Equifax Inc Q1 FY2021 Earnings Call

Good day, and welcome to the Equifax First Quarter 2021 Earnings Call. Today’s conference is being recorded. And at this time, I would like to turn the conference over to Dorian Hare, Senior Vice President and Head of Investor Relations. Please go ahead, sir.

Thanks and good morning. Welcome to today’s conference call. I’m Dorian Hare. With me today are Mark Begor, Chief Executive Officer; and John Gamble, Chief Financial Officer. Today’s call is being recorded. An archive of the recording will be available later today in the Investor Relations section in the About Equifax tab of our website at www.equifax.com. During the call today, we will be making reference to certain materials that can also be found in the Investor Relations section of our website under Events and Presentations. These materials are labeled Q1 2021 Earnings Release Presentation. During this call, we will be making certain forward-looking statements, including second quarter and full year 2021 guidance to help you understand Equifax and its business environment. These statements involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from our expectations. Certain risk factors that may impact our business are set forth in filings with the SEC, under our 2020 Form 10-K and subsequent filings. Also, we will be referring to certain non-GAAP financial measures, including adjusted EPS attributable to Equifax and adjusted EBITDA, which will be adjusted for certain items that affect the comparability of our underlying operational performance. These non-GAAP measures are detailed in reconciliation tables, which are included with our earnings release and are also posted on our website. Now, I'd like to turn it over to Mark.

Thanks, Dorian. Before I address Equifax's very strong first quarter results, I want to again thank our 11,000 employees and families that supported them for the tremendous dedication they continue to show under the challenging COVID environment over the past year. We continue to make the health and safety of our employees a top priority and I hope that you and those close to you remain safe. Turning to Slide 4, and as I will cover in a moment, Equifax delivered an outstanding first quarter with record revenue and strong sequential growth versus fourth quarter. The tremendous progress we have made executing against our strategic priorities and building out our Equifax cloud capabilities is allowing us to outperform our underlying markets and deliver outstanding revenue growth and margin expansion. In the U.S. where the economy is still recovering from the COVID pandemic more rapidly than we anticipated, we continue to outperform the overall mortgage market, which remains strong in the first quarter. We're also seeing a real recovery and strong growth across our core banking, auto, insurance, government, and talent business segments. We delivered growth again in the first quarter internationally with continued challenging COVID restrictions in place in most of our global markets and we expect to see acceleration in this growth as economies recover outside the U.S. First quarter was a great start to 2021. We are energized by our strong momentum and pivoting to our next chapter of growth with the launch of EFX2023, our new strategic growth framework that will serve as our company-wide compass over the next three years. With our new Equifax Cloud foundation increasingly in place, we're focused on leveraging our new Equifax Cloud data and technology infrastructure to accelerate innovation, new products, and growth. Innovation and new products will fuel our growth in 2021 and beyond as we leverage our new Equifax Cloud capabilities to bring new products and solutions and multi-data insights to customers faster, more securely, and more reliably. As you know, we ramped our investments in product and innovation resources over the past 12 months to accelerate our new product rollouts leveraging the new Equifax Cloud. Our highly unique and diverse data assets are at the heart of what creates Equifax’s differentiation in the marketplace. We have data assets at scale that our competitors do not have, including TWN, NCTUE, DataX, IXI and more and we are committed to expanding and deepening these differentiated data assets through organic actions, partnerships and M&A. We're also relentlessly focused on a customer-first mentality, which moves us closer to our customers with a focus on delivering solutions to help solve their problems and drive their growth. Another critical level of our strategy is to reinvest our accelerating free cash flow in smart, strategic and accretive bolt-on acquisitions that both expand and strengthen our capabilities with a goal of increasing our revenue growth by 1% to 2% annually from M&A. Data security is deeply embedded in our culture, we have clearly established Equifax as an industry leader in data security. Working together as one aligned global Equifax team, where we leverage our commercial strengths, our new products and our capabilities across our EFX Cloud global platform, will allow us to deliver solutions that only Equifax can bring to the marketplace. We're energized around our new EFX2023 strategic priorities that will serve as our guidepost over the next three years and support our new long-term growth framework that we plan to put in place later this year. Turning now to Slide 5, Equifax performance in the first quarter was very strong. Revenue at $1.2 billion was the strongest quarterly revenue in our history. In first quarter, constant currency revenue growth was a very strong 25% with our growing organic growth at 23%, which was also an Equifax record. As a reminder, we're coming off a solid 13% growth in first quarter last year. All business units performed — outperformed our expectations and we are seeing positive signs of a COVID recovery beginning to accelerate, particularly in the U.S. Our growth was again powered by our two U.S. B2B businesses, Workforce Solutions and USIS, with combined revenue up a very strong 38%. Mortgage-related revenue remained robust, and importantly, our non-mortgage-related verticals grew organically by a very strong 16%. The adjusted EBITDA margins of our U.S. B2B businesses were 52%, up 400 basis points, with EWS delivering close to 60% margins. As a reminder, Workforce Solutions and USIS are over 70% of Equifax revenue and 80% of Equifax business unit EBITDA. First quarter Equifax adjusted EBITDA totaled $431 million, up 36% with over 250 basis points of expansion in our margins to 35.6%. This margin expansion was delivered while including all cloud technology transformation costs in our adjusted results, which negatively impacted first quarter adjusted EBITDA margins by over 300 basis points. Excluding Kount cloud transformation costs, our margins would have been up over 500 basis points. We are clearly getting strong leverage out of our revenue growth. Adjusted EPS at $1.97 per share, was up a very strong 37% from last year, which was also impacted by the inclusion of cloud transformation costs. Adjusted EPS would have been $2.20 and up 54% excluding these costs. We continue to accelerate our EFX Cloud data and technology transformation in the quarter, including migrating an additional 2,000 customers to the cloud in the U.S. and approximately 1,000 customers internationally. Leveraging our new EFX Cloud infrastructure, we also continue to accelerate new product innovation. In the first quarter, we released 39 new products, which is up from 35 launched a year ago in the first quarter, continuing the momentum from 2020 where we launched a record 134 new products. And we're seeing increased revenue generation from these new products leveraging our new EFX Cloud. For 2021, we expect our vitality index, defined as revenue from new products introduced in the last three years, to exceed 8%. This is a 100 basis point improvement from the 7% guidance we provided in our vitality index back in February. And in the first quarter, we completed five strategic bolt-on acquisitions, with a focus on identity and fraud capability through our acquisition of Kount and accelerating growth in Workforce Solutions with the acquisitions of HIREtech and i2Verify. Acquisitions that will broaden and strengthen Equifax are a strong lever for continuing to accelerate our growth and a big focus. We were energized by our fast start to 2021 and are clearly seeing the momentum of our One Equifax model, leveraging our new EFX Cloud capabilities. Our first quarter results were substantially stronger than the guidance we provided in February with over 90% of the revenue outperformance delivered in our two U.S. B2B businesses, Workforce Solutions and USIS. Importantly, as we'll discuss in more detail shortly, over 60% of this outperformance in the U.S. B2B revenue was in our non-mortgage segments in both USIS and Workforce Solutions. Non-mortgage revenue strengthened consistently during the first quarter with March revenue up significantly versus February in both USIS and EWS. This broad-based strength was above our expectations and gives us confidence about further strengthening in the second quarter and second half as the COVID recovery unfolds. Mortgage revenue was also stronger than we expected, despite the growth in U.S. mortgage market at 21% being slightly below our expectations from slowing mortgage inquiries in late March, which have continued into April. Our continued strong mortgage results and outperformance was driven by Workforce Solutions, with stronger market penetration, record growth, and positive impact from new products. USIS mortgage revenue also exceeded expectations slightly. The stronger revenue delivered strong operating leverage with substantial improvement in our EBITDA margins and adjusted EPS. The strength of our first quarter results in Workforce Solutions and in U.S. non-mortgage revenue across USIS and Workforce Solutions more broadly, gave us the confidence to substantially raise our 2021 guidance for both revenue and adjusted EPS. We're increasing our revenue guidance by $225 million to a midpoint of $4.65 billion and increasing our adjusted EPS guidance by $0.55 a share to a midpoint of $6.90 per share. This includes our expectation that the U.S. mortgage market for 2021, as measured by credit inquiries, will decline more than in our February guidance of down 5% to a decline of approximately 8%. Our framework assumes that the mortgage market slows primarily in the third and fourth quarter, which is consistent with our prior guidance. John will discuss our mortgage assumptions in more detail in a few minutes. Turning to Slide 6, our outstanding first quarter results were broad-based and reflect better-than-expected performance from all four business units. Workforce Solutions had another exceptional quarter, delivering 59% revenue growth and almost 60% adjusted EBITDA margins. Workforce Solutions is now our largest business, representing almost 40% of total Equifax revenue and is clearly powering our results. Verification Services revenue of $385 million was up a strong 75%. Verification Services mortgage revenue again more than doubled for the fourth consecutive quarter growing almost 100 percentage points faster than the 21% underlying growth we saw in the mortgage market credit inquiries in the first quarter. Importantly, verification services non-mortgage revenue was up over 25% in the quarter. This segment of verification services continues to expand its market coverage and benefit from NPIs, new records, new use cases and acts as a long-term growth lever for Workforce Solutions. Talent Solutions, which represents over 30% of verifier non-mortgage revenue, almost doubled, driven by both new products and recovery in U.S. hiring. Government Solutions, which represents almost 40% of verifier non-mortgage revenue, also returned to growth driven by greater usage in multiple states of our differentiated data. As a reminder, we continue to work closely with the Social Security Administration on our new contract that we expect to go live in the second half and ramp to $40 million to $50 million of incremental revenue at run rate in 2022. Our non-mortgage consumer business, principally in banking and auto, also showed strong growth in the quarter as well, both from deepening penetration with new lenders and from some recovery in those markets that I'll cover more fully in the discussion of USIS. Debt management, which now represents under 10% of verifier non-mortgage revenue, was, as we expected, down versus last year, but is stabilized and we expect to see growth in that vertical as we move through 2021. Employer Services revenue of $96 million increased 17% in the quarter, driven again by our unemployment claims business which had revenue of $47 million, up around 47% compared to last year. In the first quarter, Workforce Solutions processed about 2.8 million unemployment claims, which is up from 2.6 million in the fourth quarter. EWS processed roughly one-in-three U.S. initial unemployment claims in the quarter, which was up from one in five that they had been processing in recent periods, reflecting the growth in Workforce Solutions' UC market position. As a reminder, we continue to expect UC claims revenue to decline sequentially in the second quarter and throughout the balance of 2021 as the U.S. economy recovers and job losses dissipate. We currently expect second quarter UC revenue to decline about 45% versus last year and a full year 2021 decline in UC claims revenue of just under 30%. Employer Services non-UC businesses had revenue down slightly in the quarter. Our I-9 business driven by our new I-9 Anywhere Solution continued to show very strong growth with revenue up 15%. Our I-9 business is expected to continue to grow substantially to become our largest Employer Services business in 2021 and represent about 40% of non-UC revenue. Reflecting the growth in I-9 and the return to growth of workforce analytics, we expect Employer Services non-UC businesses to deliver organic growth of over 20% in 2021. The HIREtech and i2Verify acquisitions that we closed in March had a de minimis impact on revenue in the quarter, but will further add to Workforce Solutions growth during the rest of 2021. I'll discuss both HIREtech and i2Verify a little bit later. Reflecting the power and uniqueness of TWN data, strong verifier revenue growth and operating leverage resulted in adjusted EBITDA margins of 59.3% and almost 800 basis point expansion from last year in Workforce Solutions. Rudy Ploder and the Workforce Solutions team delivered another outstanding quarter and are positioned to deliver a strong 2021. Workforce Solutions is clearly Equifax's largest and fastest-growing business. USIS revenue was up a very strong 19% in the quarter with organic growth also a strong 17%. Total USIS mortgage revenue growth of $177 million was up 25% in the quarter, while mortgage credit inquiry growth up 21% was slightly below the 24% expectation we shared in February. As I mentioned John will cover our updated view of the mortgage market for 2021 in a few minutes. USIS mortgage revenue outgrew the market by 500 basis points in the quarter, driven by growth in marketing and new debt monitoring products. Non-mortgage revenue performance was very strong, with growth of 15% and organic growth of 11%, which is a record for USIS and off a fairly strong first quarter last year. We view this outperformance by USIS as meaningful and a reflection of the competitiveness and commercial focus of the USIS team. Importantly, non-mortgage online revenue grew a very strong 16% in the quarter with organic growth of almost 11%. We saw non-mortgage revenue growth accelerate in February and March as vaccine rollouts increased and financial institutions gained confidence in the consumer and the economy. Banking, auto, ID and fraud, insurance, and the direct-to-consumer all showed growth in the quarter, which is encouraging as we move into second quarter and the rest of 2021. Commercial was about flat, while only Telco was down in the quarter as we expected. Financial Marketing Services revenue, which is broadly speaking our offline or batch business, was $53 million in the quarter, up almost 12%, which is also very positive. The performance was driven by marketing-related revenue, which was up over 20% and ID and fraud revenue growth of just under 10% as consumer marketing and originations ramped up. In 2021, marketing-related revenue is expected to represent about 45% of FMS revenue with identity and fraud about 25% and risk decisioning about 30%. This strong growth across our non-mortgage businesses, including strong growth in marketing-specific offline revenue, is very encouraging for both the recovery of our underlying markets and our non-mortgage performance as we move into second quarter and the rest of 2021. The USIS team continues to drive growth in their new deal pipeline with first quarter pipeline up 30% over last year, driven by growth in both the volume and the size of new opportunities and NPI rollouts. First quarter win rates were also higher than levels seen in 2020. Sid Singh and his USIS team continue to be on offense and are competitive in winning in their marketplace. In addition to driving core business growth in the first quarter, USIS also achieved an important strategic milestone in closing the acquisition of Kount, an industry leader in providing AI-driven fraud prevention and digital identity solutions. Integration efforts are now underway with a key focus on technology and product, leveraging the joint Equifax and Kount data and capabilities. Kount's technology platform will migrate to the Equifax Cloud in the next 12 to 18 months, which will allow for the full integration of Kount and Equifax capabilities for new solutions, new products and market expansion in the fast-growing identity and fraud marketplace. USIS adjusted EBITDA margins of 42.9% in the first quarter were down about 180 basis points from last year. About two-thirds of the decline was due to the inclusion of tech transformation costs in our adjusted EBITDA in 2021. The remainder of the decline was principally driven by the higher mix of mortgage products and redundant system costs from our cloud transformation. Moving now to international, their revenue was up 3% on a constant currency basis in the quarter, which is the second consecutive quarter of growth in our global markets that are still very challenged by COVID lockdowns and slow vaccine rollouts. Revenue growth improved significantly in Canada, Asia Pacific, which is our Australian business, and Latin America. This was partially offset by revenue declines in the UK, principally due to continued UK lockdowns in response to the COVID pandemic. Asia-Pacific, which is principally our Australian business, had a very good performance in the first quarter with revenue of $87 million, up 7% in local currency. Australia consumer revenue continues to improve relative to prior quarters and was down only about 2% versus last year compared to down 5% in the fourth quarter. Our commercial business combined online and offline revenue was up a strong 9% in the quarter, a solid improvement from fourth quarter. And fraud and identity was up 15% in the quarter following strong performance in the fourth quarter. European revenues of $69 million were down 5% in local currency in the first quarter. Our European credit business was down about 5% in local currency. Spain revenue was down about 1%, while the UK was down about 6% in local currency similar to the fourth quarter from continued challenging COVID environments. Our European debt management business revenue declined by about 4% in local currency in the quarter. Both the CRA and debt management businesses were impacted in the quarter by actions taken by the UK government to curtail debt placements in response to the pandemic resurgence in the United Kingdom. As the lockdown and other actions lift in April and May, we anticipate improvements in UK CRA revenue in the second quarter and improvements in debt management revenue in the second half of 2021 as collection activity restarts in the latter part of the second quarter. Latin American revenues of $42 million grew about 1% in the quarter in local currency, which was an improvement from the down 1% we saw in the fourth quarter. These markets also continue to be heavily impacted negatively by continued COVID lockdowns and slow vaccine rollouts. We continue to see the benefit in Latin America of strong new product introductions over the past three years, which is benefiting their top line. Canada delivered record revenue of $44 million in the quarter, up about 13% in local currency. Consumer online was up about 3% in the quarter, an improvement from the fourth quarter. Improving growth in commercial, analytical and decision solutions and ID and fraud also drove growth in Canadian revenue in the first quarter. International adjusted EBITDA margins at 28.2% were down 30 basis points from last year; excluding the impact of the tech transformation costs that we've included in adjusted EBITDA, margins were up about 200 basis points. This improvement was principally due to revenue growth and operating leverage, partially offset by redundant system costs from our cloud transformation. Global Consumer Solutions revenue was down 16% on a reported basis and 17% on a local currency basis in the quarter and slightly better than our expectations. We saw better-than-expected performance in our global consumer direct business, which sells directly to consumers through Equifax.com and myEquifax and which represents about half of total GCS revenue. Direct-to-consumer revenue was up a strong 11% in the quarter, their third consecutive quarter of growth. Decline in overall GCS revenue in the quarter was again driven by our U.S. lead generation partner business, which has been significantly impacted from COVID beginning in mid-2020. As we discussed, we expect a decline in total GCS revenue from our partner vertical to moderate substantially as we move into the second quarter and return to growth in the fourth quarter of 2021. GCS adjusted EBITDA margins of 24.6% were up about 150 basis points. We expect margins to be pressured to around 20% in the second quarter, reflecting planned costs to complete the migration of our consumer direct business cloud transformations in the U.S., UK, and Canada to our new Equifax Cloud platform. Moving to Slide 7, this chart provides an updated view of Equifax's core revenue growth. As a reminder, core revenue growth is defined as Equifax revenue growth, excluding: number one, the extraordinary revenue growth in our UC claims business in 2020 and 2021; and number two, the impact on revenue from U.S. mortgage market activity as measured by changes in total U.S. mortgage market credit inquiries. Core revenue growth is our attempt to provide a more normalized view of Equifax revenue growth, excluding these unusual UC and U.S. mortgage market factors. In the first quarter, Equifax core revenue growth, the green section of the bars on Slide 7, was up a very strong 20%, reflecting the broad-based growth across Equifax. And this is up significantly from the 11% core revenue growth we delivered in the fourth quarter and well above our historic core growth rates. Workforce Solutions and USIS have continued to strongly outperform the mortgage market. The 16% organic growth in U.S. B2B non-mortgage revenue also drove our core revenue growth. Importantly, our core revenue growth has accelerated over the past five quarters from 5% in first quarter 2020 to 11% in the fourth quarter of last year and to 20% this quarter, reflecting the strength and resiliency of our broad-based business model, power of Workforce Solutions, the market competitiveness of USIS and benefits from our cloud, data, and technology investments and our increasing focus on leveraging the cloud for innovation and new products. As you know, the strong growth is in the midst of a global market that is still recovering from the COVID pandemic. Turning to Slide 8, Workforce Solutions continues to power Equifax and clearly is our strongest, most valuable and largest business. Workforce Solutions revenue grew a very strong 59% in the first quarter with core revenue growth accelerating to 46%. As a reminder, the 59% growth is off 32% growth in first quarter of 2020. The strong outperformance in sequential improvement reflects the power of the unique TWN database and Workforce Solutions business model. At the end of the first quarter, the TWN database reached 115 million active users and 90 million unique records, an increase of 9% or 10 million active records from a year ago. And as a reminder, over 60% of our records are contributed directly by employers that Workforce Solutions provides Employer Services like UC Claims, W-2 management, I-9, WOTC and other solutions, and we've built these relationships with these customers and contributors over the past decade. The remaining 35% are contributed through partnerships, most of which are exclusive. The major payroll processor agreement that we announced on our February call is still on track to go live later this year, which will add to our TWN database. And we have a dedicated team, as you know, focused on growing our TWN database with an active pipeline of record additions to continue to expand our TWN database. The Workforce Solutions team continues to focus on expanding the number of mortgage companies and financial institutions with which we have real-time system-to-system integrations, which as you know, drives increased usage of our TWN data. The team is also focused on extending our operations into card and auto verticals, as well as across our growing government vertical. And as I mentioned earlier, we continue to work closely with the SSA and expect to go live with our new solution in the second half of this year, which will deliver $40 million to $50 million of incremental revenue at run rate in 2022. The Workforce Solutions new product pipeline is also rapidly expanding, as our teams leverage the power of our new Equifax Cloud infrastructure. We are anticipating new products in mortgage, talent solutions, government and I-9 in 2021. New product revenue will increase in 2021 and 2022 as we begin to reap the benefits of our new products introduced to the market during last year and in 2021. Rudy Ploder and the Workforce Solutions team have multiple levers for growth in 2021, 2022 and beyond. Workforce Solutions is our most valuable business and will continue to power our results in the future. Slide 9 highlights the ongoing exceptional core growth performance in mortgage for our U.S. B2B mortgage businesses, Workforce Solutions and USIS. Workforce and USIS outgrew the underlying U.S. mortgage market again in first quarter with combined core growth of 48%, up from 37% in 2020 and in line with the 49% growth they delivered in the fourth quarter. This outperformance was driven strongly by Workforce Solutions with core mortgage growth of 99%. Consistent with past quarters, Workforce Solutions outperformance was driven by new records, increased market penetration, larger fulfillment rates and new products, proof that lenders are increasingly becoming reliant on the unique TWN income and employment data when making credit decisions. USIS delivered 5% core mortgage revenue growth in the quarter, driven primarily by new debt monitoring solutions with further support from marketing. Our ability to substantially outgrow all of our underlying markets is core to our business model and core to our future growth. I'd now like to turn it over to John to discuss current trends in the mortgage market and to walk through our revised second quarter and full year 2021 guidance.

Thanks, Mark. As Mark referenced earlier, U.S. mortgage market inquiries remained very strong in 1Q 2021 and up 21%, but that growth was slightly lower than the 24% we had expected when we provided guidance in early February. As shown on the left side of Slide 10, as mortgage rates increased over the past few months and refinancing activity continues, the number of U.S. mortgages that could benefit from a refinancing has declined to about $30 million. Although still very strong by historic standards, this is down from the levels we saw in 4Q 2020 and early 1Q 2021. Based upon our most recent data from 4Q 2020, mortgage refinancings were continuing at about $1 million per month. As shown on the right side of Slide 10, the pace of existing home purchases continues at historically very high levels. This strong purchase market is expected to continue throughout 2021 and into 2022. Based on these trends and specifically, the reduction in the pool of mortgages that would benefit from refinancing, we are reducing our expectation for the mortgage market refinancing activity in 2021. As shown on Slide 11, we now expect mortgage credit inquiries to be about flat in 2Q 2021 versus 2Q 2020 and to be down about 25% in the second half of 2021 as compared to the second half of 2020. Overall, for 2021, we expect mortgage market credit inquiries to be down approximately 8%. This compares to the down approximately 5% we discussed with you in February. Slide 12 provides our guidance for 2Q 2021. We expect revenue in the range of $1.14 billion to $1.16 billion, reflecting revenue growth of about 16% to 18%, including a 2.1% benefit from FX. Acquisitions are positively impacting revenue by 2%. We are expecting adjusted EPS in 2Q 2021 to be $1.60 to $1.70 per share compared to 2Q 2020 adjusted EPS of $1.63 per share. In 2Q 2021, technology transformation costs are expected to be around $44 million or $0.27 per share. Excluding these costs that were excluded from 2Q 2020 adjusted EPS, 2Q 2021 adjusted EPS would be $1.87 to $1.97 per share, up 15% to 21% from 2Q 2020. This performance is being delivered in the context of the U.S. mortgage market, which is expected to be flat versus 2Q 2020. Slide 13 provides the specifics on our 2021 full year guidance. We are increasing guidance substantially despite the expectation of a weaker U.S. mortgage market. 2021 revenue of between $4.575 billion and $4.675 billion reflects revenue growth of about 11% to 13% versus 2020, including a 1.4% benefit from FX. Acquisitions are positively impacting revenue by 1.7%. EWS is expected to deliver over 20% revenue growth with continued very strong growth in Verification Services. USIS revenue is expected to be up mid to high single digits, driven by growth in non-mortgage. International revenue is expected to deliver constant currency growth in the upper single digits, and GCS revenue is expected to be down mid-single digits in 2021. 2Q 2021 revenue was also expected to be down mid-single digits for DCS. As a reminder, in 2021, Equifax is including all cloud technology transformation costs in adjusted operating income, adjusted EBITDA, and adjusted EPS. These one-time costs were excluded from adjusted operating income, adjusted EBITDA, and adjusted EPS through 2020. In 2021, Equifax expects to incur one-time cloud technology transformation costs of approximately $145 million, a reduction of about 60% from the $358 million incurred in 2020. The inclusion in 2021 of this about $145 million in one-time costs would reduce adjusted EPS by $0.91 per share. This is consistent with our guidance for 2021 that we gave in February. 2021 adjusted EPS of $6.75 to $7.05 per share, which includes these tech transformation costs, is down approximately 3% to up 1% from 2020. Excluding the impact of tech transformation costs of $0.91 per share, adjusted EPS in 2021 would show growth of about 10% to 14% versus 2020. 2021 is also negatively impacted by redundant system costs of over $65 million relative to 2020. These redundant system costs are expected to negatively impact adjusted EPS by approximately $0.40 a share. Additional assumptions included in 2021 guidance will be provided in the 1Q 2021 earnings slide deck to be posted later this morning. Slide 14 provides a view of Equifax total and core revenue growth from 2019 through 2021. Core revenue growth excludes the impact of movements in the mortgage market on Equifax revenue, as well as the impact of changes in our UC claims business within our EWS Employer Services business, and also the employee retention credit revenue from our recently acquired HIREtech business. Employee retention credits are specific U.S. government incentives for companies to retain their employees in response to COVID-19 and the associated revenue is not expected to continue into 2022. The data shown for 2Q 2021 and full year 2021 reflects the midpoint of guidance ranges we provided. In 1Q 2021, we delivered very strong core revenue growth of 20% and expect to continue to deliver strong core revenue growth in 2Q 2021 of about 20% and 16% for all of 2021. This very strong performance, we believe, positions us well entering 2022 and beyond. And now I'd like to hand it back over to Mark.

Thanks, John. Turning to Slide 15. This highlights our continued focus on new product innovation, which is a critical component of our next chapter of growth as we leverage the Equifax Cloud for innovation, new products and growth. We continue to focus on transforming Equifax into a product-led organization, leveraging our best-in-class Equifax cloud-native data and technology to fuel top line growth. In the first quarter, we delivered 39 new products, which is up from the 35 we delivered last year. We're encouraged by this continued strong performance, especially following the record 134 new products we delivered last year. We wanted to highlight some of these new products, which we expect to drive revenue in 2021 and beyond. First, Insight Score for credit card launched by USIS provides the credit card industry with a specific credit risk score created using credit and alternative data that predicts the likelihood of a consumer becoming 90 days past due or more within 24 months of origination. USIS also launched a new commercial real estate tenant risk assessment product suite, which provides real-time and unmatched data analytics and risk assessment for tenants, buildings and portfolio strength, delivered through an interactive Ignite marketplace app or as a stand-alone report. And Workforce Solutions continues to expand its suite of products focused on the government vertical. Their government enhanced solutions, Social Services Verification product, gives the ability for the customer to choose the desired period of employment history with options ranging from three months, six months, one year, three years or the full employment history. These products help government agencies quickly and efficiently administer supplemental nutrition, child health insurance, Medicaid, Medicare benefits, managed child support and insurance program integrity. In the first quarter, over two-thirds of our new products launched or in development leveraged our new Equifax cloud-based global product platforms. This enables significant synergies and efficiencies in how we build the new products, our speed to bring the products to market and our ability to move the new products easily to our global markets. Our new cloud-based Luminate platform for fraud management is a great example, which is launching in Canada and the U.S. simultaneously and will soon launch in the United Kingdom, Australia, and India. This would have taken much longer and been much more expensive in a legacy environment. We're also rolling out our Equifax Cloud-based Interconnect and Ignite platforms for marketing and risk and decisioning and management products throughout Latin America, Europe, Canada, as well as the United States. As we discussed on our call in February, we're focused on leveraging our new cloud capabilities to increase NPI rollouts and new product revenue growth in 2021 and beyond. As a reminder, our NPI revenue is defined as the revenue delivered by new products launched over the past three years and our vitality index is defined as the percentage of current year revenue delivered by NPI revenue. As I mentioned earlier, we've increased our 2021 vitality index guidance from 7% by 100 basis points to 8%, as you can see from the left side of the slide, which is a significant increase from about 500 basis points in 2020. NPIs are a big priority for me and the team as we leverage the Equifax Cloud for innovation, new products, and growth. Turning to Slide 16, M&A plays an important role in our growth strategy and will be central to our long-term growth framework. Our team is focused on building an active pipeline of bolt-on targets that will both broaden and strengthen Equifax. Our M&A strategy centers on acquiring accretive and strategic companies to add unique data assets, new capabilities, deliver expansion into identity and fraud, or expand our geographic footprint. In the first quarter, we closed five acquisitions totaling $866 million across strategic focus areas of identity and fraud, Workforce Solutions, open data, and SME. We discussed three of these transactions with you in February, which were the acquisitions of Kount, and Credit Works. As I discussed earlier, we're excited about expanding opportunities we see from the combined Kount and Equifax in the fast-growing identity and fraud marketplace. In March, we closed two Workforce Solutions bolt-on transactions, HIREtech and i2Verify, which will further broaden and strengthen our Workforce Solutions business. HIREtech is a Houston-based company that provides employee-related tax credit services as well as verification services. HIREtech also has unique channel relationships to provide these services through payroll providers, consulting firms, and CPA firms. i2Verify is a Newburyport, Massachusetts-based company that provides secure digital verifications of income and employment services. The company has a unique nationwide set of record contributing employers with concentrations in the healthcare and education sectors. i2Verify also brings unique records to the TWN database, all of which are contributed by direct relationships. You should expect Equifax to continue to make acquisitions in these strategic growth areas that offer unique data and analytics to our customers with a goal of increasing our top line by 100 to 200 basis points annually from M&A. Before wrapping up, I want to speak to you about an area of significant focus at Equifax and importance to me personally. Slide 17 provides an overview of Equifax's ESG strategy and how it helps position us for long-term sustainability. I hope you saw and had a chance to read our annual report letter that highlighted our increased focus on ESG. First, Equifax plays an important role in helping consumers live their financial best. A primary example of this is that our alternative data assets, such as utility and phone payment data, provide lenders with a better picture of the approximately 30 million U.S. individuals that do not have traditional credit files or access to the formal financial system. I've also made advancing inclusion and diversity a personal priority since I joined Equifax. Believing that diversity of thought leads to better decisions, we've taken clear steps to broaden diversity at Equifax, including the last three Directors added to our Board are diverse, and all seven individuals who have been added to my senior leadership team since I joined three years ago have also been diverse. We're carrying out this focus on inclusion and diversity across Equifax. We're also focused on our environmental impact and greenhouse gas footprint. Our cloud transformation will move our existing legacy technology infrastructure to the cloud, which will dramatically reduce our environmental impact as we leverage the efficiencies and carbon-neutral infrastructure at our cloud service providers. Over the course of last year, we decommissioned six data centers, over 6,800 legacy data assets and over 1,000 legacy applications. We have a detailed program underway to baseline our energy usage and benefits from our cloud transformation as we work towards a commitment regarding carbon emissions and a net zero footprint. We're also committed to being industry leaders regarding security. With the leadership of our CSO, Jamil Farshchi, our culture puts security first. All employees are required to take a mandatory security-focused training session every year. And all of our 4,000 bonus-eligible employees have a security role in their annual MBOs. We believe in sharing our security protocols and strategies with our partners, customers and competitors to collaborate to keep us all safe. In 2020, we hosted our inaugural Customer Security Summit, where we detailed our progress on security transformation and discussed advancements in supply chain security. As threats continue to evolve, we remain highly focused on continuing to advance our security efforts. Wrapping up on Slide 18. Equifax delivered a record-setting first quarter and we have strong momentum as we move into second quarter in 2021. Our 27% overall and 20% core growth in first quarter reflects the strength and resiliency of our business model while still operating in a challenging COVID environment. We've now delivered five consecutive quarters of sequentially improving double-digit growth. We're confident in our outlook for 2021. And as John described, we are raising our full year midpoint revenue by 500 basis points to $4.65 billion and our EPS midpoint by 9% to $6.90 a share. Our revised revenue estimate of 12% growth in 2021 at the midpoint of the range, off of a very strong 17% in 2020 reflects the resiliency, strength and momentum of the EFX business model. Our increased 2021 growth framework incorporated our expectation as John discussed that the U.S. mortgage market will decline about 8% in 2021 while operating in a still recovering COVID economy. Our expectation for core revenue growth of 16% in 2021 reflects how our EFX2023 strategic priorities are delivering. Workforce Solutions had another outstanding quarter of 59% growth and will continue to power Equifax's operating performance throughout 2021 and beyond. The TWN number is our most differentiated data asset and Workforce Solutions is our most valuable business. Rudy Ploder and his team are driving outsized growth by focusing on their key levers: new records, new products, penetration, and expansion into new verticals with our differentiated TWN database. USIS also delivered an outstanding quarter of 19% growth highlighted by non-mortgage revenue growth of 15% and 11% organic non-mortgage growth. We expect our non-mortgage growth to accelerate as the U.S. economy recovers. The acquisition of Kount is providing new opportunities and products in the rapidly expanding identity and fraud marketplace and USIS continues to outperform the mortgage market from new products, pricing, and increased penetration. USIS is clearly competitive and winning in the marketplace and will continue to deliver in 2021 and beyond. International grew in the first quarter for the second consecutive quarter, overcoming economic headwinds from significant COVID lockdowns and slower vaccine rollouts in our global markets. Our expectations are high for ongoing sequential improvement in international during 2021 and for accelerating growth as their underlying markets recover from the COVID pandemic. We're also making strong progress rolling out our new EFX Cloud technology and data infrastructure and remain confident, as John described, in the significant top line, cost, and cash benefits from our new EFX Cloud capabilities. These financial benefits will ramp as we move through 2021 and continue to grow in 2022 and are enabled by our always-on stability, speed-to-market and ability to rapidly build and move products around the globe. Our strong operating performance is allowing us to continue to accelerate investments in new products leveraging our new Equifax Cloud capabilities. And we're off to a strong start in 2021 with 39 NPIs in the first quarter on top of the record 134 we launched in 2020. And our strong outperformance is fueling our cash generation, which is allowing us to reinvest in accretive and strategic bolt-on acquisitions. As discussed earlier, we closed five acquisitions in strategic growth areas in the first quarter and we have an active M&A pipeline. We look for bolt-on acquisitions that will strengthen our technology and data assets and that are financially accretive with a goal of adding 100 to 200 basis points to our top line growth rate in the future. I'm energized about what the future holds for Equifax. We have strong momentum across all of our businesses as we move into second quarter. We're on offense and positioned to bring new and unique solutions to our customers that only Equifax can deliver, leveraging our new EFX Cloud capabilities and our strong results and the increased guidance that we provided reflect that. With that, operator, let me open it up for questions.

Thank you very much. Operator provided instructions. All right. We'll take the first question from David Togut with Evercore ISI.

Thank you. Good morning. Looking at the over 20% EWS revenue growth guide for this year, can you quantify contributions you expect from new unique record growth, pricing, and new use cases?

Yes, those are all meaningful levers. I would add system integrations in our mortgage market and other solutions as a lever for growth. David, as you know, we don't break those out specifically, but it starts with records. We've clearly got a real focus on and some real momentum in adding records to the TWN Database. As you know, we have a dedicated team that that's all they do. And we've got active dialogues going with individual corporations to bring their data to us as we add new services like UC claims and WOTC and all the myriad of services that we provide and also with other payroll processors. And as you know, in February, we announced that our plan is on track to add one of the major payroll processor's records to our database in the second half of 2021, which will add meaningfully. And I think you know our business model: as we grow records, we're able to monetize those really instantly because the inquiries that we receive drive our hit rates up. We clearly have the ability to use price, which we talked about. I think you've seen a real increase in the focus on new products at Workforce Solutions, particularly as they're becoming cloud-enabled. It's giving them the opportunity to bring new solutions to the marketplace to really leverage their data sets. And these new solutions are typically at higher price points and deliver more value to our customers. So that's another big lever. We've talked about in the second half that they're continuing to focus on system integrations, and we just find higher usage when customers move from accessing the TWN database through the web to system-to-system integrations, we get really all their volume, which is another big lift. And as I mentioned a couple of times, we're still on track to launch our new agreement with the Social Security Administration. It's a very meaningful contract that will go live in the second half and we expect that to be $40 million to $50 million in run rate. So there's a large amount of levers available for Workforce Solutions. As you point out, it starts with records. And while we've grown records to 90 million uniques in the quarter, as you know, there's 155 million non-farm payroll. So there's a lot of room between 90 million and 155 million as we continue to grow towards having the full data set. And then we're also widening our dataset beyond W-2 income, including 1099 and other data sources as we look for other ways to include other portions of the U.S. population around whether they are working and how much they make.

Thanks for that. Just as a quick follow-up. You closed 2020 at almost 60% EBITDA margin for EWS. Can you quantify operating leverage in this business for 2021?

There's a lot of leverage, as you could see in the first quarter results. I think you're talking about Workforce Solutions. We're continuing to invest in the business. There's no question about that. But with the revenue growth that we're getting on both the mortgage and non-mortgage side in Workforce Solutions, there's real operating leverage that we expect to continue through 2021.

Understood. Thank you.

All right. The next question is from Manav Patnaik with Barclays.

Thank you. Good morning. I was just hoping, Mark, you could talk about the comments you made towards the end of the call around acceleration of the non-mortgage business with this reopening? And perhaps off that $225 million that you raised revenue by, like how much of that was just the strong performance in EWS, you called out versus maybe some incremental M&A and this reopening benefit that you think you'll see?

Yes, we don't have any incremental M&A in that guide. We wouldn't include acquisitions that we haven't completed yet. I think we talked that we have a pipeline and a goal of increasing acquisitions. Of course, we're off to a very fast start this year on M&A. You know this, Manav, we took down our framework for mortgage inside of that revenue framework that we shared, which is quite significant. We think that we've got mortgage in the right spot now at down 8% versus the down 5% for the year. And as you know, the way we frame that is most of that happens, really all of it really happens in the second half. And an expectation that there will be a recovery in the economies as vaccine rollouts continue and lockdowns are reduced, there's still some impact, we believe, of the COVID pandemic in the U.S. market. Although, as we pointed out, we saw some real recovery by our customers. And I characterize that as confidence, meaning they're starting originations in the latter part of the first quarter and into April, which we expect that to continue. But you still have — our international markets are still significantly impacted by the COVID pandemic and we expect that to unfold at some pace during 2021 and that will be a positive as we move forward. Would you add anything, John?

No, we've just said in the past, right, that increasingly, as we go through 2021, as the non-mortgage markets recover, increasingly, their contribution to core growth is going up, right? So, we expect that to continue as we go through the year. And the outperformance in the first quarter, as we said, more than half of it was driven in our non-mortgage segments, and you're seeing that obviously flow through the rest of this year as well.

And I would add that the Equifax Cloud is providing benefits. Our NPI focus is providing benefits that will benefit our mortgage business as well as our non-mortgage business. And, of course, the majority of Equifax is non-mortgage, but the initiatives that we launched over the last couple of years, the investments that we've made over the last couple of years, we feel are starting to pay off. When you talk about USIS, we mentioned many times over the last year on each of these quarterly calls that we feel a real strength in the marketplace by our USIS team competitively. Commercially, how they're going to market, I think we've talked about we've rebuilt that team a year ago and there's some momentum there. And again, the focus on new products, those are driving revenue growth and we guided up 100 basis points in our vitality index. The bulk of that is going to come in our non-mortgage business.

Okay, got it. And Mark, I was hoping you could just help us also, just appreciate the different moving pieces in the — I think you talked about Workforce Solutions growing about 20% this year, but there's obviously a lot of moving pieces between Employer and Verification Services. I was just hoping you could give us some guidance there on how they should end up in the year.

Sure. So in Mark's script, we tried to walk through what the real big drivers are. Verifier is continuing to perform extremely well. Obviously, mortgage is a bit of a drag. But as you go through the rest of this year, if you think about what we said in February, we'd indicated that for total mortgage for Equifax, that even though the market was down 5%, we expected revenue to grow more than 10%. And even though we now have the market weaker at down 8%, we still expect mortgage revenue to grow more than 10%. But some significant drivers of EWS in 2021 continue to be in the non-mortgage segment. We talked about Talent Solutions growing very, very fast, almost doubling, I think we said in the first quarter, and I-9 also growing very, very fast and a recovery in WFA. So what we think you're going to see is very nice growth across the non-mortgage segments, obviously excluding UC, where we gave very specific guidance. And then also continued good performance in mortgage despite the fact that the market is slowing. We're not going to quantify each of those. But directionally, that's what's going on.

All right. Thank you.

All right. The next question is from Kyle Peterson with Needham.

Hey, good morning. Thanks for taking the question, guys. I just wanted to touch on EWS, particularly the momentum and increased adoption you guys are seeing in some of the non-mortgage. Could you dive a little more into where the strongest areas are? Is that in other lending products like auto or card or where is some of the strength that you guys are seeing coming from right now?

Non-mortgage is obviously more than financial services. I'll come back to that, but we've talked about our government vertical, which is growing quite positively. Our Employer Services is non-mortgage. Our Talent Solutions business is growing. Specifically on non-mortgage verification, we have a bunch of levers that are outside of verification that are growing quite positively, again, excluding the negative impact of UC Claims year-over-year. So in financial services, mortgage is our largest in verification, for sure, and we're getting real leverage and outgrowing the market there. First, records health everywhere: as we grow our records and they are up 10% year-over-year and we've got a clear path to increase them in 2021, those hit rates are good in any vertical you're in, whether it's mortgage or auto or government. Records are number one. We've had a real focus on new products broadly in Equifax and in Workforce Solutions. Then you talk about some of the verticals: we're seeing increased usage in auto, where a year or two ago it was more of a subprime usage along with the credit file. Now we're seeing it more in near prime, so there's more usage in the auto sector. Personal loans has always been a pretty strong space for us in the fintech market for verification, using it because if you think about a personal loan, it's a significant transaction and verifying employment and income is a very important lift in predictability. And then we've talked for the last several quarters about card issuers taking our data and using it in origination; I believe two of the large card issuers are using our data at origination, along with the credit file, which is a big breakthrough. The predictability of adding someone’s working status and income enhances every credit decision. It was around getting our database to scale. As we've gone over 50% hit rates in the database, as we get to 90 million uniques versus the 155 million non-farm payroll, it becomes a dataset that's more usable because you get higher hit rates. So that's a reason we think we're getting more new uses in cards. Our two biggest segments in verifier are government and talent solutions, and both are highly benefited by the depth of the database and the fact that we have over 450 million total records. Being able to provide history in those market segments is very important. So, we're seeing strong growth in the two biggest non-mortgage verifier segments of both government and talent solutions.

Got it. That's really helpful color. And then I guess just a quick follow-up on the verification side of the business: increased noise in the last few months with other companies making moves in that space. Have you noticed any change in competition when you go to market either with users of the verification services or potential employers, payroll providers, etc.?

We have not. We actually hear mostly about it from the sell-side. We think we have a strong franchise. The scale of our database is extremely large. The ability to get those kind of records is quite challenging. Having a database that's usable when you can deliver over 50% hit rates is difficult to replicate. Over 60% of our records come from individual companies and we get those through long-term relationships. We've been doing this for a decade. We have a full suite of services. We provide HR managers that allow us access to those records and we provide the income and employment piece of that for free to the company and their employees. Those kinds of services are required to have a database of our scale. The other 35% of our database comes from payroll partnerships and the bulk of those are exclusive. So we think that's quite challenging for competitors to replicate. We've invested a lot in this business—about $2 billion into it historically, including a couple of acquisitions just in the last 30 days to strengthen Workforce Solutions. In the last two or three years, we probably invested $200 million to $300 million in technology for the business. This requires massive investment. We intend to protect and grow our franchise.

Got it. That's really helpful color. Thanks, guys. Nice quarter.

Thank you. And the next question is from Hamzah Mazari with Jefferies.

Good morning. Thank you. My question is just on the fraud and ID business. You had mentioned e-commerce, maybe retail as new verticals with the Kount deal. And at the same time, you talked about scale. Could you maybe talk about whether the fraud and ID business is at scale today? How do you define scale? And just as part of that discussion, you've seen companies like Mastercard recently buy Ekata and others doing stuff around ID. Is there a lot more M&A opportunity in this market? Or how do you think about when this business scales or if it's at scale today?

It's a great question. It's been a deliberate focus of ours. It's a fast-growing space—global ID and fraud is a large market, growing at roughly 20%. Kount has real scale in the retail e-commerce space. They have scale around their interactions—32 billion consumer interactions per year, 400 million unique emails verified, telephone numbers, IP addresses—a wealth of data. The power is in combining their data with ours, which is why we acquired Kount. It also brings us into a new vertical where we weren't previously strong. We will bring Kount's capabilities into financial services, banking, telco, insurance, where we play. When we think about additional M&A, ID and fraud is an area we want to continue playing in. We see opportunities in our pipeline to strengthen the combination of Equifax and Kount going forward. The combination gets us into a strong market position, but it's a huge market, so there's a lot of room to grow. We're investing organically—our new Luminate platform—and we will invest through M&A to strengthen our position. We like the space and want to be bigger in it.

Gotcha. And my second question: if we exclude Workforce Solutions and just look at USIS and international margins, the gap is large. How much of the gap can you close between international and USIS and how much is structural, excluding Workforce Solutions?

USIS has real scale, and that scale drives their margins. International is in 25 countries; we have some larger businesses like Australia and some smaller countries, which drives a difference in margins between USIS and our international businesses. We're always focused on improving our margins. The cloud investments will benefit Workforce Solutions, USIS, and international and GCS margins. But the subscale nature of some international markets results in lower margins, which I would characterize as partly structural, but we see opportunities to improve those margins going forward.

As you look at the countries we're in, those that are more like the U.S., for example Canada, margins are much better. So as Mark said, it really depends on the size and diversity of the market. We certainly expect to see improvements in margins as we go to the cloud, but some of it is structural since some businesses are very small. We have no expectation they'll reach USIS-type margins, but we do expect improvements over time.

Got it. Thank you. Very helpful.

The next question is from Andrew Steinerman with JPMorgan.

It's Andrew. I wanted to hear about the different areas of U.S. credit applications, meaning card and auto and personal loan with the large pickup in non-mortgage USIS online revenues accelerating to 16% in the first quarter. In particular, I don't think we've heard the credit card issuers talk about loan growth picking up yet, and I wanted to know if you anticipate that soon?

I think it was fairly broad-based. Some marketing spend is card issuers starting to restart originations; marketing spend doesn't necessarily result in immediate loan growth. There's a lag between marketing spend and originations appearing on books. Broadly, what we hear from U.S. customers is an element of confidence that wasn't in place for most of 2020 or earlier in 2021. As vaccine rollouts accelerate, that results in consumer confidence, which we see in retail spending. Banks have been releasing reserves, so there's an element of confidence. We saw increases in March and into April.

And auto was strong?

Auto was stronger than card. Identity and fraud was also very strong.

Okay. Thank you.

Your next question is from Craig Huber with Huber Research Partners.

Yes, hi. Thank you. I wanted to focus on costs, if I could, please. Can you give us a sense what your hiring plans are this year in terms of full-time equivalent employees? Are you thinking your plans should maybe pick up higher than other say, 5% more employees in the U.S.? That's my first question. Another related question is, as we move through this virus situation and employees return to the offices in the U.S., should we expect your cost base to materially go up when that happens?

Welcome. On the people side, employment will be fairly stable. There are areas where we're investing, like product resources and some technology areas. At the same time, we plan to reduce some technology costs as the cloud transformation unfolds. So I wouldn't expect big changes in employment. Equifax is on offense; we're investing with our strong performance. Our acquisitions bring incremental employees into our headcount, which is in our framework. Regarding return to office, we've been open since last June and limited occupancy to no more than 50% while exercising protocols. In the last 30 to 60 days, as vaccine rollouts have increased, we've seen an increase of people coming back to our offices. We've told employees when they're vaccinated to come back. We also introduced an Equifax Flex Day where employees can choose one day per week to work remotely with manager approval. We expect to work in the office most days because teamwork and collaboration happen best in person. We don't expect our cost to materially go up as a result of this return to office and we haven't changed our footprints.

For perspective, a significant portion of our cost structure is employees, and we also have a significant footprint of contract employees. The contractor workforce is more variable to us, so we move cost between permanent and contractor resources.

And then if I could ask, in the U.S., where do you think the biggest opportunity is to be able to raise price steadily as each year goes on to increase U.S. operations?

We don't talk a lot about price, but in U.S. businesses—USIS and Workforce Solutions—new product rollouts often come at higher price points since they deliver incremental value to customers. Workforce Solutions is our most differentiated business and can bring more value to customers that we can monetize at different price points. As hit rates increase and the database becomes more usable, there's more opportunity to drive top-line growth via pricing in Workforce Solutions.

Great. Thank you.

Your next question is from Toni Kaplan with Morgan Stanley.

Thank you so much. Just wanted to ask a bit about the guide. My interpretation is that it seems like the vast majority of the increase is from the 1Q beat, and then the rest is maybe a better 2Q with 2H in line with your expectations previously. Is that fair? And any extra color on how you're thinking about whether these positive trends continue through the year?

We have seen in the last 60 days a slight weakening of mortgage inquiries, which we rolled into our new framework. We took mortgage guidance down by 300 basis points for the year, which we think is prudent, offset by our outsized and strong performance in non-mortgage in the quarter, which we expect will continue.

If you're looking at revenue, the over $200 million increase had less than half from the first quarter. The second quarter is stronger and then the third and fourth quarters are impacted somewhat by the greater decline in the mortgage market. But we are seeing substantial growth and improvement in non-mortgage segments and expect the improvement to continue in periods after the first quarter.

Okay. And then looking at financial marketing, you mentioned 20% marketing-related growth. Just curious why marketing dollars are being spent there, but within the consumer indirect business you're still seeing pressure. What is the disconnect and when do you expect indirect consumer to show signs of recovery?

When you get in a tough economy, originations are tightened and you stop spending marketing money. The first place you start spending again is your own channels—it's lower cost and more efficient. That's what we're seeing. We expect our indirect to improve, though it may lag the recovery and happen later in the year.

Great. Thank you.

Next question is from Andrew Nicholas with William Blair.

Hi, good morning. You touched on the i2Verify acquisition a bit further earlier. How should we think about it contributing to the TWN database in terms of record count? And how many other assets like this are out there that could add records to the database in a meaningful way? These types of deals seem to come with immediate revenue synergies, so additional detail on that opportunity set would be helpful.

There aren't many of them; we know who they are and we talk to them frequently. There are a handful of companies like i2Verify and HIREtech. We've made acquisitions like this over the last several years. HIREtech has an attractive WOTC solution delivered through third parties and unique channels to payroll providers, consulting firms, and CPAs. That brings records and a revenue stream from WOTC services and an employee retention credit opportunity in 2021. i2Verify has a very attractive go-to-market with healthcare and education sector relationships that bring employee records. We like the teams and expect them to expand our relationships and bring records to TWN. At 90 million uniques, we're pleased but see runway between 90 million and 155 million.

Great. And my follow-up: you mentioned a 100 basis point improvement in the vitality index expectation. What's driving that specifically in the first months of the year, and what does that pickup mean for the vitality index in 2022 and beyond?

We've been focused on NPI for some time. Our cloud transformation was done to deliver new products and growth. We expanded resources in new product capabilities and are starting to see leverage from the cloud to bring new solutions to market. We increased NPI rollouts last year to 134; we launched 39 in the first quarter, up from 35 the prior year. We have more products in the market and commercial teams selling them, which gives us confidence for 2021. We won't provide 2022 guidance now; we'll include longer-term framework later this year and the vitality index will be central to how we grow.

Next question is from Shlomo Rosenbaum with Stifel. Adam Parrington is on for Shlomo.

All right. Adam on for Shlomo. Can you talk a little bit more about the unemployment claims strength? Is it from better industry volumes than expected, or does it have more to do with more product sales or more clients? Thanks.

We've been taking advantage of a strong unemployment claims market over the last year and been adding new customer relationships. We believe we've grown our share slightly to processing about 1-in-3 claims versus 1-in-5 in 2020. This business is important to Workforce Solutions; it's often sold on a subscription basis with volume tiers, which is why we saw strong incremental revenue in the high unemployment market. It also gives us access to records that we can monetize in the TWN database in our verification business. We expect UC claims revenue to decline sequentially through the year but the business is an important long-term revenue source.

Thanks.

Next question is from George Mihalos with Cowen.

Hey, guys, thanks for taking my question and congrats on the quarter and the outlook. I wanted to start off on mortgage. If we look at verification revenues up another 100%, that's well higher than what you saw in the USIS revenue growth. Even when USIS volumes in mortgage have come down a bit, Workforce Solutions growth has stayed near 100%. Can you talk a bit about that decoupling? Is it just strong record growth or is something else allowing you to outperform even when USIS volumes decline?

Workforce Solutions has consistently outperformed its markets, including mortgage, and has more levers than USIS. Levers include pricing, new products with higher price points, and records. New products like reports with more history or co-borrower products are higher priced and encourage more pulls. System-to-system integrations increase usage because we capture all their volume versus web-based access. The scale of the database matters: going north of 50% hit rates creates an inflection where customers find it more valuable. We also see more sophisticated originators pulling our data more often in the mortgage lifecycle. So it’s a combination of records, product, integrations, and market penetration.

That's super comprehensive, thanks. Just quickly on FMS: is it too early to know if the success rate or hit rate for banks from those marketing programs are in line with historic levels as they roll out?

We wouldn't have visibility into their loan conversion hit rates. But generally, customers want to use more data—including differentiated and alternative data—because it enhances predictability of credit decisions. Our cloud and differentiated data like TWN are enabling this trend.

Thank you.

Next question is from Simon Clinch with Atlantic Equities.

Hi, everyone. Thanks for taking my question. I was dropped off on my Internet connection earlier in the call. Could you refresh me on the growth targets for 2021 for the segments that you laid out, please?

Sure. We expected Workforce Solutions to be up over 20%. We expected USIS to be up mid to high single digits. We expected international to be up constant currency upper single digits. And we expected GCS to be down mid-single digits and also down mid-single digits in the second quarter.

Okay. And just on international: given easy comps from the pandemic and your expectation of recovery late in the year, how sensitive is the upper single-digit guidance? Could it be significantly higher?

We're counting on a recovery in international, but there's still uncertainty. Vaccine rollouts in Canada, Australia and other markets have been slower and some markets like the UK have continued lockdowns. We expect vaccines to help during 2021, but we're watching it closely. We do expect improvements, but there is uncertainty.

Remember, our fourth quarter of 2020 in international was okay; we grew in that quarter. So we do expect improvements.

Okay. One more: on USIS margins—how should we think about underlying incremental margins and the dilution from acquisitions beyond the first year as you migrate acquisitions into the business?

For USIS this quarter, the negative movement in margins was about two-thirds driven by tech transformation. Over the longer term, we expect improvements in margins as tech transformation spend declines and savings from decommissionings accelerate, which will be more meaningful in 2022. For acquisitions, they should move to USIS-type margins over a reasonable period—certainly not in the first year, but in year two and year three we expect them to deliver margins similar to the rest of the business.

Understood. Thank you.

Next question is from Andrew Jeffrey with Truist Securities.

Hey, good morning. Very high level: how much do you think of your non-mortgage strength is being driven by a snapback in share? You clearly rode out a difficult period and accelerated NPI and cloud transition. Are we seeing normalization in share? How much is that playing a role?

We believe USIS is competitive and winning in the marketplace. After the cyber event we were under pressure in 2018-2019 and it took time to rebuild. In 2020 and into 2021 we've been on solid footing commercially. Cloud transformation and differentiated data assets like TWN, NCTUE, IXI, and DataX give us commercial advantages. We've rebuilt the USIS team and leadership over the last year or two and we're seeing momentum. There's still more to do, but the team is focused and performing.

Okay. And John, any unusual timing items we should think about? For example, EWS had seasonality or compensation timing?

Timing items include Employer Services revenue being strongest in the first quarter due to tax-related services like W-2 and similar; margins are strong in Q1 and then trend down into Q2. Also our annual merit increases occur around April 1st, so you'll see a cost increase in Q2. Other than that, nothing unusual.

Appreciate it, thank you.

Next question is from George Tong with Goldman Sachs.

Hi, thanks. Your guidance for 2021 core revenue growth was revised upward from 10.5% to 16% at the midpoint. Approximately how much of the increase is coming from non-mortgage versus outperformance within the mortgage market?

We took mortgage guidance down, so the positive change is driven by non-mortgage, which is the reason we're raising core growth guidance.

As we've said, as we move through 2021, non-mortgage contribution to core revenue growth is increasing relative to mortgage. In Q1 we saw strong outperformance across EWS and USIS. Despite a weaker mortgage market, mortgage revenue should still grow more than 10% for Equifax. But a substantial amount of the improvement in the guide is from the non-mortgage market.

Got it, thank you.

Next question is from Jeff Meuler with Baird.

Yes, thank you. On Slide 9 the EWS core mortgage growth was 99% and records grew 9%. So ex-records, that's about 90% growth from other factors. Back in 2020, there was also a massive step up. What is so different about 2020 and 2021 versus prior years that drives so much ex-records growth?

A couple of things. There's an inflection when you're north of 50% hit rates: the dataset becomes more valuable. The cloud transformation is a big factor; ingesting and normalizing records from many employers at scale is enabled by the cloud. We now have well over a million contributing employers, which we couldn't have managed in a legacy environment. We've invested heavily in dedicated teams on records, system integrations, and commercial efforts with mortgage originators. New products introduced in 2020, enabled by the cloud, allowed us to monetize the data much more effectively—products with more history, co-borrower solutions, multi-poll offerings—leading to higher price points and more usage. The scale enables a flywheel: investment in technology and people drives more records and better penetration.

Additionally, penetration has increased. Three years ago for every four credit pulls there was one or fewer employer verification pulls. Now for every two, there's more than one. That increase in penetration is a huge driver of growth.

Got it. Thanks, Mark.

Next question is from Kevin McVeigh with Credit Suisse.

Thanks. Given new product innovation, how should we think about subscription versus transaction revenue? Historically this business is more transaction-oriented. Given cloud shift and more embedded products, are you seeing more subscription dynamics over time?

Our business continues to be heavily transaction-focused and likely will remain so. Some products, like monitoring services and certain employer services, look more subscription-like. The vast majority of revenue is transaction-driven, though we have service lines with subscription characteristics such as unemployment claims and certain software products.

Helpful. And on the pool of records within EWS: besides W-2 and payroll, how large is the addressable market when you include 1099, pension, and other sources?

There's a lot of runway. 1099 is a large market—30 to 40 million people—and we're adding records there. Pensioner income is another area—20 to 30 million retirees—where we're adding records. We're also exploring data like time-clock logins and other signals that show someone is working, which may not include income but indicate employment status. So our focus extends beyond W-2 to broaden coverage.

Thank you very much.

And our last question is from Gary Bisbee with Bank of America Securities.

I appreciate you sticking around long enough to answer the question. On the non-mortgage acceleration across the businesses: when I look at USIS, it hadn't grown meaningfully in a couple years. If ex-acquisitions it was nearly 11% year-over-year growth in the quarter. Is a decent portion of that an easy comp in March? Or is this sustained momentum? If so, what are the key drivers of that sequential improvement in non-mortgage growth in USIS?

USIS had a decent quarter in Q1 last year, but COVID impact in the last two weeks of March 2020 skewed comparisons. We kept messaging that USIS was winning and competitive through 2020. The commercial focus of the team, benefits from cloud transformation, increased NPI rollouts, and product introductions are all contributing. There's also some COVID recovery—we saw verticals move back more strongly in March and April. So it's a combination of durable commercial improvement, product momentum, and a recovery in certain end markets.

So is the step function of much better growth mostly due to the COVID impact masking progress before, and now it's normalizing?

Correct. The COVID environment masked performance and the pipeline metrics we've shared indicate strong commercial activity.

And March was by far the strongest month of the three months, which contributed to the improvement.

Thank you.

There appear to be no further questions at this time. Mr. Hare, I'd like to turn the conference back to you for any additional or closing remarks.

Thanks, everybody, for your interest in Equifax and for joining us today. This does conclude our first quarter earnings call. We look forward to joining you later on this summer to review our second quarter results.

This concludes today's conference. Thank you for your participation. You may now disconnect.