易速傳真 (EFX) 2022 Q3 法說會逐字稿

Greetings, and welcome to the Equifax Third Quarter 2022 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the call over to Trevor Burns, Senior Vice President, Head of Corporate Investor Relations. Thank you. You may begin.

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 IR website, www.investor.equifax.com.

During the call, we'll be making reference to certain materials that can also be found in the Presentations section of the News and Events tab at our IR website. These materials are labeled Q3 2022 Earnings Conference Call.

Also, we'll be making certain forward-looking statements, including fourth quarter and full year 2022 guidance to help you understand Equifax and its business environments. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from our expectations. Certain risk factors that may impact our business are set forth in filings with the SEC, including our 2021 Form 10-K and subsequent filings.

We will also be referring to certain non-GAAP financial measures, including adjusted EPS attributable to Equifax and adjusted EBITDA, which will be adjusted for certain items that affect the comparability of our underlying operational performance. 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 of the Financial Info tab at our IR website.

Now I'd like to turn it over to Mark, beginning on Slide 4.

Thanks, Trevor. Equifax delivered another very solid quarter with continued execution against our EFX 2025 strategic priorities in a challenging economic environment. Third quarter revenue of $1.244 billion was up 2% or 4% in constant currency and was above the high end of our guidance, driven by strong nonmortgage revenue growth in the quarter. This strong revenue performance was well above our July framework and delivered, despite a more negative FX environment than we expected, which had 200 basis points or $29 million was a $5 million or about 50 basis point greater headwind for FX than we expected when we put out July guidance.

Adjusted EPS of $1.73 per share was also stronger than our July guidance. We are continuing to significantly outperform our underlying markets as we navigate the challenging economic environment and mortgage market decline. Our global nonmortgage businesses, which now represent over 78% of total Equifax revenue, were very strong with 20% total and 13% organic non-mortgage constant currency dollar revenue growth, stronger than we expected when we provided guidance in July and stronger than our 8% to 12% long-term growth framework.

We're now tracking to 20% nonmortgage constant dollar growth in 2022, which is up about 100 basis points from our July guidance. The outperformance was again led by outstanding performance at Workforce Solutions that delivered 40% total and 20% organic non-mortgage revenue growth.

USIS B2B non-mortgage grew 9% online and 5% total, which is about consistent with the second quarter, but weaker than we expected. International delivered a record quarter, up a very strong 17% constant dollar growth and 15% organic constant dollar growth, well above our expectations.

Equifax total mortgage revenue was down 30%, about as expected, and outperformed the underlying market decline by over 10 points from pricing, new twin records, penetration, system and system integrations and new products. The U.S. mortgage market, as expected, weakened substantially in the third quarter with originations estimated at down 50% in the quarter, which was about 9 points weaker than our July guidance.

As a reminder, Workforce Solutions mortgage revenue is more closely tied to originations. USIS mortgage credit inquiries were down 41% in the quarter and better than our expectations from increased shopping activity despite the weaker-than-expected mortgage originations. We're continuing to see higher-than-normal levels of shopping, which continued throughout the quarter and tends to benefit USIS credit file [pulls]. Combined, the negative mortgage market impact on Equifax was about as expected, as the more negative market impact from originations on EWS was offset by the less negative impact on USIS from increased shopping activity.

We saw a continued weakening of the mortgage market as we move through September into the first few weeks of October as mortgage rates continue to rise to their highest level since 2008. We now expect mortgage originations to decline over 60% in the fourth quarter versus our July framework of 48% and USIS credit inquiries to decline over 50% versus our July guidance of 46%. John will talk about our updated mortgage framework in a minute.

Third quarter adjusted EBITDA totaled $405 million and was flat compared to last year. Adjusted EBITDA margins of 32.5% were slightly below our expectations for the quarter, principally due to higher sales and marketing expenses, driven by our outperformance in non-mortgage verticals. John will walk you through our margin performance in the third quarter and expectations for fourth quarter later in the presentation.

We continue to make significant progress executing the EFX cloud data and technology transformation. We're now approaching 70% of North America and 60% of total EFX revenue being delivered from the new EFX cloud. Our focus for the remainder of '22 and 2023 is accelerating full customer migrations in North America to enable decommissioning of our applications in data centers.

Our new EFX cloud infrastructure is delivering always-on capabilities and faster new product innovation with integrated data sets, faster data delivery and industry-leading enterprise-level security. We're convinced that our EFX Cloud and single data fabric will provide a competitive advantage to Equifax for years to come.

We're in the early days of leveraging our new EFX cloud infrastructure in single data fabric and are seeing acceleration of innovation and new product rollouts. Our new Product Vitality Index of 14% in the quarter is a record and over 500 basis points improvement from our 9% Vitality Index last year and well above our 10% long-term goal for Vitality.

As a reminder, our Vitality Index is the percentage of revenue derived from new products launched in the past 3 years. Our strong momentum on NPI rollouts, leveraging the new EFX Cloud, allowed us to raise our full year Vitality Index outlook for 2022 for the second time this year from 11% to 13%, which is up 300 basis points from our long-term framework and from the framework we started earlier this year. This strong NPI performance gives us momentum into 2023 as most new products reached commercial maturity in years 2 and 3.

In third quarter, we continued to execute our bolt-on acquisition strategy, completing 2 acquisitions, LawLogix, which will further strengthen Workforce Solutions' onboarding and I-9 Solutions; and Midigator, which will strengthen Kount and broaden our identity and fraud franchise. These are our 11th and 12th bolt-on acquisitions since January 2021 and aligned with our M&A strategy to strengthen Workforce Solutions, our largest and fastest-growing business, add unique and differentiated data and expand in the fast-growing identity and fraud market.

Bolt-on acquisitions that broaden strength in Equifax are strong levers for future growth and are central to our long-term growth framework to add 100 to 200 basis points annually to our revenue growth from strategic bolt-on M&A. Our guidance for 2022 revenue of just under $5.1 billion is essentially unchanged from the framework we provided in July. With third quarter revenue -- third quarter revenue was stronger than our July guidance by about $25 million, our current guidance reflects a decline in fourth quarter from our prior implied view by about $25 million from the weaker mortgage market in FX.

The continued weakening in the U.S. mortgage market is negatively impacting fourth quarter revenue by about $45 million, and negative FX is impacting revenue in the fourth quarter by about $15 million. Partially offsetting the $60 million negative impact is stronger non-mortgage revenue and Workforce Solutions and International and the acquired revenue from LawLogix and Midigator.

The strong 20% constant dollar non-mortgage growth in 2022 gives us great momentum as we look to 2023 and a bottoming of the mortgage market in the coming quarters. Our guidance for adjusted EPS of $7.54 a share is down about $0.13 from the midpoint of our July guidance. As our third quarter adjusted EPS was about $0.08 per share stronger than our July guidance, this results in a reduction in the fourth quarter from our implied EPS of about $0.21 a share, about $33 million in pretax income.

The most significant drivers of this reduction in EPS are, first, the $45 million reduction in higher-margin fourth quarter mortgage revenue due to the weakening mortgage market, which more than drives this level of reduction in pretax income; and second, higher interest expense. These negative impacts were partially offset by stronger non-mortgage growth and the addition of acquisition-related non-mortgage revenue from LawLogix and Midigator. And again, John will provide details on fourth quarter and full year guidance shortly.

We were very pleased with our continued very strong constant dollar non-mortgage revenue growth of 20% total and 13% organic, which is well above our 8% to 12% long-term framework, and our ability to outperform the underlying mortgage market, as shown by our third quarter results.

Turning to Slide 5. A critical delivery of our strategic priorities is the continued expansion of our addressable market, data sources and revenue. Equifax is much more than a credit bureau today, and our addressable TAM has expanded 3x to over $45 billion. Over the past several years, we've expanded into faster-growing markets outside financial services and mortgage. These faster-growing markets include identity and fraud, talent management, government and employer services verticals. This has accelerated our growth outside of financial services and mortgage and increased the resiliency and diversity of EFX by broadening our revenue streams, including markets that are expected to deliver future growth at levels above our traditional markets.

As shown on the slide, since 2019, we've grown our total non-mortgage business by over $1.1 billion with a combined CAGR since 2019 of 12%, which is at the high end of our 8% to 12% long-term growth framework. In 2022, we expect non-mortgage revenue to represent over 75% of total Equifax revenue. In the fourth quarter, it will be well over 80%.

Also since 2019, we've grown our noncredit bureau-based revenues by $1.5 billion, or a very strong CAGR of about 30%, to over half of Equifax total revenue. This is led by our $2.4 billion Workforce Solutions business, which is up $1.4 billion since 2019 at a very strong CAGR of about 35%, but also supported by strong double-digit growth in Identity & Fraud from Kount and Midigator as well as strong growth in debt services.

We've also completed 12 acquisitions since 2021 that are all in the non-mortgage space and are delivering strong double-digit growth. Workforce Solutions' strong above-market growth in verticals like employer solutions, talent and government, our expansion into identity and fraud and our focus on new product investments, coupled with our bolt-on acquisitions focused on non-mortgage priorities, will continue to accelerate the growth of these noncredit and non-mortgage revenue streams at Equifax.

Turning to Slide 6. In third quarter, Equifax core revenue growth, the green section of the bars, grew a very strong 16% reported and 19% in constant currency, which was consistent with our July guidance. Constant dollar core revenue -- organic revenue growth of 14% in the quarter was also substantially above the organic growth in our long-term financial framework of 7% to 10%. Non-mortgage constant dollar organic revenue growth of 13% drove 3/4 of the organic constant dollar core growth in the quarter.

Core mortgage outperformance, predominantly in EWS, drove the remainder of organic constant dollar revenue growth. We continue to expect strong core revenue growth of 17% total and 19% in constant currency in 2022, which again is well above our 8% to 12% long-term growth framework, and 300 basis points higher than the core growth for 2022 provided last November at our Investor Day.

This strong constant currency growth is driven by stronger non-mortgage revenue growth of 20% total and 13% organic due to broad-based performance across Workforce Solutions and strength in International. As detailed on Slide 7, U.S. mortgage revenue was down about 30% in the quarter. This compares to third quarter mortgage originations of down 57%, as estimated by mortgage industry third parties and USIS credit inquiries that declined 41%. As a reminder, in a rising rate environment, we believe consumers tend to rate shop more frequently, creating a favorable variance between mortgage credit inquiries and originations that benefits USIS credit file pulls from shopping.

In the third quarter, we saw mortgage credit inquiries perform in the order of 16 points better than the change in the estimated mortgage originations. USIS revenue declined 35% in the quarter, about 6 points better than credit inquiries. However, TWN income and employment is typically pooled later in the mortgage application process and at closing. As a result, EWS does not benefit as much from the upfront shopping trend that occurs in a rising rate environment, as TWN increase are more closely aligned with completed mortgage originations. TWN mortgage revenue declined 28% in the quarter.

EWS core mortgage revenue growth, that was up a strong 14% in the quarter, and when adjusting for the 16-point negative spread between mortgage inquiries and originations, was up a very strong 30% and consistent with prior quarters. Overall, Equifax mortgage revenue outperformed USIS credit inquiries by 11% or 11 points in the quarter and outperformed estimated mortgage originations by a strong 27 points in the quarter. This reflects the strength of our U.S. enterprise mortgage sales and operations team that bring the combined USIS and EWS products and solutions to market in this challenging mortgage macro.

Turning to Slide 8. Workforce Solutions delivered another outstanding quarter with 32% core revenue growth, driven by very strong non-mortgage non-UC and ERC growth of 62%. As a reminder, non-mortgage revenue is now about 70% of Workforce Solutions and a big Workforce Solutions' driver for future growth from their fast-growing talent and government verticals. Workforce Solutions' above-market 32% core growth in the quarter continues to be driven by very strong performance on TWN record additions, new products and pricing, system-to-system integrations and greater penetration. Their market outperformance is very strong, particularly in a period of declining market transaction volumes for mortgage.

We expect to see continued very strong core growth in fourth quarter from Workforce Solutions. Rudy Ploder and the Workforce Solutions' team continued outstanding execution across their key growth drivers, detailed on the right-hand side of the slide.

Over the past 12 months, we've signed 10 new agreements with payroll processors in the U.S., including 3 new agreements in the third quarter that will be added to the TWN database over the next several quarters. These new partnerships, along with continued growth in our direct contributors through our Employer Services business, are delivering continued strong growth in the TWN database with current records up 16%, reaching 146 million current records in the third quarter. Their 111 million unique individuals in TWN deliver very high hit rates and represent over 2/3 of the 165 million U.S. nonfarm payroll.

And as a reminder, about 50% of our TWN records are contributed directly from individual employers that we have long relationships with. The remaining are contributed through partnerships principally with payroll companies.

In addition to traditional W-2 wage earners, we estimate there are approximately 30 million to 40 million gig workers and 20 million to 30 million pensioners in the U.S., who will also bring valuable income and employment insights to lenders, background screeners and government agencies. We recently signed an agreement with a payroll processor to gain access to their pension or records, and we have an active pipeline with other companies to acquire new pension records to the TWN database.

We're in the very early innings of collecting records on these 50 million to 70 million gig and pensioner records, but expect to make significant progress as we move through 2023 and beyond. TWN record additions will continue to drive Workforce Solutions' revenue going forward from higher hit rates, and we have the ability to double our records in the future to the roughly 220 million total W-2 gig and pension recipients in the United States. This is an incredibly powerful lever for future growth at Workforce Solutions and a key driver of their 13% to 15% long-term growth outlook.

Turning to Slide 9 with some more detail in Workforce Solutions. They really had an exceptional quarter, delivering revenue of $559 million. Revenue was up a strong 9% with overall organic revenue growth of about flat overall despite the significant 28% decline in EWS mortgage revenue in the quarter. Non-mortgage revenue was up a very strong 40% and is now 70% of Workforce Solutions.

Verification Services revenue of $455 million was up 13%, more than offsetting the 57% decline in estimated mortgage originations. Non-mortgage verticals now represent over 60% of Verifier revenue and delivered 72% total and 30% organic growth.

The Insights business, which we acquired late last year, continues to perform very well, driven by strong performance in their largest verticals, Risk Intelligence and Justice. Risk Intelligence helps background screeners analyze people's risks via background checks and continuous monitoring. Justice Intelligence helps channel partners assist law enforcement agencies in their investigations.

Talent and Government Solutions, which now represent almost 40% of Verifier non-mortgage, had outstanding quarters. Talent Solutions delivered 110% total and over 50% organic growth in the quarter from record growth, pricing and strong new product rollouts.

We also saw a strong growth in the government vertical, with revenue up 90% total and 44% organic, driven by strong penetration at the state level. The EWS government vertical is benefiting from penetration, pricing, record growth and leveraging a strong product portfolio, including Insights data at the federal, state and local level across the United States.

The continued expansion of Workforce Solutions' Data Hub through our new total Verifier solution is driving very strong growth in the fast-growing 5 billion talent and 2 billion government markets. Our new -- our TotalVerify solution is enabling our customers to access multidata solutions derived from an unparalleled set of differentiated information assets spanning employment, income, education, incarceration, health credentialing and identity.

As of the third quarter, EWS has over 580 million total records in the TWN database, both current and historic, that provide both current and previous employment information on individuals, allowing us to increasingly provide an instant digital resume or employment verification on both current and historical job histories.

The non-mortgage EWS Consumer Lending business, principally in card, auto and consumer finance and led by our U.S. enterprise sales teams, also showed good growth with revenue up 18% in the quarter. Employer Services revenue of $104 million was down 7% due to the expected decline in our unemployment claims and employee retention credit businesses. We expected total UC and ERC revenue to be down about 20% in 2022, driven by the lower jobless claims and ERC transactions as the COVID federal tax program runs out.

Employer Services revenue, excluding UC and ERC, was up a strong 29% in the quarter, driven by broad-based double-digit growth in our I-9 and onboarding, healthy FX and our tax credit businesses. We are increasingly seeing the ability to deliver bundled packages of our differentiated Employer Services solutions to customers.

In the third quarter, we signed a large multiyear agreement to provide a broad suite of EWS solutions, including I-9, W-4, tax services and other HR solutions, to a large multinational company with annual guaranteed Workforce Solutions revenues approaching $20 million with total annual revenue opportunities with the agreement of over $30 million.

Workforce Solutions' adjusted EBITDA margins of 29.5% were lower than our July guidance and the over 50% margins we expect from EWS on an ongoing basis. The main drivers of the lower-than-expected margin was negative mix due to lower mortgage revenue; higher sales and marketing costs, principally due to very strong non-mortgage revenue growth; and costs to add the new TWN contributors I talked about earlier.

The decline in EBITDA margins versus last year was driven by similar factors, including negative product margin mix as higher-margin mortgage declined as a percentage of revenue and was replaced with Verifier non-mortgage revenue and revenue from the most recent acquisitions, which, at this point, have lower margins than Verifier overall.

And second, increased marketing and sales expense from both investments to drive NPI and driven by our extremely strong nonmortgage sales and record acquisition performance. And then last, as I mentioned, costs related to onboarding new TWN contributors.

We expect these same factors to impact margin -- sorry, EWS margins in fourth quarter as we see further declines in mortgage revenue, with EWS EBITDA margins of about 48.5% in fourth quarter. As we look to 2023, we expect to see EWS margins return to above 50% as product and pricing initiatives expand profitability, and we see additional savings from their cloud transformation.

The strength of EWS and uniqueness and value of their TWN income and employment data in Employer Services businesses were clear again in the third quarter. Rudy Ploder and the EWS team delivered another above-market quarter with 9% revenue growth and 32% core growth and are well-positioned to deliver a very strong 2022 and continue above-market growth in the future.

As shown on Slide 10, USIS revenue of about $397 million was down 9% and slightly better than our expectations. USIS mortgage revenue was down about 35% and was also better than expected with a 41% decline in credit inquiries versus the 46% we had expected. At $97 million, mortgage revenue is now about 25% of total USIS revenue.

B2B non-mortgage revenue was $250 million, which represents over 60% of total USIS revenue, and was up 5% with organic revenue growth of 3%. This was below the low end of the 6% to 7% growth we discussed in July. Importantly, B2B non-mortgage online revenue growth remained strong at 9% total and 6% organic, a sign that lenders continue to originate. During the quarter, we saw double-digit growth in commercial and telco and solid single-digit growth across financial services, auto and insurance, offset by a decline in our direct-to-consumer business.

Kount, which provides unique identity and fraud solutions, continues to execute very well, developing joint solutions leveraging both Kount and Equifax data, with 2022 global revenue expected to exceed 20%. The recent acquisition of Midigator will continue to strengthen our Identity & Fraud franchise and growth.

The weakness relative to expectations in the quarter was again in Financial Marketing Services, our B2B offline business, that had revenue of $51 million, down 8% and lower than our expectations. As we discussed in previous quarters, the principal driver of decline in FMS services was our fraud and data services vertical, where we provide header data principally to providers of Identity & Fraud Services and, to a much lesser extent, in our Risk Management and Portfolio Review business where we provide data and analytical services to financial institutions to evaluate the health of their existing portfolios or, in some cases, portfolios they're acquiring.

As we discussed in prior quarters, we expect the declines in these businesses to continue through the fourth quarter, with improvements in 2023 as we introduce new products, leveraging unique and differentiated data assets available through the new Equifax single data fabric.

We also saw a decline in batch marketing services where we provide data and decisioning, principally to financial institutions for pre screeners as well as delivering our IXI data for marketing activities as some customers cut back on originations. We had seen high single-digit growth in marketing services in the first half. So this is the first signs of any pullback in marketing.

For fourth quarter B2B non-mortgage, we expect online to continue to be strong with growth rates above third quarter from commercial execution as well as progress in pricing and new product rollouts that overcome a somewhat slower growth in financial services. We expect financial marketing services to continue to be weak, down over 10%, with declines across header risk and marketing continuing in the fourth quarter. Overall, for B2B non-mortgage, we expect fourth quarter organic revenue growth to be about the levels we saw in the third quarter.

USIS Consumer Solutions business had revenue of $50 million, down 1% in the quarter but up 2% sequentially. We expect fourth quarter revenue to grow again sequentially with positive growth rates in the fourth quarter. USIS adjusted EBITDA margins were 34.1% in the quarter and slightly below our expectations, principally due to continued investments in sales resources focused on non-mortgage growth.

International revenue, as shown on Slide 11, was up $288 million, up a very strong 17% on a local currency basis and 15% on a nonorganic constant currency basis. We're seeing broad-based execution from our International businesses. Europe local currency revenue was up 24%, principally driven by over 75% growth in our U.K. debt management business. We've seen significant increases in debt placements from the U.K. government over the past several quarters.

Our European CRA revenue accelerated in the third quarter with revenue up 7% and above our expectations, driven by broad-based product execution across our B2B online products and Identity & Fraud, slightly offset by lower consumer revenue. Asia Pacific, which is principally our Australia and New Zealand business, delivered local currency revenue of 6%, driven by strong growth in our Commercial and Identity & Fraud businesses and, to a lesser extent, growth in Consumer.

Latin America local currency revenue was up a strong 34% driven by double-digit growth in Chile, Argentina, Uruguay, Paraguay, Ecuador in Central America. The team's new product introductions over the past 3 years and pricing actions continue to drive strong growth across all product lines. This is the third consecutive quarter of double-digit growth for Latin America.

Canada local currency revenue was up 12% and above our expectations. We saw growth in commercial, Analytics Solutions, decisioning and Identity & Fraud revenue, which was partially offset by some onetime revenue in the quarter from mortgage volume declines. Consumer revenue also returned to growth during the quarter. We expect mid-single-digit revenue growth from Canada in the fourth quarter. International adjusted EBITDA margins of 26.8% were down 200 basis point -- down 210 basis points sequentially and above our expectations given strong revenue growth.

EBITDA margins were up slightly versus last year, but up about 150 basis points adjusting for the loss of equity income from the Russian joint venture that we sold. As shown on Slide 12, we had a very strong new product quarter with Vitality Index at 14%, which is our highest Vitality Index ever, and it was over 500 basis points above last year's results and 400 basis points above our 10% long-term growth framework for Vitality.

We delivered about 80 new products so far in 2022, leveraging our new EFX cloud capabilities. We now expect to deliver a Vitality Index of 13% in 2022, up 200 basis points from our previous guide of 11%, which equates to over $650 million of new product revenue in the year. The growth in our 2022 Vitality Index is principally coming from Workforce Solutions, which is encouraging, as they are further along in completing their cloud transformation.

It's positive to see the strong NPI results in the early innings of the Equifax cloud. New products leveraging our differentiated data, our new Equifax cloud capabilities and single data fabric are central to our long-term growth framework and driving future Equifax top line growth. This week at the Annual Mortgage Bankers Association Conference, we will showcase a new offering that delivers telecommunications, PayTV and utilities attributes, alongside the traditional mortgage credit report, to help streamline the mortgage underwriting process.

Delivering telco, PayTV and utilities attributes to mortgage lenders alongside the traditional credit reports will also help expand access to credit and help create greater homeownership opportunities for U.S. consumers. The use of these expanded data insights can also provide visibility to millions of credit and visible consumers, those without traditional credit files and enhance the financial profiles of thin, young and unscorable consumers as they complete their first mortgage applications.

This new offering, leveraging the Equifax cloud, will provide powerful new insights that help to automate, save time and resources and streamline the first mortgage process for every applicant, creating more opportunity for consumers to secure alone. And Equifax is the first and only in the industry to offer these unique insights to the mortgage industry.

Turning to Slide 13. We outlined the 12 strategic bolt-on acquisitions we completed since January 2021. You expect we'll deliver over $450 million of principally non-mortgage run rate revenue. As you know, our 8% to 12% long-term growth framework includes 1% to 2% of annual revenue growth from strategic bolt-on M&A, aligned around our 3 strategic priorities: first, expanding and strengthening Workforce Solutions, our fastest-growing and most profitable business; second, building out our Identity & Fraud capabilities; and third, adding unique data assets.

And with that, I'll turn it over to John to provide more details on the mortgage market and our fourth quarter and full year 2022 guidance.

Thanks, Mark. As Mark mentioned and as shown on Slide 14, our guidance reflects an expectation that the decline in the U.S. mortgage market will steepen in the fourth quarter with mortgage originations declining over 60% and mortgage credit inquiries declining over 50%. This is a significant reduction from our expectations in July. And as Mark referenced earlier, this expectation of a further weakening of the mortgage market negatively impacts 4Q revenue by almost $45 million.

3Q mortgage revenue was 21.9% of total Equifax revenues compared to 29.5% and 24.7% in 1Q '22 and 2Q '22, respectively. In 4Q, we expect mortgage revenue to be about 16% of total Equifax revenues. The rapidly changing and unprecedented macro environment makes forecasting the impacts on the U.S. mortgage market incredibly challenging. We will continue to be transparent with you about changes in the mortgage market and the impacts on our business.

EBITDA margins at 32.5% were slightly below the level of at or below 33% we discussed in our July guidance. Mark discussed the main drivers in HBU. Partially offsetting these items were lower corporate and corporate technology expenses.

Slide 15 provides our guidance for 4Q '22. We expect revenue in the range of $1.165 billion to $1.185 billion, reflecting revenue down about 6.3% year-to-year at the midpoint of our guidance or down about 3.7% on a constant currency basis. 4Q '22 EBITDA margins are expected to be about 31.5%. We're expecting adjusted EPS in 4Q '22 to be $1.45 to $1.55 per share compared to 4Q '21 adjusted EPS of $1.84 per share.

As Mark shared earlier, the decline in our 4Q '22 guidance, as compared to implied levels we shared in July, is driven by the significant reduction in our expectations for the U.S. mortgage market in the fourth quarter. 4Q '22 revenue and our current guidance relative to our implied view in July is down about $25 million. Mark covered this earlier, as a $45 million decline from the weakening U.S. mortgage market and $15 million decline driven by FX are partially offset by revenue from the acquisitions of LawLogix and Midigator and stronger non-mortgage revenue growth.

4Q 2022 adjusted EPS and our current guidance relative to our implied view in July is down about $0.21 per share or about $33 million in pretax income. This decline is driven by the impact of the decline in the U.S. mortgage market on revenue of $45 million, which, given high variable margins, drives a pretax income decline that exceeds the total variance level.

Strong core revenue growth, both from the acquisitions of LawLogix and Midigator as well as stronger organic growth, are delivering improvements in pretax income. However, these improvements are being offset by the higher marketing sales and G&A expense that we referenced earlier and higher interest and other expenses. Reflecting the above, our expectations for the BUs in the fourth quarter are as follows: EWS revenue is expected to have an about 3% or greater decline. Continued strong non-mortgage organic revenue growth is expected to offset the bulk of the impact on EWS mortgage revenue of the expected over 60% decline in mortgage originations.

EWS EBITDA margins are expected to be about 48.5% in the quarter. USIS revenue is expected to have an about 7.5% or greater decline, reflecting the greater-than-50% assumed decline in the U.S. mortgage and credit inquiries. B2B non-mortgage revenue growth is expected to improve from the levels we saw in the third quarter, and B2B online continuing with high single-digit growth. USIS EBITDA margins are expected to approach 36%.

International continues to deliver a strong year and is expected to deliver constant currency revenue growth of up to 8.5%, down from the third quarter, as we lap growth from our U.K. debt management business. International EBITDA margins are expected to be up sequentially, approaching 29%. The declines in both revenue and adjusted EPS in 4Q 2022 year-to-year are also principally driven by the significant decline in the U.S. mortgage market and the significant impact of FX.

Looking at revenue. At the midpoint of our guidance of $1.175 billion, revenue is down about $78 million. FX is negative, about $35 million or 2.6% year-to-year. So on a constant currency basis, revenue is down about $43 million. The impact of the decline in the U.S. mortgage market, using originations declines for EWS and credit inquiries declines for USIS, is negative, about $185 million or almost 15 points. Excluding these factors, effectively, constant dollar revenue growth, excluding the impact of the U.S. mortgage market, revenues up over $140 million, reflecting predominantly the very strong non-mortgage growth, principally in EWS and International and also in U.S. B2B online; and strong outperformance in mortgage relative to the overall market, predominantly in EWS.

Looking at adjusted EPS. At the midpoint of our guidance of $1.50, adjusted EPS is down about $0.34 a share. The low operating income items, principally higher interest expense and the loss of equity income from our Russia JV as well as the impact of FX, explains just over half of the decline in adjusted EPS. The remainder of the decline is principally driven by the reduction in constant currency revenue of about $43 million.

Slide 16 provides the specifics on our 2022 full year guidance. We expect revenue of approximately $5.1 billion, and adjusted EPS is expected to be $7.49 to $7.59 per share. For the full year of 2022, we expect capital expenditures to be over $550 million. Capital expenditures are above the levels we expected in July as we maintained capital spending at first half 2022 levels in the third quarter to continue the pace of migration of major exchanges to our cloud infrastructure. We expect to bring down capital spending in 2023, consistent with the completion of the migration of the major North American exchanges.

We believe both our fourth quarter and full year guidance is centered at the midpoint of the revenue and adjusted EPS ranges we provide. As you consider the first quarter of 2023, we wanted to provide some general perspective on our current thinking on the U.S. mortgage market for the quarter. Using our current view of mortgage credit inquiries in the fourth quarter as a base, we currently expect mortgage credit inquiries to be down about 50% year-to-year in the first quarter of '23. As we move through 2023, the year-to-year compares get substantially easier, particularly in the second half.

Now I'd like to turn it back over to Mark.

Thanks, John. Turning to Slide 17. We have some very unique macros in our industry and EVX growth levers driving our performance in 2023 and beyond. The acceleration of the digital macro across every industry is expanding the use of identity data signals and solutions to drive better decisions across new and existing verticals. Equifax is well-positioned to take advantage of the accelerating digital macro through our EFX cloud investments and our recent acquisitions of Insights, Kount and Midigator.

Although we've been impacted by the significant declines in the U.S. mortgage market, we believe we have unique levers at Equifax to deliver strong future growth, including Workforce Solutions' above-market growth and margins; and our expanded focus on new data assets like Insights, USIS non-mortgage growth; and Kount and Midigator, Identity & Fraud growth; our new EFX cloud-driving competitive NPIs, top line and of course, cost savings in '23 and beyond; NPIs leveraging the EFX Cloud and our expanded resources and focus on new products and bolt-on M&A to broaden strength in Equifax.

These attractive market macros, along with the broad EFX growth levers and our strong core outperformance -- strong core and non-mortgage outperformance in the past few years, gives us confidence in our ability to deliver above-market growth in the future. In the event we do see further economic weakness driven by slowing consumer demand, we believe Equifax is well-positioned for continued growth.

As we shared with you in July, turning to Slide 18, the new Equifax is a much different and more diverse business than we were in the last recession. We are more resilient and better positioned for stronger revenue and earnings growth in challenging economic environments.

During the '08-'09 global financial crisis, Equifax performed very well and exhibited the resiliency you would expect from a data analytics businesses. In 2009, we saw only a 6% decline in total revenue. Importantly, EWS grew throughout the global financial crisis and showed substantial growth of 17% in 2009. We believe that Equifax business mix today is much better positioned for a potential economic event than in 2009.

First, strong EWS growth has increased their relative size in Equifax from 16% of revenue in 2009 to almost 50% today, with margins over 50% and over 15 percentage points higher than the Equifax average. EWS is benefiting from strong growth levers that are not directly tied to economic activity, including record growth; penetration in new and fast-growing verticals like talent and government; system and system integrations, deploying new higher-value products; as well as measured price actions, taking advantage of the scale of the TWN database.

Second, completion of the Equifax cloud will deliver cost savings in 2023 and beyond that we expect will drive about half of our targeted 500 basis point margin expansion from 2022 to 2025. The cloud migration cost savings are independent of any economic event and driven solely by our execution.

And then last, we're leveraging the new Equifax cloud to accelerate new product rollouts with a goal of 13% Vitality in 2022, which is over $650 million of annual incremental revenue from Equifax. As a reminder, NPIs rolled out in '21 and '22 will drive top line growth in 2023 and beyond as they mature in the marketplace. Today, we believe about 54% of our global business is recession-resilient or countercyclical and will grow in a recession. This is a big change in a strong position compared to Equifax in the '08, '09 global financial crisis, where only about 37% of our businesses were either recession-resilient or countercyclical.

The meaningful revenue growth in Workforce Solutions, U.S. Mortgage and Identity & Fraud since 2009 as well as cloud transformation cost savings position Equifax very well if there is an economic event or recession in 2023 and beyond.

Wrapping up on Slide 19. Equifax delivered another strong and broad-based quarter, driven by 13% organic and 20% total non-mortgage constant dollar growth that more than offset the 41% decline in the mortgage market, reflecting the broad-based strength of Equifax in this challenging economic environment.

This is our seventh consecutive quarter of double-digit core growth and our sixth consecutive quarter of double-digit non-mortgage growth. Against the declining mortgage market, Equifax is resilient, on offense and investing for future growth.

Against the unprecedented 37% mortgage market decline in 2022, we expect to deliver constant currency revenue growth of over 5% due to the breadth and strength of our underlying businesses. More importantly, our core revenue growth of 17% and non-mortgage constant currency growth of 20% are both well above our 8% to 12% long-term framework and reflect the strength of the underlying Equifax business model. This strong momentum positions us well in 2023 and beyond.

EWS continues to deliver above-market growth and is our largest, fastest-growing and highest-margin business. Workforce Solutions' above-market revenue growth over the past 3 years is powering Equifax growth as they approach 50% of our revenue. And new products leveraging the new Equifax cloud are also driving growth. Our 13% Vitality from NPIs in 2022 will drive growth in 2023 and beyond. And we're in the early days of leveraging the new Equifax cloud to drive innovation, new products and expect to deliver strong Vitality in the future.

Our 12 bolt-on acquisitions since January '21 have expanded our capabilities and are delivering strong top line growth and will deliver synergies in 2023 and beyond. And then lastly, we're in the final chapters of completing our new Equifax cloud data and technology transformation that will deliver top line growth and cost benefits in '23 and beyond as we complete the cloud and leverage our new cloud capabilities and single data fabric. Even in this uncertain economic environment, Equifax continues to be on offense and reinvesting in the new Equifax cloud, new products, data and analytics and bolt-on M&A to drive future growth.

We continue to be confident in our long-term growth framework of 8% to 12% total revenue growth and 7% to 10% organic revenue growth with ongoing expansion of margins of 50 basis points per year. We also remain focused on delivering on our 2025 goal of $7 billion in revenue and 39% EBITDA margins that we set at our Investor Day a year ago. Our ability to deliver non-mortgage growth of 20% in 2022, that is well above our long-term growth framework, gives us confidence in the future. We remain energized about our performance in 2022 in a challenging mortgage macro and even more energized about the future of the new Equifax, a faster-growing, higher-margin, cloud-native data analytics company.

And with that, operator, let me open it up for questions.

(Operator Instructions) Our first questions come from the line of Manav Patnaik with Barclays.

Mark, I was hoping, just on Slide 17, where you gave us some of kind of the levers for '23, I think I was hoping you could touch on some of the macro trends you're seeing in the card and auto verticals. Just some perspective on where we are today in those categories relative to pre-COVID or history and some of the trends you're seeing there, whether they're decelerating or staying the same? Or any color around those would be helpful.

Yes. We talked a bunch, Manav, about mortgage. So we're happy to talk more questions on that. Maybe if you step back kind of where we are with the consumer and our customers, the consumer continues to be exceptionally strong. Their credit scores are still up from 2019. They're working. We haven't seen real changes in delinquencies, except at the subprime level, there's some small changes. But even there, delinquencies are lower than they were in 2019. So you've got consumers that have had wage growth. Employment is low. So it's a very good environment for the consumer, which really impacts the verticals you talked about.

And then our customers are still very strong. There's no question about that. When you think about the last economic event we had in the global financial crisis, you had both traditional financial institutions, banks and fintechs that really had balance sheet problems. So that's not the environment we have today. So it's similar to our dialogue that we had in July and back in April, we see a strong consumer continuing through the fourth quarter and into 2023, and the same thing with our customers.

So with regards to kind of activity around originations in some of those verticals, not a lot of change. There's still some challenges in auto around supply chain availability. I think there's expectations that's going to get better in the coming quarters. But it's still hard to find a car, particularly at certain models that you want to get, which is resulting in auto being down some from a year ago, but again, kind of in our expectation.

No real change in cards. I think we mentioned in our comments that we've seen a little bit of weakening in some marketing, but I wouldn't call that a trend. Broadly, our customers are still focused on originations. Card volume is very, very strong. Card originations is very, very strong. And again, you go back to -- you've got consumers that are very strong. I think everyone is watching very closely, both us and our customers, when will there be a change in delinquencies.

And as you know, my history, I ran a card business for a decade, GE Capital, and that was what I watched. And the minute you see delinquencies start to move, you think about changing your originations going forward. We just haven't seen that yet with employment being so high and unemployment being so low.

If you just look at non-mortgage online organic growth rates in the third quarter, right? We saw Telco was up double digit. FI insurance and auto were up mid- to high single digits. So again, very strong.

Got it. And then just on the Workforce Solutions. 2/3 of nonfarm payroll data now in your database, it sounds like you've -- I think, been closing that gap maybe faster than we had expected. Just some thoughts on that, if it's the same case versus your intent expectations. But the question is, how much of that is really locked in exclusive per se, like just so that competition is in the [worrier].

Yes. I think, Manav, a couple of points on that. We're increasingly looking beyond nonfarm payroll, as you know, adding in the gig economy as well as the pensioners. And when we think about our 146 million records and 111 million uniques or individuals in our data set, there's about 200-plus million, 210 million, 220 million total working Americans and pensioners. So there's a long runway for us between W-2, traditional employees, self-employed.

And remember, self-employed, we think about gig workers of being Uber drivers, DoorDash, et cetera. But think about self-employed doctors, self-employed lawyers, self-employed accountants, self-employed contractors, it's a large population. And that pension base is quite large. And we mentioned in the comments earlier that we've been starting to add pension records and gig records, and we signed an agreement with a company that does pension payroll, if you will, for various companies where we're going to do the income and employment verification for them.

So we have the ability to double our data set over a lot of years going forward. And I think, as you know, we've talked to you before that we've got a 13% to 15% long-term growth rate for Workforce Solutions that sits inside of Equifax's 8% to 12% growth rate. And we've got 3 to 4 points of that from record growth in the 13% to 15%.

So there's no question we've had above expectation, record growth over the last -- it's not new. It wasn't last quarter. It's really been for 3 or 4 years. A lot of that has been from many of the payroll processors that you go back 3 or 4 years ago were not contributing our records, and now they are. And as well as continued growth from our core records, which are from individual companies.

So with regards to the competitive position we have, we feel very good about it. The agreements that we've signed are on an exclusive basis since in 2022 and since I've been here, it's the right relationship between our partners and Equifax. They want it, and we want it. And when we think about half of our records coming from individual companies, those are from long-term relationships. We're providing those broad suite of services, whether it's I-9, W-2 management, unemployment claims, work opportunity, tax credit, HCA benefits, all those solutions to companies.

We also do income and employment verification for them as a part of that relationship for free. So that's a very sticky relationship from our perspective. And you probably heard in my comments earlier that Workforce Solutions is really doing a much better job going to market with the full suite of employer solutions we have. And we signed a contract with a large multinational that's going to -- once it's implemented, it will be $20 million a year of Equifax revenue, where we're providing all those employer solutions services to that multinational. Of course, we're also doing their income employment verification.

So we're quite energized about our progress of adding new records to the data set. I think as you point out, it's certainly been above the long-term framework. And broadly, it's been quite positive for us.

And maybe a last point that you're well aware of, as you know, the day we add the records, we're already able to monetize them because we're getting inquiries from our customers, either through System-to-System integrations or through their access to our website for all of their applicants.

So the day we add another record is monetized either in a mortgage application, a credit card application, a personal loan, an auto loan in a background screen or in a government social services. So we've got various verticals that are looking for more records. And we already have them in our order book. We just can't fulfill them until we grow the data set. So it's a very powerful growth lever for Workforce Solutions.

Our next questions come from the line of Ashish Sabadra with RBC Capital Markets.

One of the questions we are getting is more around if we use the fourth quarter EPS and annualized that, it implies, for next year, a significant decline in earnings. I understand there are some puts and takes here. Obviously, there was a discussion around cloud benefits coming in 2023. But I was wondering if you could help us parse what are some of the headwinds, puts and takes in the quarter, which may not exist going into 2023? And what are other tailwinds as we think about '23?

Yes, I'll start, and then John can jump in. Obviously, you want to start with revenue. We expect to have attractive non-mortgage growth next year. We're clearly going to have, John talk about it, a grow-over challenge in the first half of next year, meaning that the mortgage market will be down versus first quarter and second quarter of 2022 based on where current trends look. We don't have an outlook yet, but there was a strong mortgage market in the first quarter, and it started declining in the second and more rapidly in the third. So that's clearly going to be a part of our outlook going forward.

You also have our new product rollouts will be a positive for us. That Vitality Index being above 10% gives us momentum next year to drive the top line with those new solutions. And as I commented earlier, the new products we're rolling out this year, the 80 products we've rolled out so far, most of those aren't really in the revenue in a meaningful way in 2022. They really mature in '23 and in 2024.

Last point I would make is that we've made a number of acquisitions in the last 25 months or 20 months actually. And those acquisitions are obviously in our run rate revenue, but the synergies that we expect to get typically kick in, in years 2 and 3. So meaning, in '22 and '23, we're going to get benefits from acquisition growth that we have going forward. John, maybe you add to that and maybe talk a little bit about some of the margin?

(inaudible) as we go into next year. Generally speaking, I think most people know a lot of new products and mortgage and other verticals that we serve actually tend to get launched at year-end, and pricing actions tend to happen at year-end. So we tend to get a nice benefit as you move from fourth quarter to first quarter every year, and it's done very consistently.

We also expect to have, as Mark mentioned, improved cost position as we move into next year. As we continue to migrate more and more of our major systems to the cloud, you start to be able to decommission more systems. We're starting to see savings as we move through 2023. That's certainly a benefit. Some of the marketing and sales incremental costs we talked about this quarter that would affect us next quarter are really driven by the fact that we're performing so very strongly this year, right, that we're paying compensation appropriately at very high levels into those organizations because they're substantially outperforming. Obviously, when you get into a new plan year, those things all reset.

So we think there's certainly cost opportunities that will help margin, but also for us with the fact that we're driving very strong non-mortgage growth with new product and pricing and obviously, that flows through at extremely high margins is real benefit to us as we go into next year. So again, we're not providing guidance yet as we didn't in this call, but we have a lot of levers that can help strengthen 2023.

Maybe the last one -- maybe just the last one is that we commented that there's some unusual or things that are going to work out in Workforce Solutions margins in the third and fourth quarter from the mix of mortgage and some additional costs associated with our sales and marketing that we made the comment that we clearly expect the workforce to be back at 50-plus percent margins in 2023, which will be obviously a positive, too.

Very helpful color. And maybe just a quick follow-up on the expectation for revenues to be down 3%, it's a significant moderation from 9% growth. Obviously, mortgage is a headwind there and maybe some of the acquisitions are annual (inaudible) but I was wondering if you could help parse what should -- how we should think about the organic verifier non-mortgage growth as we head into fourth quarter and next year.

Sure. So I think we talked about it. We talked about organic revenue growth for EWS. And we said it was about 20%. Negatively impacting that is almost 15 points from reductions in UC and ERC. So if you exclude UC and ERC, we're seeing organic growth across Workforce Solutions of approaching 35%, which we think...

It's a very good number.

Very strong in the third quarter, right? So...

It's been well above their 13% to 15% long-term growth rate.

And so even -- and as we look into next quarter, when we compare the 20% that they delivered this quarter, we expect to have very strong performance again next quarter also in non-mortgage. So again, we think EWS non-mortgage revenue growth has been really outstanding and continues to grow.

Our next questions come from the line of Andrew Steinerman with JPMorgan.

John, I just want to verify that we have some figures here just for these questions, if it's okay. Let's put aside core when I ask these mortgage questions. So I think we know mortgage as a percentage of total third quarter revenues, I think that's 22%, the inverse of the 78% on the first quarter. Just please verify that.

And the second thing, I want to make sure that we have non-mortgage organic revenue growth, and I think that's 13%. I think that's what you gave on Slide 4. And if you could just make a comment about fourth quarter, what's implied in terms of non-mortgage organic revenue growth.

Yes. So I believe both of the numbers you quoted were in the presentation. So yes, I think they're correct. And in terms of non-mortgage growth, right, we're expecting non-mortgage growth to continue to be strong, right? Mark talked about the fact that for the full year, we're continuing to expect 20%, and we're expecting a strong fourth quarter, not quite probably as strong as the third quarter, so slightly -- so somewhat below the third quarter, but still a very strong number. And we're expecting to see the strength that you've been seeing all year continue.

Our next questions come from the line of Kyle Peterson with Needham & Company.

Just wanted to follow up on the margin a little bit. Maybe if you guys could run us through some of the puts and takes in the 4Q step down, is really most or all of that just mortgage and lower volumes kind of running through and the full quarter's impact to that? Or there's no like other cost inflation or anything you guys are seeing materially in your business?

No cost really inflationary impact. It's really the mix of the loss of that mortgage revenue is just such high margin. And then I think we also talked about some costs from sales and marketing and onboarding some TWN contributors, but the majority of it is the margin mix from the mortgage.

Absolutely. The step down in 4Q from 3Q is really driven by lower revenue in general because of -- but it's driven by lower because mortgage is lower. And obviously, mortgage has a very high variable margin. So that's the driver.

Got it. That's helpful. And then just a quick follow-up on International. Obviously, the constant currency trends have looked really good for you guys. I know FX is kind of a problem for you guys and a lot of companies, but a little surprising to us that, I guess, with all the recessionary fears and such, are you guys seeing any slowdown or caution, especially in parts of Europe and such with your clients? Or it has at least through October so far, have those trends still held up and been pretty stable and healthy?

Yes. As you know, Europe for us is primarily U.K., but also Spain is where we participate. And while inflation is a challenge, they're still working, right? And so we really haven't seen any meaningful change in what's happening with our customers. Everyone is worried about inflation. But when you've got people working, they're generally going to pay their bills. They're also going to spend money, and they operate. And as you saw from our comments, our U.K. business, which is most of Europe, had a very good quarter. I think it was up 7%. So no, we haven't seen it yet, even with all the inflation fears.

Our next questions come from the line of Kelsey Zhu with Autonomous Research.

For EWS for this quarter, when I look at non-mortgage Verifier revenue, it seems to be down a little bit sequentially. Can you just help us understand a little bit in terms of what's going on there? Is it the consumer lending piece? Is it talent or government or other verticals?

Yes. So EWS non-mortgage in Verifier, but broadly, right, was very strong, right? So again, the growth rates we're talking about are extremely high. We think government and talent continue to perform very, very well. What we -- if you're just looking at growth rates, obviously, as you move through the year, comps get tougher because we grew very strongly in 2021. But overall, as we take a look at Talent Solutions, I think we gave the growth rates.

Yes, they're slightly lower, but it's also driven by comps. Government, very strong. I think we saw a very good performance in kind of commercial in the non-mortgage finance segment, which again was very strong. So we feel very good about the trajectory and the trend and continuing very strong non-mortgage growth rates there.

Got you. And just a quick follow-up on EWS margin. With the current mortgage environment, I'm trying to figure out what's sort of like a new normal for EWS margins. Should we basically be thinking about that as in line with what we've seen this quarter or even Q4 but kind of in the 49% range?

No. We said in our comments, and hopefully you heard it, that we clearly expect margins in EWS to return to that 50%-plus level in 2023. We view this mortgage mix as being a challenge in the third and fourth quarter. That will definitely impact their margins as well as some of the additional costs in sales and marketing and TWN contributor onboarding in the third and fourth quarter.

I think we talked about the 9 -- or is it 9 or 10 additions of new contributors -- 10 additions of new payroll processors that are adding records. There's generally some incremental costs when those get added and our non-mortgage growth is so high. We're having some additional sales and marketing costs in EWS. But to be clear, we expect EWS margins over the long term to be at that 50%-plus rate versus where they are this quarter and next quarter.

Our next questions come from the line of Andrew Jeffrey with Truist Securities.

I appreciate all the detail and color as usual, guys. John, just a question for you on overall consolidated EBITDA margin progress. I think you touched on some of the potential tailwinds next year. But given the challenges, especially early in the year with mortgage, and thinking about margins being flattish, maybe up a little, and that's my number, not yours, and then a bit of an improvement in '24, it just seems like a heavy lift to get to 39% by '25. Is there a step function that we need to be thinking about? I'm just trying to understand that.

John, you should jump in. But remember, a big piece of that path to 39% is the cloud transformation completion, and we get the meaningful impact on cost takeout and we telegraphed before. And every quarter, we talk about it that roughly half of that lift from our margins last year to the 39% is from cloud execution. That's in our hands. So we know how to do it. It's not economic related. We're going to -- whether the economy is up down or sideways, we're going to complete the cloud, and that plugs in.

You've got Workforce Solutions growing faster than the rest of Equifax with their 50%-plus EBITDA margins, that accretes in margin between now and 2025. You've also got our new product rollouts, our non-mortgage growth that we expect to deliver is also going to deliver margin expansion over that time frame.

As we get to 2025 and the framework even we laid out last November, right, we indicated we expect the markets that we're in to be somewhat normal. So we're expecting kind of a normal non-mortgage market, and we're expecting the mortgage market itself to move back toward more normal levels, right? So a big part of -- in addition to the cost takeout related to tech transformation, which Mark already referenced, a big part of the mortgage increase is related to that revenue growth.

And clearly, we do need -- in order to deliver those levels, we do need to see some recovery in the mortgage market and moving -- having to move back toward more normal and then, obviously, some normal non-mortgage markets. And given the fact that we're performing so well in non-mortgage growth, it gives us comfort that we have a path there to that $7 billion, but we do need to see some recovery in some of the markets we're serving, particularly mortgage.

Okay. No, I get that. That's helpful. And then, Mark, your comments in USIS about mortgage shopping being a tailwind, I appreciate that. I just wonder, as rates really have blown out here in the 10 years, you held us up again today remarkably, how long can that persist? Does there just come a point where rates and accordingly, housing affordability reaches a level where you're just not going to see that kind of behavior? And is that something you're contemplating as you think about the ultimate '23 guidance you offer us?

It's not. It's just -- our view is, and what we've seen and we continue to see it is, that at these higher rates, consumers just spend more time shopping around. And when they do that shopping, USIS benefits from that credit pull that happens in the shopping process, and we do not expect that to change.

I think your question maybe is a little bit different around at these high rates, are people going to still buy houses. And at these high rates, are people still going to do some level of refis, which there's some. It's obviously down a bunch, but it's more cash out refis to access the multitrillion dollars of untapped home equity in the U.S.

And as you know, the mortgage market doesn't disappear. It certainly declined further and more rapidly than we've expected. As you know, we've been -- revised our mortgage guidance 3x this year because we didn't -- we couldn't forecast where the Fed was going to take these rates. And I don't think anybody can accept higher from where they are now. We're actually getting better at forecasting out a couple of months, meaning inside the quarter. But as you get out past a quarter, looking out with what's happening with the volatility of where rates are going, it's more challenging. So we'll certainly take all of these factors in place when we put out our 2023 guide in February.

And you have a clearer view, hopefully then, of what the mortgage market is going to look like. But there's no question, the mortgage market is going to bottom at some point. And it doesn't go obviously to 0. There's going to be an area where people still move. And even at this interest rates, and it's happened before in the U.S., people still buy homes. So meaning, they buy homes and get mortgages. So there's that level of floor. I think we're all struggling with where it is, and we'll have a better view in a few months of what that looks like for 2023.

And as John talked earlier, first and second quarter, we're going to have tougher comps against a very strong mortgage market in the first quarter this year. But as we get to third and fourth, we'll start comping more towards what should be a floor until we get past whatever economic event we're in here.

Our next questions come from the line of Kevin McVeigh with Credit Suisse.

Obviously, a lot of uncertainty on mortgage. But with the inquiry guidance in Q1, is there any way to think about what percentage of revenue mortgage could be in the first quarter? And then any way to think about how you think that will progress over the course of '23 just as a percentage of revenue more broadly?

Yes. I think -- Kevin, as we talked a few minutes ago with Andrew, we're not doing any guidance on anything on '23 right now. We're focused on the fourth quarter, and we'll certainly give that guidance as when we get to, likely, our February fourth quarter earnings discussion.

Okay. And then, Mark, you talked within EWS, obviously, kind of the relative outperformance is kind of record penetration system-to-systems, direct integration pricing. Is there any way to ring-fence the contribution across each one of those? Like is it primarily the record growth that drives it? Or just so we get a sense of across those 5 buckets? Or is it kind of evenly distributed?

Yes. I wouldn't say even, but they're all important. There's not one that's disproportionate. Look, record additions are very attractive and very unique for the Workforce Solutions business because it drives revenue, Day 2, after you add the records. And as you -- 16% record growth in the quarter, and we've driven records up double digit for the last number of years, that's certainly a positive. We take prices up every year. So that's something we'll do in January with all the verticals in Workforce and across Equifax.

New products, we talked about Workforce Solutions is indexing kind of north of our 14% in the quarter and our 13% guide for the year of new product introductions. That's very attractive for Workforce. And we talked in our prior meetings about continuing to drive System-to-System integrations. And penetration is a big opportunity in workforce. If you think about the credit file, it's very highly penetrated in all financial services verticals, workforce is not.

Even in mortgage, there's still 40-odd percent of mortgages that we don't see that are still done with paper pay stubs. We only do roughly 1 in 10, roughly background screens. In government, you got a $2 billion TAM, and we've got a $300 million roughly business there. So there's a lot of government penetration opportunity. So you can see each of them are attractive and very valuable, which is why we have a lot of confidence in Workforce Solutions' 13% to 15% long-term growth rate.

Our next questions come from the line of Shlomo Rosenbaum with Stifel.

Mark, can you talk a little bit about the NPIs? And whether there's been any kind of change in -- strategically about how you approach that? We're seeing is much higher NPI of 14%, but we're seeing the numbers of new products, obviously much lower than we saw last year. Is there some kind of strategy that you have in terms of less shots on goal, but more higher percentage shots of goal? Or just -- is that just vary year per year, and we really can't look that much into the numbers of NPI like we used to?

No. Numbers are important, obviously. I think just maybe spooling back to kind of 2 years ago when we really ramped up our new product resourcing, we brought in a Chief Product Officer. We've got more of a cadence around it. We did that intentionally in advance of our single data fabric and in advance of our cloud capabilities because we were convinced that the cloud, which again, we still have to complete, we're well down the road. And a single data fabric will allow us to bring things to market we couldn't do before.

I'd use the example of the product we rolled out this week at the Mortgage Bankers Association of taking our telco utility cell phone data and embedding it in the credit file. That's a very sophisticated product. It's going to drive higher hit rates, higher approval rates, higher originations for our customers. And it's something that only Equifax can deliver. So that multi-data solution is a big part of our new product capabilities.

The second area is really leaning more into our trended data, our historical data. Workforce Solutions now gets what -- 40% of revenue from historical records?

Almost 50%.

Almost 50% now. So you think about how they've changed that in the last couple of years through their new product capabilities and think about a mortgage solution that shows historical income data on a consumer back 1 year, 2 years, 3 years, 4 years that helps in the underwriting process, we sell that at a higher price point.

Think about in the talent vertical, a history of job employment that's required. As you know, we have 500 and, I think, 60 million total records now in the TWN database, and that's well over 5.5 jobs on the average American. So that multi-data as well as historical solution.

I think the other thing that's quite encouraging, I mentioned in my comments earlier, is that Workforce Solutions, that's further down the road in the cloud, is delivering well north of the 14% Vitality. They're one of the big drivers of that guide up for the year on new products. And that's what we wanted to see. That's what we expected to see. And I think the good news is we're seeing it. Meaning as we get further into the cloud, we're able to deliver those new solutions to our customers.

And I think as you know, new products are also very high. Obviously, they drive incremental revenue growth, but they're very high incremental margins. You're thinking 70%, 80% kind of incremental margins on new products. It's why we're driving the initiative, but it also makes us more valuable to our customers. We're bringing them solutions that helps them solve problems and either drive their top line, their bottom line or both in a very positive way. So it's a big focus of ours, and it's going to -- it's one that's central to our long-term growth strategy.

And you remember back in November, at our Investor Day, we talked a bunch about that being one of the factors of increasing our long-term growth rate to the 8% to 12% was our expectation. And now you're seeing it of our ability to deliver that 10% vitality in our long-term growth rate.

And just a clarification, the almost 50% I quoted is a Verifier revenue.

Yes. From a historical...

Just to clarify then. I understand it's important. What I'm just trying to understand is the difference between the 14% and the amount of record of NPI that's coming in, that's kind of the lack (inaudible) to get at.

Sure. You used the term shots on goal or did you want to have more shots that go in or more shots on goal, and we want both, right? So you have a bell curve with any new product portfolio you put in place. You're going to have some products that are screaming winners that really hit the mark with our customers and some that are less successful. And then there's also maturity cycle to them, as I mentioned. We'll roll out products in the second half of this year that won't deliver any revenue in 2022, but they'll start maturing in '23, '24, '25. That's really what you have from a cycle standpoint.

So to answer your specific question, we're looking to have more and obviously, having more that deliver larger revenue. And I think we're just getting better at that, primarily because we're really being quite deliberate around collaborating with our customers. Instead of creating a product we think the market wants, we're creating a product that we know a customer wants because we're collaborating with them. And then once it works with 1 customer or 2, then we productize it to take it out to the rest of our customer base.

Okay. That's helpful. And then just one just for John. I thought that the AR DSO would improve sequentially this quarter because I thought that, that billing system conversion would be behind you. Is that something that we should still be thinking about for the fourth quarter? Or is there something just -- is this level of AR DSO just by the mix of revenue more natural?

No. So the conversion you're talking about, so as part of transformation, as you said, we're moving financial systems to the cloud as well. And the major movement of financial systems, including billing systems, actually runs through October, right, a little bit in November. So some of the level of elevated DSOs we saw in the second quarter did continue into the third quarter. It's related to those -- to that system migration, and we expect to see substantial improvement as we move through the fourth quarter.

Our next questions come from the line of Craig Huber with Huber Research Partners.

My first question, your Appriss acquisition, can you maybe just tell us how the integration has been going here in the last year. And I'd be curious what the pro forma organic year-over-year revenue growth was in the third quarter for the acquisition? And what was made for the 12-month period, too.

Yes. So the Appriss Insights acquisition, as you know, is our incarceration data business. We're really pleased. We bought it really just a year ago. So it's 12 months in. And the integration is progressing very positively. We talked about some of the joint solutions that we're already bringing to market, putting their data into our TotalVerify Data Hub. And we've got new products in the pipeline, both on enhancing their solutions with their data, but also combining their data with some of the other data that's used either in the talent or in the government verticals to deliver a single pole with either employment data plus the incarceration data or employment education and incarceration. So we've seen really positive opportunities there. As far as growth rates, it was growing kind of mid-teens when we bought it, and it still is. We're very pleased with the growth of the business.

Okay. Great. And my other question is you talked on this call and prior ones of the health of the U.S. consumer being quite strong versus pre-pandemic 2019 levels. I'm curious, are you saying that you -- with all the data you look at, that it's not materially getting worse versus 3 and 6 months ago, the U.S. consumer?

Absolutely not. No, they're still strong, and there really hasn't been a change in 2022 about -- around the consumer. As you know, employment is -- unemployment has gone down and employment has gone up since the beginning of the year. So that's good for consumers. Wage growth is up, which is good for consumers, and that helps their balance sheet. Obviously, inflation is a bad guy, and it is hurting lots of consumers. But even with inflation, consumers are still out there spending and traveling and doing all the things that they do in their lives. So the credit scores are up 15 points from 2019. That hasn't really changed. They're in good shape. You really have to watch employment and unemployment. That's where things generally change with the consumer. Obviously, inflation is challenging, particularly for the kind of the lower income demographic, but the rest of the population is doing okay.

Our next questions come from the line of Andrew Nicholas with William Blair.

In the International business, how much of the recent strength would you attribute to share gains versus end market strength at the country level? And to what extent would you say the cloud transformation is already paying dividends in terms of growth and Vitality Index there?

Yes. So I would add a couple of things to the list. I wouldn't call it -- obviously, end market in 2022 is stronger than 2021 as they -- the international markets came out of the pandemic earlier this year. But the end markets aren't -- like in Latin America, the end markets are always strong just because of the underlying growth there. But I wouldn't say there's been a change in the end markets.

Our team is executing well. So there is some commercial strength there. New products are a big deal as far as bringing new solutions, new products to market. For example, we're bringing our Kount, Identity & Fraud solutions to a lot of our international markets. So we're starting to get some traction there, which is helping our international platforms.

Cloud isn't really a benefit to them yet. They're further behind the North America intentionally in cloud, with the exception of Canada. So their cloud benefits are really going to be more in '23 and really actually more in '24 as they complete the cloud. Would you add to International, John?

Just in debt management.

Yes.

I mean they're growing very fast, right? I don't know if you'd call that share or not, right? But what it is, we have certain large customers that we have very high positions with that are growing very fast, right, and principally the U.K. government. So that's driving a nice piece of growth obviously in (inaudible) U.K.

That's helpful. And then for my follow-up, John, maybe a question for you. Just a quick cleanup item. Corporate expenses ticked down pretty significantly on a sequential basis. Could you speak to the driver there? And how sustainable kind of that new level is? It's obviously ticked down quite a bit here a couple of quarters in a row. I just want to make sure I understand the dynamics driving that.

Yes. So if you're just doing sequential third versus second, right, the big drivers were corporate technology spend and also tech transformation spend. Some of that was just good cost management. Some of that is around tech transformation, and that can move between BUs and corporate, and we saw some of that in the third quarter. As projects complete in corporate or teams move between corp and the BUs, you can see expenses come down in corporate. We had a little bit of that in the third quarter.

We also saw some good cost management and some sequential declines across corporate expenses in general. And we did see some lower expenses specifically related to compensation and variable compensation broadly because we took the year down. So I'd say those are the big drivers. I think we expect to be at lower levels of expense than last year substantially, right, and what you've seen all this year. Probably in the fourth quarter, you're going to see some of those expenses tick back up again because we'd expect to see some more investment in technology and corporate technology. So some of the benefit we got in the third quarter, we'll give back because we're spending more on transformation.

So for example, Shlomo's question around financial system transformation, some of that's occurring in the fourth quarter. So I hope that helps.

Our next questions come from the line of Jeff Meuler with Baird.

Mark, any additional perspective you can provide on what you're hearing from customers on the prescreen and marketing activity starting to pull back just given the health of the consumer at this point and bank balance sheet health. So would just love to kind of like square those 2 points.

Yes. As I said earlier, Jeff, broadly, the consumer's unchanged from second quarter. And so our bank balance sheets are very strong. So there's no change there. So don't take whatever you heard earlier is some message around that we're seeing big pullbacks.

What I will tell you is every time I meet in the C-suite or with CROs, we're all talking about -- because we all watch CNBC, we all watch what's happening with inflation, we all see what's happening with interest rates, when will it have an effect on consumers and when will it have effect on the ability to pay in delinquencies.

And again, my view of someone who's been around financial services for multi decades, it all starts with employment. And that's the indicator that we watch, I watch. And then after that, it's delinquencies. But we're seeing it's still a strong job market. I think there's not quite 2, but there's 1.7 jobs open for anyone who's out of a job now, something like that. So it's still very vibrant. And we don't see indications of what I would call pullback. But everyone is watching it. It's clearly a conversation in every meeting.

Got it. Appreciate the perspective. And then within TWN, 16% records growth is great, as you said, way above the long-term framework to drive a really good growth model. But growth decelerated year-over-year, the comp doesn't look tougher, sequential growth seemed just okay considering you're still onboarding partners, and nonfarm payrolls are growing. So any perspective on that figure? And if you can confirm if there was any partner record attrition.

Yes. There's some levels, it's very de minimis of what I would call churn inside of the records. But obviously, they're generally growing when you're up 16%. So there's -- that's not something that we see. And there is obviously, some changes in employment with some of our partners as you go through the year, there's a seasonality. As you might imagine, where there's hiring in some industries. Think about retail, warehouse related to the holiday season that we see increased employment, which results in increased records for us, call it, in the second half of the year and then a change in the first half of the year when some of that comes -- some of that holiday hiring comes out of the system. But broadly, we are seeing, obviously, it's 16% strong record growth inside of the TWN set.

I'd say it's generally true that we're seeing -- it's actually been a very good year, both in terms of signing new partners, but also direct contributors, right? So I think we feel like in terms of the execution of the team and on building new contributors, it's really been an outstanding year.

Our next questions come from the line of David Togut with Evercore ISI.

Just bridging to some of the earlier questions on revenue, but focusing specifically on EWS, if we take your fourth quarter 2022 revenue growth guide of down, at least, 3% and kind of think through your commentary on Q1 mortgage credit [increase] being down 50% or so year-over-year, how should we think about the starting point for EWS revenue in 2023?

Yes. Again, we don't want to get into 2023 guidance. We gave you our fourth quarter guidance. It's too early to talk about 2023. And I think we talked about -- obviously, mortgage in -- for sure, in the first half will be a challenge because of the strong mortgage market in the first quarter of last year. But we -- and some of the previous questions, talked a bunch about what are the positives, if you will, having the non-mortgage total growth of 20% and organic growth of 13%, that's momentum coming out of 2022 into 2023. That is, obviously, going to be important to us. We talked about the fact we do pricing actions typically on [1 1]. So that's going to be a positive for us in 2023. The new products that we talked about, the acquisition synergies and growth going into 2023. What else would you add, John?

From the earlier question, I think it's a pretty good list, right? So specific to EWS and specific to Verifier and our records growth was obviously outstanding so far this year.

Well, 16% records growth carries through until...

Absolutely.

Next year. And I think we talked about 10 new partners being signed up, 3 in the quarter, those won't go online in the fourth quarter. Those will be additions that will happen in 2023 that will drive records. And of course, we're out there working to add more records that will help EWS.

Understood. Just as my follow-up, the 38% organic non-mortgage growth at Workforce Solutions in Q4: Talent, up 50% organic; Government, up 44% organic, how should we think about the runway for growth for both Talent and Government in 2023? Are these types of growth rates sustainable? Or have they peaked?

Yes, we're not giving growth rate outlook for 2023. That's not the intention of this meeting yet. But when you think about those 2 verticals, I talked about it earlier, you think about Talent as a $5 billion TAM, where we have a ton of penetration opportunity, right? Because we're only doing 1-in-10 or 2-in-10 background screen. So that's opportunity there.

And then in the Government, very similar. Government, that's about a $2 billion TAM for that kind of verification of income and employment, in some cases. We've got $300 million business. So there's a lot of growth potential there. And add on top of it, kind of the core Workforce Solutions growth levers outside of penetration of adding more records is going to drive hit rates in both businesses, whether it's for background screening or government social services.

You add in our new products, pricing changes that we're going to do early in the year. System-to-system integrations drive revenue for us in both of those verticals. So those are the kind of growth levers the team is going to work on and is in-flight on as well as the momentum that we have coming out of the year, which is quite strong.

Over the longer term, we have a 13% to 15% long-term growth rate. So obviously, the growth rates we're delivering today in those specific verticals are well above that. So we would expect over time, we're going to have very good performance in those verticals. But growth rates over time, we would expect in general, our non-mortgage are going to converge more down towards our long-term model.

Our next questions come from the line of Toni Kaplan with Morgan Stanley.

Just looking ahead, how should we be thinking about your ability to pass on price increases in EWS versus prior years? If we do have an economic slowdown, like does that impact pricing? Do you temper what you're trying to push through? And just maybe if you could ground us on how we should be thinking about like a normal pricing baseline for EWS for price increases?

Yes. We don't see any real change in not only EWS but across Equifax about what we're going to do in price in 2023, and like it's already happening. So it's not going to -- we're already in flight talking to customers about what our plans are around price for 2023 because most of the pricing goes into effect 1-1. Workforce, as you know, is a very unique solution that delivers really unique value to our customers. So we have more pricing power there or flexibility. But we're always balanced about price, whether it's a good or bad economic times.

But I would say broadly, we don't think about pricing being different if there's an economic event. And again, there's an economic event hasn't happened yet. Outside of the mortgage macro, the economy is quite good. Our non-mortgage business is very strong. Our customers are strong, the consumers are strong. So we're kind of doing what I would characterize as kind of a normal process in January.

Great. And then you've talked for some time now about getting the gig in pension or records. Have you been having success in getting those? And is there a different process for getting gig records versus W-2 records? Are they harder to get because it's more maybe fragmented outside of ridesharing? Just how is the update on the process and how about your success is and how different it is?

Yes, there's still a bunch of runway in W-2, which you heard, and we're penetrating that, which is most of our records today are W-2. So that 16% growth is primarily in that said, and there's still another 40 million, 50 million records to get there. And then if you go to gig, it is more dispersed, and we've got a number of strategies underway to go after those records, which are equally valuable. And we've got some traction around pensioner records. As I mentioned, we've signed a big partner to bring some records in.

We're also getting records directly from large kind of legacy companies that do their own pension or payroll processing or pension or payment processing. So we're working on all those avenues. And we've got dedicated teams on them. And we're -- our expectation is to continue to add records from all 3 areas as we move through the fourth quarter and into '23 and beyond. And what's energizing for us is the opportunity to still double the data set at 111 million uniques. And call it, 210 million or thereabouts, total employed or pension payment recipients in the United States. We got a long runway to add new records to the TWN data set.

And again, I mentioned this a couple of times. I know it's not lost on you, Toni, that we're already getting inquiries on those, right? So we get inquiries on the half of the records we don't have. So it's just a matter of adding them to drive our revenue growth.

Our next questions come from the line of Simon Clinch with Atlantic Equities.

I was wondering if you could just go back to the Verification Services revenue. It's something I've been sort of tracking has been some non-mortgage revenues on a sort of per average record basis. And since the pandemic has just been moving up steadily pretty much every quarter, so it's ticked down for the first time. I was wondering, is there anything in particular that in terms of that kind of structural opportunity on the revenue per record basis going forward, if we -- should it be capped out at any particular time? Or is there anything we should read into that?

Yes. We've been growing revenue for record quite meaningfully. And again, the way you should think about it and the way we think about it is as we get into new verticals, like Talent and Government, or even I would characterize cards as a newer vertical, auto is underpenetrated, all of those verticals as we add those new revenue sources, the records become more valuable, right? Because we're monetizing that same record multiple times when someone applies for a mortgage and then a credit card and then an auto loan or a P loan. And then they apply for a new job or -- then they have to get government social services, you've got multiple avenues to monetize that record. So it's part of the power of the business.

The only thing I'd add, and you know this, Simon, right, is that, obviously, the different verticals we have, have very different price points and very different product structures. So you can see mix changes in any given period when you're taking a look at transactions and records and revenue. But -- so just make sure you keep that in mind as you're running your analytics.

Understood. Okay. And just as a follow-up, we talked a lot about how the mortgage revenue declines are really impacting margins, very high incremental margin. I just wanted to just confirm again that should mortgages ever rebound, should we just assume that it carries that kind of 80% incremental margin on the way up as well? Is there any reason not to assume that? And then longer term, is there any reason why the non-mortgage revenues shouldn't carry the same kind of incremental margins as the mortgage business does today?

So are you specifically talking about Verifier?

Yes, sorry, Verifier.

Okay, yes. So variable margins or the contribution margins for mortgage, obviously, yes, going in, coming out should be very similar, whether or not we reinvest some of the incremental profit generated would be a different discussion, right? But they certainly should be similar in terms of the contribution margin of both.

Generally speaking, the margins across Verifier are similar. They can be somewhat different depending on the relative price point and the volumes relative to the price point. So you can see some higher cost for different kind of, to your earlier question. But broadly speaking, yes, the margins for the products across verification services are relatively similar.

Okay. So it's just a question of reinvestment.

Our next questions come from the line of Seth Weber with Wells Fargo.

I just wanted to ask about the sequential improvement in USIS EBITDA margin that you guys are forecasting for the fourth quarter. It looks like revenues are kind of flattish sequentially. Is that just some of the sales and marketing expenses are going out? Or it doesn't seem like mix is really changing a lot. So just if there's any color on the 200 basis points of uptick, 3Q to 4Q.

Yes. So sequentially, generally, we see a little bit of an uptick. Certainly, we definitely see an uptick in non-mortgage revenue generally in USIS from the fourth quarter. So we'd expect to see some of that, and it tends to draw very high variable margins. And given that, we expect to see a little more leverage on some of the OpEx. That's all.

Okay. I mean I'm just trying to understand over the last -- prior to the second quarter, the business was sort of high-30% margin. So I'm just trying to think through if there was any reason why you wouldn't get back to that level relatively quickly next year. It sounds like you're moving back in that direction.

By relatively quickly, yes. Obviously, the mortgage market decline is weighed on that.

Very heavily, right? So obviously, as we get into 2023, we'll give you a better view as to what we expect 2023 USIS margins to do.

Right. Okay. And then just a clarification. You guys talked about a couple of times you referenced M&A synergies expected over the next couple of years. Is that revenue synergies or expense synergies or both? Or just how should we think about that?

Both. Yes, when we do these bolt-on acquisitions, part of our strategy is to bring in unique data assets that we can combine with other Equifax data assets in order to drive new solutions to market, and that generally takes time. We've got to integrate the business, integrate their data set into our single data fabric. And that usually takes, call it, a year in change, and then we can start bringing those to market and then those drive the top line and the bottom line.

Our next questions come from the line of Faiza Alwy with Deutsche Bank.

I just -- I wanted to talk about EWS margins, again. And I'm curious when you first gave the margins earlier this year, I think you talked about 54%. And I just want to understand, is the degradation from that to where we are today entirely mortgage-related? Or is there anything else in the underlying business that has impacted that change?

The biggest driver in margin degradation...

By far. By far.

By far is the impact on revenue and the very high variable margins we get for mortgage. So -- that's the biggest driver, right? We have talked about some increased expenses. We talked about some marketing investments and things we're making this year to drive NPI, which have been very successful. But generally, overall, the biggest driver in the movement has been related to the reduction in revenue related to mortgage.

Okay. Got it. And then just as we think about those margins, I appreciate -- I know you're not providing '23 guidance, but I appreciate you giving us EWS margin outlook of above 50%. I'm curious if you can give us just not numbers, but just holistic thoughts around how we should think about the -- I guess, the quarterly cadence. I mean I'm thinking we should build through the course of the year. Is there anything you can say about 1Q margins since given that you did provide an outlook for mortgage inquiries for the first quarter?

Yes. We're not ready to talk about 2023 guidance. We did want to make clear that the first quarter is going to have a tough comparison given the fourth quarter exit and the strength in the first quarter last year. And then on EWS, you said about 50%. We actually said over 50%, just to be accurate. But yes, we'll be ready to give '23 guidance when we get into 2023.

Our next questions come from the line of George Tong with Goldman Sachs.

You mentioned that non-mortgage growth in 4Q will be strong, but not as strong as 3Q. Can you discuss data points that you're seeing in the bank card and auto lending sectors that suggest an incremental moderation in strength in those categories?

I don't know if you were listening, George, but we got that question from earlier that we're not seeing any change. The non-mortgage growth rates that we're talking about are very, very high, and we expect them to still be very strong in the fourth quarter.

And look, we did give a view of International in the fourth quarter. International was outstanding in the third quarter. It's still going to be very strong in the fourth quarter, but its growth rate is somewhat lower. And obviously, International, their revenue is virtually all non-mortgage.

Okay. Got it. As you look at the mortgage category, certainly, there was a significant amount of refinancing activity that was pulled forward into 2020 and 2021. To what extent does this pull forward structurally lower the medium-term mortgage revenue growth outlook for Equifax?

Obviously, we're seeing the impacts of that right now since refinances has dried up predominantly, right? So what's left is just cash-out refis. And we're actually now starting to see substantial growth in HELOCs, right, replacing even some of the cash-out refi. So I think we're living through the -- obviously, the impact of that dramatic reduction in refinance right now. We gave a view of first quarter mortgage. But again, in terms of giving a view as we go forward, which is kind of, for us, 2023 would be midterm, it's just a little bit earlier. Unfortunately, you're just going to have to wait until we get into the first quarter and for us to give our 2023 guidance.

Well, it really wasn't a 2023 question, more like a medium-term, longer-term question since you've, in the past, given longer-term guidance targets before.

I don't know what you mean by medium term, longer term. Do we expect the mortgage market over the long term to return to a more normal level? Absolutely. No question about it. Is that what you mean?

Well, medium term. So I guess over the next 2 to 3 years or 2 to 4 years.

What's going to happen with the economy in the first year or 2 of that cycle. And then at the tail end that you said 2 to 4, you get out to 4 years, my expectation, you'd get back to a more normal level. But I don't know what's going to happen with the economy. I don't think you do either, George.

Our next questions come from the line of Heather Balsky with Bank of America.

I wanted to just clarify -- well, 2 questions. One, I wanted to clarify the benefit you see next year from the cloud transformation. You said half the 500 basis points. So is that a gross or net 250 basis point benefit flowing through? And also, does that include sort of rolling off some of the additional costs? Is that the savings? Or is that also rolling off the costs from the implementation?

And then the other question, totally separate, but just on the Talent Solutions side. You're talking about sort of the white space there, just sort of what can get you further penetrated in the background check industry?

So on transformation, that would -- the savings are related to all costs related to transformation, both the lower COGS as well as the lower investment levels. And then also, they're going to be more back-end loaded than front-end loaded, right? Because you get the savings as all customers migrate and you can actually decommission systems. So we'll start getting savings in 2023, as we said, and we feel good that's just going to happen. But the bigger savings happen is you get into '24 and '25. So you should think about that type of a cadence. What was your second question again, Heather, sorry?

Just on the cloud transformation, the 250 basis points, is that to flow-through this year or into next year?

No, I think, as John said, and we've said consistently, not only in this call and prior calls, the 250 is really between '22 and '25. And it's that path to 39% EBITDA margins in 2025, that's our goal. That happens over '23, '24 and '25. That's not a '23 change.

Right. And I think -- and more of that would be back-end loaded, as I just said, right? Because it happens as systems actually decommissioned. So we'll see some in '23, yes, but you're just going to see more of it in '24 and '25.

Our next questions come from the line of Surinder Thind with Jefferies.

I'd like to start a question regarding your long-term framework. Can you maybe talk about, is that intended to be like a rolling 3-year measurement period or like a 5-year period? And then maybe when we think about something like EWS non-mortgage, which continues to grow well above that framework, how often do you revisit the framework such as that and maybe some of the factors that underpin it. Like for example, at some point, whether it's 3 years, 5 years out, the W-2 records within the TWN database will mature. So how do we think about some of those longer-term drivers of the business?

Yes. I think as you know, we put this in place a year ago, and I believe that was the first change in Equifax's long-term framework in like 5 or 6 years.

At least, yes.

Or maybe longer. The old framework was 7 t0 10. We moved to 8 to 12, 100 basis points on the low end and 200 on the high end. It was intended to be a long-term framework, and we could all talk about long term, but let's say, 5 years plus, meaning we expect the company to grow in that range, short of economic events. Those are something you can't put in a long-term framework, but the 8% to 12% growth. For workforce in particular, inside of the 8% to 12%, and we talked about this already this morning, we have an expectation of them growing 13% to 15%. That's their long-term framework inside of our 8% to 12%, meaning they're going to be highly accretive and grow faster than the rest of Equifax. That's something that we expect.

As you point out, they've been outgrowing that 13% to 15%, which sits inside of our 8% to 12%, which is good news. In our eyes, that gives us confidence in the 13% to 15% over the long term. And of course, the 13% to 15% is made up of record additions. It's made up of new product rollouts. It's made up of penetration and they've got uniquely a lot of penetration opportunities in all of their verticals because our income and employment data is still a fairly new data asset in the scheme of data assets.

The credit file has been around for 70 years, income and employment data has been around in a digitized way only for 15%. So we've got a lot of confidence in the 13% to 15% for Workforce because of all of their growth levers, but also because they've been outgrowing that 13% to 15% for the last 3 or 4 years.

And your question, I think you also asked a question about when will we revisit this? It's just -- it's actually not even 12 months old. Our Investor Day was, I think, on November 7 last year. So we're very confident and comfortable with what it is today after almost 12 months. And at the right time, if things change, we would look at it again, but we see no reason to change it, and we still have a lot of confidence in it.

That's helpful. And then maybe as a follow-on. When we think about the contribution of new products to revenues as measured by the Vitality Index. So is that intended to be all growth on top of the existing revenue base? Or is there some cannibalization of revenues that we need to consider or maybe the play between the 2? How should we think about the actual measurement of that and what it means from a modeling perspective?

Yes. I think in our long-term framework, John, we talked about new products in November last year, adding 1 to 2 points?

Yes. You said Vitality, 10%, so that's around 3 year, right?

Yes. and that translated into -- that was one of the drivers of us bringing up our long-term growth rate from 7% to 10% to 8% to 12% was the increased new product rollouts is going to be a factor of that change in our long-term growth rate and then add to it, Workforce Solutions growing faster than the rest of Equifax. Approaching 50% of Equifax, that's accretive to that growth rate. If they're growing 13% to 15%. And then the average for our long term is 8% to 12%, that's accretive. And then we believe the cloud completion and cloud competitiveness also is a factor in that change from 7% to 10% to 8% to 12%. I don't know if that's helpful.

And our Vitality Index is supposed to represent truly new products, right? I mean, certainly, even new products can cannibalize an existing product, but they're not supposed to be tweaks, right? We don't tweak a product and call it a new product. It needs to be a product that's substantially different or substantially new to Equifax.

So this would be clients generally buying these on top of whatever existing products they're buying?

Yes. There's clearly -- that it will replace some products, but they're generally, as John pointed out, unique additions. And use the example I shared this morning of the mortgage credit file that we've been delivering to the marketplace for 70 years in some fashion. We rolled out a new solution that's going to be our file, plus this telco utility cellphone data that's going to differentiate our mortgage credit file. That's a new product. Some customers will only buy the new product. Some will continue to buy just the credit file. That's really -- so is there some cannibalization? Could be. But there's also, should be. We expect share gain, meaning our credit file is more valuable than our competitors' credit file because of the addition of that unique data to it.

There are no further questions at this time. I would now like to turn the call back over to Trevor Burns for any closing comments.

I thank everybody for your time today. If you have any follow-up questions, feel free to reach out. Thank you.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.