Equifax, Incorporated 2026 Q3 Earnings Call

Trevor, please go ahead. Thanks, and good morning.

Welcome to today's conference call. I am Trevor Burns. With me today are Mark Begor, Chief Executive Officer, and John Gamble, Chief Financial Officer. Today's call is being recorded, and our archive of the recording will be available later today in the IR Calendar section of the News and Events tab at our Investor Relations website. During the call, we will be making reference to certain materials that can be found in the Presentations section of the News and Events tab at our IR website. These materials are labeled 3Q 2026 Earnings Conference Call. We will be making certain forward-looking statements, including fourth quarter and full year 2026 guidance, to help you understand Equifax and its business environment. 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 our filings with the SEC, including our 2025 Form 10-K and subsequent filings. During this call, we will be referring to certain non-GAAP financial measures, including adjusted EPS, adjusted EBITDA, adjusted EBITDA margins, and cash conversion, which are adjusted for certain items that affect the comparability of our underlying operational performance. All references to EPS, EBITDA margins, and cash conversion are references to non-GAAP measures. 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 Investor Relations website. Now I would like to turn it over to Mark.

Thanks, Trevor. Turning to slide 4, Equifax delivered solid results in the third quarter in a challenging mortgage market driven by strong diversified markets revenue growth of over 8% that exceeded our mid-single-digit guidance with strong broad-based performance across all three business units. This included improved performance in EWS Government, which grew mid-single digits in the quarter. EBITDA margins were up a very strong 130 basis points, excluding FICO, versus last year from operating leverage, AI productivity, and good cost management, even with the $20 million of mortgage market headwinds in September. EPS grew 11%, and at $2.26 per share was above the high end of our guidance, even with the negative mortgage market impact. A very strong broad-based quarter for Equifax against a challenging mortgage market.

This strong performance was delivered despite the significant weakening in the U.S. mortgage market as 30-year fixed mortgage rates increased about 75 basis points since July, which negatively impacted overall mortgage market transaction volumes and Equifax revenue versus our expectation by about $20 million in the quarter, or over 100 basis points versus our July framework. Equifax revenue of $1.693 billion was up 10% on a reported basis and 9% in constant currency and was slightly below the midpoint of our July guidance due to the negative $20 million of mortgage market impact. Ex FICO mortgage, revenue growth of 7% was at the midpoint of our July guidance. Excluding the negative impact of the $20 million of U.S. mortgage market decline in September relative to our July guidance, total Equifax revenue would have been above the top end of our guidance range for the quarter.

U.S. mortgage revenue was up 15% in the quarter and up 1% ex FICO, both below our expectations from the higher rate environment in September. John Gamble will provide context on the impact of the significant weakening in the U.S. mortgage market on the fourth quarter and in 2027. Equifax returned $158 million of cash to shareholders in the quarter and about $850 million year to date. Share repurchases moderated in the quarter at $92 million, with the Círculo de Crédito deal expected to close in the fourth quarter, bringing year-to-date repurchases to about $650 million on 3.6 million shares or 3% of shares outstanding. Since launching our $3 billion share repurchase program in April of 2025, we have used our excess free cash flow to repurchase $1.6 billion of Equifax stock. We continue to expect strong free cash flow over $1 billion in 2026 and cash conversion over 100%.

With our financial capacity of over $1.5 billion, we can execute the Círculo de Crédito acquisition in the fourth quarter and continue to repurchase shares while maintaining a strong balance sheet. Turning to slide 5, Workforce Solutions delivered solid results in the third quarter, with total diversified markets revenue up 9% and total verified diversified markets revenue up a strong 13%. Mortgage revenue was about flat in the quarter versus last year, reflecting the significant weakening in the U.S. mortgage market. EWS mortgage revenue outperformance was high single digits inconsistent with the first half from record growth, new products like Mortgage Qualify, and pricing. Total Workforce Solutions revenue was up 7% in the quarter as the strong diversified markets revenue performance was partially offset by the weakness in the overall U.S. mortgage market. Third quarter government revenue was up mid-single digits.

I will discuss government in more detail shortly, but we are very pleased with the trajectory of our government revenue growth, given new state wins and our strong deal pipelines in their big $5 billion TAM. Talent solutions revenue grew a very strong over 20% in the quarter and continues to outperform a soft white-collar hiring market with growth in new products, increased product penetration across our incarceration and education data assets, and pricing. The talent team continues to execute very well in their big $5 billion TAM. Consumer lending also had another very strong quarter with high double-digit revenue growth led by card and consumer finance, principally due to penetration and record growth. This is increasingly an important growth vertical for Workforce Solutions as they roll out new solutions in the auto card and personal loan verticals.

Employer services revenue was down 5% in the quarter, as expected, due to the suspension of the Work Opportunity Tax Credit, or WOTC program. Workforce Solutions EBITDA margins of 51.4% were in line with our expectations, despite the revenue impact from the weaker mortgage market. TWN record additions continued to perform well again in the third quarter, with 223 million total active records, up 12%, and 125 million total current active records up 11%, which represent 110 million unique individuals or SSNs. We expect strong record growth as we exit 2026 and in 2027 from W-2 based records, as well as alternative record sources like Pension, Gig, and 1099, with significant potential for record additions with 250 million income-producing Americans against our 110 million unique SSNs in The Work Number data set at the end of the quarter.

Turning to slide 6, in 2026, we made excellent progress with government customers converting our large commercial pipeline with renewals, extending existing relationships, and adding new principally state government customers. As a reminder, we operate in a $5 billion TAM at the federal, state, and local level of principally manual income verifications for delivery of social services. Year to date, the EWS government team has signed agreements with state agencies for the provisioning of income and employment data supporting principally SNAP and CMS, totaling over $550 million in annual contract value, including about $150 million in new business and $400 million in renewals, an extremely strong result that will principally benefit our Workforce Solutions government vertical in 2027.

Our discussions with state agencies continue to be robust and productive, given the strong value proposition from TWN on speed of social service delivery, caseworker productivity, and accuracy of income verifications, which drives a reduction in improper payments and helps states get benefits to those who need them more quickly. Further, we have seen strong engagement from states converting to subscription-based contracts that provide more certainty of spending levels as well as adding new solutions from Workforce Solutions. For example, Continuous Evaluation for SNAP is a new EWS solution that identifies changes in recipient incomes above program levels to reduce SNAP error rates. Our new CE solution has been added to several recent state contracts. We are having active discussions with states to support verification of hours worked for new OBBB Medicaid work requirement obligations beginning in January 2027.

Our EWS Complete Income solution supports states' ability to validate income through a single integrated solution that includes The Work Number and other sources of income such as gig work, self-employed wages, and non-earned income through applicant permission services. We also have several large new federal opportunities in our deal pipeline. Our strong wins and renewals this year, along with continued strong deal pipelines, reinforces our confidence in the medium and long-term growth opportunities for EWS Government, supporting states in meeting requirements regarding accuracy and frequency of income validation in Medicaid, SNAP, and other social services. The EWS Government team is clearly on offense, supporting federal, state, and local customers with their social service program requirements and has significant opportunities for long-term revenue growth supporting government programs in their big $5 billion TAM. Turning to slide 7. USIS also delivered a solid quarter with diversified markets revenue growth of 6%, consistent with the solid performance in the second quarter and within their long-term framework.

B2B revenue was up 5% with high single-digit online growth in FI from stronger volumes, new business, and pricing, and mid-single-digit online growth in auto from pricing and new business wins. We also saw improved growth in commercial and insurance. Within financial marketing services, our offline batch business revenue was up over 10%, led by very strong broad-based growth across marketing, identity and fraud, and account reviews, principally from new business. Our consumer direct business continued to deliver strong growth of 9% in the quarter from good subscriber growth in our direct channel and new business wins in our partner channel. USIS mortgage revenue was up 28% and up low single digits ex-FICO against a slowing mortgage market late in the quarter.