Equifax (NYSE:EFX) has reported a 6% increase in its Q3 2023 revenue to $1.32 billion during its recent earnings call. Despite facing challenges in the US mortgage market, the company demonstrated resilience, with growth in its workforce solutions and non-mortgage revenue. Equifax expects Q4 revenue of $1.317 billion, with adjusted EPS of $1.77, and adjusted EBITDA margins of 34%.
Key takeaways from the call include:
- Equifax's Q3 2023 earnings showed a 6% increase in revenue to $1.32 billion, with adjusted EPS standing at $1.76 per share, up 2% YoY.
- The company faced challenges in the US mortgage market, which weakened in August and September, impacting revenue by $28 million and adjusted EPS by $0.10 per share.
- The company reached an agreement with the UK Financial Conduct Authority regarding the 2017 cyber security incident, resulting in a charge of $14 million in Q3.
- Workforce Solutions revenue grew 3%, driven by verification services and record additions to the TWN database.
- Equifax signed significant contracts, including a contract extension with the US Centers for Medicare and Medicaid Services valued at up to $1.2 billion over five years.
Equifax reported a 3% increase in overall workforce solutions revenue in the third quarter, signaling a return to growth. This growth was driven by strong TWN record growth, positive price actions, and NPI performance. The company added 2 million current records to the TWN database, bringing the total to 163 million current records on 121 million unique individuals.
Despite challenges from the mortgage and U.S. hiring markets, Equifax's workforce solutions and USIS divisions performed well, outperforming their respective markets. International revenue grew by 12% in constant currency, with strong growth in Latin America offsetting a decline in European debt collection revenue.
Equifax expects non-mortgage revenue growth to be about 13% in the fourth quarter, driven by strong performance in the government and talent businesses. The company introduced several new products leveraging their differentiated data and new AFX cloud platform. Equifax completed the acquisition of Boa Vista AC, which is expected to contribute approximately $160 million in run rate revenue and be accretive to adjusted EPS in its first year.
Equifax reported strong performance in the third quarter, with record vitality index of 15% driven by EWS and Latin America. Non-mortgage VI reached over 25%, and 85% of new product revenue came from non-mortgage products leveraging the EFX Cloud. The company closed the Boa Vista AC acquisition in August, which contributed $23 million in revenue and $0.02 per share to adjusted EPS.
The company remains focused on its EFX 2025 growth strategy, including expanding in Brazil, completing its cloud transformation, and delivering strong non-mortgage growth. Equifax reported strong performance in the second half of the year and outlined its plans for the future. The company aims to achieve 7% revenue in 2025 and shift its CAPEX spend towards innovation and new products. Equifax expects to deliver $65 million in cost savings in 2023, with additional savings as the cloud program is completed.
During the earnings call, Equifax executives discussed various aspects of their business. CEO Mark Begor mentioned that they expect lower growth in the third and fourth quarters compared to their initial expectations. He also highlighted the outperformance of their talent vertical, attributing it to factors such as price increases, increased penetration, new product offerings, and the addition of records.
In the mortgage business, Begor explained that the increase in consumer shopping due to rising interest rates benefited their USIS business, while EWS focuses more on closed loans. He noted that they have not seen any impact from competition in their mortgage business and emphasized their ability to add new partnerships as proof of their competitiveness.
Equifax discussed their expectation of gaining market share in the USIS (U.S. Information Solutions) segment due to their ability to deliver stable and fast data transmission through the cloud. They mentioned that one large financial institution in the U.S. is already making the move with them. Equifax plans to complete the cloud transition by 2024, which will drive growth rates in 2024 and 2025. They emphasized that the cloud will allow them to roll out new solutions more quickly and become a more important partner, potentially increasing their market share from secondary to primary positions. The cloud transition will also enable better data combination solutions between USIS and EWS (Employment and Income Solutions).
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