage, and we really only launched an auto car he loan in the early parts of 2026. The response from customers is super strong. They see real value the same value we talked about in the marketing funnel in a mortgage application process where you're really blind to the income or whether the applicant is working because you only have credit data historically, now the addition of twin indicator that shows that Mark's working and what my compensation was in the prior year, the last 12 months that I work for, in my case, Equifax is really valuable. It's the same case in an auto loan. An auto marketing funnel is quite similar. The auto dealer or the digital transaction auto, they're trying to figure out is this a that I'm going to be able to get to a closing auto loan and how can I differentiate from those that don't close versus the information that I'll have, including the income and employment data from Equifax with the Twin indicator really gives them leg up in managing their marketing funnel, same in a personal loan process that's typically digital, although some are physical, but the [indiscernible] digital same process. And then in card it just gives the ability to give a larger credit line, which typically will result in a higher take rate from the consumer. And with the addition of income, you can actually do a lower interest rate, which will drive kind of pipeline conversion. So we're energized about that rollout. There's not a lot of share shift happening yet, but a lot of really strong commercial discussions happening in those all card and P loan verticals. So we're energized about that momentum, and we'll continue to drive that engagement with our customers in the second half.

Okay. And then just shifting back to the Vantage Score discussion, FICO is reducing the cost of like the $100 to like $1 but putting in a really big success fee at the other end of the transaction. And given your experience with the mortgage market, do lenders look at that as a straight-through pass-through that they don't care about that something that a success fee at the other end is something that weighs on the consumer, and they actually do care about that. I'm just trying to understand, does that make their -- the $1 comparable? Or does it -- is it really still not comparable in the eyes of the people that are going to be buying this?

I think it's the latter. We don't here or see any traction on that. It's one that a success fee thing is something FICO has been talking about for about a year. There's nothing really happening in the marketplace on it. And I think the point you raised around the consumer is an excellent one. because the consumer, there's a RESPA regulation that's mortgage originations, it's legislation in the United States that mortgage originators have to follow it. And basically, it means that they have to treat the consumer fairly with regards to services that they purchase for them and then charge the consumer for. So the idea of charging that [indiscernible] $66 for a credit score, which is what FICO proposing with their closed loan pricing versus $1 with a Vantage Score or $10 with today's FICO score pricing just doesn't make a lot of sense, which is why there isn't a lot of traction there. And I know you know this but we don't see any path of where this really makes a lot of sense either commercially or a regulatory legislative legal standpoint and we just don't see any traction on it. So we're focused on really supporting our customers with the $1 Vantage. I think as we said earlier, we're going to continue that pricing in 2027 to give our customers visibility around how we're trying to support them in credit scoring and driving credit score competition. And we think that's going to help drive adoption conversion to Vantage in the mortgage space as we go through the second half and move into 2027.

Our next question comes from the line of Manav Patnaik with Barclays.

I just -- I guess, we're just looking for a little more help on the way government kind of flows through for the rest of the year and into '27. I mean the pipeline and the backlog, all that mix sense for the growth in '27, but I guess you've grown about 5% in the first half of this year. So just trying to appreciate how it ends and then how quickly all this new business rolls into in '27 as well?

The '27 new business rolls in quite quickly as I think we said, much of it's driven off some of the OB3 changes, but it's -- the $100 million of new business is 2027 ACV run rate would be principally in that run rate early in 2027.

Yes. In terms of second half, we're expecting government to return back to growth, and we'll start to see some of the benefits, a small amount from these new contracts start to flow through. So again, the wins, as Mark said, are a really strong indicator of the strength of the solution and how we think it's going to drive growth as we get not so much through the back half of this year, although we will see growth in the back half of this year, but really as you get into 2027 and beyond.

And sorry, when you mean return to growth, are we saying similar to the 5% in the first half or less?

We didn't give us -- we haven't given a specific number, but you're going to start -- you'll see government growth again as we go through the second half.

Okay. Got it. And then, John, similarly on the mortgage inquiry assumption, I think low singles technically was unchanged. So just trying to appreciate if there's a range within which you want to guide us to on the low single digits. And I think you mentioned you offset that with share gains. Is that correct? Or did I miss or read that incorrectly?

So I think you're talking about originations. And yes, we continue to expect to see originations to be down low single digits. Obviously, that's a range. And effectively, we're indicating we're going to be lower in the range of low single digits than we indicated before. and we do expect to continue to win share gains principally in soft holes as we go through the rest of this year. We think the team is making great progress, Mark answered a question earlier about Twin indicator and the progress we're making there, and that's really driving the benefit.

But said differently, Manav, I want to make sure that we're getting the right response to you on the mortgage market. It definitely weakened from April as rates continue to stay high and actually increased a bit in May and June. And we expect that to continue. It's hard to see that what's happening in the Middle East is going to be resolved and then the inflation is going to come down and then rates are going to come down. So our guide in the second half is kind of at the very low end of that low single-digit kind of market outlook for the second half.

Our next question comes from the line of Faiza Alwy with Deutsche Bank.

I first wanted to ask about talent. You see really strong growth there in the quarter. And I'm curious is that sustainable sort of what's driving that growth?

Well, we saw very good growth in Talent in both the first and the second quarter, and they've an outstanding job both of continuing to grow penetration in VOE and also verification of employment, but also to continue to drive penetration in education. And then the other incarceration type of activities that we're also able to provide data on. So really good performance by the team, continuing to expand their presence and grow their penetration across background screeners generally. And we do expect them to consistently outperform the underlying hiring market, and we've obviously done that to a very wide degree in the first 2 quarters of this year. I can't tell you that they're going to grow at this rate consistently going forward because obviously outgrowing the market by the amount we did in the second quarter is larger than our long-term guidance, but we expect them to continue to perform well and consistent with the strong outperformance relative to the market that we've indicated we should deliver long term.

Okay. Great. And then just a follow-up on the government vertical. So I think you talked about flat growth in the second quarter and it ended up being a little bit weaker than what you had indicated. So I'm curious what led to that? And I guess, relatedly, I'm assuming that it has to do with the usage. And so as you're signing these new contracts, are these all fixed subscription-based contracts? Or is there a usage element to this where you could have upside, downside based on what type of usage or hits you end up getting?

Yes. So in terms of the specific performance in the second quarter, the team, as Mark said, performed extremely well in signing new agreements and renewing agreements. The timing of those is sometimes hard to predict and some agreements that we had expected that would close in the quarter actually code just after the quarter ended, and it impacted some of the revenue delivery that would have occurred in the quarter. And that's really the big driver of what happened in the second quarter relative to our expectations, it's not material on a go-forward basis for the business. Again, they performed extremely well in signing new agreements. As Mark already mentioned, we are seeing an increase in the percentage of time that customers want to go to subscriptions because it makes it easier for them to budget. But not all contracts certainly are for subscriptions. We still have a significant number of contracts that are signed that are usage-based. And you'll continue to see a mix of that, although we would expect to see probably the mix of contracts that are subscription-based to grow over time.

Our next question comes from the line of Andrew Nicholas with William Blair.

I wanted to circle back to the AI cost savings that you increased this quarter, obviously only been a couple of months since the $75 million number. So I'm just curious kind of what has specifically changed? Or what are you most kind of excited about or incrementally excited about versus last quarter? And relatedly, how much, if anything, of those savings are already in the expense base or the run rate now?

Yes. So back in February, we put out the $75 million of savings from AI. And you may remember, we talked about that being principally from our operations team. Think about our call centers and paper processing centers, which are a meaningful part of our cost structure. That was where we started with AI deployment. In that operation, we've had really strong success of accelerating some of the AI agent deployment, we've got AI agents starting to take calls. We've got AI agents really managing a lot of the massive paper that we bring into the operation. So that pace of deployment and pace of productivity has really just moved rapidly. So that's a piece of the increase from $75 million to $150 million. And then we also said to you that we've been deploying AI capabilities across the rest of Equifax. Technology is a very large part of our cost structure and CapEx structure. We've had really strong momentum in deploying AI capabilities for coking or code development, where we have large portions of our code developed now being done by agents and managed by our team, the QC elements of that. So that's been moving very, very rapidly, and that's a piece of that increase from $75 million to $100 million. And then in kind of G&A functions when you think about finance, legal, HR, we've also seen great deployment there in legal, finance, HR are seeing productivity opportunities there. So we thought time was right to increase it from $75 million to $150 million. As stated, it's between this year and '27 and '28. So it's multiyear in nature. You're seeing in 2026, a piece of that benefit in our performance, which is extremely strong. If you look at the margin performance for the quarter, we were up 120 basis points. That's versus our normal kind of 50 basis operating leverage that we get from our 7% to 10% organic revenue growth, I think, 7% in the quarter. So you're seeing it was AI, productivity and cost savings benefits show up in '26. And we wanted to give some visibility that it's moving quite rapidly. AI is real at Equifax for sure. We've been talking for the last couple of years around how AI is changing the kind of product scores and models we bring to market. Our investments that we're making in our AI technology or explainable AI technology to really advance our product innovation. We talked about in the call that over 50% of our products that we delivered in the quarter are now include AI capabilities or agents inside of them. And then back to the point of your question, really late last year, we started -- as we completed the cloud really started deploying AI inside Equifax. We call it AI for EFX. That's our kind of project team focus inside of the company. And as I said, operations was the first focus, and now we're really seeing great momentum in tech in the rest of the company. So we're advised to see those benefits will come forward not only this year but also in '27 and '28.

And just specific. So on the $2 billion gross spend, labor spending, just so you have a perspective about is expense, about 20% is capital, so the savings would impact both expense and capital. And as Mark said, the savings for 2026 are in the guide.

Got it. That's helpful. And maybe just -- I'll stick with the team. I appreciate the operating expense efficiency. I appreciate kind of the embedding of AI and a lot of your products -- but I think I asked a similar question last quarter. I'm just curious, since it's all moving pretty quickly, have you noticed a change on the demand side? Like are your clients actively pursuing your data on a more frequent basis? Are they particularly interested in AI-infused products. Just wondering if kind of the maturation of the cycle at the lender level is impacting the way that they demand your data, how they get it and how often they use it?

Yes. It's all of the above. And I think you raised a really important point that every 1 of our customers are doing versions of what we're doing. Meaning, they're changing their operations, they're embedding AI in their workflows. And there's different pace of implementation with every customer. Some more advanced, some moving quickly, et cetera. I would make the point that like this is changing rapidly. And I think the productivity piece that we talked about inside of Equifax of just in a 6-month period, our outlook for the benefits from AI in our operations, I think operations tech and our support functions doubling in 6 months. That's kind of the pace of adoption is really quite remarkable to me. From a customer perspective, there's no question that they're becoming more AI-enabled and how they want to take access our solutions is really driving our top line and really driving our competitive advantages, our ability to deliver higher-performing solutions using our AI capabilities. So think about a score that delivers higher performance. And we've talked about that before. And whether you're AI evolved or not, if you're a customer and you have the ability to approve more consumers at a lower loss rate because you've got a higher performing score that Equifax is delivering, which is powered by AI and generally includes a lot more data elements, which is part of the foundation that we have, meaning we have more differentiated data. That's a solution they want to buy, whether they're AI-enabled or not. So I think that's kind of the commercial activity is we are investing to have higher-performing scores models and products. And remember, what we principally sell to our customers is ROI. So that's kind of the forefront of where we've been investing for the last couple of years in products. And then the kind of the enabler that comes with that is the investments we're making in Ignite our other enabling tools that our customers use to access our tools, AI enabling those with agents in them that make them conversation with our customers. That's kind of another year around the engagement with our customers. But it starts with performance. Are you able to deliver a product that's going to deliver more to our customers. And that's where our AI focus is in our product models and scores.

And we are seeing rapid adoption, some in pilots, some more extensively of AI Advisor, right? And that it's our most advanced solution, and customers are starting to utilize it already.

Our next question comes from the line of Ashish Sabadra with RBC Capital Markets.

If you don't mind, I'll ask another question on government. Historically, except for last year, government revenues are sequentially flat from 2Q to 3Q. Is that a similar cadence that we should expect before we see a step-up in a sequential revenue into 4Q?

Yes. So again, I think we were asked earlier, do we expect to see growth in the second half in government, and we do, right? So -- and I think that's probably as far as we're going to go on specific guidance on government or specific guidance by line of business. But we're expecting to see growth in government in the second half. And as Mark said, with the $100 million new contracts and $200 million of renewals at some of which include expansions, we would expect to see accelerating growth as we go into next year.

That's very helpful color. And maybe just on the diversified market, the guidance for 3Q was up midsole digit. That's a modest slowdown compared to 2Q. I was just wondering is that just conservatism? Any particular puts and takes that you can call out as we think about the diversified market growth for the rest of the year?

No, I think diversified markets, we're expecting to be pretty much consistent with what we saw in the second quarter, right? So I think we're very happy with the performance we saw in diversified markets in the second quarter. We saw very good performance in particularly USIS as their diversified markets growth improved by 300 basis points. We're expecting nice performance by USIS again. We'll see good improvement, obviously, as government growth improves meaningfully as we go into the second half, and we're expecting to see a better growth out of international as well. So no, I think we're expecting to see we're expecting to see good performance in the third quarter in diversified markets and at least consistent with what we saw in this quarter.

Our next question comes from the line of Jason Haas with Wells Fargo.

When you give us the ACV bookings for government of $100 million, are we supposed to take that and divide that by the $800 million of government revenue to like imply like, I don't know, it's low double digit growth for government for 2027. Is that like the right framework to show that you're confident getting back to that like low double-digit plus growth for government next year?

Yes. We're not obviously giving guidance for 2027, yet, we'll do that at the right time early next year. We thought it was prudent given the -- we told you on our last call in April that we saw the pipeline over the last year grew dramatically, which we expected, but it was stronger than we anticipated and having this meaningful pipeline conversion we thought it was meaningful to share with you. So we did that this morning. The $200 million of renewals are in the kind of base run rate. There are some expansions in there. The $100 million is new revenue versus 2026. There will be some of that, a small amount in the skin half, but it will be principally in 2027, which is really how we thought about government unfolding as we move into and beyond. We still have a strong degree of confidence and that's actually reinforced by the commercial pipeline and by the pipeline conversion of the 100 and the 200 million when we think about government in '27 and beyond, there's just a long runway to grow into that big $5 billion TAM, and we're seeing some real success is reflected in the $100 million of new business.