Simon Clinch: Hi. Thanks for taking my question. I wanted to just jump to the government vertical, please. And of the growth – the excellent growth that you delivered this quarter, are you able to break out how much of that growth actually came from redetermination so that we can get a sense of what the actual underlying growth rate is, to start with?
Mark Begor: Yeah. And thanks for bringing up government. It’s the first time we’ve gotten a question on that this morning. And as you know, that business is really performing exceptionally well. And as we talked about in the quarter it’s actually now our largest vertical inside of Workforce Solutions for the first quarter in Workforce Solutions history. So it’s a very powerful business for us in that $5 billion TAM. We exited the year at roughly a $600 million annual run rate in that business, which obviously is well north of, slightly north of 10% of overall Equifax. So it’s a vertical we like with lots of growth opportunities. There are – there’s multiple levers I think John and I both talked about in our prepared comments in government.
Redeterminations are a piece of that. I wouldn’t think about that as like disproportionate from the other levers that we have inside of government. You may remember back in September we signed a big extension with CMS that was over a billion dollars that had a price increase in it. So that’s rolling through. That’s a five-year contract. You can make your own assumptions on the impact that had in the fourth quarter. And again, the first quarter is that price increase goes into effect and that has annual escalators post when we lap it in September of 2024. We signed a brand new contract in September with USDA for SNAP TANF benefits that’s $190 million contract over five years. So that’s rolling into the P&L and positive in both the fourth quarter and the first quarter.
And then we’ve also tried to be pretty deliberate about sharing that the state penetration is also a very strong lever for growth. And we should probably think about how we can better articulate that for you. But as you probably know we have a lot of penetration opportunity primarily at the states. Government social services are delivered at the state level and we’ve put more and more resources at the state capitals to really drive usage of our solutions. And as a reminder a state is not an entity. Each agency within a state is really the entity that we work with, whether it’s food stamps, rent support, child care support, healthcare benefits all the different social services or kind of different organizations and all types of states. So that’s had a big positive for us.
So it may be a bit long winded, but it’s multifaceted. All of those levers and then price, right. Prices inherent in our contracts, we don’t do one, one price increases in our government contracts. Those are all built in as multi-year contracts with escalators in them. But we have a lot of visibility as we enter the year when those price actions are going to lay into our P&L as we roll through the year.
Simon Clinch: Okay. Just time for a couple.
Mark Begor: Strong growth in the second quarter, right, so we’re going to continue with strong growth in the second quarter despite the fact that the redetermination after the pause is over. Again, as a reminder, redeterminations happen continuously. It’s a requirement of government programs that you redetermine that the participants are still eligible. The difference was they were on pause during the health emergency.
Simon Clinch: Yeah. Okay, thanks. And as a follow-up question, I guess it’s more of a high-level question here on the mortgage market and EWS’s position within it. The industry is going to be going through an evolution over the next decade, becoming more automated, reducing costs, but also shrinking, hopefully the time it takes from origination to closing a mortgage. I’m wondering how does that impact your business in EWS in terms of the pricing power you have, but also the number of – the number of polls you might get per inquiry and all that kind of stuff. How is that factored into your long-term framework?
Mark Begor: Yes. So first off, you hit all the right points and it’s not new. It’s been happening as we speak, and it’s been happening over the last five plus years as more and more consumers are shopping for mortgages online. It’s actually very rare that they go into a mortgage broker’s office now. So that’s been a huge change, and as you point out, the fact that they’re not seeing the consumer results in the value of instant as well as digital data being more valuable. And then the second half of that is every vertical we’ll focus on mortgage, but autos the same case cards, et cetera. They want to shorten the time between, call it inquiry or application or shopping through the closing. And mortgage is very precarious for a mortgage originator, because they’re spending $3,000, $4,000, $5,000 of COGS on that closed loan.
And the reason they need instant and accurate data is they need to make sure that they want to continue to invest in that application over what could be a 60, 90 day timeframe and a lot can change for the consumer around their credit. They could take on more credit and then no longer qualify for the loan. It can change about their employment. They could lose their job; change their job, et cetera. So that’s why instant data is very valuable. So digitization and focus on shortening the time to complete a process plays to Equifax when we have instant data. In the case of mortgage on income and employment, and background screening for employment history in government, social services around income, those all play to us. And there’s also an element of productivity, because if they’re not using our solution, in the case of mortgage there’s still a large number of mortgage originators that do all of their verifications manually.
There’s a lot of labor involved in that. As labor costs go up, you have the double benefit of both speed, actually triple speed, accuracy and productivity. So those macros play to us in mortgage and more broadly across Equifax.
Operator: Thank you. Our next question is coming from Toni Kaplan from Morgan Stanley. Your line is now live.
Toni Kaplan: Thank you. I wanted to ask a question on the guidance. It implies a strong second half improvement in workforce. And you talked about a number of the drivers in this call, including lapping the ERC headwind. And you mentioned adding records, among others. I was hoping you could talk about the pipeline with regard to records, if that’s a big driver and also just maybe directionally the importance of what starts to go a little bit better as we go through the year?
Mark Begor: So records is certainly one that is important. We were pleased with our record additions. As you know, we added four partnerships in the fourth quarter. We added a bunch last year, but those four coming on in the first half of the year, and then landing this largest payroll processor with 6 million records, that’s a lot of records to add. When you think about [indiscernible] million individuals that is a real positive to have that. And now we have visibility of where we expect that to come on. And as you know, the power in our business model is that when we add a new record or these 6 million records, we monetize them the next day because we’re already getting inquiries from our customers for them. So that clearly records in the second half is a positive and ERC is kind of what it’s going to be.
The WOTC piece is a little – is a kind of a timing impact. As the government forms didn’t get fully implemented in the first quarter. That’s going to be a benefit from that small backlog as we go through the second half. What else would you add, John?
John Gamble: I think talent moves back across ten, which we think is very beneficial. You asked upfront about the pipeline for new contributors. We think the pipeline is very strong. What we talked about is who we’ve closed. The pipeline is also strong and there’s opportunities for strengthen as we go through the year. And we would expect that it would, right. So we feel very good about the pipeline of new contributors and it’s growing as we continue to add more.
Mark Begor: Toni, I shared this earlier, but you think about the 126 million individuals we have today in our data set for twin. There’s 225 million out there, so we got 100 million to go, so there’s a long runway for record growth and as John pointed out, we have a very active pipeline for second quarter, for third quarter, for fourth quarter. There’s still a lot of momentum and enthusiasm for those that are not monetizing the records with equal crack to do so.
John Gamble: And it has some exciting new products in EWS, some of which we’ve already talked about, which we think should drive growth again in the non-mortgage segments, generally in verifier. So again we feel very good about the trends that you should be seeing as we go through the year and that will deliver.
Toni Kaplan: Yes. Great. And just as you think about the first four months of this year, basically when you think about what you’ve seen in terms of consumer demand or lender appetite, you mentioned strong employment persisting and that’s obviously good from a consumer credit standpoint. But just any sort of changes or trajectory that you’ve seen, that either make you more constructive or this is something we’re watching?
John Gamble: So far what we’ve seen, I think in terms of the broader markets other than mortgage, right. Obviously mortgage we guided and now assuming a market that was consistent with run rates that we were seeing. As Mark said, I think expectations in the market were very different than that. And we’ve seen probably the market expectations move toward where we started, maybe not quite to where we were, but moved in that direction. Other than that, right. I think the only market we talk about where we’ve seen a little weakness is in auto, and we have seen that was a little weaker than we expected. Other than that, generally speaking, I think the markets don’t look that different than when we started the year. FI looks fairly good.
Right. So I think we feel fairly good and we think things are operating consistent, generally speaking with where we started the year. Right. The big impact on USIS non-mortgage that we – that we’ve already talked about is our sales to other bureaus. Right. And that, that was weaker than we thought, and we’ve now assumed that that’ll continue.
Operator: Thank you. Our next question is coming from Arthur Truslove from Citi. Your line is now live.
Arthur Truslove: Thank you very much. Good morning, [indiscernible]. So I guess the main question from me was, you’re obviously saying that mortgage origination volumes were down 22%. I guess if I look at data from elsewhere, whether it’s Fannie Mae, new acquisitions or MBA forecasts, it looks like they think volumes might been up certainly in January and February and maybe in the first quarter and certainly not down very much. I guess my question is sort of, how do you explain that gap between what these people seem to be seeing and what you’ve seen in terms of those originations? Thank you.
Mark Begor: Yes. So what we quote, right. Is our inquiry. So we quote actual inquiry data on the credit bureau. Right. And as a reminder, mortgage transactions require tri-bureau pole. So we and our peers see every transaction. Right. We know there’s third parties that estimate originations. They don’t know what they are. They’re doing surveys and estimating a number, and we don’t use that number or try to explain the difference between inquiries, which are actuals as of the day that we give them and what you’re seeing from third party groups that are doing estimations. So when we’re talking about mortgage inquiries in the first quarter and our estimation of mortgage inquiries for the year, it’s based on actuals and what we can see transacting.
Arthur Truslove: But just following up on that. So if obviously inquiries are earlier in the process than originations. So I was referring more to the origination side within the Workforce Solutions business. And I guess my question was essentially, are you losing share there, whether to manual activity or to other participants in the market? Because on the sort of origination side, it looks like the third-party data providers offset are forecasting significantly better trends than what you printed. So I guess I was trying to understand whether you…
Mark Begor: Maybe a couple of things, is this the data I think you’re looking at and we look at too, we found historically to be too optimistic. Mortgage originations we don’t see and the industry don’t see except on a six month lag. Right. That’s how it’s reported. It doesn’t show up. And what you’re looking at is surveys. These are surveys where MBA and others will go out to some of the participants and say, what do you think mortgage originations are going to be? And some of those were done probably back in February or March when the expectation was of Fed rate cuts, maybe in second quarter, which obviously doesn’t feel like that’s how the Fed’s signaling today. So there’s a lot of change in that. When we look back historically at actual originations, which again are on a six month lag compared to our inquiry activity, there’s a strong alignment with it, so we don’t see it differing.
And what we’ve done for a decade is use our mortgage inquiries as a proxy for the market because that’s what we see. And then trying to share with you how we’re doing versus the market, which is our mortgage outperformance typically. And what it has been. Not typically, but it has been meaning how far do we grow above the market from price product in the case of EWS records or penetration into either USIS or TWN customers.
John Gamble: And if you take a look at the TWN inquiries that we discussed, as well as compare them to credit, somewhat similar, and they tend to be moving directionally together. So that’s something we look at closely to see how they’re moving together. Because we know in one case credit, we see all the transactions because it’s mandated, right. So when we think about looking at trends and trends in EWS, we try to compare them a little bit to USIS, so that we can, that’s our best judge for how things are trending across both businesses.
Arthur Truslove: Thank you. That’s very helpful.
Operator: Thank you. Our next question today is coming from George Tong from Goldman Sachs. Your line is now live.
George Tong: Hi, thanks. Good morning. Within your Workforce Solutions business, can you talk a little bit about what you’re seeing around customer price sensitivity and overall competition in the quarter and impact that these might have had on EWS growth?
Mark Begor: Yes. Two different questions. The first one on so-called price sensitivity and I would say universally, nobody likes price, nobody likes a price increase. So from a sensitivity standpoint, there’s always challenges in any of our verticals when we go out to take price up. But our customers understand the value of our data and the uniqueness of our data. So those are conversations that we work through, and we work hard to try to be balanced around what we do on price. And as you know, price is only one lever that we use at Equifax. Product is a big part of how we go to market. And product for us, you got to think about, is really bringing more ROI or value to our customer’s penetration into our verticals. We have big white space and lots of verticals, particularly in Workforce Solutions, where we’re converting from manual to our instant solution.
