Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Equifax Inc (EFX, Financial) reported strong second-quarter revenue of $1.43 billion, up 9% year-over-year, exceeding the top end of their April guidance.
- The company has made significant progress in its cloud transformation, with over 80% of revenue expected to be in the Equifax cloud by the end of July and 90% by year-end.
- Equifax Inc (EFX) saw strong growth in its global non-mortgage businesses, which represent about 80% of total revenue, with a 13% constant currency revenue growth.
- Workforce Solutions revenue was up 5%, driven by very strong 20% growth in non-mortgage verification services.
- International revenue grew by 28% in constant currency, with strong performances in Latin America and Europe.
Negative Points
- USIS non-mortgage revenue growth was only 1%, which was weaker than expected, partly due to the focus on completing cloud migrations.
- EWS mortgage revenue was down nearly 12%, consistent with expectations but still a decline.
- Employer Services revenue decreased by 11%, primarily due to lower ERC revenue.
- USIS adjusted EBITDA margins were 33.2%, below expectations due to lower-than-expected revenue growth.
- The company continues to face challenges in the auto market, impacted by tight credit conditions and higher interest rates.
Q & A Highlights
Q: How much of the cost saving from the tech transformation has been baked into the third and fourth quarters, and what should we expect for 2025?
A: We have included the cost savings related to the North American consumer businesses completing transformation in the third quarter and beginning the decommissioning. These savings will be more significant in the fourth quarter and will be annualized next year. (John Gamble, CFO)
Q: Where might there be room for error or conservatism in the second half guidance?
A: We try to be balanced in our forecasts. We have seen some softening in USIS end markets and mortgage has not rebounded as expected. However, EWS is performing exceptionally well, and international markets are strong. We believe we have a solid framework for the second half. (Mark Begor, CEO)
Q: What other drags have you assumed on USIS in the third quarter guide?
A: We have seen some softening in end markets like auto due to high payments from higher rates. We also expect some impact from the focus on cloud transformation, which should mitigate as we complete the migrations. (Mark Begor, CEO)
Q: Can you walk us through the building blocks for EWS verification and EVS trends in the back half of the year?
A: EWS verifiers will benefit significantly from record additions. We have visibility on new records coming online, which will turn into revenue immediately. Seasonal hiring and ACA sign-ups will also drive growth in the fourth quarter. (John Gamble, CFO)
Q: How confident are you in the USIS revenue acceleration from cloud completion?
A: We expect benefits from always-on stability, faster product rollouts, and share gains. New products combining TWN income and employment data with credit data will also drive growth. The full benefits will be seen in 2025. (Mark Begor, CEO)
Q: How are you thinking about the broader credit conditions in the second half of the year?
A: The consumer remains strong with high employment and low unemployment. However, high rates are impacting consumer demand for auto financing. We expect these conditions to persist until rates come down. (Mark Begor, CEO)
Q: How much is pricing contributing to growth in EWS non-mortgage verifications?
A: Pricing is one of four levers, along with records, penetration, and new products. Over the long term, these levers are equally weighted in contributing to our 13% to 15% growth framework. (Mark Begor, CEO)
Q: What drove the strong record additions in EWS this quarter?
A: The additions were broad-based, including partnerships with pension administrators, HR software companies, and payroll processors. We have a dedicated team focused on record growth, which has been a significant driver. (Mark Begor, CEO)
Q: How are you thinking about the impact of potential Fed rate cuts on Equifax's performance?
A: Rate cuts would be positive, particularly for our mortgage vertical. We expect mortgage activity to recover as rates come down, which would significantly benefit our revenue and margins. (Mark Begor, CEO)
Q: Can you discuss your AI spending and its impact on margins?
A: We are investing in AI and ML to enhance our scores, models, and products. This investment is part of our ongoing process improvement and is expected to drive higher-performing solutions for our customers. (Mark Begor, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
