Q3 2024 Earnings Summary
- Equifax is nearing completion of its cloud transformation, with 80% now migrated and aiming for 90% by year-end, which will reduce CapEx, increase margins, and free up significant cash flow. This positions the company to return cash to shareholders through dividend growth and share buybacks starting in 2025.
- Strong growth in Latin America, particularly with the integration of Boa Vista, is expected to provide market share gains. Equifax is excited about Boa Vista's performance and anticipates more traction as they deploy Equifax technology like Ignite and InterConnect into 2025.
- New product innovation is driving growth, with a Vitality Index above 11%, surpassing their long-term outlook of 10%. The company is particularly excited about new identity solutions, alternative data products, and unique solutions between EWS and USIS, which differentiate their offerings from competitors.
- Equifax's Employer Services revenue declined by 19% in the quarter, which was weaker than expected, primarily due to lower Employee Retention Credit (ERC) revenues and a slowdown in white-collar hiring affecting their onboarding business.
- Integration of Boa Vista in Brazil has not yet resulted in significant market share gains, and strong competition from established players like Serasa Experian poses challenges to growth in the region.
- The Identity and Fraud segment experienced a revenue decline, weaker than expectations, mainly due to weakness in chargeback management volumes, indicating potential challenges in this important growth area.
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Total Revenue | Q3 2024 | $1.425B to $1.445B | $1,441.8M | Met |
Workforce Solutions YoY Growth | Q3 2024 | ~8% | 7.4% growth (from $577.2MIn Q3 2023 to $620.0MIn Q3 2024) | Missed |
Mortgage Solutions (USIS) YoY Growth | Q3 2024 | >12% | 39.2% growth (from $27.3MIn Q3 2023 to $38.0MIn Q3 2024) | Beat |
USIS Segment YoY Growth | Q3 2024 | ~8.5% | 11.9% growth (from $426.0MIn Q3 2023 to $476.9MIn Q3 2024) | Beat |
Non-Mortgage Verifier (EWS) YoY Growth | Q3 2024 | Slightly under 20% | 14.3% growth (from $459.3MIn Q3 2023 to $524.9MIn Q3 2024) | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Cloud transformation and margin expansion | Recurring across earlier calls, emphasizing full North America cloud completion by late 2024 or early 2025, with expected annual margin expansion of about 50 basis points. | By Q3 2024, 80% of revenue in the cloud with a target of 90% by year-end, continuing to drive margin expansion through reduced legacy costs and new efficiencies. | Recurring; consistently viewed as a bullish driver for cost savings and growth. |
Mortgage market cyclicality and interest rate impacts | Previously discussed as a major revenue driver once interest rates ease, with references to 50% below normal volumes and sensitivity to even small rate shifts. | Execs expect eventual recovery from current suppressed levels (50% below historical norms), with a potential $1.1B revenue opportunity once rates decline. | Recurring; cautious optimism remains, awaiting lower rates to unlock growth. |
Talent Solutions and white-collar hiring trends | Consistent focus in prior calls, with Talent Solutions often outperforming market hiring data but facing periodic dips from slower white-collar hiring. | 9% revenue growth in Q3 2024, but a late-quarter slowdown in white-collar hiring is expected to weigh on onboarding revenue. | Recurring; sentiment turned slightly more cautious due to recent hiring slowdown. |
International expansion and margin improvements | Previously highlighted strong revenue and margin gains from cloud adoption and new product rollouts across Latin America, Europe, and Canada. | 18% constant currency growth and 27.7% margin in Q3 2024, benefiting from cloud migrations in Canada, Latin America, and Europe. | Recurring; bullish outlook as further cloud migration and product innovation are expected to drive growth. |
Price increases in EWS and USIS | Referenced as a growth lever in prior calls, with higher pricing justified by unique data and value-added products. | Planned for January 1, 2025, with details on magnitude to be provided in early 2025. | Recurring; steady approach, continuing to support revenue. |
Rising delinquency rates across lending categories | Mentioned in earlier calls as subprime delinquencies exceed pre-pandemic levels, while prime remains more resilient. In Q2 2024, there was no specific mention [N/A]. | Slightly higher delinquencies year-over-year, but still at manageable levels; subprime remains tight, prime largely stable. | Recurring; viewed as a concern primarily in subprime, but not yet a broader market risk. |
Employee Retention Credit (ERC) revenue declines | Ongoing declines discussed in previous quarters, with ERC moving from $5M to $3M and now $1M run rates. | ERC revenue down to $1M per quarter, a steep drop from prior $10M levels, pressuring EWS employer business. | Recurring; negative impact continues as ERC winds down. |
Auto market softness | Previously reported interest-rate-driven softness with modest consumer demand declines, plus a short-term vendor-related issue (CDK) in Q2 2024. | Noted softening in Q3 2024, influenced by higher interest rates, but not viewed as severely depressed. | Recurring; mild negativity tied to interest rates. |
Government sector TAM expansion | In prior calls, highlighted as a high-growth vertical with multi-year federal and state contracts, expanding from $4B to $5B TAM. | $5B TAM, with $800M run-rate business; largest opportunities at state level where manual processes still dominate. | Recurring; consistently bullish, seen as a long-term growth driver. |
Third-party sales to other credit bureaus | Down double digits in prior quarters, contributing to USIS revenue softness. | Declines continued in Q3 2024, though expected to level off by Q4. | Recurring; negative trend, but possibly stabilizing near term. |
-
Mortgage Market Outlook
Q: What will drive mortgage revenue recovery?
A: Mark Begor explained that the $1.1 billion mortgage revenue opportunity assumes a return to historical averages from 2015 to 2019, with purchase activity being a significant contributor. He highlighted that as interest rates decrease, both purchase and refinance activities are expected to pick up, moving towards that $1.1 billion market opportunity. The recent rate increases are unprecedented, but even small rate declines have stimulated the market, indicating pent-up demand. -
Guidance Reduction and Philosophy
Q: Why has guidance been lowered?
A: Mark Begor stated that the guidance reduction is primarily due to volatility in the marketplace impacting certain verticals, notably the EWS employer business. Factors include the halt of employee retention credits by the IRS, delays in state responses to federal changes in work opportunity tax credits, and slowdowns in background screening volumes, particularly in white-collar hiring. Despite these challenges, they are pleased with their third-quarter performance and strong fourth-quarter guidance. -
Capital Returns: Dividends and Buybacks
Q: How will you approach capital returns in 2025?
A: Mark Begor indicated that with the completion of the cloud transformation and a reduction in CapEx, substantial free cash flow will be available to return to shareholders. They plan to continue with bolt-on M&A while also increasing dividends and initiating share buybacks. The dividend growth is envisioned to align with earnings growth, and excess free cash flow will be used for share repurchases. -
Technology Transformation Benefits
Q: What benefits will the tech transformation bring?
A: The completion of the cloud transformation allows USIS to focus on growth, innovation, and new products without the distraction of migration efforts. Mark Begor anticipates share gains, cost savings, and margin expansion. He noted that USIS's vitality increased by 100 basis points in both the second and third quarters, moving towards a 10% vitality rate, which is expected to benefit 2025 revenues. -
Workday Partnership and Record Additions
Q: What is the impact of the Workday partnership?
A: Mark Begor expressed excitement about the strategic partnership with Workday, noting it will contribute to sizable record additions in 2025. While some records will come online in the fourth quarter, the substantial growth is expected next year. Overall, they continue to see strong record growth, with records up 12% in the quarter, and expect this to drive revenue growth as they monetize new records across their verticals. -
Employee Retention Credits Impact
Q: How did the halt of employee retention credits affect you?
A: The stopping of employee retention credits by the IRS has impacted the EWS employer business, contributing to the slight lowering of guidance. There is currently no activity expected from these credits, which affects revenue in that segment. Previously, employee retention credits were about $10 million per quarter and are now approximately $1 million per quarter. -
Consumer Credit Environment
Q: What is the outlook on consumer credit health?
A: Mark Begor observed that while there is some softening in end-market consumer demand, such as in auto loans, overall consumer credit health remains good. Delinquency rates have increased but are still within manageable levels for lenders. Employment remains strong, and unless unemployment rates rise significantly, they do not expect major impacts on their volumes. -
Government Vertical Growth
Q: Where do you see growth in the government sector?
A: The primary opportunity lies in penetrating state agencies to provide social service verifications, a market with over $4 billion in potential revenue. Equifax is investing in new products and technology and adding resources to increase penetration at the state level. They expect the government vertical to continue growing at strong double-digit rates, outpacing the 13% to 15% growth framework of Workforce Solutions.
Research analysts covering EQUIFAX.