Operator: Greetings and welcome to the Equifax second quarter 2026 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I'd now like to turn the call over to your host, Mr. Trevor Burns, Senior Vice President, Investor Relations. Thank you, sir. Please go ahead.
Trevor Burns: Thanks, and good morning. Welcome to today's conference call. I'm Trevor Burns. With me today are Mark Begor, Chief Executive Officer, and John Gamble, Chief Financial Officer. Today's call is being recorded, and an archive of the recording will be available later today in the IR calendar section of the News and Events tab at our Investor Relations website. During the call, we will be making reference to certain materials. They can be found in the presentation section of the news and events tab at our IR website. These materials are labeled 2Q2026 earnings conference call. Also, we'll be making certain forward-looking statements, including third quarter and full year 2026 guidance to help you understand Equifax and its business environment. These statements involve a number of risks, 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 our filings with the SEC, including our 2025 Form 10-K and subsequent filings. During this call, we will be making certain non-GAAP financial measures, including adjusted EPS, adjusted EBITDA, adjusted EBITDA margins and cash conversion, which are adjusted for certain items that affect the comparability of our underlying operational performance. All references to EPS, EBITDA, EBITDA margins and cash conversion are references to non-GAAP measures. During the second quarter, we recorded a $40 million charge net of insurance proceeds for a legal settlement associated with a resolution of claims related to a previously disclosed coding issue. These non-GAAP measures are detailed in reconciliation tables, which are included with our earnings release and can be found in the financial results sections of the financial info tab at our IR website. Now I'd like to turn it over to Mark.
Mark Begor: Thanks, Trevor, and good morning. Turning to slide four, Equifax delivered strong results in the second quarter with revenue of $1.7 billion, up 11% on a reported basis and 10% in constant currency, which was 5 million above the April guidance midpoint. Ex-FICO mortgage royalties reported revenue was up about 7%. We also delivered very strong margin performance driving strong EPS growth of 13%. Organic diversified markets constant dollar revenue grew about 5.5% in the quarter and better than our expectations principally in workforce solutions benefiting from strong execution in talent solutions and consumer lending. EWS government revenue declined slightly in the quarter as expected due to a tough 2025 comp. We were very pleased with the commercial execution in government during the first half, signing principally state government contracts that bring the total in the last four months to about $300 million, with about $100 million of the new business that will principally benefit 2027 and $200 million of contract renewals. This is a strong indicator of the unique benefit our proprietary twin data provides to government customers and the long runway for government against their $5 billion TAM. USIS diversified markets revenue was slightly better than we expected, accelerating over 300 basis points sequentially, and international revenue was slightly lower than we expected at up 4%, principally reflecting market weaknesses in Canada and the U.K. U.S. mortgage revenue was up 25% in the quarter and up 7% ex-FICO. This was stronger than our expectations against a weaker-than-expected U.S. mortgage market from higher interest rates. During the quarter, U.S. mortgage rates increased meaningfully, with the current 30-year fixed rates up 30 basis points to about 6.6% versus the 6.3% when we gave guidance in April. As a result, we saw overall industry transaction volumes run below our expectations that were offset with new products and some share gains. U.S. macroeconomic conditions remain relatively consistent with the environment we saw in April. The ongoing Middle East conflict has resulted in continued higher levels of inflation that has disproportionately pressured the lower income or subprime consumer demographic. These inflationary pressures Low unemployment continues to support overall consumer health. Continued high employment levels have acted to limit more broad-based credit impacts, which gives lenders the confidence to continue originating loans. We have not seen financial institutions increase their portfolio management views or decrease consumer credit lines, which are actions they would typically take when they anticipate an economic downturn. to the Equifax team is to leverage the power of AI to expand our margins and free cash flow through accelerating growth of high margin proprietary database products and driving operational productivity through accelerated AI deployments across Equifax. Second quarter EBIT 552 million was up about 10.5% with an EBITDA margin excluding FICO of almost 35% up a very strong 120 basis points year to year and 40 basis points above the midpoint of our April framework. EBITDA margin expansion was well above our 75 basis point target for 2026 and 70 basis points above our 50 basis point long-term financial framework goal. The strong EBITDA margins were driven by operating leverage and AI-driven cost productivity principally in operations. Equifax reported EBITDA margins, including the impact of FICO, were 32.5% in the quarter, flat with last year. EPS at $2.25 per share was up a very strong 13% and 5 cents above our April guidance midpoint. Equifax returned $366 million to shareholders or over 1% of shares outstanding for $300 million, taking advantage of the lower Equifax stock price. And Equifax paid $66 million of dividends in the quarter after increasing our dividend by 12% in February. Over the last 12 months, end of June 30th, Equifax has returned over $1.6 billion of cash to our shareholders or 100% of our operating cash flow. We continue to expect strong free cash flow in the future of over $1 billion in 2026 and cash conversion to continue at over 100%. With our financial capacity of over $1.5 billion, we can execute the circulo de credito acquisitions while maintaining a strong balance sheet with debt leverage at under three times EBITDA and while continuing to repurchase shares in the second half, but at a slower pace than the first half. Equifax continued its strong execution against our EFX 2028 strategic priorities as listed on the right side of slide four with several big milestones during the quarter. We further accelerated our implementation of AI energetic capabilities across our global analytical decisioning and operational platforms for new products. In the first half of the year, we launched 54 new products that have AI capabilities directly embedded in the product architecture which directly benefit our customers and contributed to our strong 16% vitality index in the quarter. We also expanded the deployment of AI tools and agents across Equifax in internal product and model development, operations, technology, and our G&A support functions. The pace of AI adoption inside Equifax is accelerating rapidly, which allows us to double our AI for EFX productivity goal from $75 million to $150 million from 2026 to 2028. We know we are in the very early innings of our deployment of AI and energetic automation inside Equifax, both on enabling new products based on our proprietary data and driving speed, accuracy, and productivity across every corner of Equifax. In the second quarter, we delivered a very strong 16% new product vitality index, leveraging the Equifax Cloud and EFX.AI capabilities. New products based on differentiated proprietary data, including our twin indicator solution, continue to drive strong new product growth and share gains. We were energized to sign a definitive agreement two weeks ago to acquire Circulator Credito, the fastest-growing credit bureau in Mexico, for an enterprise value of $750 million. with a very attractive EBITDA multiple of 9.4 times, including run rate synergies. Turning to slide five, workforce solutions revenue was up 7% and better than our expectations, principally in verifier diversified markets, which grew 7%. EWS diversified market revenue growth was driven by outstanding performance in talent solutions and consumer lending, both up high double digits in the quarter. Talent Solutions continues to outperform the underlying white-collar labor market with strong growth in employment-based solutions and increased product penetration across our incarceration and education data sets, new solutions built co-intervening with background screeners, and pricing. Talent volumes were up mid-single digits in the quarter relative to an overall market decline in the first two months of the second quarter. The team continues to execute very well. Consumer lending also had another very strong quarter with strong double-digit revenue growth across the portfolio in auto, card, and consumer finance, principally due to strong volume growth and new product rollouts. As mentioned earlier, the EWS government team delivered an outstanding quarter signing about $300 million in principally state customer agreements in the last four months, including renewals, win-backs, and new customer wins. This is a very strong performance and reflects the unique twin position in government and strong commercial momentum post-OB3 legislation that was signed last July. The contract signings were positive and stronger than our expectations. Second quarter government revenue was down about 4%, and reflects a challenging comp from a large win in 2025. EWS mortgage revenue was up 8% in the quarter and continues to outperform underlying market volumes by high single digits from record growth, new products and pricing. In workforce solutions, EBITDA margins at 52.1% were consistent with the first quarter. However, margins were higher than we expected given strong operating leverage from better than expected diversified markets revenue performance. Twin record editions continue to perform well again in the second quarter with strong 10% growth in active records up to 217 million and 124 million total current active records, which were also up 10%, which represents 108 million unique SSNs. EWS has a long runway for record growth against the 250 million income-producing Americans. Turning to slide six, In the first half, we made outstanding progress with our government customers, converting our record commercial pipeline with renewals, extending existing relationships, and adding new principally state government customers. In the last four months, EWS signed agreements with state agencies for the provisioning of income and employment data from Equifax, supporting CMS and SNAP, totaling about $300 million in annual contract value, including about $100 million in new business and $200 million in renewals. An extremely strong result that will deliver some benefits in the second half but principally drive 2027 growth. These substantial contract signings along with our current deal pipelines up about 2x versus last year reinforces our confidence in the medium and long-term growth opportunities for EWS government at the federal level and in supporting states in meeting a new OB3 federal requirements regarding accuracy and frequency of income validation in Medicaid and SNAP. On slide six, we provided examples of some of the recent government wins, including an almost $60 million annual contract value win back supporting a state in delivering CMS benefits. The win back is a key proof point of the value of the twin data relative to other sources of income verification data, including state wage data and consumer permission data. We're also seeing expanding opportunities with multiple federal agencies in support of their big focus on reducing improper payments. Equifax is serving as a key advisor at the federal and state level, leveraging our differentiated income and employment data to drive speed, accuracy, and productivity of social service benefits delivery. The EWS team is clearly on offense supporting the states with their social service program requirements and has significant opportunities for long-term revenue growth supporting the federal and state programs in EWS's big $5 billion ham. Turning to slide seven, USIS second quarter revenue was up a strong 17% and up 6% excluding FICO and consistent with their long-term framework. This performance was delivered despite a weaker than expected US mortgage market that I discussed earlier. Diversified markets revenue grew 6%, accelerating over 300 basis points sequentially and slightly stronger than our expectations. B2B revenue was up 5% and also up over 300 basis points sequentially. Within online, we saw high single-digit growth in FI from stronger volumes, new business and pricing, and high single-digit growth in auto from pricing and new business wins. The strength in FI and auto was partially offset by weakness in third-party bureau sales from our sales to Experian and TransUnion. Consumer Direct, our D2C business, delivered continued strong growth with revenue up a very strong 11%. USIS mortgage revenue was up 40% and up mid-single digits excluding FICO with hard mortgage inquiries up only 1%. As I referenced earlier, mortgage rates were up from the levels we saw in April throughout most of the quarter, and as a result, mortgage origination activity was lower in the second quarter than the levels we expected when we gave guidance back in April, partially offset by share gains in pre-qual and pre-approval products. As a reminder, USIS began to deliver significant share gains in the second quarter of last year from both pre-qual and pre-approval products that included both the unique twin indicator in our NC Plus data. USIS EBITDA margins were 32.8% in the quarter. Excluding FICO, USIS EBITDA margins were 40.5% and up over 140 basis points versus last year, which was a very strong performance. The improvement was driven by stronger diversified markets revenue growth and good cost management. In April, the FHFA activated use of VantageScore for over 20 mortgage lenders. This was a big milestone to bring score competition to the mortgage industry. While the vast majority of these mortgage lenders have begun using VantageScore, we have also seen a groundswell of VantageScore adoption with about 1,200 additional mortgage lenders pulling our free Vantage Score alongside a paid FICO score from Equifax. On the left side of slide 8, you can see that our second quarter Vantage Score volume is up almost 3x compared to the first quarter. The vast majority of the 2.2 million transactions were pulled by the 1,200 lenders pulling a free Vantage Score alongside a paid FICO score as they drive their adoption of the new Vantage Score opportunity. We also have about 100 mortgage lenders, principally smaller non-GSE lenders and lenders underwriting HELOCs, or home equity loans, who have moved to exclusively utilizing VantageScore at our $1 price point for their mortgage originations. Although volumes remain low at about 10,000 transactions in the quarter, we saw significant acceleration as we moved through the tail end of the quarter. And as a reminder, We make no margin on the sale of FICO scores. FICO mortgage scores revenue is about 50% of USIS mortgage revenue and almost 7% of total Equifax revenue, delivering zero margins. We continue to expect strong adoption of Vantage score given the substantial $1 billion annual cost savings opportunity for the mortgage originators and consumers. Equifax plans to maintain the $1 Vantage score price through the end of 2027 to continue driving VantageScore adoption with our customers. The FHFA decision last July to allow mortgage score choice between Vantage and FICO is a big win for consumers and for the industry. Turning to slide nine, international revenue was up about 4% in constant currency. International saw high single-digit revenue growth in Asia Pacific and mid-single-digit growth in Canada. Latin American and Europe delivered low single-digit revenue growth in the quarter. Internationals saw market headwinds in both Canada and the UK, which dampened their growth rates. In LATAM, we saw solid mid to high single-digit growth in our largest markets like Brazil, Chile, and Argentina, with lower growth rates in some of our other smaller Latin American markets. International EBITDA margins were 27.6% in the quarter, up a strong 120 basis points versus last year. EBITDA margin improvements were driven by technology savings as the final stages of our cloud tech transformation gets completed and strong cost management. Moving to slide 10, two weeks ago Equifax signed a definitive agreement to acquire Circulo to Credido for an enterprise value of $750 million. This represents an 11.7 times EBITDA multiple based on Circulo's expected 2026 EBITDA. With the addition of expected run rate savings, the EBITDA multiple is expected to be about 9.4 times, which is attractive and significantly below our current EBITDA multiple. We expect the Circulo acquisition to be completed in the fourth quarter, subject to customary closing conditions and regulatory approvals, and for the acquisition to be accretive in year one. Circulo is the fastest-growing credit bureau in Mexico and the only credit bureau licensed to operate both a consumer and commercial credit bureau of service, with more than 1,700 bank, retail, fintech, and small business lending, microfinance, and telecommunications customers, and importantly, 2 billion trade lines covering 80 million validated identities in Mexico. Circular is a leader in alternative data or information not included in traditional credit reports in Mexico, including gig economy transactions and utility payment history. This alternative data can responsibly expand access to credit and support a more inclusive economy critical in a country where nearly 33 million people are engaged in informal employment, such as unregistered micro-businesses or gig employment. This acquisition will offer Circulo to Credito customers access to Equifax's industry-leading cloud-native capabilities, decision and analytic platforms, and patented EFX.ai technology and award-winning identity protection and fraud prevention offerings for the development of solutions designed to help their customers grow and expand functional inclusion in Mexico. The acquisition fits perfectly in our balanced capital allocation framework with our focus on highly accretive bolt-on acquisitions while continuing significant ongoing return of capital to shareholders and maintaining our strong investment-grade balance sheet. Turning to slide 11, Circulo's unique market position has delivered very strong financial results. Circulo's compound annual revenue growth rate was a very strong 23% from 23% to 25%, with revenue growth for the 12 months ended June 30th up a very strong 31%. Circulo revenue growth has been led by their unique alternative credit data advantage enabled by deep relationships with FinTechs with over 40% of Circulo's 2025 revenue generated from FinTechs with a growth rate of over 50%. Circulo's unique alternative data and the team's strong relationships with their FinTech customers are a key driver of future circular revenue growth in a market where consumer credit is underpenetrated and growing rapidly. Circulo delivered very strong mid-40s adjusted EBITDA margins in both 2025 and over the last 12 months through June 30th. For the full year of 2026, Circulo revenue is expected to grow high double digits while maintaining very strong mid-40s adjusted EBITDA margins. The very attractive circular financial results are accretive to the Equifax long-term financial framework of 7% to 10% organic revenue growth, consistent with our capital allocation plan and driving shareholder returns. Turning to slide 12, Equifax is executing a broad AI and energetic strategy that leverages EFX.AI along with our cloud-native technology, our Ignite analytics platform, and our scale proprietary data to deliver higher performing EFX.ai powered scores, models and products to our customers. Equifax has a strong AI data moat around Equifax's unique and proprietary data with over 90% of Equifax revenue generated from proprietary data sources included in over 100 unique data exchanges globally. These exchanges receive contributed proprietary data directly from the data owners that is not publicly available, such as our income and employment exchanges, credit exchanges, alternative credit data exchanges, and other unique proprietary data assets. Said differently, only Equifax and our credentialed customers can access our data. The use and protection of our data has another layer of from both the national and local laws that restrict the data's usage and by agreements with our contributors, including requirements regarding the accuracy and currency of this data and the requirement to provide consumers in the 24 countries in which we operate these exchanges with the ability to review and dispute the data managed in these unique Equifax exchanges. For example, in the U.S., our EWS income and employment data Our broad credit and alternative credit data exchanges are not only governed by the agreements with the contributors, but also by the U.S. Fair Credit Reporting Act, or FCRA. The contributory nature of the proprietary data and the complex regulatory and contractual compliance requirements that govern our data, along with the coverage and historical data these exchanges contain, create the strong data moat around Equifax's proprietary data. To reach us through leading technology, EFX.ai capabilities, and proprietary data, Equifax is accelerating a strategy to utilize AI and energetic capabilities to improve our customers' ability to utilize Equifax data and advanced technology to improve their decisions by incorporating more data and more effective AI-defined algorithms using patented capabilities that deliver explainable results to our customers. We are expanding from being a provider of data analytics to be an essential partner for the AI-powered decision intelligence that our customers are driving. We are realizing this vision through a growing suite of global EFX.AI-enabled solutions. In the first half of the year, we rolled out 54 new products that leverage these EFX.AI capabilities that drove our strong 16% vitality index. This includes the commercial launch of Ignite AI Advisor and Equifax IQ on our integrated Ignite Analytics and Interkick decisioning global platforms. Ignite AI Advisor is a multi-agent system that delivers AI-driven, real-time, personalized insights and actionable recommendations delivered through our natural language user interface to our customers. Lenders can ask questions through a generative AI chat with complimentary visual dashboard illustrations and dynamic charts and graphs. This enables our customers, particularly those with limited in-house data and analytics staff, to easily compare information, discover new trends, and drive more informed decisions to drive their growth and returns. For example, we have customers identifying missed opportunities to capture business from existing customers who have loans with another bank or FI. and customers comparing payoff and paydown speeds against competitors to determine if their rates and terms are competitive to drive application conversions and growth for their business. This solution is now being used by U.S. customers in auto, P-Loan and credit card to pinpoint new opportunities to improve their portfolio performance and is expanding to Canada in the third quarter with further global expansion through the balance of 2026. Complimentary to Equifax AI Advisor, Equifax IQ is a multi-algorithm AI system that allows customers to transition policy management from a manual rigid process to an AI driven multi-dimensional optimization engine. Equifax IQ uses EFX proprietary data and customer contributed data to help our customers better understand new market opportunities grow their business with the right customers, reduce fraud, and confidently extend more credit. It also delivers portfolio overviews, delinquency analysis, affordability assessments, fraud identification, and policy adjustments while streamlining workflows for seamless user experience. Our first implementation of Equifax IQ are helping customers across Latin America. In Argentina, we established an advanced origination risk policy for a global vehicle manufacturer's entry into the financing market, evaluating banked and unbanked populations. Equifax IQ will expand to the US and other regions globally as we move through the balance of the year and early in 2027. Ignite AI Advisor and Equifax IQ are great examples of the advantages derived from our global cloud-native infrastructure which is structured for the rapid expansion of AI and energetic advancements globally. These optimizations improve customers' processes and outcomes by improving analytical outcomes and more effectively using the breadth of data assets available to customers from Equifax. We believe our investments in EFX.AI will drive our new product rollouts, share gains, revenue growth, and margin expansion. I'm super energized about the momentum and pace of change and the big performance left from EFX.AI in our product models and scores development for our customers. Turning to slide 13, in the second quarter, we delivered a very strong 16% new product vitality index, leveraging the Equifax Cloud and EFX.AI capabilities, which is above our 2026 vitality index goal of 15% and our 10% long-term framework. In the first half, over 50% of our new products have AI capabilities embedded in the product architecture, which the customer directly interfaces with using LLMs. New products based on differentiated proprietary data, including our twin indicator solution for mortgage, continue to drive strong new product growth and share gains. As discussed over the last few quarters, our only Equifax twin indicator solutions in card, auto, and P-loans are starting to see early customer interest for these unique solutions. And as a reminder, we're providing the twin indicator solutions in all those verticals at no cost in order to drive differentiation of our credit file and deliver share gains to Equifax. Moving to slide 14, we're also rapidly expanding the implementation of AI and energetic-based solutions across our internal Equifax processes to improve operational speed, accuracy, and productivity. Ingetic and AI-assisted process redefinition improvement is occurring across operations, technology, product development, and support functions, including HR, legal, and finance. The pace of adoption is ramping very quickly and delivering big productivity lists in every corner of Equifax. As you can see from the chart on the left slide of the page, total gross labor spending at Equifax on both expense and capital is currently about $2 billion for about 40% of total gross spending. Of this amount, about 60% of our gross labor spend is within global operations and technology organizations, where we are seeing early and big gains from AI adoption. As we continue to rapidly drive rollouts and adoption of AI tools and agents that are delivering meaningful process improvement, We now expect run rate spending savings from these AI for EFX efforts to be about $150 million from 2026 to 2028, which is double the $75 million of savings we discussed with you in February. These AI efficiencies are expected to improve our financial performance while providing increased capability to reinvest and further accelerate our AI-ingetic deployments for speed, accuracy, and productivity. The foundation of our rapid AI deployment is our new Equifax cloud native architecture and our energetic AI development and management platform that is now in production broadly across Equifax, which enables efficient AI agent process development and management that is designed to ensure our energetic processes and capabilities fully comply with our extensive security and compliance requirements. In operations, we are executing a rapid rollout of operational AI across our business units in our call centers and document processing operations. In USIS, we are rolling out conversational AI in call centers and already seeing big lists in customer authentication and fulfillment rates, and AI-assisted processes have delivered decreases in back office dispute handle times, which are delivering productivity. In technology, we're seeing early but big benefits and our software development, IT operations, cybersecurity, and cloud cost optimization functions. With our Ingenic AI platform, we have moved beyond pilots to autonomous agents operating core internal processes built and run on a standardized, secure, Ingenic platform with governments, human-in-the-loop checkpoints, and model risk evaluation built in. We are super energized about the pace of our AI adoption inside Equifax, but we know that we are in the very early innings of our rollout. We are confident there is significantly more opportunity to both grow revenue and reduce costs as AI and energetic capabilities become fully embedded across Equifax. Now I'd like to turn it over to John to provide our third quarter and full year framework.
John Gamble: Thanks, Mark. Slide 15 provides the specifics of our 2026 full year guidance. We are holding our full year 2026 financial guidance on a reported basis to be unchanged from our April guidance. On a constant currency basis, we raised our guidance consistent with our second quarter revenue beat. The impact of weakening FX on our full year results offset our 2QB. Our second quarter performance was stronger than our guidance, driven by very good performance in both EWS and USIS diversified markets. Diversified markets revenue growth at the midpoint is expected to be up high single digits for the year. The U.S. mortgage market was slightly weaker than expected in the second quarter and has shown further weakening over the last several weeks as long-term interest rates have again increased. Our guidance reflects improved share performance in mortgage as well as continued good performance in diversified markets, offsetting the weakness in the U.S. mortgage market. U.S. mortgage revenue is expected to be up just above 20%, with mortgage market originations weaker and down low single digits. For your perspective, as you determine your view of the 2026 U.S. mortgage market based on a review of Equifax data on mortgage home purchase issuances since early 2022, we estimate that there are over 16 million mortgages that were issued with an interest rate over 5%, including almost 15 million with rates over 6%, and over 9.5 million with rates over 6.5%. This provides a perspective on the pool of mortgages potentially available to refinance as mortgage rates change. Business unit revenue growth rates and EBITDA margin expectations are unchanged from our April guidance. This slide also includes additional detail on revenue growth rates and EBITDA margins excluding FICO mortgage score royalty pass-through revenue and expected BU revenue in EBITDA margins. to deliver revenue growth of 7.2% to 8.4%, excluding the impact of FICO mortgage royalties in 2026 within our long-term financial framework. And we expect to grow EBITDA margins, excluding the impact of FICO mortgage royalties by a strong 75 basis points, which is 25 points above our long-term framework. In 2026, we expect to deliver over $1 billion of free cash flow and a cash flow conversion of at least 100%. As we discussed in April, with EBITDA increasing to about $2.1 billion at the midpoint and strong free cash flow, this creates $1.5 billion in capital available in 2026 for M&A and return of cash to shareholders while maintaining debt leverage at under three times EBITDA. As referenced earlier, this provides the capability for us to complete the circular acquisition as planned in 4Q26. while still executing share repurchases in the second half of 26, although at lower levels than the 560 million and 3.1 million shares we repurchased in the first half of 26. Slide 16 provides the details of our 3Q26 guidance. In 3Q26, we expect total Equifax revenue to be between $1.68 and $1.71 billion, up almost 10% on a reported basis year-to-year at the midpoint. and many more. In the midpoint, constant dollar revenue growth at the midpoint is up almost 9.5%. Excluding the impact of FICO mortgage scores, 3Q26 reported revenue is expected to be up about 7% at the midpoint. Diversified markets revenue is expected to be up mid-single digits on a constant currency basis and up sequentially from second quarter, principally due to stronger EWS diversified markets growth. U.S. mortgage revenue is expected to be up about 20% EPS and 3Q26 is expected to be $2.15 to $2.25 per share, up about 8% versus 3Q25 at the midpoint. Equifax 3Q26 EBITDA dollars are expected to be $547 to $564 million, up about 10% at the midpoint. EBITDA margins are expected to be about 32.8% at the midpoint of our guidance. and excluding the impact of FICO mortgage royalties, EBITDA margins in 3Q26 would be 34.6 to 35%, up over 90 basis points at the midpoint from our 3Q25 on the same basis. We believe that our full year and 3Q26 guidance are centered at the midpoint of both our revenue and EPS guidance ranges. As a reminder, Our guidance for 3Q26 and fiscal year 26 assumes Equifax will calculate and sell FICO scores for all mortgage credit transactions, and there will be limited Vantage score revenue. As we move through 2026 and there is additional clarity on Vantage conversion and the FICO direct license program, we will update our guidance to reflect the shift and opportunity for the mortgage industry, consumers, and Equifax. Now I'd like to turn it back over to Mark.
Mark Begor: Slide 17, Equifax had another strong quarter, executing very well against our EFX 2028 strategic priorities. The new Equifax is leveraging the Equifax Cloud, EFX.ai, and proprietary data assets to accelerate innovation and help our customers grow. Our second quarter financial results are an excellent proof point of the broad-based Equifax operating model, including the strong 120 basis points of EBITDA margin expansion in the quarter. We have strong momentum as we enter the second half of the year. EWS signed agreements principally with state agencies with a total ACV of about $300 million. We signed a highly accretive circular to Credito acquisition, and we doubled our AI for EFX productivity goal from $75 million to $150 million. Our strong execution and momentum in 26 sets us up for 27 and beyond. Given our strong free cash flow generation and cash conversion over 100% Thank you. Thank you. Thank you. I'm energized about our broad-based performance, but even more energized about the future of the new Equifax. And with that, operator, let me open it up for questions.
Operator: Thank you. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. to offer as many questions as possible. We ask that you each ask one question and one follow-up. Thank you. Our first question comes from the line of Jeff Mueller with Baird. Please proceed with your question.
Jeff Mueller: Yeah, thank you. So you were obviously calling out the tougher twig government year over year this quarter in advance on the true-ups and the copying and the onboarding of the large contract. The booking figure is kind of a new figure. Obviously, we have the context of the overall size of the business, but it sounds good. Can you just comment maybe on... If gross retention rates are still stable and high and if pricing integrity is holding as we think of kind of using the new business to kind of build on the future revenue.
Mark Begor: Yeah, Jeff, thanks. You know, we telegraphed, I think, in the April call that our deal pipeline government had been growing rapidly. I think we've been talking about that really for the last year and change since the new administration came into Washington and with the OB3 passing in July last year, we just saw a real uptick in momentum around commercial activity, and that's continued. And our deal pipeline continues to be 2X over last year, and we're starting to convert some of that pipeline, some of it faster than we thought, but we know that there was real momentum, which we talked about really in February and again in April. So we were pleased with the $100 million of new wins. So these are new principally state contracts that hadn't been doing business with Equifax before or not in the last couple of years. And then extensions and renewals of another $200 million. So great indicators of the real value of our solution in the marketplace, the commercial momentum in there around the value of our services being used. As you know, there's a huge TAM here. to your question around pricing and commercial terms and activity, really no change. We are continuing to have really strong success in the government vertical. We've got a long runway for growth. We've got the right solution. As you know, we're investing in new products like the gig solution we launched late last year that we're having some traction on. And then some of the new solutions we're starting to bring to market to address some of the new OB3 requirements. around Medicaid and SNAP that principally benefit 2027. So we remain quite bullish about the government vertical. We have talked in a couple of calls over the last year and change that in some cases we're using subscription agreements versus transactional agreements with some of our new customers. That's been something that helps them with their budgets at the state level in particular. So that's been a a positive for us. But we're quite enthusiastic and quite energized around the momentum in government and to land some large contracts. We thought it was meaningful to share those with you because they're really going to benefit principally 2027. So it gives us a great, great momentum as we move towards next year.
Jeff Mueller: Very helpful. And then on the Vantage Score only, the 100 Vantage Score only in mortgage to lenders. I get it's only priced at a dollar at least through 27, so it wouldn't be big revenue dollars for you yet. But does that mean that those 100 are paying for Vantage Score at this point? And can you contextualize if there's any one sizable or what do they look like?
Mark Begor: No, they're not sizable yet. All of the mortgage customers that we have, which is nearly every mortgage customer, are focused on Vantage because of significant cost savings. As you know, the FHFA is still gating the agency mortgages, the number of lenders that can be utilizing Vantage. We expect that to increase as time passes, meaning the lenders are all engaging with FHFA about their interest of accessing Vantage. So we expect that momentum to continue as we move into third quarter and into the second half. As we pointed out in the prepared comments, we intend to keep our pricing at $1 in 2027 to really continue to drive that engagement with our customers, but also giving them visibility now that they can count on Vantage as an attractive scoring solution along with our credit file for their mortgage underwriting going forward. Just maybe summarizing one more time, there's a lot of momentum here by the mortgage lenders, and we expect that activity to continue as we move into second half. Thanks, Mark. Thanks, Jeff.
Operator: Thank you. Our next question comes from the line of Tony Catlin with Morgan Stanley. Please proceed with your question.
Tony Catlin: Thanks so much. I wanted to start with the government business also. You talked about some win-backs in the presentation, and so I was hoping you could maybe expand on the opportunity that you see for those win-backs. And basically maybe thinking about 3Q for government, how are you looking on that, especially based on you have this really good pipeline, but maybe some of that isn't flowing into the growth rate as quickly.
Mark Begor: Yeah, so again, we were pleased, Tony, I hope you are too, with the commercial momentum in government. It was above our expectations, but we knew it was coming. When you've got a deal pipeline that's up 2x year over year, we've got a lot of discipline around our commercial pipelines. It was just a matter of time when those convert from pipeline to contracts. You'll remember that you go back to July of 2024, the Biden administration changed some of the Medicare cost savings, and I think we were clear with you really in the second half of 24 and into 25 that We were able to work with many of the states to resolve the challenges they had with their budgets with that kind of unexpected cost sharing that happened in 2024 where the states had to pick up incremental costs for the data that was used. And there were some states that couldn't manage it, and they had to turn our solution off. And I think that's kind of well discussed by us over the last year and change, and it was reflected in our P&L. were winning back some of those states. And I think it's a great reflection of the value of the income and employment data that we deliver to social services at the state level. And, you know, there was, you know, a large one, which you can see on the slide there that was included, that's, you know, going to be on a run rate basis, net new revenue for us, you know, really principally late in the year, but in really in 2027 is where that will benefit. As I said in my comments earlier, that kind of $100 million of ACV from New Relationships and Winbacks is principally benefiting 2027. And then, of course, there's another 200 million of renewals, which meaning it stays in our runway, which we were very pleased with. So the commercial activity is strong. And, you know, we're really pleased with the momentum and really set up we have for 2027, you know, in government. And, you know, again, as a reminder, you know, you've got a business that's Approaching $800 million of revenue in government and workforce solutions, but it's operating against the $5 billion TAM. And again, a reminder that the OB-3 requirements that were put in place in the July bill that was signed last year really go into effect late this year in 2027. And we expect that to be a catalyst for growth. And you're seeing the $100 million is at least a piece of that. which will be positive for us as we get into the new year in 27.
Tony Catlin: Great. And then I wanted to ask about the 1,200 lenders that are using VantageScore with FICO. I know you're giving Vantage for free if someone is using FICO. So out of the 1,200, is there a way that you know how many are testing or are they just getting it and hopefully they're testing it and we'll convert it?
Mark Begor: No, no, no, no.
Tony Catlin: Okay.
Mark Begor: No, you should think about the 1,200 as all are testing their technology systems, their processes, their workflows. And we talked over the last year or so that this is a big change for the industry that's been using one credit score for three decades almost. So that technology and process flow change was important. That's why we made the decision last fall to offer a free Vantage score with every paid FICO score so our customers could test their tech, their product, as well as their other workflows. So, you know, you should think about and we think about that, you know, 1,200, meaning lots of mortgage lenders are really preparing to use Vantage. As a reminder, as you know, the FHFA in April, their announcement, I think, was 22 or 23 lenders that were approved, and that's only 22 or 23. We would expect that to increase moving forward because those 1,200 lenders using that example, they all want to take advantage of the value, get their share of that billion dollars worth of cost savings that's available to them by using the Vantage Score. So we would expect that adoption to continue to grow as the FHFA opens up more lenders to be able to utilize the advantage score in the actual loan origination versus FICO.
Tony Catlin: Terrific. Thank you.
Operator: Thank you. Our next question comes from the line of Andrew Steinemann with JP Morgan. Please proceed with your question.
Alex Hess: Hi. This is Alex Hess on for Andrew. Just a couple points of clarification. On the government ACV number, I think it was asked earlier, but what was the associated retention dynamic?
Mark Begor: The $100 million is all new business for us versus think about 2026, meaning that's all additive to our revenue and principally in 2027.
Alex Hess: The $200 million is renewals of existing contracts that's in our revenue in 2026. Understood. So no turn of note. Then, you know, just switching to mortgage, mortgage revenues in USIS were up 60% in 1Q, up 40% in 2Q. Can you just sort of walk us through the bridge of that come down, if you will?
John Gamble: Sure. The biggest driver, obviously, is mortgage market weakened, right? As you take a look at what occurred year over year, and we talked about that. We saw weakening as rates rised as you went through the second quarter. and also in the second quarter of last year, we started gaining share in prequal. So we had a little more difficult comp because we had picked up some share that we hadn't had in place in the first quarter of 2025. So those are two big drivers that are impacting why the overall growth rate is lower in the second quarter, year over year growth rate is lower in the second quarter versus the first.
Alex Hess: Understood. And then final clarification, please. You say VantageScore transactions were up roughly 3x to 2.2 million. How are you defining a transaction in this case for the quarter? What is a transaction?
John Gamble: This is us delivery of a VantageScore, right? So that's effectively what they are. Yeah.
Alex Hess: Thank you so much.
Operator: Thank you. Our next question comes from the line of Shlomo Rosenbaum with Stifel. Please proceed with your question.
Shlomo Rosenbaum: Hi, thank you very much for taking my questions. Mark, can you talk a little bit more about the twin indicator and the progress you're seeing in auto and credit card? Are you seeing more evidence of volume shifts and just anything maybe quantitative that you can point to that, hey, this could be a longer-term game changer?
Mark Begor: Yeah, it's still earlier days in those verticals. We're further deployed, as you know, in mortgage because we launched that really last fall. Summer slash Fall when we launched it in mortgage, and we really only launched in AutoCard and P-Loan, you know, in the early parts of 2026. The response from customers is super strong. You know, they see real value. You know, the same value we talked about in a marketing funnel in a mortgage application process where you're really blind to the income or whether the applicant is working because you only have credit data historically. Now the addition of That twin indicator that shows that Mark's working and what my compensation was in the prior year, the last 12 months, and that I work for, in my case, Equifax, is really valuable. It's the same case in an auto loan. An auto marketing funnel is quite similar. The auto dealer or the digital transaction auto, they're trying to figure out, is this an applicant that I'm going to be able to get to a closing of an auto loan? and how can I differentiate from those that don't close versus the information that I'll have, including the income and employment data from Equifax with a twin indicator really gives them a leg up in managing their marketing funnel. Same in a personal loan process that's typically digital, although some are physical, but the bulk is digital, same process. And then in card, it just gives the ability to give a larger credit line, which typically will result in a higher take rate from the consumer. And with the addition of income, you can actually do a lower interest rate, which will drive pipeline conversion. So we're energized about that rollout. There's not a lot of share shift happening yet, but a lot of really strong commercial discussions happening in those AutoCard and P-Loan verticals. So we're energized about that momentum, and we'll continue to drive that engagement with our customers in the second half.
Shlomo Rosenbaum: Okay, thank you. And then just shifting back to that Vantage Score discussion, FICO is reducing the cost of like the 10T to like a buck by putting in a really big success fee at the other end of the transaction. And given your experience with the mortgage market, do lenders look at that as a straight-through, pass-through that they don't care about? or is that something that a success fee at the other end is something that weighs on the consumer and they actually do care about that? I'm just trying to understand, does the $1 make it comparable or is it really still not comparable in the eyes of the people that are going to be buying this?
Mark Begor: I think it's the latter. We don't hear or see any traction on that. It's one that the success fee thing is something FICO has been talking about for about a year. There's Nothing really happening in the marketplace on it. And I think the point you raised around the consumer is an excellent one because the consumer, there's a RESPA regulation that's around mortgage originations. It's legislation in the United States that mortgage originators have to follow it. And basically, you know, it means that they have to treat the consumer fairly with regards to services that they purchase for them and then charge the consumer for. So the idea of charging that consumer $66 for a credit score, which is what FICO is proposing with their closed loan pricing, versus a dollar with a Vantage score or $10 with today's FICO score pricing just doesn't make a lot of sense, which is why there isn't a lot of traction there. And I know you know this, but We don't see any path of where this really makes a lot of sense, either commercially or from a regulatory, legislative, legal standpoint. We just don't see any traction on it. We're focused on really supporting our customers with the $1 Vantage. I think, as we said earlier, we're going to continue that pricing in 2027 to give our customers visibility around how we're trying to support them. in credit scoring and driving credit score competition. And we think that's going to help drive adoption and conversion to Vantage in the mortgage space as we go through the second half and move into 2027. Thank you.
Operator: Thank you. Our next question comes from the line of Manak Patnaik with Barclays. Please proceed with your question.
Manak Patnaik: Thank you. Good morning. I guess we're just looking for a little bit more help on the way government kind of flows through for the rest of the year and into 27. I mean, you know, the pipeline and the backlog, all that makes sense for the growth in 27. But, you know, I guess you've grown about 5% in the first half of this year. So just trying to appreciate how it ends and how quickly all this new business rolls into in 27 as well.
Mark Begor: The 27 new business rolls in quite quickly. As I think we said, much of it's driven off some of the OB3 changes, but it's, you know, the 100 million of new business, you know, is 2027 ACV run rate and, you know, would be principally in that run rate early in 2027.
John Gamble: Yeah, in terms of second half, we're expecting government to return back to growth and we'll start to see some of the benefits, a small amount, from these new contracts start to flow through. So, again, you know, the wins, as Mark said, are a really strong indicator of the strength of the solution. and how we think it's going to drive growth as we get not so much through the back half of this year, although we will see growth in the back half of this year, but really as you get into 2027 and beyond.
Manak Patnaik: And sorry, when you mean return to growth, are we saying similar to the 5% in the first half or less?
John Gamble: We haven't given a specific number, but you're going to start, you'll see government growth again as we go through the second half.
Manak Patnaik: Okay, got it. And then, John, similarly on the mortgage inquiry assumption, I think low single digits technically was unchanged, so I'm just trying to appreciate if there's a range within which you want to guide us to on the low single digits, and I think you mentioned you offset that with share gains, is that correct, or did I read that incorrectly?
John Gamble: So, I think you're talking about originations, and yeah, we continue to expect to see originations to be down low single digits. Obviously, that's a range, and and effectively we're indicating we're going to be lower in the range of low single digits than we indicated before and we do expect to continue to win share gains principally in soft pulls as we go through the rest of this year. We think the team's making great progress. Mark answered a question earlier about twin indicator and the progress we're making there and that's really driving the benefit.
Mark Begor: But said differently, Manav, I want to make sure that we're getting the right response to you on the mortgage, our view of the mortgage market. It definitely weakened, you know, from April. as rates continued to stay high and actually increased a bit in May and June. And we expect that to continue. It's hard to see that what's happening in the Middle East is going to be resolved and then inflation is going to come down and then rates are going to come down. So our guide in the second half is kind of at the very low end of that low single digit kind of market outlook for the second half.
Manak Patnaik: Okay, thank you. Appreciate that.
Operator: Thank you. Our next question comes from the line of Faiza Alway with Deutsche Bank. Please proceed with your question. Yes, hi.
Faiza Alway: Thank you. Good morning. I first wanted to ask about talent. Like, you've seen really strong growth there in the quarter, and I'm curious, sort of, is that sustainable? Sort of, what's driving that growth?
John Gamble: Well, we saw very good growth in talent in both the first and the second quarter, and they've done an outstanding job, both of continuing to grow penetration in VOE, so verification of employment, but also to continue to drive penetration in education, and then the other incarceration type of activities that we're also able to provide data on. So really good performance by the team, continuing to expand their presence and grow their penetration across background screeners generally. and we do expect them to consistently outperform the underlying hiring market and they've obviously done that to a very wide degree in the first two quarters of this year. I can't tell you that they're going to grow at this rate consistently going forward because obviously outgrowing the market by the amount we did in the second quarter is larger than our long-term guidance but we expect them to continue to perform well and then consistent with the strong outperformance relative to the market that we've indicated we should deliver long-term.
Faiza Alway: Okay, great. And then just to follow up on the government vertical. So I think you talked about flat growth in the second quarter, and it ended up being a little bit weaker than what you had indicated. So I'm curious what led to that. And I guess relatedly, I'm assuming that it has to do with the usage. And so as you're signing these new contracts, are these all, you know, fixed subscription-based contracts or... Is there a usage element to this where you could have upside-downside based on what type of usage or hits you end up getting?
John Gamble: Yeah, so in terms of the specific performance in the second quarter, the team, as Mark said, performed extremely well in signing new agreements and renewing agreements. The timing of those is sometimes hard to predict, and some agreements that we had expected that would close in the quarter actually closed just after the quarter ended. and it impacted some of the revenue delivery that would have occurred in quarter. And that's really the big driver of what happened in the second quarter relative to our expectations. It's not material on a go-forward basis for the business because, again, they performed extremely well in signing new agreements. As Mark already mentioned, we are seeing an increase in the percentage of time that customers want to go to subscriptions because it makes it easier for them to budget. But not all contracts certainly are for subscriptions. We still have a significant number of contracts. that are signed that are usage-based. And you'll continue to see a mix of that, although we would expect to see probably the mix of contracts that are subscription-based to grow over time.
Operator: All right. Thank you. Thank you. Our next question comes from the line of Andrew Nicholas with William Blair. Please proceed with your question.
Andrew Nicholas: Hi, good morning. Appreciate you taking my questions. I wanted to circle back to the AI cost savings that you increased this quarter. Obviously, it's only been a couple months since the $75 million number. So I'm just curious kind of what has specifically changed or what are you most kind of excited about or incrementally excited about versus last quarter? And relatedly, how much if anything of those savings are already in the expense space or the run right now.
Mark Begor: Yeah. So back in February, we put out the $75 million of savings from AI. And you may remember we talked about that being principally from our operations team. Think about our call centers and paper processing centers, which are a meaningful part of our cost structure. That was where we started with AI deployment. In that operation, we've had really strong success of accelerating some of the AI agent deployment. We've got AI agents starting to take calls. We've got AI agents really managing a lot of the massive paper that we bring into the operation. So that pace of deployment and pace of productivity has really just moved rapidly. So that's a piece of the increase from 75 to $150 million. And then we also said to you that We've been deploying AI capabilities across the rest of Equifax. Technology is a very large part of our cost structure and CapEx structure. We've had really strong momentum in deploying AI capabilities for coding or code development. We have large portions of our code development now being done by agents and managed by our team. The QC elements of that, so that's a Thank you for joining us. We thought the time was right to increase it from 75 to 150 million. As stated, it's between this year and 27 and 28, so it's multi-year in nature. You're seeing in 2026 a piece of that benefit in our margin performance, which is extremely strong. If you look at the margin performance for the quarter, we were up 120 basis points. That's versus our normal kind of 50 basis point operating leverage that we get from our 7 to 10 organic revenue growth, I think 7% in the quarter. So you're seeing those AI productivity and cost savings benefits show up in 26. And we wanted to give some visibility that it's moving quite rapidly. AI is real at Equifax, for sure. We've been talking for the last couple of years around how AI is changing the kind of product scores and models we bring to market, our investments that we're making, in our AI technology or explainable AI technology to really advance our product innovation. We talked about on the call that over 50% of our products that we delivered in the quarter are now include AI capabilities or agents inside of them. And then back to the point of your question, really late last year, we started, as we completed the cloud, really started deploying AI inside Equifax. We call it AI4EFX. That's our project team focus inside of the company. And as I said, operations was the first focus, and now we're really seeing great momentum in tech and the rest of the company. So we're energized to see those benefits will come forward not only this year, but also in 27 and 28.
John Gamble: And just specific, so on the on the $2 billion gross labor spending, just so you have perspective, about 80% is expense, about 20% is capital, so the savings would impact both expense and capital. And as Mark said, the savings for 2026 are in the guide.
Andrew Nicholas: Got it. That's helpful. And maybe just I'll stick with the AI theme, appreciates the operating expense efficiency Appreciate kind of the embedding of AI in a lot of your products. But I think I asked a similar question last quarter. I'm just curious, since it's all moving pretty quickly, have you noticed a change on the demand side? Like, are your clients actively pursuing your data on a more frequent basis? Are they particularly interested in AI-infused products? Just wondering if kind of the... Thank you. Thank you.
Mark Begor: they're changing their operations, they're embedding AI in their workflows, and there's different pace of implementation with every customer. Some more advanced, some moving quickly, et cetera. I would make the point that this is changing rapidly. And I think the productivity piece that we talked about inside of Equifax of just in a six month period, our outlook for the benefits from AI in our operations, think operations tech and our support functions, you know doubling in six months that's kind of that pace of you know adoption is really quite remarkable you know to me from a customer perspective you know there's no question that they're becoming more AI enabled you know and how they want to take you know access our solutions what is really driving our top line in really driving our competitive advantages our ability to deliver higher performing solutions using our AI capabilities so think about a score that delivers higher performance. And we've talked about that before. And whether you're AI enabled or not, if you're a customer and you have the ability to approve more consumers at a lower loss rate because you've got a higher performing score that Equifax is delivering, which is powered by AI and generally includes a lot more data elements, which is part of the foundation that we have, meaning we have more differentiated data That's a solution they want to buy, whether they're AI enabled or not. So I think that's kind of the commercial activity is we are investing to have higher performing scores, models, and products. And remember, what we principally sell to our customers is ROI. So that's kind of the forefront of where we've been investing for the last couple of years in products. And then kind of the enabler that comes with that is the investments we're making in Ignite, and our other enabling tools that our customers use to access our tools. AI enabling those with agents in them that make them conversational with our customers. That's kind of another gear around the engagement with our customers. But it starts with performance. Are you able to deliver a product that's going to deliver more ROI to your customers? And that's where our AI focuses in our products, models and scores.
John Gamble: and we are seeing rapid adoption, some in pilots, some more extensively of AI Advisor, right? And it's our most advanced solution and customers are starting to utilize it already. Thank you.
Operator: Thank you. Our next question comes from the line of Ashish Savadra with RBC Capital Markets. Please proceed with your question.
Ashish Savadra: Thanks for taking my question. If you don't mind, I'll ask another question on government. Historically, except for last year, government revenues are sequentially flat from 2Q to 3Q. Is that a similar cadence that we should expect before we see a step up in a sequential revenue into 4Q?
John Gamble: So again, I think we were asked earlier, do we expect to see growth in the second half in government? And we do, right? So I think that's probably as far as we're going to go on specific guidance on government or specific guidance by line of business. But we're expecting to see growth in government in the second half. And as Mark said, with the 100 million of new contracts and 200 million of renewals, some of which include expansions, we would expect to see accelerating growth as we go into next year.
Ashish Savadra: That's very helpful, Carla. And maybe just on the diversified market, the guidance for 3Q was up mid-single digit. That's a modest slowdown compared to 2Q. I was just wondering, is that just conservatism? Any particular puts and takes that you can call out as we think about the diversified market growth for the rest of the year? Thanks.
John Gamble: No, I think diversified markets we're expecting to be pretty much consistent with what we saw in the second quarter, right? So I think we're very happy with the performance we saw in diversified markets in the second quarter. We saw very good performance in particularly USIS as their diversified markets growth improved by 300 basis points. We're expecting nice performance by USIS again. EWS will see good improvement, obviously, as government growth improves meaningfully as we go into the second half. And we're expecting to see a better growth out of international as well. So, no, I think we're expecting to see good performance in the third quarter in diversified markets and at least consistent with what we saw in the second quarter.
Ashish Savadra: That's very helpful. Thank you.
Operator: Thank you. Our next question comes from the line of Jason Haas with Wells Fargo. Please proceed with your question.
Jason Haas: Hey, good morning and thanks for taking my questions. When you give us the ACV bookings for government, the $100 billion, are we supposed to take that and divide that by the $800 billion of government revenue to like imply like, I don't know, like low double digit growth for government? for 2027. Is that like the right framework to show that you're confident getting back to that like low double digit plus growth for government next year? Thanks.
Mark Begor: Yeah, we're not obviously giving guidance for 2027 yet. We'll do that at the right time early next year. We thought it was prudent, you know, given the, you know, we told you on our last call in April that we saw the pipeline over the last year grow dramatically, which we expected, but it was stronger than we anticipated. And having this meaningful pipeline conversion. We thought it was meaningful to share with you, so we did that this morning. The $200 million of renewals are in the kind of base run rate, and there's some expansions in there. The $100 million is new revenue versus 2026. There'll be some of that small amount in the second half, but it'll be principally in 2027, which is really how we thought about government unfolding as we move into – 27 and beyond. We still have a strong degree of confidence and that's actually reinforced by the commercial pipeline and by the pipeline conversion of the 100 and the 200. When we think about government and 27 beyond, there's just a long runway to grow into that big $5 billion TAM and we're seeing some real success as reflected in the 100 million of new business.
Jason Haas: Great, got it. Okay, that makes sense. And then I want to follow up on the EWS margins. So I know nothing's changing and the margins are guided flat for this year. But just conceptually, I'm trying to understand why that is, because it sounds like you're getting some good AI benefits to your cost structure. We're certainly seeing that in the X FICO, USIS margins, which are going to expand this year. So what's the offset? Is it investment in the business? Is it because you're selling more like and other records that maybe makes the business lower. Just conceptually, why aren't those margins going higher this year?
Mark Begor: Yeah, so we've been clear that, look, 50 plus percent EBITDA margins are pretty unusual and quite attractive. And EWS has been delivering those for, I don't know, a decade. As long as I've been at Equifax, they've had those kind of 50 plus percent EBITDA margins. And when we think about our long-term framework, we've always thought about maintaining that 50 plus percent Ebitda Margin. And by doing that, we want to keep reinvesting inside of EWS to really drive that above 7 to 10. We think that they're going to grow over the long term, low double digits, driving that very high top line with those attractive margins. That's how we think about the business. It's a place we want to keep investing in. And yes, they are getting some of those AI productivity savings. We're investing those to keep that top line growth moving. And then when you think about overall Equifax, you know, they're growing faster than the rest of Equifax with those higher EBITDA margins. That's one of the drivers of the 50 basis points of kind of base operating leverage that we have, you know, over the long term. And then in 2026, you know, you're seeing strong outperformance of that 50 basis point long term frame, you know, for operating margin expansion. principally from AI productivity that we've already talked about, the $75 million, which is now at $150 million, accreting into that margin. So that's how we think about the overall framework going forward. We should see strong margin expansions in USIS and international and corporate, and we want to maintain those 50 basis point EBITDA margins, I'm sorry, 50% plus EBITDA margins in the future at EWS.
Jason Haas: Okay, great. That makes sense. Thank you very much.
Operator: Thank you. Our next question comes from the line of Kyle Peterson with Needham & Company. Please proceed with your question.
Kyle Peterson: Hey, Kyle. Hey, good morning, guys. Thank you for taking the questions. I want to start off on the consumer lending business. Seems like that was a notable area of strength you guys called out and good to see the momentum there. I want to see how much of that is either strength with the banks. I know some of the card issuers and stuff have gotten a little more into that versus like are you guys gaining some share in fintech or is it a little bit of both? Just wanted to get more color there.
Mark Begor: Yeah, it's really all of the above. And I think USIS had some strong momentum in the quarter. We talked about twin indicator. Look at the vitality next. A lot of new products that USIS is above 10% vitality in the quarter. So that's a positive that we've got more solutions that they're bringing to market. The end markets are solid outside of mortgage, which is a positive. And then we talked about the fact that we had very strong growth in EWS last where the twin data is used in AutoCard P-Loan performed very well. We're seeing stronger adoption there because of the value of the combination of credit data with income and employment data. So that's been a positive momentum.
John Gamble: And with USIS online, I mean, we saw very good performance. The good news is right across the portfolio, right? Very good performance in auto, strong performance online in NFI. Actually, nice performance in telco as well. Good growth there. And we're seeing increasing and improving growth in insurance. The only place we saw some weakness is in our sales where we actually sell to our two competitors, our D2C business. But other than that, we had very strong performance across the board in USIS online.
Kyle Peterson: Great. Really, thanks for the color there. And then maybe a Follow-up, kind of shifting back to some of the AI discussions. Good to see the savings and efficiency gains there moved up dramatically. But the cash flow conversion, it seems like you guys were able to reiterate that. So maybe there's been a lot of discussion on kind of AI investments and paybacks and CapEx commitments and such. So how are you guys thinking about this conceptually in terms of initial investments, payback periods and such? in terms of deploying AI within Equifax.
Mark Begor: Yeah, we're seeing very high returns and ROIs on our AI investments. So it's very positive. It's really, you know, I don't know how to describe it with enough enthusiasm, meaning the pace of adoption, you know, by Equifax, our organization, is something I haven't seen before, you know, meaning the ability to do it. So Very high ROIs, and 150 million really reflects our expectation of the investments we'll make in the AI tokens and tools and agents that'll be used to deliver that. And we're still optimizing that, meaning it's still early days. Think about it. A year ago, we weren't talking about this. We weren't doing it. So it's really quite remarkable about how rapidly we and I think the world are deploying these kind of capabilities and we're being very disciplined as we are with all of our investments around returns and expectations on paybacks because we want to make sure we're deploying it smartly but we're also driving real engagement here across every corner of Equifax to look at the opportunities to deploy it and I think as you pointed out in the matter of six months to have our outlook really double on the capabilities is just a reflection of how we're rapidly deploying it.
John Gamble: And we think we're really benefiting heavily by the fact that we rebuilt onto a cloud platform over the past five years. So our data has already been built in a standard data fabric to make it easier for agents and AI to access it. Yes, there's additional investments that have to be made, to make it easier specific for AI, but we had made a lot of progress on that just from the cloud migration. Same thing can be said around the way we built our agentic platform that everybody can use, right? That effectively because we're working on standard Google tools, we can implement those capabilities, we think, much more simply and rapidly than others can because our infrastructure is very modern and built on those cloud-based services already. We feel like, yes, there's certainly been investment. We've been able to contain it inside the numbers that we told you we would spend in 2026. And we feel like we're progressing very, very rapidly, I think specifically because of the fact that we have a very modern cloud-based infrastructure to start with.
Kyle Peterson: Great. Really appreciate the color. Thank you.
Operator: Thank you. Our next question comes from the line of Kevin McPhee with UBS. Please proceed with your question.
Kevin McPhee: Great. Thanks so much. Can you give us a sense of what type of mortgage rates you've got embedded in the second half guidance relative to what it was in the initial 26 guidance? Yes.
John Gamble: So right now what we have embedded in the guidance is current mortgage rates, right? And we actually do that in every earnings release. So we use the February rates in February and we would have used the April rates in April. I think they're up on the order of 30 to 40 basis points. We can get to that exact number between April and now. So That's really what we've seen occur, why we're seeing a slowdown in mortgage, and we're using current run rates and current rates.
Kevin McPhee: Got it. And then just, you know, when you talk about the AI implementation across the expense structure, going to, I guess, that slide 14, is there any reason you're not looking at sales and marketing and G&A at this point or some more incremental opportunity as the AI becomes more embedded in the expense and, I guess, organization overall?
Mark Begor: Yeah, I think we're going to where we're seeing the momentum so far and where we have our largest cost basis, which is really in operations and tech is larger than operations. But I said earlier that finance, HR, legal, even the commercial team is using AI tools now to prepare for meetings with customers. So we're definitely doing it across the board. Conceptually, we don't think about you know, reducing our commercial resources. You know, we think that that's always going to be something we're going to want to invest in, but we want to AI enable them to be more effective on how they go to market. But, you know, we're seeing it really AI deployment across every corner of Equifax.
John Gamble: And efficiencies in GNA are included in the 150 million, just as Mark said, not marketing and sales. That's an area we're investing in.
Kevin McPhee: Thanks.
Operator: Thank you. Our next question comes from the line of Sarinda Finn with Jefferies. Please proceed with your question.
Sarinda Finn: Thank you. Mark, when you think about the savings that you've been generating through the use of AI tools and reinventing some of those workflows, are some of those costs sustainable if AI costs were normalized? I think there's a lot of debate out there about the costs of AI. Yeah. Well, I guess what I would add here is, though, one of the disappointments, I think, with cloud has been that the hyperscalers have constantly been raising pricing such that I guess the users of cloud never truly realized the savings that they were promised. I'm just wondering if you get these.
Mark Begor: We did. We clearly saw the cloud savings. Again, you think about cloud savings versus our legacy mainframe. We think that was a successful investment that we delivered the returns on that one. When it comes to A.I., We are seeing the ability to really access the AI tools that are available that we're using and deliver very meaningful ROIs to drive the cost savings. And we're being very disciplined and deliberate around how we roll out tokens, how we manage the tokens to deliver ROI. And we're seeing returns. So I think we wouldn't have gone from 75 to 150 million if we're not in to your question, yeah, we think they're sustainable given the scale of the benefits that can be delivered there.
John Gamble: And cloud cost management is a discipline that we think we're very good at. And we think it extends very directly into AI and token management, and we're already managing it in that way using the same discipline. So we feel good about our ability to manage this going forward. And it's not only a financial discipline, it's a technical discipline. It's how do you change your applications to make them more efficient? We think we'll be able to do the same thing around AI and the models we choose.
Sarinda Finn: That's helpful. And then when, I guess just turning to mortgage and maybe when looking at pre-qual and kind of the ongoing movement from three bureaus to kind of one bureau pulls by lenders, I guess that would suggest that they're quite sensitive to the current costs. So is the goal here that you think you can take the majority of the market share in pre-qual or... Given that your incremental costs of delivery are quite negligible, would you actually consider moving to a loan close fee where it's just all you can eat up front? I know you've talked about RESPA, but what would be the downside of moving to that model?
Mark Begor: We don't think that's the model we want to move to, nor does the industry want to move to that. We already maybe covered that earlier. I want to clarify, you said the move from 3B to 1B, there's no move underway there. And I think you may have seen, you know, maybe 45 days ago, the HUD statement that, you know, 3B is here to stay, you know, in their loan originations. And, you know, we think the industry is very aligned around the power of 3B because the differences in the credit files. You know, with regards to pre-qual and pre-approval, you know, we definitely want to try to grow our share there. And that's why we're trying to differentiate our solution. And remember, We're using two unique levers to Equifax. One is the twin indicator for free on our mortgage pre-qual, pre-application credit file, and we want to do that to drive share. We've seen some share gains in the second half of last year and the first half of this year, and we expect some of those to continue. And then we're also delivering, with our mortgage credit file, our cell phone utility attributes for free to differentiate. That's a big data set for us. It provides a lot more credit data in the mortgage credit file than our competitors can. So that's another advantage for Equifax. And those are all to differentiate ourselves going forward. So we are super pleased to have the assets that we have. And now with the cloud behind us, we can deliver those to our customers in a way that can differentiate our credit file solution to drive those share gains.
Sarinda Finn: Got it. Thank you.
Operator: Thank you. Our next question comes from the line of Curtis Nagel with Bank of America. Please proceed with your question.
Curtis Nagel: Great. Thanks so much for taking the question. Maybe, John, just a quick one for you. Just talk about the flow through of the EBITDA margins for the second half. I think there's a bit of a step down in 3Q and then a reacceleration sequentially implied for 4Q. So maybe just walk through the puts and takes there, and then I'll have a follow-up.
John Gamble: Yeah, so for the full year, again, we're indicating that we're going to deliver EBITDA margin growth of 75 basis points or higher. We feel very good about that, much higher than our 50 basis point long-term model. And I think in the third quarter, we're still talking about growth even well above that 75 basis points on the order of 90 basis points. So we feel great about what we've done year to date. We feel good about the guide for the third quarter. And we believe we're being consistent with what we've talked about full year in terms of being able to deliver very strong EBITDA margin growth ex-FICO again at north of 75 basis points for the full year. So we feel good about our margin expansion. As Mark's already said, some of that is being driven by AI benefits. But in 2026, those aren't that large yet, right? And they're going to accelerate as we go through 27 and 28 with the increased level of $150 million that we announced today.
Curtis Nagel: Okay. And then just going back to $200 million in renewals, I guess any stats you'd be able to give in terms of I don't know, rate of improvement and change in renewal rate compared to some of the prior quarters.
Mark Begor: Renewal rate very, very high. Very, very high. So you think about that as something that is super high and it's a big number. So when we made a decision to share the new business, which we typically don't do, but it's such a sizable number, we wanted to share the $100 million and we opted to share also the renewal rate. You know, similar pricing, similar structure. You know, there's not like changes happening there. You know, it just reinforces the market presence in the market, you know, a position that our unique twin solution has. And again, as a reminder, I think investors sometimes forget this. You know, there's a long runway here, meaning you got $5 billion of potential, you know, customer relationships, you know, and we're at $800 million and heading heading towards that $5 billion with $100 million of incremental new contract signings that we shared this morning.
Curtis Nagel: Okay. All right. Appreciate it. Thank you. Yep.
Operator: Thank you. Our next question comes from Raina Kumar with Oppenheimer & Company. Please proceed with your question.
Tony Catlin: Good morning. Thanks for taking my question. I want to better understand just your appetite for more acquisitions here and If you do have an appetite, which areas do you expect your M&A efforts to be focused on going forward?
Mark Begor: Sure. And I think we've been very clear since I've been at Equifax that we're super disciplined around both on M&A. We're looking for businesses like Circulo as a great example, unique opportunity to enter the Mexico market, really fast-growing market, fits with our international strategy, kind of a market leader, super attractive growth. Our financial criteria for Bolton M&A is to buy businesses that are accretive to our 7 to 10 long-term growth rate. Circulo checks that box as an example. Accretive to our margins. Their mid-40s EBITDA margins are clearly accretive. And then deliver shareholder value, meaning we bought it well. After synergies, the 9.5 or 9.4 times multiple. When you think about where we want to buy, we're also very clear that international platforms is one. As you know, a couple of years ago, we bought Boa Vista in Brazil to enter the Brazilian market. We bought Circulo to Credito, the leader in Dominican Republic. And now Circulo, I'm sorry, we bought the number one player in Dominican and now Circulo in Mexico. So international platforms are a priority. Strengthening workforce solutions is another one. And as you know, we've been quite acquisitive there. You know, we bought Aprys Insights. It's been a really successful acquisition for us, high returning with the incarceration data. So that was a real win there. And we've done, you know, I think six or so, maybe seven over the last five years, acquisitions to strengthen our employer business, whether it's around WOTC or I-9 kind of solutions. Vault Verify that we bought in November is an example of that. So number two is, you know, strengthening our fastest growing highest margin business workforce solutions. Number three is unique proprietary data assets that add to our data moat. We've done a number of acquisitions there, principally in USIS, you know, with the acquisition of Paynet on commercial data, DataX and Teletrack. So we want to continue finding unique data assets that, you know, are alternative to the credit file. So that's a third priority. And number four is identity and fraud. and you know our sizable acquisition we did a number of years ago was Count. That's been a very positive acquisition for us and that fast-growing vertical. So those are the four kind of swim lanes that we think about both on M&A. And as you know, we were very clear last April when we rolled out our capital allocation plan after the cloud completion that we're going to use our excess free cash flow to do this both on M&A, like a Boa Vista, you know, like an Afris Insights, you know, like a Circulo to Credido in Mexico. And then our excess free cash flow, you know, we're going to use to buy back stock. And we've been, you know, very aggressive, you know, our eyes, you know, buying back stock, a billion six over the last year, 500 million in the fourth quarter, 300 million in the second quarter. You know, so with our, you know, growing top line, with our growing margin expansion and our very high cash conversion. We have substantial excess free cash flow after CapEx and dividend to do the bolt on M&A and return substantial amounts to our investors going forward. And as we said on the Circulo call, we expect in 2027 to have a similar, slightly larger capacity of a billion plus of M&A free cash flow, excess free cash flow after dividend and capex, and then debt capacity or leverage because our EBITDA, we expect to grow another billion five, just like the billion five we have this year for both on M&A and returning cash to shareholders through buyback.
Operator: Thank you. Our next question comes from the line of Kelsey Xu with Autonomous Research. Please proceed with your question.
spk09: Good morning. Thanks for taking that question. Any thoughts around the timeline for full-scale implementation for both VantageScore and FICO 10-T? We'd also love to get your latest expectation around VantageScore adoption rate in mortgage by the end of 26 and 27.
Mark Begor: Yeah. 10-T, you should talk to FICO about. I don't think we have a really Thank you. Thank you. it's still being gated to 20 plus lenders. We would expect that to increase, but the momentum's quite strong. So it's hard to handicap how quickly the agencies are going to start allowing more lenders to deliver underwrite mortgages using agency mortgages using Vantage, but we expect that to continue going forward. The billion dollar cost savings is a big number and when we meet, when I meet with mortgage originators, they're well aware of that opportunity for them. They're under really meaningful margin and cost pressures in the current mortgage environment. So it's something that, you know, is on their radar screen and I think, you know, a reflection of the growing number of lenders that are taking our free vantage score to just, you know, make sure their process flows and technology is operating is a great indicator that, you know, there's going to be conversion going forward. I would remind you and others that are still on the call that whether it's Vantage full conversion or FICO stays forever, it doesn't change our business model. We get a small amount. It's not small, but on full Vantage conversion, it's 40 to 50 million of incremental margin. But if FICO stays there forever, it doesn't change our ability to grow our underlying business. It doesn't change our ability to deliver our long-term framework. of 7% to 10% growth ex-FICO because we make no margin on FICO, which is why we started to talk about our margin expansion ex-FICO, which is really what you should care about because that generates the free cash flow that we're able to use for CapEx dividends, both on M&A and then, importantly, returning cash to shareholders through buyback.
spk09: That's very helpful. Also, while to get your thoughts on score gaming, Based on your conversation with lenders and the data you're seeing, are you seeing a lot of score gaming because the two scores are fairly similar and we're running zero score gaming right now?
Mark Begor: Yeah, because you use the term score gaming, we don't hear anyone thinking about it that way. Why would they do it? And remember, in order to, if they wanted to buy two credit reports, an Advantage and FICO score, They could do that, but it's just cost prohibitive, and there's no value in doing it. Remember, the credit score in a mortgage origination is only used in the kind of pre-application, pre-approval process for the mortgage lender to determine is this a consumer that's going to qualify or an applicant that's going to qualify for the kind of mortgage they want to take out. It's not used in the underwriting process. It's actually the pricing is revalidated based on the credit file data and trade lines that come from the three credit bureaus. That's how the underwriting is done. So, no, we don't hear or see anything around so-called score gaming.
spk09: Just a quick follow-up. Are you seeing lenders that have set up a waterfall structure where they want to pull the cheaper score first to see if it hits the top LK bucket? Is that how it works right now?
Mark Begor: No. No. Now, same comment. You'd have to buy two credit files. And there's just no incentive to do that. And the score difference is so small. And we should all understand that sooner versus later, there'll be LLPA tables that will incorporate both FICO and then it'll be a separate LLPA table, I would think, for Vantage. So that's going to be a non-issue, and it is a non-issue today in our eyes.
spk09: Thanks so much. Appreciate it.
Operator: Thank you. Our next question comes from the line of Scott Wurzel with Wolf Research. Please proceed with your question.
Scott Wurzel: Hey, good morning, guys. Thanks for taking my questions. Just one from me. I just wanted to touch on the government bookings that you disclosed. I'm wondering if there's any seasonality with those that we should be aware of. I think, you know, just in the context of a lot of State fiscal years ending June 30th, maybe 2Q is a seasonal peak for the bookings.
Mark Begor: No, there's a bunch that end in September, and there's no uniform kind of state budget windows. Now, I wouldn't think about contract signings as being seasonal. Sometimes the effective dates are. As we should all remember, with a new contract, there's also an implementation process with some states as far as their technology and process flow. You know, it doesn't happen immediately, you know, meaning it takes time on their side and we support that to happen. But no, I wouldn't think about seasonality of how government, you know, operates. It's really across the board. Thank you. Yep.
Operator: Thank you. Our next question comes from the line of Simon Clinch with Rothschild & Company, Redburn. Please proceed with your question.
Simon Clinch: Hi, everyone. Thanks for fitting me in. Mark, I was wondering if I could get your thoughts on 100 score 5.0. I know we're talking about 4.0, but I've seen some news out on 5.0 recently, and I'm just curious as to how that kind of fits into the picture over the next few years, what needs to happen to make that a reality to compete, I guess, more effectively with 10T. Thanks.
Mark Begor: We think Advantage 4.0 really competes very effectively with 10T. That's our perspective. and 10T is really catching up if you will from FICO Classic which is used in the marketplace which is I don't know if this is directionally right I think it's about 10 years old maybe it's not quite 10 but something like that is when FICO Classic was put in place so Vantage 4.0 I think the industry and the marketplace understands it performs you know much more strongly in FICO Classic I think 10T closes that gap and as you might imagine you know we're encouraging Vantage, which we own, along with Q and Experian, to continue to invest in kind of the next level of sophistication around the score that they use in the marketplace. And so they're making those investments. But we're very pleased with the Vantage 4.0 positioning and our expectations of its outperformance against Classic and how it'll compete against 10T. And again, I'll remind one more time, that in mortgage in particular, but more broadly in the other verticals, the score is less relevant in the underwriting. What's relevant is the credit data that's used underlying the creation of that credit score. So while it's important to continue to invest in the credit score, what's really used in the underwriting is the credit data that comes from our credit file and T1 experience.
Simon Clinch: Thanks. and just a follow-up on a slightly different topic. First of all, congratulations on the acquisition in Mexico. I noticed, though, in your commentary for that that you were actually considering standing up a de novo credit bureau in Mexico, which took me by surprise. I was just wondering if there's anything that, is that something you've always done in new markets and sort of considered that and actually done some work to do that? Or is there something technologically that's made it easier for you to do that this time? Because I always assumed it was incredibly hard to stand up a brand new credit bureau in any market.
Mark Begor: It's incredibly hard and we've never done it. Mexico, as you may know, I'll use the words, was a closed market until recently. As you may know, the bank owned the only credit bureau there that competed with Circulo. Circulo was a privately held owned by principally retailers and investors in Mexico. And it competed, you know, really against the bank owned credit bureau that was a consumer commercial credit bureau. There was an ownership interest that TransUnion had. And I think FICO had an interest in D&B, you know, in the commercial credit bureau. and then the banks decided to break that into two businesses, a commercial and consumer credit bureau, TransUnion, because of their control position, bought the consumer bureau last year and that really opened up the market. Until that time, we did decide because we really were attracted to the market to put an application in really about five years ago for a credit bureau launch I think we would struggle with the economics of doing that, but we thought strategically it would position us at least to make that decision if we could get that approval to do a de novo credit bureau. It was really not our choice. And then once the market opened up and TransUnion made their acquisition, it really gave us the opportunity to really spend time with Circulo and really make that acquisition. So we much prefer The path we're on with Circulo, and we're super pleased to do it. And the fact that we're well known to the Mexican regulators because we've been in this application process for close to five years, we think it positions us well for the regulatory approval process, which obviously TransUnion went through and obviously navigated quite effectively, and we would expect to do the same. But we think we're advantaged because of our de novo application has been in there for quite some time, and we've been engaging with the regulators. But clearly, We're going down the path that we would have preferred, which is an acquisition. And as you pointed out, a de novo build is super hard, and we've never done it. Actually, I don't know. As long as I've been at Equifax, I don't think anyone's tried it because it's just super challenging to collect the data, and it would be quite expensive to build out the capabilities.
Simon Clinch: That's really useful, Carla. Thank you very much.
Operator: Thank you. Our next question comes from the line of Ryan Griffin with BMO Capital Markets. Please proceed with your question.
Ryan Griffin: Hey, good morning. I know it's late, so I'll just ask one question on competitive dynamics in government. I understand the work number is record penetration opportunity, but can you elaborate just on the right to win against some of the consumer-based verification programs and then the open source providers like EMI in case we're missing anything? Thank you.
Mark Begor: Yeah, I think that hopefully for you, it certainly does for us that, you know, strong renewals on the 200 million that we shared and, you know, 100 million new business. I think it reflects the really depth and how the marketplace, meaning our customers and new customers, really view the twin solution. It's instant. It can be integrated very quickly. It has very high coverage. It delivers, you know, The ability to, you know, approve someone's social services instantly, you know, in that application process, which every social service administrator wants to deliver, you know, services quickly. It delivers productivity to the caseworker. You know, if you're using consumer consented, there's a lot of change that goes back and forth between the applicant and the case administrator in order to do that. And then it also delivers the integrity. So, you know, we feel quite confident about the The value that we deliver to our customers and the ability that we have to continue to drive higher, you know, kind of conversion or approval rates. I think we didn't talk about it. We talked about it in our comments, but no one asked a question about it. But our records, you know, were up 10% in the quarter. So, you know, that delivers, you know, higher access rates for all of our customers, including government, you know, which is a real positive. So, We're quite pleased with the momentum by our government team, and as mentioned a couple times on the call, our commercial pipeline is still up 2x from where it was a year ago, and we're just pleased to see a meaningful conversion of that pipeline in the last number of months.
Operator: Thank you. Our final question this morning comes from the line of George Tong with Goldman Sachs. Please proceed with your question.
George Tong: Hey, George. Hi, thanks. Good morning. With respect to the AI productivity initiatives, can you talk a little bit about the timing of the savings realization? Is it relatively linear over the next few years or more back-end loaded towards 2028?
Mark Begor: Well, I think you're seeing it come through in 2026. From the $75 million we announced in February on our fourth quarter earnings call, hopefully you're pleased, George, with our margin performance this year. was, I think, above your expectation and certainly above our long-term guide. And we guided for 75 basis points ex-FICO for the year, and the first half were north of that. So you're seeing it crystallize in 2026. And we're not giving guidance for 27 or 28, but we've given you a good boundary. And obviously, with a much larger number of doubling our expectation around those AI productivity benefits from $75 million to $150 million, over the 26, 27, 28 timeframe.
George Tong: Got it. That's helpful. And of the $150 million in savings, how much do you expect to retain as margin expansion? I know some of it's flowing through this year versus reinvesting it back into the business.
Mark Begor: Yeah, I think we told you that we're going to make those decisions about reinvestment as we go through the calendar in the future. We'll give guidance in 27 around what we expect our margin expansion to be. from operating leverage against our long-term framework of 50 basis points and how much incremental will be. We'll give that guidance in February. But you should reflect, George, I hope you are, on the fact that in a matter of six months, our confidence in our ability to deploy AI inside of Equifax is growing really rapidly with the increase of our savings goal from $75 million to $150 million.
George Tong: Great. Thanks very much.
Operator: Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Burns for final comments.
Trevor Burns: Thanks for everybody's time today. If you have any follow-up questions, please reach out to myself and Molly. And have a great day. Thank you.
Operator: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
