Equifax Q3业绩超预期并上调利润率指引，但抵押贷款收入下调且财报电话会纪要发布时股价已涨约11%

Equifax (NYSE:EFX) reported third-quarter financial results on Tuesday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Equifax delivered strong Q3 2026 results despite challenges in the mortgage market, with revenue growing over 8% and EPS increasing by 11%, exceeding guidance.
The company returned $158 million in cash to shareholders and moderated share repurchases to prepare for the acquisition of Círculo de Crédito, expected to close in Q4.
Strategic focus on AI-driven productivity led to increased EBITDA margin guidance, with a target of $150 million in cost savings over multiple years.
Workforce Solutions showed solid growth, particularly in Talent Solutions and government verticals, with new contracts expected to drive 2027 growth.
Equifax continues to promote the adoption of VantageScore, leveraging its cost advantage over FICO, and has committed to maintaining its $1 price through 2028.
The company is optimistic about future growth driven by AI and new product rollouts, although the mortgage market remains a challenge due to high interest rates.
Full Transcript
OPERATOR
Greetings and welcome to the Equifax Q3 2026 earnings conference call. At this time all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. You may be placed into the question queue at any time by pressing 1 on your telephone keypad. We ask that you please ask one question and one follow-up, then return to the queue. As a reminder, this conference is being recorded. If anyone should require operator assistance, please press star zero on your telephone keypad.
It’s now my pleasure to turn the call over to Trevor Byrne, Senior Vice President, Investor Relations. Trevor, please go ahead.
Trevor Burns (Senior Vice President, Investor Relations)
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. 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 that can be found in the Presentation section of the News and Events tab at our IR website.
These materials are labeled 3Q 2026 Earnings Conference Call. So we’re making certain forward-looking statements including fourth quarter and full year 2026 guidance to help you understand Equifax and its business environment. These statements involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from our expectations. Certain risk factors that may impact our business are set forth in our filings with the SEC, including our 2025 Form 10-K and subsequent filings.
During this call we’ll be referring to 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. These non-GAAP measures are detailed in reconciliation tables which are included with our earnings release and can be found in the Financial Results section of the Financial Info tab at our Investor Relations website.
Now I’d like to turn it over to Mark.
Mark Begor (Chief Executive Officer)
Thanks, Trevor. Turning to Slide 4, Equifax delivered solid results in the third quarter in a challenging mortgage market driven by strong diversified markets. Revenue growth of over 8% that exceeded our mid-single-digit guidance with strong broad-based performance across all three business units. This included improved performance in EWS government, which grew mid-single digits in the quarter. EBITDA margins were up a very strong 130 basis points excluding FICO versus last year from operating leverage, AI productivity, and good cost management.
Even with the $20 million of mortgage market headwinds in September, EPS grew 11% and at $2.26 per share was above the high end of our guidance even with the negative mortgage—a very strong broad-based quarter for Equifax against a challenging mortgage market. This strong performance was delivered despite the significant weakening in the U.S. mortgage market as 30-year fixed mortgage rates increased about 75 basis points since July, which negatively impacted overall mortgage market transaction volumes and Equifax revenue versus our expectation by about $20 million in the quarter, or over 100 basis points versus our July framework exit. Equifax revenue of $1.693 billion was up 10% on a reported basis and 9% in constant currency and was slightly below the midpoint of our July guidance due to the negative $20 million of mortgage market impact.
Ex-FX revenue growth of 7% was at the midpoint of our July guidance. Excluding the negative impact of the $20 million of U.S. mortgage market decline in September relative to our July guidance, total Equifax revenue would have been above the top end of our guidance range for the quarter. U.S. mortgage revenue was up 15% in the quarter and up 1% ex-FICO, both below our expectations from the higher rate environment in September. John will provide context on the impact of the significant weakening in the U.S. mortgage market on the fourth quarter and in 2027.
Equifax returned $158 million of cash to shareholders in the quarter and about $850 million year to date. Share repurchases moderated in the quarter at $92 million with the Círculo deal expected to close in the fourth quarter, bringing year-to-date repurchases to about $650 million on 3.6 million shares, or 3% of shares outstanding. Since launching our $3 billion share repurchase program in April of 2025, we’ve used our excess free cash flow to repurchase $1.6 billion of Equifax stock.
We continue to expect strong free cash flow over $1 billion in 2026 and cash conversion over 100%. With our financial capacity of over $1.5 billion, we can execute the Círculo de Crédito acquisition in the fourth quarter and continue to repurchase shares while maintaining a strong balance sheet. Turning to Slide 5, Workforce Solutions delivered solid results in the third quarter with total diversified markets revenue up 9% and total Verified diversified markets revenue up a strong 13%. Mortgage revenue is about flat in the quarter versus last year reflecting a significant weakening in the U.S. mortgage market. EWS mortgage revenue outperformance was high single digits and consistent with the first half from record growth.
New products like Mortgage Qualify and pricing internal Workforce Solutions revenue was up 7% in the quarter as the strong diversified markets revenue performance was partially offset by the weakness in the overall U.S. mortgage market. Third quarter government revenue was up mid-single digits. I’ll discuss government in more detail shortly, but we are very pleased with the trajectory of our government revenue growth given new state wins and our strong deal pipelines.
In their big $5 billion TAM, Talent Solutions revenue grew a very strong over 20% in the quarter and continues to outperform a soft white-collar hiring market with growth in new products, increased product penetration across our incarceration and education data assets, and pricing. The Talent team continues to execute very well in their big $5 billion TAM. Consumer lending also had another very strong quarter with high double-digit revenue growth led by card and consumer finance, principally due to penetration and record growth.
This is increasingly an important growth vertical for Workforce Solutions as they roll out new solutions in the auto, card, and P loan verticals. Employer Services revenue was down 5% in the quarter and as expected due to the suspension of the Work Opportunity Tax Credit, or WOTC, program. Workforce Solutions EBITDA margins of 51.4% were in line with our expectations despite the revenue impact from the weaker mortgage market. TWN record additions continued to perform well again in the third quarter with 223 million total active records, up 12%, and 125 million total current active records, up 11%, which represent 110 million unique individuals or SSNs. We expect strong record growth as we exit 2026 and in 2027 from W-2-based records as well as alternative record sources like pension, gig, and 1099, with significant potential for record additions with 250 million income-producing Americans against our 110 million unique SSNs in the TWN data set at the end of the quarter.
Turning to Slide 6, in 2026, we’ve made excellent progress with government customers converting our large commercial pipeline to with renewals, extending existing relationships, and adding new principally state government customers. As a reminder, we operate in a $5 billion TAM at the federal, state, and local level of principally manual income verifications for delivery of social services. Year to date, the EWS government team has signed agreements with state agencies for the provisioning of income and employment data supporting principally SNAP, CMS, SNAP and CMS totaling over $550 million in annual contract value, including about $150 million in new business and $400 million in renewals, an extremely strong result that will principally benefit our Workforce Solutions government vertical in 2027.
Our discussions with state agencies continue to be robust and productive given the strong value proposition from TWN on speed of social service delivery, caseworker productivity, and accuracy of income verifications, which drives a reduction in improper payments and helps states get benefits to those who need them more quickly. Further, we’ve seen strong engagement from states converting to subscription-based contracts that provide more certainty of spending levels as well as adding new solutions from Workforce Solutions. For example, Continuous Evaluation for SNAP is a new EWS solution that identifies changes in recipient incomes above program levels to reduce SNAP error rates. CE—our new CE solution—has been added to several recent state contracts.
We’re having active discussions with states to support verification of hours worked for new OB3 Medicaid work requirement obligations beginning in January 2027, and our EWS Complete Income solution supports states’ ability to validate income through a single integrated solution that includes The Work Number and other sources of income such as gig work, self-employed wages, and non-earned income through applicant permission services. We also have several large new federal opportunities in our deal pipeline.
Our strong wins and renewals this year, along with continued strong deal pipelines, reinforces our confidence in the medium- and long-term growth opportunities for EWS government supporting states in meeting requirements regarding accuracy and frequency of income validation in Medicaid, SNAP, and other social services. The EWS government team is clearly on offense, supporting federal, state, and local customers with their social service program requirements and has significant opportunities for long-term revenue growth supporting government programs and in their big $5 billion TAM.
Turning to Slide 7, USIS also delivered a solid quarter with diversified markets revenue growth of 6% consistent with the solid performance in the second quarter and within their long-term framework. B2B revenue was up 5% with high single-digit online growth in FI from stronger volumes, new business, and pricing, and mid-single-digit online growth in auto from pricing and new business wins. We also saw improved growth in commercial and insurance within Financial Marketing Services.
Our offline batch business revenue is up over 10% led by very strong broad-based growth across marketing, identity and fraud, and account reviews, principally from new business. Our consumer direct business continued to deliver strong growth of 9% in the quarter from good subscriber growth in our direct channel and new business wins in our partner channel. USIS mortgage revenue was up 28% and up low single digits ex-FICO against the slowing mortgage market late in the quarter. Relative to the underlying mortgage market, revenue ex-FICO outperformed the underlying mortgage market by high single-digit percentage driven by share gains in prequalification and preapproval products and pricing. USIS EBITDA margins were 35.4% in the quarter. Excluding FICO royalties, USIS EBITDA margin was 42.4%, up over 320 basis points versus last year and an outstanding performance.
The improvement was driven by improved diversified markets revenue growth, strong cost management, and AI-driven productivity. Turning to Slide 8, in September, the FHFA accelerated the use of VantageScore for conforming mortgages to all U.S. mortgage lenders. With score choice now available to all U.S. mortgage lenders, we’re seeing a rapid adoption of VantageScore 4 with about 2,000 mortgage lenders using VantageScore in their underwriting processes—up 7x since April—and since April our mortgage VantageScore volume is up over 230% through September. The bulk of mortgage lenders continue to purchase both the FICO mortgage score and obtain a free VantageScore from Equifax, and therefore our mortgage VantageScore revenue continues to be small.
However, we now have over 200 mortgage lenders exclusively using VantageScore and expect more lenders to move to the paid VantageScore model as we move through the fourth quarter and into 2027 to take advantage of the higher approval rates and the $1 cost of VantageScore from Equifax. As VantageScore mortgage revenue increases, we will share the positive financial impact on Equifax margins and adjust our revenue and margin guidance accordingly. The strong adoption of VantageScore is driven by the substantial $1 billion annual savings opportunity for mortgage originators and consumers as well as VantageScore’s ability to score more consumers supporting homeownership. Equifax plans to maintain the $1 VantageScore price through the end of 2028 to continue driving the adoption of the lower-priced and higher-performing VantageScore to further provide lenders and brokers with greater flexibility and cost efficiency.
Two weeks ago Equifax announced our new Mortgage Score Select product. This new offering enables the mortgage industry to pull an Equifax mortgage credit file without a credit score or pull the mortgage credit file with the credit score they select for their mortgage banking needs, whether that score is VantageScore 4, Classic FICO, or FICO Score 10T when it is approved. If the lender or broker wants a second look at the mortgage credit file after the initial pull, they are now able to pull the Equifax mortgage credit file again within 24 hours for just $1 along with the cost of their selected mortgage credit score, or without a mortgage credit score, as a part of that offering. With Mortgage Score Select, we’re helping lenders and brokers achieve two key objectives: first, cost effectively gaining access to more data to support the lending process, and second, qualifying more borrowers based on these expanded data sets.
Turning to Slide 9, there have been discussions from the FHFA about eliminating the tri-merge credit report requirement and moving to a 2-bureau mortgage credit report. We, and the vast majority of industry participants, strongly believe the tri-merge credit report is essential to expanding consumer access to credit, lowers mortgage rates for consumers, and ensures the safety and soundness of mortgage underwriting. We believe tri-merge is the right solution for consumers, the mortgage industry, and government agencies.
We thought it would be helpful to provide more detail on our USIS mortgage revenue and to size the potential impact of a bi-merge change on Equifax if it were to occur. We expect the impact of GSE-related mortgage originations moving to bi-merge would be manageable for Equifax with roughly $80 million of potential annual revenue based on 2026 revenue, which includes the FICO score being delivered with each credit file. We have multiple levers to help manage a potential $80 million revenue and $38 million margin impact given Equifax’s unique solutions and assets, including only about 40% of current originations are GSE-related and would be subject to a potential change by the FHFA to bi-merge. We expect FHA and VA, which we estimate participate in about 25% of originations, would retain the tri-merge requirement based on their consistent statements supporting the value of tri-merge.
Mortgage lenders would have the option to pull a three- or two-bureau file in the mortgage underwriting process and we expect many would continue with 3B to gain the approval rate lifts from the additional data. And of course any implementation would take a long time, and Equifax will be advantaged with our unique solutions including the TWN Indicator or Income Qualify and our NCTUE telco/utility data that we deliver today with the Equifax mortgage credit file at no charge that our competitors cannot match.
And of course our tri-merge go-to-market business will advantage Equifax in this environment. And last, full conversion to VantageScores in mortgage delivers about $35 million of incremental margin to Equifax, and once rates moderate there’s a big $1 billion revenue and $700 million margin upside in a full mortgage market recovery. The bar chart provides an approximate breakdown of expected 2026 USIS mortgage revenue. As indicated, about 45% of that revenue is FICO royalty pass-through with no margin, and about 10% is pass-through revenue from the resale of TransUnion/Experian trended credit files to our tri-merge business, which is also at no margin. This means about 55% of our USIS mortgage revenue is at zero margin. About 30% of revenue is from the sale of Equifax trended credit files sold principally to resellers that create the tri-merge report but also directly through the Equifax tri-merge report business, which we refer to as hard pull.
The trended credit files sold for this purpose have rich data on the consumer and are used for the mortgage approval process. The remaining about 15% of revenue is principally from the sale of EFX credit files for pre-qual or preapproval products used early in the application by mortgage originators. These principally one-bureau products assist in early evaluation of applications and are defined as soft pull products. Equifax generates very high variable margins from the sales of credit files in these hard and soft pull products.
Slide 10, International revenue was up about 7% in constant currency with a strong 12% Asia Pacific revenue growth, including Australia up 11%, and 8% Latin American revenue growth. Canada and Europe both delivered 4% revenue growth with market headwinds in both the Canadian and the U.K. market impacting overall growth rates. In Latin America, we saw double-digit revenue growth in Peru and Central America with high single-digit growth in Brazil. And International EBITDA margin was 30.9% in the quarter.
Turning to Slide 11, in July we signed a definitive agreement to acquire Círculo de Crédito, the fastest growing credit bureau in Mexico, for an enterprise value of $750 million. This acquisition will expand Equifax into the fast-growing Mexico market, the second largest economy in Latin America, and offer Círculo de Crédito customers access to industry-leading Equifax cloud-native capabilities, decision and analytics capabilities, patented EFX AI technology, and award-winning identity protection and fraud prevention offerings for the development of solutions designed to help customers grow and expand financial inclusion in Mexico.
For the last 12 months including September, Círculo’s revenue is up a very strong 24% and delivering 47% EBITDA margins. We expect Círculo to be accretive to Equifax adjusted EPS in the first full year of ownership. And since 2020, Equifax has invested our strong excess free cash flow in strategic bolt-on acquisitions to drive our financial results and shareholder returns. Including Círculo de Crédito, we’ve invested nearly $5 billion in 17 bolt-on acquisitions since 2020 with a proven track record of integrating these acquired businesses, like our acquisition of Boa Vista in Brazil three years ago.
We are energized to be entering the fast-growing Mexico market with our Círculo acquisition that we expect to close in the fourth quarter. Turning to Slide 12, Equifax is executing a broad AI and analytics strategy that leverages EFX AI along with our cloud-native technology, our Ignite analytics platform, and our unique proprietary data to deliver higher-performing EFX AI-powered scores, models, and products to our customers. In the third quarter we delivered a record over 17% new product Vitality Index leveraging the Equifax Cloud and EFX AI capabilities, which is above our 15% 2026 Vitality guide and our 10% long-term framework goal for Vitality Index.
Year to date, over 80% of our new products are leveraging EFX AI capabilities that drove our record 17% Vitality Index. We’re seeing double-digit performance lifts from these EFX AI-enabled new analytical products, which is driving strong market adoption. This includes the rollout of Ignite AI Advisor and Equifax IQ on our integrated Ignite analytics and InterConnect decisioning global platforms. We are leveraging Equifax IQ capabilities across multiple credit risk, fraud, and collection solutions in several countries, consistently seeing very significant improvements in customer outcomes for these use cases.
In Brazil, Equifax IQ is powering collection solutions for multiple large banks, driving an improvement in their collections recovery. Similarly, Equifax IQ is powering credit risk solutions in Latin America, driving risk reduction. We are continuing to build out the platform capabilities to scale Equifax IQ capabilities and expect Equifax IQ will be commercially available in the U.S. early next year. We are also seeing strong adoption of new products based on differentiated proprietary Equifax data, including our TWN Indicator solution for mortgage and Continuous Evaluation and public safety solutions in EWS government, which are helping support the EWS sequential government revenue growth in the quarter.
Turning to Slide 13, we continue to see strong execution by the Operations and Technology teams across Equifax towards our $150 million AI-for-EFX productivity goal, which is delivering margin improvements across the business. In July we reviewed with you the expanded deployment of AI tools and agents across internal Equifax product and model development, operations, technology, and our G&A functions, which is driving cost efficiencies across the entire business.
Given our strong ex-FICO third quarter EBITDA margin performance of up 130 basis points from operating leverage, cost management, and AI productivity, we are raising our full-year EBITDA margin guidance from up 75 basis points to up 100 basis points, or double our long-term framework of 50 basis points. Despite the negative about $80 million impact on revenue from the weaker U.S. mortgage market versus our July guidance, we are energized by the rapid deployment of AI tools across Equifax that’s driving productivity, and we believe we are still in the early innings at the potential for AI-driven productivity across Equifax.
And now I’d like to turn it over to John to provide our fourth quarter and full-year framework.
John Gamble (Chief Financial Officer)
Thanks, Mark. Before we discuss 4Q and calendar year 2026 guidance, I’d like to spend a minute discussing the current weakness in the U.S. mortgage market and the impact this had on 3Q26 results as well as 4Q26 guidance. Mortgage market transaction volume began to decline later in August as interest rates started rising, with the decline accelerating as we moved through September, with 30-year mortgage rates reaching about 7.5% compared to 6.6% when we provided guidance in July.
This mortgage market decline, the bulk of which occurred in the second half of the quarter, drove about a $20 million decline versus expectations in U.S. mortgage revenue in the quarter. Our fourth quarter expectations for U.S. mortgage transactions reflect current run rates and a continuation of the current weak mortgage market conditions. On this basis, 4Q26 mortgage revenue is down about $60 million versus our July guidance. For the full year 2026, total U.S. mortgage revenue is now expected to be about $80 million below our previous guidance, with growth rates down over 500 basis points versus July.
Excluding FICO mortgage royalty pass-through revenue, Equifax mortgage revenue will be up slightly versus 2025. This reflects U.S. mortgage market originations down an estimated 6.5% to 7.5%. As we look forward to 2027, using current mortgage market transaction levels across USIS and EWS and applying normal seasonal factors, 2027 mortgage market transactions, which we believe would be consistent with U.S. originations, would be down on average high single-digit percentage in 2027 versus 2026, principally over the first eight months of the year.
Looking at overall U.S. market conditions, while the U.S. mortgage market has weakened meaningfully since our guidance in July, overall U.S. market conditions impacting the remainder of our businesses remain relatively consistent with the environment we saw in July. Low unemployment continues to support overall consumer financial health. As we have referenced previously, continued higher levels of inflation have disproportionately pressured the lower-income and subprime consumer demographic, but the majority of consumers continue to be resilient, which is good for Equifax and our customers.
We have also not seen financial institutions increase their portfolio management reviews or decrease consumer credit lines, which are actions they typically take when they anticipate an economic downturn. As we have seen some slowing in FI and auto volumes late in 3Q and as we begin 4Q, as well as some slowing in overall hiring activity, we continue to watch this closely, particularly in segments impacted by higher interest rates. Slide 14 provides the specifics of our 2026 full-year guidance. As Mark referenced earlier, the Equifax team is executing extremely well for 2026. We expect to deliver our committed diversified markets revenue growth of high single-digit percent year to year. U.S. mortgage revenue, reflecting the current market conditions we discussed, is expected to be about $80 million below our July guidance, with mortgage revenue ex FICO royalty pass-through slightly above flat year to year.
As a result, Equifax revenue for 2026 at the midpoint is now expected to be $6.661 billion. The Equifax team continues to execute extremely well in delivering improved efficiency through our AI and broader automation and cost management programs. We are increasing our EBITDA margin ex FICO mortgage royalty guidance to an increase of 100 basis points in 2026, up from the 75 basis points we guided in July. As a result, we expect to deliver at the midpoint of our guidance EBITDA of $2.125 billion and adjusted EPS of $8.50 per share within the guidance range we provided in July, but down slightly from the midpoint, as our team offset the significant majority of the gross margin impact of the over $80 million of lower mortgage revenue versus our July guide. As Mark covered earlier, we believe we are in the early innings of opportunities from our AI and agentic implementation, both in driving NPI and in AI-driven cost productivity.
The acceleration of these benefits is a key focus of our 2027 plans. Slide 14 also provides guidance for BU revenue and EBITDA margins, which reflect both the significant weakening of the U.S. mortgage market as well as Equifax strengthening EBITDA margin performance in EWS. We now expect revenue growth of up mid single-digit percent. This is below our July guidance of high single-digit percent growth, solely related to the decline in mortgage revenue. We continue to expect EWS diversified markets revenue to grow high single digits and verifier diversified to grow low double digits, consistent with our July guidance.
Consistent with our July guidance, we continue to expect adjusted EBITDA margins to be about flat year to year in USIS. We continue to expect revenue to grow mid teens percentage, but at the very bottom end of the range given lower mortgage revenue. We made no changes to our mid single-digit diversified markets revenue growth expectation, and EBITDA margins ex FICO mortgage royalties are over 40% and up strongly, reflecting good cost management and continued good progress in AI and other automation and cost structure management programs.
International guidance is essentially unchanged from July. In 2026, we expect to deliver over $1 billion of free cash flow and a cash flow conversion of at least 100%. With EBITDA of 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 about 3 times EBITDA. As referenced earlier, this provides the capability for us to complete the Circulo acquisition as planned in 4Q26 while still executing share repurchases in 4Q26.
Slide 15 provides the details of our 4Q26 guidance. In 4Q26, we expect total Equifax revenue to be $1.605 and $1.635 billion, up about 4.5% on a reported basis year to year at the midpoint. Excluding the impact of FICO mortgage scores, 4Q26 reported revenue is expected to be up about 3% at the midpoint. Diversified markets revenue is expected to be up 6% to 7% on a reported basis. U.S. mortgage revenue, per my previous comments, is expected to be about $60 million weaker than our expectations when we gave guidance in July, reflecting substantial decline in the U.S. mortgage market.
U.S. mortgage revenue is expected to be down mid single-digit percent year to year. U.S. mortgage revenue excluding FICO mortgage royalty-related revenue is expected to be down mid double-digit percent year to year. EBITDA margins ex FICO mortgage royalties are expected to expand about 90 basis points year to year at the midpoint, again reflecting strong execution on our AI and automation programs and broader cost management initiatives. Equifax 4Q26 EBITDA dollars are expected to be $529 to $546 million, up almost 6% at the midpoint.
EPS in 4Q26 is expected to be $2.07 to $2.17 per share, up about 1.7% versus 4Q25 at the midpoint. 4Q26 EPS growth is lower than EBITDA dollar growth given increased depreciation expense related to transformation assets going into service and a slightly higher tax rate. We believe that our full year and 4Q26 guidance are centered at the midpoint of both our revenue and EPS guidance ranges. As a reminder, our guidance for 4Q26 and fiscal year 26 assumes Equifax will calculate and sell FICO scores for all mortgage credit transactions, and there will be limited VantageScore revenue. Now I’d like to turn it back over to Mark.
Mark Begor (Chief Executive Officer)
Thanks, John. Wrapping up on slide 16, the Equifax team executed very well in the third quarter against our EFX 2028 strategic priorities. Despite the weaker mortgage market, the new Equifax is leveraging EFX Cloud, EFX AI, and proprietary data assets to accelerate innovation and help our customers grow. Our broad-based third quarter diversified market revenue growth of 8% and 130 basis points of EBITDA margin expansion from operating leverage and AI for EFX productivity savings are strong indicators of the broad-based Equifax operating model.
We delivered above our EBITDA dollar and EPS guidance ranges, despite the impact of the negative $20 million from the decline in the U.S. mortgage market in the third quarter. Our updated 100 basis point ex FICO margin expansion guide for the year, driven by strong cost management and AI productivity, is up 25 basis points from our 75 basis point framework and twice our long-term goal of 50 basis points, despite the negative $80 million impact from the weaker mortgage market in the balance of 2026. EFX Cloud is deploying AI to power higher-performing and differentiated solutions for our customers, and AI for EFX is a new gear for margin expansion and free cash flow acceleration as we deploy AI inside of Equifax for cost productivity.
Our big cloud investment is the foundation for enabling rapid deployment of AI, and we are still in the early innings of our rollout. Our diversified markets momentum, driven by our strong AI-enabled NPI rollouts and continued execution of AI for EFX productivity, gives us strong confidence and momentum as we finish the year and look forward to 2027. In the fourth quarter, we expect to deliver approaching 100 basis points of margin expansion from continued strong diversified markets revenue growth and AI for EFX productivity. Our focus continues to be delivering financial results consistent with our long-term framework, with organic revenue growth of 7% to 10% and at least 50 basis points of margin expansion, from broad-based, AI-powered BU revenue growth of low double digits in EWS, 6% to 8% in USIS, and 7% to 9% in International.
EFX Cloud and EFX AI give us continued confidence to innovate with our customers, to exceed the 10% Vitality Index goal with new solutions like Twin Indicator and our suite of AI-enabled solutions like AI Ignite Advisor and Equifax IQ, and our operating leverage, strong post-cloud AI cost management, and AI-driven productivity are powering our margins and free cash flow. Given our strong free cash flow generation, with cash conversion over 100% in 2026, we’re also delivering on our commitment to return substantial free cash flow to shareholders.
So far in 2026 we’ve returned $850 million to shareholders, and in the fourth quarter we can complete the Circulo acquisition and continue healthy share repurchases while maintaining our strong balance sheet. And as a reminder, while hard to see today with the Middle East conflict driving inflation and interest rates, these macro factors will resolve in the future and bring rates down and mortgage activity back up. Even at lower levels of mortgage activity, the pipeline of higher-rate mortgages grows every week for future refis when rates contract, with over 17 million mortgages now over 6%. With AI powering Equifax on the top and bottom line, we are clear that in a mortgage market recovery, the incremental revenue, margin, and free cash flow from mortgage upside will flow to our investors.
Equifax is poised to deliver upwards of a billion dollars of incremental mortgage market revenue and $700 million of incremental margin expansion, and that will drop to our EPS and free cash flow when rates contract. We are investing at the right levels for Equifax growth today, and AI-driven productivity is improving our operating leverage. The incremental $700 million of free cash flow from mortgage market recovery will be delivered to investors from accelerated dividend growth and share repurchases and drive incremental shareholder returns.
I’m energized about our execution and performance in the quarter and how AI is powering our top and bottom line. But I’m even more energized about the future of the new Equifax. And with that, operator, let me open it up for questions.
OPERATOR
Certainly. We’ll now be conducting a question-and-answer session. If you’d like to be placed into the question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you’d like to remove your question from the queue. We ask you please ask one question and one follow-up, then return to the queue. And once again, that’s star one to be placed into the question queue.
Our first question today is coming from Jeff Mueller from Baird. Your line is now live.
Jeff Mueller (Analyst at Baird)
Yeah, thank you. Good morning. Hey, really good job here on margins. I hear you that you’re early innings on AI productivity. Can you just maybe help us think through any puts and takes for 2027? Mortgage volumes are obviously one. I don’t know if there’s any other like grow-over considerations, if there’s one-time adjustments this year to incentive comp accruals because of what’s going on in mortgage or anything like that. But it seems like there’s good momentum on the AI productivity side that should continue to build.
So just trying to think through margins holistically.
Mark Begor (Chief Executive Officer)
Yes, thanks, Jeff. We’re very pleased with the momentum that we have on our cost management and AI productivity. As you know, back in February we set out a $75 million goal over the next couple of years for net cost-out from AI productivity. We doubled that in July to $150 million because of the momentum we have. And we just are really pleased with the momentum in a post-cloud world. As you know, we invested heavily in our tech, so our team and our infrastructure are highly tech-enabled with that huge investment we made over the last five years.
And we’re just seeing our ability to deploy AI in operations and technology and our support functions really scaling very rapidly. And I think you’re pleased, so are we, that it’s showing up in our margins this year even with the headwinds of the mortgage market in September and in the fourth quarter that are quite substantial. We’re still increasing our mortgage guide for the year and we believe that gives us real momentum and confidence as we move into 2027. We’re not ready to give guidance in 2027. We’ll do that in February. But clearly if mortgage rates stay where they are, mortgage activity will be down in 2027, as John laid out.
Outside of that, we don’t think about anything else as being kind of meaningful on a year-over-year basis. Our momentum in our diversified markets is very strong. We see real momentum in EWS as we kind of move through the year and into the fourth quarter on their path back to their long-term framework growth, which I think is really positive. USIS is inside of their LTFF and performing well, and the same with International. So we’re pleased with that.
In mortgage specifically, while activity at current levels, if that continues in 2027, that would clearly be a meaningful negative that we’ll all be able to size. We have the positive of Vantage conversion when we look to 2027, and I’m sure you’re thinking about that just as we are. That momentum is super strong. And when the FHFA opened up the LLPA tables a few weeks ago, what we’re hearing from our mortgage customers is they’re going to move to Vantage to take advantage of that significant price delta versus the FICO score.
So that’s something that should be a positive for us in 2027 and we’ll size that when we get to February.
John Gamble (Chief Financial Officer)
And you specifically asked about AIP, how our bonuses work. And just so you’re aware, the bulk of our bonuses are paid based on EPS, operating profit, and individual performance objectives. And as you know, our operating profit and EPS performance for the year looks very similar to where we started back in February.
Jeff Mueller (Analyst at Baird)
Very helpful. And then just with the personal AI agent rollouts and adoption that has been happening recently, can you just comment on how you’re thinking through potential impacts on your business or your customers? Things like inquiry volumes in any verticals. I know, anything on identity solutions, or potentially something on like twin data or alternatives if agentic removes friction.
Mark Begor (Chief Executive Officer)
Thank you. Yeah, it’s still super early days on that, Jeff. From a customer perspective, obviously everyone’s talking about it, everyone’s focused on it. We’re investing heavily to be enabled to interact in that way. I would tell you there’s very little activity right now, although lots of discussions with our customers. So we want to be prepared and really built for it. And because of our big tech investment and the AI enablement that we have really broadly across Equifax, we think we’ll be ready when it moves forward.
We think about it as a net positive in the future. Think about 2027, 2028, 2029, as that enables the ability for our customers to more rapidly utilize our unique solutions. That becomes advantageous to us because, as you know, there’s a lot of friction around change with our customers when they want to use one of our new higher-performing scores, one of our new higher-performing models, or some of our products that deliver more value. So we view AI as something that’s going to be accretive not only to our top line but also our bottom line.
We already talked about, in your first question, about AI cost efficiencies and productivity inside of Equifax on how we operate and in tech and operations. That clearly is a big deal, and part of the $150 million we’ve laid out as a multi-year cost-out goal. And as I said, and I think John said also, it’s still early innings for that, meaning we’re continuing to see positive momentum as far as deployment in our ability to achieve the $150 million and look for going north of that.
And on the product side, really great work by our team to AI-enable a lot of our solutions. You now have our new products being rolled out that have AI capabilities in them, as you described, but also AI performance lifts because we’re adding more data into the solutions, which is also a big positive for us. And, as you know, we talked about our Vitality Index, which continues to scale. Seventeen percent in the quarter was actually a record for Equifax.
We’ve never been that high. And in a post-cloud Equifax environment and all our focus on innovation, new products, leveraging our differentiated data, and AI-enabling those solutions, that 17% is a great momentum for us as we move through the quarter and into 2027.
OPERATOR
Thank you. Our next question today is coming from Tony Kaplan from Morgan Stanley. Your line is now live.
Tony Kaplan (Analyst at Morgan Stanley)
Thanks so much. On slide 7 you noted that the twin indicators driving share gains in mortgage. I was hoping you could just give some additional color on that. You know, how much of the market in pre-qual you think you have, or however you want to quantify share in sort of that tri-merge area.
Mark Begor (Chief Executive Officer)
Thanks. Yeah, it’s a great question, Tony, and it’s one that we view as a real asset for Equifax. As you know, we rolled it out a little less than a year ago. It’s still, I would characterize it, as early days in that deployment. But the response from customers is super positive. As you know, the MBA meeting was last week. Our team was there in full force, and this is one of the items that we had a lot of discussions about, as well as some of our other new products that we’re rolling out for the mortgage space, like Mortgage Qualify from the EWS business and the new score solution that we have from USIS.
On twin indicator, it provides very unique visibility for our customers. And there’s a deployment and implementation timeframe that really lags some of the revenue benefit that we get. That is just a reality of process change in our industry. But the momentum that we have with our customers is positive. We haven’t quantified the actual share gains, but we know they’re positive. I think you can see it in our revenue numbers for USIS in mortgage, as well as how we characterize the performance versus the market as being positive.
And then I’d just add a couple reminders. Number one, we’re also rolling out the NC attributes, the cell phone and utility attributes — so 54 attributes we’re adding to our mortgage credit file also for free to differentiate it in the pre-qual and pre-application process. And we’re getting great feedback from customers there. That’s another example that takes time for our customers to really adopt to the ability to ingest those additional attributes in that underwriting they’re doing in the pre-qual marketing phase and also in the underwriting stage.
But we all know that more data is valuable in an underwriting process, and our customers are focused on how do they optimize their marketing funnel, particularly in a super challenging market that we’re in. So our ability to offer those unique solutions that are accretive to the core credit file at no cost, we think, is an advantage. Second reminder is that we’re doing the same thing in the twin indicator in auto, card, and P loans. So that’s going to benefit our diversified markets business in USIS as we really do the same thing: work with the auto, card, and consumer finance or personal loan space to really optimize their marketing funnel and originations by providing that incremental data on someone’s employment status, their income last year, their employer, et cetera, which really aids them in positioning the right product and also optimizing who they focus on as they’re trying to bring people through the marketing funnel to make sure that they can get someone to a closed loan, which is where they make the money.
Tony Kaplan (Analyst at Morgan Stanley)
Great. And then in government, really nice momentum in the new wins and renewals — you’ve been calling that out the last two quarters. I guess now that we’ve passed the 9/30 fiscal year-end, how does that impact the sales process in government? Do you tend to get more new sales at the end of their fiscal year or the beginning of the next year when new budget cycles start? Just wanted to understand the dynamic on the sales cycle in government. Thanks.
Mark Begor (Chief Executive Officer)
Yeah, it’s a great question. Not every state’s on that 9:30, so others are on different time frames. But, you know, you really have to separate what I would call revenue, you know, showing up in our P&L, meaning the sales become online and active and become revenue, versus the sales cycle. The sales cycle can be very long in government as it is in all of our businesses, but in government in particular. And, you know, when we talk about signing a contract, which we did this quarter, we talked about it in July again from our strong second quarter on contract signings.
We’re clear about some visibility to you, but we know kind of exactly, with some real confidence, when that’s going to turn into revenue, so there’s a differentiation there. So when it comes to contract signings, they happen through the year. They can be lumpy, as we’ve said. And second quarter was particularly strong because of one large one and a couple of other meaningful ones. But it doesn’t change the commercial cycle that we have. And as we’ve talked about on this call, we talked about it back in July and in February, the commercial momentum is extremely strong across both the federal, state, and local level. There’s a lot of interest, some of it OB3-related, which puts more requirements on the states, but also more broadly the unique solutions that we deliver. Because remember, we deliver speed of social service delivery, we deliver the productivity of the caseworker, and we also deliver that integrity.
So there’s a very strong value prop. So I would think about, you should think about, and it’s how we operate, that that commercial activity is happening every day. And I think I highlighted in my comments that, for example, we have—and I think we talked about it in July also—we have several, actually more than several, large federal commercial discussions going on that are quite meaningful, and those take time before they crystallize into a contract signing. And then there’s an element of implementation when they become revenue. But what’s encouraging to us is the pipeline is robust, the conversations are robust, and our team is out there.
And then I highlighted in my comments also that we’re rolling out new solutions—so we’re bringing more solutions to our customers in the federal, state, and local government—to really help them better manage the delivery of social services and also the integrity around that social service delivery. So we’re very energized around the progress by the team and the momentum as we finish the third quarter, we move into fourth, and then obviously we’ve got a lot of momentum about the setup we have for 2027.
OPERATOR
Thank you. Our next question today is coming from Andrew Steinerman from JPMorgan. Your line is now live.
Andrew Steinerman (Analyst at JPMorgan)
Hi. I have a similar question about the setup for Verify, particularly government for ’27. I assume the kind of the strongest thing that you guys feel like you have locked in for Verify is the record growth that’s already kind of underway and kind of exiting for ’27. Could you just remind us the puts and takes? You know, what should we be thinking about of what’s going to be the driver of, you know, of Verify? I assume it’s going to be government contracts.
Mark Begor (Chief Executive Officer)
Yeah, it’s multifaceted, as you know, Andrew. Records is certainly a positive. We had a very strong records quarter, and I think we highlighted in our comments that we have a strong pipeline for continued record additions. That’s been a strength of Chad and the EWS team for multiple years and it continues. And again, a reminder which sometimes our investors forget: while we have growing records up kind of low double digits over the last number of years, there’s still a super long runway.
We finished the quarter with 110 million current people or SSNs in our dataset. Obviously we have more records than that because people have multiple jobs. But the 110 million compares to the 250 million income-producing Americans. So we have a runway to more than double the dataset going forward. And obviously that’s going to take time. So records is a big deal. As you know, when you think about 2027, we typically do price increases on 1/1. So those will flow into EWS and the Verifier businesses in 2027. And we have visibility from an Equifax perspective about what that is. You’ve also got new product rollouts and new customer penetration. Penetration is a big deal because of the $15 billion TAM they participate in. So the ability to add new customers. So we’ve got visibility, and I think you pointed out—and we highlighted in July—the large new state contracts that we’ve shared with you that are going to be substantially benefiting 2027.
There’s some fourth quarter impact, but the vast majority of that is in 2027. So you see that and obviously we do too, which is a positive. And then I would add just the commercial momentum. I think you’ve seen our Talent business—very strong performance in a tougher market for white-collar hiring, but strong double-digit, 20% kind of growth. That’s from new products, that’s from penetration into that big $5 billion TAM. So we’re pleased with that. Our consumer finance or auto, card, personal loan business performing very well. As we look forward to ’27, we expect that kind of performance to continue.
So we’ve got a lot of confidence in that business getting back to inside of their LTFF framework as we get into 2027.
Andrew Steinerman (Analyst at JPMorgan)
Thanks, Mark. Appreciate.
OPERATOR
Thank you. Next question is coming from Shlomo Rosenbaum from Stifel. Your line is now live.
Shlomo Rosenbaum (Analyst at Stifel)
Hi. Thank you very much for taking my questions. Mark, I want to ask a little bit about this discussion about tri-merge to bi-merge. And can you just talk a little bit—can you describe to us what the sentiment is amongst your largest lenders in terms of moving there? Because obviously there’s a potential to save costs if you’re using bi-merge instead of tri-merge. What are their other considerations and how do they think about it when you talk to them about it, the large lenders, the ones that make the most difference?
Mark Begor (Chief Executive Officer)
Yeah, I would say broadly—and you could add lenders, you could add many regulators, you could add legislatures, think about Congress, you could think about Treasury, who has a role in the fact that the federal government owns liability on a lot of loans if they don’t deliver—there’s kind of broad consensus that tri-merge delivers a lot of value around access to credit, having the right price for the applicant or the homeowner or future homeowner or consumer, and then also safety and soundness.
So when you think about from a mortgage originator standpoint, what are they focused on? They’re focused on managing their marketing funnel. They spend a lot of money and typically they’re doing digital originations. And so they want to make sure that when they have someone who’s coming to their website, typically in order to apply for a refi or apply for a new home loan mortgage, that they can approve that consumer and that applicant. And a big part of that is having the complete information.
And I think we all know that there’s enough significant differences between the three bureaus on the credit file that pulling three delivers a more accurate, a more complete, and also includes more people and gives them a better pricing. There’s 11 million U.S. consumers that are only on one credit bureau. If you’re going to pull two or one, that consumer may not get approved. I think we know that there’s 40 to 50 million U.S. consumers—most of us on the phone—that have a 20 to 40 point difference between the three credit bureaus because not every financial institution contributes data to all three bureaus. That’s a meaningful difference. If you’re pulling two, you don’t pull that higher score for that consumer.
They end up paying a higher price or maybe they don’t get approved. So it’s a big element of the approval process. And then the flip side is, if you’re the government or if you’re a balance sheet lender, which is still a meaningful part of the mortgage market, you want to make sure you get all of those trade lines from a safety and soundness standpoint. If you’re only pulling one or two files and you don’t pull that third that has maybe some of those more negative trade lines, you’ve got a riskier loan.
So we think there’s kind of broad-based support for it. I think, as you know, FHA and VA have come out very clearly. Back in April, they put out a press release supporting Vantage, and also in that press release supported tri-merge. So I think they clearly understand the value of tri-merge for the consumer, of approving more, and then the value around making sure they get the best price, meaning the lowest price that meets their risk profile because you’re getting all the data, and then the safety and soundness that comes from it.
So we thought it was important, because there’s been a lot of confusion, I think, in our investor base about how large could an impact be if FHFA decided to go to bi-merge. That’s why we decided to size it. We view it as very manageable and likely, for those on the call today, a framework that is a lot less than perhaps you were thinking over the last month or two as that dialogue has been in the press and so on. So that was our intention, was to frame it.
But, you know, look, we think tri-merge is right for the consumer. We also think it’s right for the mortgage industry, and also we think it’s right for federally guaranteed mortgages.
Shlomo Rosenbaum (Analyst at Stifel)
Okay, thanks. And just for my follow-up, John, maybe you could help us out a little bit. Just as everyone is trying to incorporate into their model the impact of higher mortgage rates on the numbers in 2027, where do you expect mortgage to end up as a percentage of revenue for the company, like in total company, USIS, EWS? Do you have some kind of range or at least a rough estimate that you could give us so that we can kind of sensitize our numbers starting from that when we think about 2027?
Mark Begor (Chief Executive Officer)
Yeah, go ahead, John, please.
John Gamble (Chief Financial Officer)
We’re not going to give 2027 guidance and certainly not going to give specifics around revenue or percentage of revenue. But the reason why in the script we tried to give some perspective on originations and transaction levels is to allow you to try to do that math on your own. And as we said, we expect that you’re going to see mortgage originations activity kind of decline high single-digit percentage year on year to the extent that current mortgage run rates stay the way they are as we go through all of 2027, with the bulk of that impact happening in the first eight months.
So as you’ll remember, 4Q25 was a strong mortgage period, 1Q26 was a strong period as well. So you’ll see significant impacts. Obviously you’re seeing it in the fourth quarter; you’d see it in the first quarter; it starts to mitigate a little bit in the second and then obviously substantially in the third, given what happened this quarter and what you’re seeing in the fourth quarter of this year.
Mark Begor (Chief Executive Officer)
And again, just to be clear, what we always do and what we’ve done in this scenario, modeling for the fourth quarter and trying to give you some visibility for 2027, is we’ve taken current run rates. You know, obviously they’re depressed over the last eight weeks and we can only assume that they’re going to continue at that level until inflation comes under control and perhaps the Middle East conflict is resolved. And then, you know, rates moderate some.
I had in my comments the fact that even at this lower level there’s still mortgage activity happening. It’s down meaningful, it’s down over 50% from what we would call normal levels. But there’s still mortgage activity happening every day, every week that is building that pipeline. Going forward we’re now up to 17 million mortgages over 6%. And I think as you know, it takes a quarter-point, 50 basis point change in rates and you open up a refi opportunity for that population. It’s hard to see when that’s going to happen with what’s happening today, but it’s going to happen. It’s just a matter of when that timeframe is. And as we move forward, that 17 million, you know, household number or mortgage number is only going to get larger.
OPERATOR
Thank you. Next question today is coming from Jason Haas from Wells Fargo. Your line is now live.
Jason Haas (Analyst at Wells Fargo)
Hey, good morning and thanks for taking my question. Can I just confirm in a follow up, in a response to a prior question, did you say that you would expect the EWS business to get back to the long-term framework next year? Did I hear that correctly?
John Gamble (Chief Financial Officer)
Was that to the overall EWS business? Yeah, we didn’t give 2027 guidance and it’s our intention to give 2027 guidance. I think the question was around the performance of the business and its momentum as we finished the year, which we’re super pleased with, and the business is performing well. And you’ve seen improvements on a quarter-over-quarter basis from second to third quarter that we’re pleased with. And we’ve provided some information on 2027 that you can do your own math on, on some of the setup, like the government contracts that we’ve signed that are substantially incremental in 2027 versus 2026 that give you some visibility.
Jason Haas (Analyst at Wells Fargo)
Okay, great, thanks for clarifying that. And then, yeah, maybe just to follow up on government. So the 50 million of new government bookings in 3Q was, you know, very strong. Are you able to give us any expectation for if there were any sort of big wins or not, or if that’s the right framework to think about what we could see as well in 4Q? And then for government, do you expect that revenue to continue to accelerate in 4Q, then again in 2027?
John Gamble (Chief Financial Officer)
I think you had said that previously 2Q and 3Q were very strong quarters for the government team in terms of signings and renewals. And part of that is just based on the timing of when state budgets move. Right. So fourth quarter tends to be much smaller in terms of that type of activity. As Mark said, we’re doing a lot with the federal government and other opportunities. Doesn’t mean the selling activity changes in any way. But in terms of likely signings, the strongest periods you tend to see are really 2Q and 3Q, a little bit 1Q, but really 2Q and 3Q tend to be the strongest just based on the way state budget cycles run.
OPERATOR
Thank you. Next question today is coming from Vais Ali from Deutsche Bank. Your line is now live.
Vais Ali (Analyst at Deutsche Bank)
Yes, hi. Thank you. So just to follow up on that government question, how much of the 150 million of the new business are you expecting to realize in revenues this year?
John Gamble (Chief Financial Officer)
Yeah, I think we said a couple times that the new contract signings are principally 2027 impact, with some of that benefit in the fourth quarter. Some of it was in the third quarter, quite small, but substantially all of that is in 2027. And we did, we saw some of the contracts that we talked about in the second quarter start to monetize in the third quarter and many of them are monetizing in the fourth.
Vais Ali (Analyst at Deutsche Bank)
Okay, got it. Okay. And then I wanted to ask about Vantage adoption, and you talked about moving to a paid model. So just want to understand the strategy there. Are you going to continue to offer Vantage for free when someone is buying the FICO score from you, or is that strategy changing? And then I think you talked about 35 million annualized margin upside. Just curious, what does that represent at this point?
Mark Begor (Chief Executive Officer)
Yeah, so your last question, and we’ve been clear about that, is we wanted to calculate for you if there was full Vantage conversion of all the FICO scores. Obviously we don’t make any money today when we sell a FICO score, that’s zero margin, which is to pass through to FICO. And if we sell the Vantage score, we make a dollar on each score. So at current run rate levels, if we move everyone, our piece of that would be a margin upside in the 30 to 40 million dollars range.
And obviously that’s going to take time, but we see some real momentum there. We did announce at MBA last week, and I shared it on that call this morning, that we’re planning to keep our $1 Vantage score at $1 through 2028 to give our customers more confidence and visibility around Vantage pricing versus FICO pricing as they make that decision to use the Vantage score. And yes, we are still offering the free Vantage score with every paid FICO score in order to drive adoption. But remember, for the customers, you’re not getting any savings because you’re still paying the $10-plus for the FICO score versus the $1 that’s available if you move to Vantage.
And that’s why we said on the call I think we have 200 customers, smaller, that have moved to the $1 Vantage score exclusively because they’re getting better score performance in the marketing side of the origination in prequal and they’re getting the big cost savings. And you’ve seen press releases from some of the larger mortgage lenders and we’re talking to them also. They’re well aware of the huge cost savings that they have because, as you know, 6 out of 10, 7 out of 10, 8 out of 10 mortgages don’t close, and that’s a COGS for them. So the ability to do that prequal or pre-application with a Vantage score for a dollar is a huge savings. It’s, in the neighborhood between a credit file and the Vantage score versus a credit file versus the FICO score, like a 45% savings for the originator.
And that’s just a lot of savings that also passes through to the consumer, because the consumer pays for the tri-merge at closing. And at a $1 score, there’s a meaningful savings for the consumer also. So there’s a lot of momentum around that conversion and we expect that to pick up in the fourth quarter and then move forward in 2027 when we expect FHA and VA to move to adopting Vantage inside of their processes. We understand around January 1st.
OPERATOR
Thank you. Next question today is coming from Manel Tanhai from Brooklyn Lighters. Your line is now live.
Wahida Minon (Analyst at Anos)
Hi, this is Wahida Minon from Anos. Just wanted to talk about the event that FHFA decides to go from tri-merge. I know you talked about bi-merge, but ultimately if it goes to a single file, would the economics hold true in your view that lenders will still want to pull all three and would it still be manageable? And outside of that, I understand the Twin Indicator and the NC+, but is there any other way you can differentiate the credit file outside of that?
Mark Begor (Chief Executive Officer)
First, to be clear, to our knowledge, and maybe you have different knowledge, but everything we know is the FHFA has not made a decision to go to bi-merge. Obviously they’ve talked about it. There was a press article, I believe in Bloomberg, that said they were expecting an announcement from FHFA and that, to our knowledge, hasn’t happened yet. But that’s why we decided to put some framework in our discussion this morning about what a potential impact would be to Equifax, and we view it as manageable.
We’ve already talked on the call this morning about why we think tri-merge is important. And to your question, our expectation is it wouldn’t be a requirement to go to bi- or single-merge. It would be an option for the lender, and the lender would make the decision about what they want to do in their marketing process and underwriting process to make sure that they’re managing their marketing funnel, they’re approving more consumers, they’re providing the right price to the consumer around what price, the interest rate, is on the loan.
And then as you point out, we have a lot of advantages at Equifax in a bi-merge world for FHFA loans because of unique solutions we deliver with Twin, the Twin attributes, the Twin data that we have in the credit file, the NC attributes that we’re offering at no charge. Also the fact that we own a tri-merge business where we go to market, so we would obviously take advantage of that in how we deliver our credit file in the marketplace. So I think our intention this morning was really just to size the impact and then we’ll be ready to respond if, in fact, the FHFA goes down that path.
But as you point out, our expectation is the lender would make that decision about what they want to do as far as credit files that they’re pulling.
Wahida Minon (Analyst at Anos)
Thank you. And then on government, I know you mentioned some of the contract wins have been towards subscription-based. As you’re having more conversations with these state counterparts, are they leaning more towards subscription-based contracts? And if not, is that something you think the government is headed towards?
Mark Begor (Chief Executive Officer)
Yeah, it’s one that we started deploying commercially a couple of years ago. It’s clearly something that many of our customers like: the idea, the certainty of a subscription. And as you know, all budgets are complex, whether you’re on the government side or in the commercial side. In the case of government, they’re more complex because they generally have to get, at the state or local level, funding for expenditures for projects from their legislature.
So having the ability to have some more certainty around, during that fiscal year, what the spend is going to be on our solution is positive. So we’ve seen a growing trend there, but we still offer both, and we want to be flexible with our customers around helping them utilize our solution. We want to drive penetration into that big TAM. As a reminder, it’s a $5 billion TAM. We’ve got less than 20% of it, so there are a lot of manual verifications that are still being done that are opportunities for us. So we want to be responsive and flexible commercially to help our customers adopt our solution.
OPERATOR
Thank you. Next question today is coming from Andrew Nicholas, from William Blair. Your line is now live.
Andrew Nicholas (Analyst at William Blair)
Hi, thank you and good morning. Want to dig a little bit further into talent momentum. I think you mentioned mid single digit— Growth for underlying growth, but outperformance relative to that market is holding very strong, if not accelerating. So I was hoping you could spend a bit more time on what is driving increased penetration, how much of that outperformance is new products, and any other color on the market makeup there and your evolution as a key provider to the space.
Mark Begor (Chief Executive Officer)
Yeah, we’re pleased with the performance, you know, the strong performance last year. You know, also it’s a big TAM. It’s one where we deliver a lot of value in kind of our core solution about verifying past employment. I think, as you know, the Appriss incarceration data acquisition that we did several years ago has been a very positive one for us. That’s used very broadly in background screens doing that incarceration check, and we’ve rolled out new products there and are driving penetration.
You know, the TAM is quite large here also. You know, that’s a multibillion-dollar, $5 billion TAM, and again here we have less than 15% of the market using our solution from a penetration standpoint. So our team at EWS has a lot of penetration opportunities. And then as you point out, we’ve been rolling out new products in the education space, in the employee verification space. We now have an hourly solution where there’s less data required to verify past employment. Education solutions that we’re rolling out. You know, every year we take price up. We’ll do that again on January 1st in the talent vertical. So when we look forward, we’re still benefiting from the price we did early this year and for 2026.
So a lot of really strong performance. And then, of course, record growth — you know, when we grow records, we have higher hit rates. We can deliver more complete information on that employment background. So multifaceted and strong execution and a big TAM by the Workforce Solutions team. We’ve also expanded into healthcare. We’ve launched more and broader healthcare solutions into the talent vertical as well, which we think is also going to help drive long-term growth.
Andrew Nicholas (Analyst at William Blair)
Great, very helpful. And then for my follow-up, I wanted to ask on income and employment verification. I think last month a competitor of yours announced an integration with a large partner of yours. Wanted to see if you had any thoughts on what that means for your business. But maybe more broadly, if you could touch on your conviction in having exclusive relationships on that front or maybe, again, the resilience of your model to competition. Thank you.
Mark Begor (Chief Executive Officer)
Yeah, we viewed that more as a one-off that was really driven by some decisions that they wanted to make about how they go to market. You know, we still have a very strong relationship with that customer. We expect that to continue going forward. And when we look broadly, we’re very pleased with our record growth. We deliver a lot of value to those partners that we work with in the payroll, HR software, pension benefits administrator space. There’s just a lot of continued momentum there.
Our benefits are — the scale of our distribution is very, very large. We have connections in the mortgage, auto, card, P loan, background screening, government social service space that are really second to none. So when it comes to our ability to grow our business and then share in a rev share with them, we just have very substantial advantage there, which is a positive in those partnerships that we have. We also invest heavily in our technology and in our product capabilities. So when you think about us rolling out new solutions in all of our verticals, those benefit those partnerships, which are really valuable to us. So we have a lot of confidence in our ability to continue to grow our records. We have a lot of confidence in our ability to deliver value to our partners in those partner relationships, and we don’t expect that to change going forward.
OPERATOR
Thank you. Our next question today is coming from Ashish Sabhadra from RBC Capital Markets. Your line is now live.
Ashish Sabhadra (Analyst at RBC Capital Markets)
Thanks for taking my question. I just had a question on the EWS margins. The guidance implies a step-down for 4Q, which I believe, John, you attributed to mortgage weakness. As we think about some of the puts and takes — obviously you talked a lot about the AI benefit — but how should we think about the EWS margins going forward, even with some mortgage pressure there? Thanks.
John Gamble (Chief Financial Officer)
Yeah, we’re very pleased with the EWS margins. They’re very, very high and attractive, and our intention is to continue to invest in the business because of the high growth it delivers as well as the high margins that it generates. But at the same time, make sure that we’re deploying everything we have around productivity and AI productivity and operating leverage, not only at EWS, but at our other businesses. And we’re seeing very positive benefits by the EWS team as they deploy AI productivity in their operation centers.
They have very large operation centers in our employer business. We have the same kind of call centers, although not as large, both for consumers — for employees of our contributors — and also for our B2B customers that we’re deploying AI in when we expand. And then our technology operation in EWS — same thing. So our goal is to continue to maintain those very attractive 50-plus percent EBITDA margins going forward by the strong operating leverage that comes from their top-line growth and also the deployment of AI productivity.
Ashish Sabhadra (Analyst at RBC Capital Markets)
That’s very helpful color. And then maybe just on mortgage inquiries — and I know this question was asked before — but as we think about that high single digit mostly on the first eight months of 2027, are there certain nuances by quarter that we need to be cognizant of? Any particular color that you can provide there will be helpful. Thank you.
John Gamble (Chief Financial Officer)
Yeah. So the way, as Mark described it, what we do is we just apply normal seasonality to our expectations for the next year because we don’t have any basis to think of anything else. However, you obviously know what happened in 2026. So in 2026, the first quarter was a pretty good mortgage quarter, right? Until rates started increasing in March, and then second quarter weakened, but was certainly better than what we saw in the third and the fourth quarter of this year.
So on a year-over-year basis, it would indicate that the largest impact year over year is likely going to be in the first half. But again, that’s just based on us using normal seasonality in 2027, because that’s what we know today.
OPERATOR
Thank you. Next question is coming from Curtis Nagle from Bank of America. Your line is now live.
Curtis Nagle (Analyst at Bank of America)
Great. Thanks so much for taking the question. Apologies I missed this, but just any color you could provide on the verifier government mortgage expectations for 4Q. Should we expect something similar to 3Q in terms of year-over-year growth? Does it accelerate — given, Mark, to your point, some more new book business coming in? Yeah, just a little more color, if you could, in terms of what’s contemplated in the guide. Okay, then maybe I’ll just shift it to somewhat of a two-part. Vantage — just, I guess outside of the three large lenders that are currently originating, I think do most of the originating, what’s your sense in terms of preparedness for the rest of the industry, in terms of them turning on Vantage to originate? And I guess how much do you think — Mark, you alluded to this — the move to the unified grid potentially shifts more volume to Vantage?
Mark Begor (Chief Executive Officer)
Yeah, I think the industry has been preparing for quite some time. I think, as you know, it’s a year ago July when the FHA first announced that they were going to adopt Vantage, and then in April they actually turned it on. And in that timeframe a lot of the technical work, process work has been completed. In some cases there’s still testing happening, which is why last year we started offering a free Vantage score so they could adopt and really process through their workflows both scores.
I think substantially the industry is pretty well prepared. And the fact that they made the decision a few weeks ago to normalize the LLPA tables, I think that opens up — and we’ve heard a lot of feedback from our customers — that they plan to really start ramping their Vantage adoption because of the big cost savings that come with it. The numbers are just quite substantial for the industry and consumers. It’s a billion dollars that’s hard to not focus on, particularly in this mortgage environment where the whole industry is extremely pressured by the lower activity.
So we see all of our customers really moving to implementation mode. So we would expect to see that adoption grow in the fourth quarter and then continue to accelerate in 2027. And really, really good progress in the third quarter also with connector and technology partners enabling Vantage. So there was a substantial change in the third quarter, which we think has a lot of momentum and is continuing.
OPERATOR
Thank you. Our next question today is coming from Swindra Thin from Jeffries. Your line is now live.
Swindra Thin (Analyst at Jefferies)
Thank you. Mark, just one question here. Can you talk about the way that lenders are behaving or they’re thinking about the consumer and their willingness to market, to spend, to originate? Obviously some sensitivity around rates and consumer behavior, but is there a delay effect that we should be thinking about, or are there certain metrics that really need to degrade before we see any material change in lender behavior?
Mark Begor (Chief Executive Officer)
Yeah, I think you’ve seen our USIS business, which is probably the right place to look, and even in our consumer finance or auto, card, P loan business, you know, performed very well. Our DDM business, which is where some of this activity would be, was strong, but principally around marketing activity. So we haven’t seen real uptick in what you would typically see when investors are more nervous about the economic conditions, where they’re doing more portfolio management reviews.
That hasn’t happened. And the real indicator, I’ve been around consumer finance for decades and the real indicator is unemployment. And, you know, it’s still quite strong, meaning employment is still quite strong. Employment is quite low when people are working, you know, while they could be pressured and they are in many income demographics because of what’s happening with inflation and oil, they still manage to pay their bills. And I think we’ve seen, you know, a lot of the bank earnings last week, you know, were very strong in their consumer businesses, meaning they’re originating, you know, and operating in a quite normal way. So we don’t, we don’t see change happening in that and we don’t expect, you know, it’s hard