Equifax Inc. (EFX) Q3 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

Equifax's earnings call summary indicates a positive outlook with increased full-year revenue and EPS guidance, despite some challenges in Workforce Solutions. The Q&A section reveals strong growth in EWS non-mortgage lending and positive government vertical momentum. Although there are uncertainties, such as the federal shutdown and VantageScore adoption, the company's strategic initiatives and product innovation are well-received. Adjusted EBITDA margins are stable, and the long-term growth framework is reaffirmed. Overall, these factors suggest a positive stock price movement over the next two weeks.

Key Financial Performance

Revenue $1.54 billion, up over 7% in constant currency and reported dollars. Revenue was $25 million above the midpoint of July guidance, driven by outperformance in U.S. mortgage and EWS and USIS non-mortgage. Total U.S. mortgage revenue was up 13% in the quarter due to stronger market volumes and lower mortgage rates.

Adjusted EPS $2.04 per share, $0.12 above the midpoint of July guidance, reflecting stronger revenue growth and solid operating leverage.

Adjusted EBITDA Margins 32.7%, up 20 basis points sequentially, driven by revenue growth and operating leverage.

EWS Revenue Growth 5%, driven by high single-digit growth in Government and 20% growth in Consumer Lending. Active records were up 9% year-over-year.

USIS Revenue Growth 11%, driven by mortgage revenue growth of 26% and non-mortgage revenue growth of 5%. Adjusted EBITDA margin was 35.2%, up 130 basis points year-over-year.

International Revenue Growth 7% in constant currency, with adjusted EBITDA margins up 360 basis points year-over-year due to revenue growth, operating leverage, and cost improvements from Cloud migrations.

Free Cash Flow $360 million returned to shareholders, including $300 million in share repurchases. Full-year free cash flow guidance increased to $950 million to $975 million, up from $900 million.

Workforce Solutions Adjusted EBITDA Margins 51.2%, slightly better than expected, driven by higher-than-expected revenue growth and strong operating leverage.

TWN Active Records 199 million active records, up 9% year-over-year, and 113 million current records, up 6%.

Vitality Index 16%, a quarterly record, with strong new product rollouts. Full-year guidance raised to 13% from 12%.

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Operating Highlights

Vitality Index: Achieved a quarterly record of 16%, with over 150 new product launches in 2025. Raised full-year Vitality guidance to 13%.

EFX.AI Innovations: Launched Ignite AI Advisor and piloted EFX IQ, which includes affordability models and decision optimization tools. Expanded AI-powered fraud prevention tools.

New Mortgage Prequal Credit File: Introduced a solution with TWN indicators and additional data attributes to enhance credit file differentiation.

VantageScore 4.0 Expansion: Expanded offerings to compete with FICO, pricing at $4.50 per score to drive adoption. Expected to generate $100-$200 million in incremental profit at full adoption.

International Revenue Growth: Achieved 7% growth in constant currency, with strong performance in Canada, Latin America, Europe, and Asia Pacific.

Equifax Cloud Transformation: Completed migration, enabling cost savings and innovation. Delivered margin expansion and operational efficiencies.

Restructuring Charges: Incurred $44 million in charges to streamline operations, expected to save $30 million annually by late 2026.

Government Engagement Post-OB3: Increased discussions with federal and state agencies to address improper payments and compliance with OB3 requirements. Launched new solutions for SNAP and Medicaid verifications.

Mortgage Pricing Strategy: Introduced competitive pricing for VantageScore 4.0 to challenge FICO's monopoly, aiming to lower costs for customers and increase Equifax's profitability.

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Risk or Challenges

Restructuring Charges: Equifax incurred a $44 million restructuring charge for cost reduction actions, which could pose risks if the expected $30 million annual savings by 2026 are not realized or if operational disruptions occur during the restructuring process.

Mortgage Market Volatility: U.S. mortgage revenue is heavily influenced by fluctuating mortgage rates and low home inventory levels, which could impact future revenue stability. Mortgage hard credit inquiries were down 7%, reflecting ongoing market challenges.

Regulatory and Compliance Risks: The company faces risks related to compliance with new OB3 legislation and other regulatory requirements, particularly in the government vertical. Failure to meet these requirements could impact revenue growth in 2026 and beyond.

Economic Uncertainty: Macroeconomic factors, including inflation and potential federal government shutdowns, could negatively impact transaction volumes and overall business performance.

Competitive Pressures: FICO's aggressive pricing actions in the mortgage credit scoring market and Equifax's response with lower-priced VantageScore 4.0 could lead to revenue uncertainties and challenges in driving customer adoption.

Hiring Market Weakness: Weaker hiring trends, particularly in white-collar segments, have negatively impacted Talent Solutions revenue, which could continue to face headwinds if hiring does not improve.

Cloud Migration Risks: While the cloud transformation is largely complete, risks remain in fully realizing cost savings and operational efficiencies, as well as potential disruptions during the transition.

Fraud and Security Risks: The evolving nature of fraud, including synthetic identity and first-party fraud, poses ongoing challenges that require continuous investment in advanced fraud prevention tools.

International Market Risks: While international revenue grew, geopolitical and economic uncertainties in regions like Latin America and Europe could impact future performance.

Government Engagement Risks: Increased engagement with federal and state agencies post-OB3 legislation presents opportunities but also risks if the company fails to secure contracts or meet heightened verification requirements.

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Guidance & Outlook

Fourth Quarter and Full Year 2025 Guidance: Equifax raised its full-year revenue guidance by $40 million and adjusted EPS by $0.12 per share. Free cash flow guidance increased to $950 million to $975 million, with cash conversion exceeding 100%. Fourth-quarter revenue is expected to grow by 6.5% year-over-year in constant currency, with adjusted EPS between $1.98 and $2.08 per share. Adjusted EBITDA margins for Q4 are projected at 33% to 33.3%.

Workforce Solutions (EWS): Revenue is expected to grow mid-single digits for the full year and fourth quarter. Non-mortgage Verifier revenue is projected to grow high single digits in Q4, with mortgage revenue up low single digits. Employer Services revenue is also expected to grow low single digits. Adjusted EBITDA margins for EWS are forecasted at 50% to 50.3% in Q4.

USIS Segment: Full-year revenue is expected to grow high single digits, with Q4 revenue up high single digits. Non-mortgage revenue is projected to grow mid-single digits, while mortgage revenue is expected to grow over 20% in Q4. Adjusted EBITDA margins for Q4 are forecasted at 35.8% to 36.1%.

International Segment: Revenue is expected to grow at the high end of mid-single digits in Q4, consistent with Q3 performance. Adjusted EBITDA margins are projected at 31.2% to 31.5%.

Long-Term Financial Framework: Equifax expects to deliver 7% to 10% organic revenue growth and 50 basis points of EBITDA margin expansion under normal market conditions. The framework assumes 2% to 3% annual growth in the U.S. mortgage market.

VantageScore Adoption: Equifax is implementing a new pricing structure for VantageScore 4.0 to drive adoption, offering significant cost savings to customers. The company expects this to enhance profitability over the medium and long term, with potential incremental annual profit of over $100 million at current mortgage levels and $200 million as the mortgage market recovers.

EWS Government Business: The OB3 legislation is expected to drive significant revenue growth in 2026 and 2027, with increased state and federal engagement. New solutions targeting improper payments and fraud are being developed, with opportunities to penetrate states not currently using TWN for verifications.

Innovation and AI Deployment: Equifax plans to launch new AI-powered solutions in 2026, including EFX IQ and advanced fraud prevention tools. These innovations aim to enhance decision-making, operational efficiency, and margin expansion.

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Shareholder Return Plan

Dividends: In the third quarter, Equifax returned about $360 million to shareholders, including dividends. The company plans to continue returning cash to shareholders through increasing dividends and share repurchases.

Share Repurchase: Equifax repurchased 1.2 million shares for $300 million, approximately 1% of its shares outstanding, as part of its $3 billion share repurchase program. The company expects to continue share repurchases in the fourth quarter.

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Key Q&A

Q:Can you go into more detail on what you're hearing on the mortgage pricing changes, including anything coming out of the MBA conference?

A:Mark Begor stated that there is significant activity and energy around the Vantage opportunity due to the FICO price increase to $10 in 2026. Equifax has put a competitive offer on the table, and customers are engaging with the Vantage opportunity, recognizing the savings potential compared to FICO.

Q:Can you give more detail on the margin guidance, including the reduction in USIS margin guidance?

A:John Gamble explained that the reduction in USIS margin guidance is due to increased variable compensation driven by better-than-expected performance in the second half of 2025. Additionally, a higher mix of mortgage revenue negatively impacts gross margins in the near term. However, Equifax intends to flow through 100% of the variable profit to shareholders over time.

Q:Do you expect that government-related revenue will ramp after the end of the government fiscal year-end, or will states preemptively start using your solutions ahead of time?

A:Mark Begor noted that there has been an uptick in conversations at both federal and state levels. While most OB3 impacts will occur in late 2026 and 2027, states are engaging now to address current error rates and avoid higher costs. The momentum is positive, and states are focusing on meeting OB3 requirements.

Q:Could you go over the general corporate expense line in the third quarter and what's driving that?

A:John Gamble attributed the increase in general corporate expense to higher variable compensation resulting from stronger-than-expected revenue and operating income performance.

Q:Can you explain the difference in growth rates between USIS and EWS in the mortgage segment?

A:Mark Begor explained that USIS benefited from the FICO price increase and saw an uptick in mortgage activity due to lower rates in September, which impacts prequal shopping. EWS, which operates in the closing stage, saw 2% growth due to pricing and product outperformance against a 7% decline in the mortgage market.

Q:Have you received any feedback from customers on your credit file cost increases?

A:Mark Begor stated that discussions are ongoing, but most attention is focused on the FICO price increase rather than Equifax's credit file cost increases.

Q:What actions are you taking to drive VantageScore adoption in the marketplace?

A:Mark Begor highlighted Equifax's competitive pricing, offering free VantageScores, and leveraging commercial resources to support customers. He emphasized that VantageScore adoption is gaining momentum due to significant cost savings compared to FICO.

Q:Can you help unpack the moving pieces in the Government vertical, including the impact of the federal shutdown and state/local opportunities?

A:Mark Begor noted strong government performance in Q3, with sequential growth expected in Q4. The federal shutdown has not yet impacted revenue, and state-level opportunities are growing due to OB3 requirements and a focus on reducing improper payments.

Q:What is driving the strong growth in EWS non-mortgage consumer lending?

A:Mark Begor attributed the growth to the deployment of TWN in verticals like auto and cards, which combine credit scores with income/employment data. He noted that this growth rate is not expected to be a long-term trend.

Q:What are your thoughts on the potential shift away from tri-merge reports in the mortgage industry?

A:Mark Begor emphasized the value of tri-merge reports due to differences in credit data among bureaus. He noted that discussions are ongoing, but the focus is currently on score pricing rather than tri-merge reports.

Q:Can you provide more details on the evolution of the SNAP contracts and the impact of OB3?

A:Mark Begor explained that OB3 introduces new requirements for states to reduce error rates and improve income verification. Equifax's solutions are integrated to address these needs, and there is growing momentum at the state level to adopt these solutions.

Q:What is your pricing strategy for VantageScore in non-mortgage verticals?

A:Mark Begor stated that VantageScore pricing is significantly below FICO in non-mortgage verticals, and Equifax is offering free VantageScores to drive adoption and understanding.

Q:What is the impact of the federal shutdown on the Government vertical?

A:Mark Begor stated that the federal shutdown has not yet impacted revenue and is expected to result in deferred rather than lost revenue if it continues.

Q:What is driving the strong Vitality Index performance, and what are some key new products?

A:Mark Begor attributed the strong Vitality Index to post-Cloud capabilities and investments in product innovation. Key products include TWN indicator, I-9 virtual, and enhanced Ignite analytics with AI capabilities.

Q:What is your pricing strategy in non-mortgage verticals, and is there room for increases?

A:Mark Begor stated that Equifax has a strategy to price for value and typically increases prices modestly each year, which is expected to continue.

Q:Review of Unclear Management Responses

A:Management avoided directly addressing the potential long-term market share of VantageScore in non-mortgage verticals, providing only general statements about opportunities and catalysts. Additionally, they did not provide specific revenue figures for SNAP contracts or detailed impacts of the federal shutdown on state-level programs.

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Earnings Word Cloud

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