艾法斯 (EFX) 2026财年第三季度业绩电话会：AI利润率提升抵消房贷疲软

核心要点

• Equifax公布2026财年第三季度营收为16.93亿美元，据报同比增长10%，按固定汇率计算增长9%。调整后每股收益（EPS）增长11%至2.26美元。
• 多元化市场（Diversified Markets）营收增长超过8%，职场解决方案（Workforce Solutions）、美国信息服务（USIS）和国际业务（International）均实现广泛增长。这有助于抵消按公司7月假设计算约2000万美元的房贷业务营收缺口。
• 在经营杠杆、成本控制和AI驱动的生产力提升推动下，剔除FICO影响的调整后EBITDA利润率同比扩大130个基点。
• 管理层将预计美国房贷营收较7月指引下调约8000万美元后，把全年营收预期中值下调至66.61亿美元。调整后EPS的中值现为8.50美元。
• 尽管面临房贷业务压力，Equifax仍将其2026年剔除FICO的EBITDA利润率扩张指引从75个基点提高至100个基点。
• 管理层预计，获得政府合同、The Work Number的创纪录增长、新产品以及付费VantageScore更广泛的采用将对迈入2027年的业务形成支撑，而当前的房贷交易水平仍是重大的不利因素。

核心财务数据

业务与经营表现

职场解决方案

职场解决方案营收增长7%。多元化市场营收增长9%，其中验证多元化市场营收增长13%。

政府业务营收以中单位数速率增长。Equifax表示，年初至今已与州政府机构签署了超过5.5亿美元的年合同价值，其中包括约1.5亿美元的新业务和4.0亿美元的续约。管理层预计新业务的大部分贡献将在2027年显现。

在新产品、定价以及就业、教育和入狱数据渗透率升高的推动下，人才解决方案营收增长超过20%。在信用卡和消费金融的引领下，消费贷款录得高双位数增长。受工作机会税收抵免项目暂停影响，雇主服务营收下降5%。

The Work Number活跃记录数达到2.23亿条，增长12%，其中包括1.25亿条当前活跃记录，增长11%。这些记录代表了1.1亿独立个体，而管理层指出的潜在市场为2.5亿有收入的美国人。

USIS与房贷业务

USIS多元化市场营收增长6%，B2B营收增长5%。金融营销服务营收增长超过10%，C端直营（Consumer Direct）增长9%。

USIS房贷业务营收增长28%，但剔除FICO后仅以低单位数速率增长。管理层将潜在的优异表现归因于预先资格审查和预先批准产品的定价与份额增长。

美国房贷总营收增长15%，剔除FICO后增长约1%。然而，30年期房贷利率从7月出具指引时的6.6%升至约7.5%，导致第三季度房贷营收较公司预期的缺口约为2000万美元。

VantageScore的采用率继续扩大。约2000家房贷机构在承保中使用了VantageScore，是4月水平的7倍，同时房贷VantageScore业务量自4月以来增长了230%以上。超过200家贷款机构独家使用该服务。Equifax计划将1美元的VantageScore价格保持至2028年底。

国际业务

按固定汇率计算，国际业务营收增长约7%。亚太地区营收增长12%，其中澳大利亚增长11%。拉丁美洲增长8%，秘鲁和中美洲录得双位数增长，巴西录得高单位数增长。加拿大和欧洲各增长4%。

Equifax预计将在2026财年第四季度完成对Círculo de Crédito价值7.5亿美元的收购。截至9月的过去12个月中，Círculo的营收增长了24%，EBITDA利润率为47%。管理层预计该交易将在完成收购后的第一个完整财年增厚调整后EPS。

AI、产品与效率

Equifax的新产品活力指数超过17%，高于其2026年15%的目标和10%的长期框架。年初至今推出的新产品中有80%以上使用了EFX.ai功能。

公司继续以跨业务、技术和公司职能部门部署AI所带来的1.5亿美元多年期生产力提升为目标。管理层表示，这些举措促进了第三季度利润率的扩大，并将继续作为2027年的重点。

管理层指引

管理层预计2026年多元化市场营收将以高单位数速率增长。职场解决方案营收目前预计将以中单位数速率增长，低于此前的高单位数预期，这仅仅是因为房贷业务营收疲软。

USIS营收仍预计将以15%左右的速率增长，但处于该区间的下限。国际业务指引被描述为与7月份基本一致。

对于第四季度，美国房贷业务营收预计将比公司7月的假设低约6000万美元，同比下降中单位数。剔除FICO许可费转嫁营收后，房贷业务营收预计将出现中双位数下滑。

管理层的指引假设Equifax继续为所有房贷信用交易计算并出售FICO分数，而VantageScore营收较少。

风险与关注点

• 房贷市场疲软仍是当前主要的短期压力。目前预计全年美国房贷业务营收将比7月展望低约8000万美元。
• 如果当前的房贷交易率持续，管理层的情景分析表明，2027年美国房贷发放量及相关交易可能会出现高单位数百分比的下降，且大部分同比压力集中在前八个月。
• Equifax观察到金融机构和汽车领域的业务量在第三季度末和第四季度初有所放缓，同时整体招聘活动疲软，白领招聘更加低迷。
• 联邦住房金融局（FHFA）探讨了从“三家合并”（Tri-Merge）信用报告转向“两家合并”（Bi-Merge）信用报告的潜在可能，但管理层表示尚未宣布任何决定。Equifax根据2026年的水平评估，年潜在影响约为8000万美元营收和3800万美元利润率。
• 尽管免费使用量迅速增长，付费VantageScore的采用率仍然相对较小。转换的时间节点和规模仍存在不确定性。

分析师问答集锦

AI与2027年利润率：管理层表示，AI应用正向技术、运营、财务、人力资源和法律部门扩展。Equifax未提供2027年指引，但表示似乎没有其他同比因素比房贷业务量更为显著。

政府业务增长：约1.5亿美元的新政府年合同价值的大部分收益预计将在2027年显现。管理层表示，受预算周期影响，第二季度和第三季度通常是州政府合同签署最强劲的时期。

VantageScore经济效应：在当前的交易水平下，从FICO完全转换至VantageScore每年可为Equifax创造约3000万至4000万美元的增量利润。公司在提供付费FICO分数的同时继续提供免费的VantageScore，以促进客户的测试和采用。

三家合并 vs 两家合并：管理层指出，“三家合并”（Tri-Merge）能提供更完整的消费者数据，有助于提高通过率并强化承保。Equifax认为其TWN Indicator、电信与实用事业数据以及三家合并分销业务将有助于缓解潜在变革带来的影响。

职场解决方案增长驱动因素：管理层将创纪录的新增记录数、年度定价策略、新产品、客户渗透率以及政府合同的启用列为主要驱动力。管理层还预计，2026年签署的政府合同将在2027年贡献显著增量的营收。

国际业务展望：在巴西、金融科技需求以及计划中的Círculo de Crédito收购案的支持下，管理层预计拉丁美洲将成为其增长最快的国际业务区域。

财报电话会议完整文字记录

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完整财报电话会议逐字稿

管理层陈述

Operator

Greetings, and welcome to the Equifax Q3 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions]

It's now my pleasure to turn the call over to Trevor Burns, Senior Vice President, Investor Relations. Trevor, 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. 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 Presentations section of the News and Events tab at our IR website. These materials are labeled 3Q 2026 earnings conference call. So we'll be 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

Thank you, 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 3 business units. This included improved performance in WS government, which grew mid-single digits in the quarter. EBITDA margins were up a very strong 130 basis points excluding Franco 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 market impact, 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.

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 mortgage, 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 Circulo 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 of 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 was about flat in the quarter versus last year, reflecting the 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.

Total 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 the 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 WATCE 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 continue 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 made excellent progress with government customers, converting our large commercial pipeline 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, 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, case worker productivity and accuracy of income verifications, which drives a reduction in improper payments and help 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. 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 state's 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 and 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 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 was 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 pre-approval 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 Vantage ore with about 2,000 mortgage lenders using VantageScore in their underwriting processes, up 7x since April. And since April, our mortgage Vantage Score volume is up over 230%.

Through September, the bulk of mortgage lenders continue to purchase both the FICO mortgage score and obtain a free Vantage score 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 Vantage Core from Equifax. As VantageScore mortgage revenue increases, we will share the positive financial impact on Equifax margins and adjust our revenue and mortgage 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, 2 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 Vantage Score 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 2 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-related originations moving to Berge would be manageable for Equifax with roughly $80 million of potential annual revenue impact 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 statement supporting the value of Tri-Merge.

Mortgage lenders would have the option to pull a 3 or 2 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. And 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 no margin.

This means about 55% of our USIS mortgage revenue is at 0 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 prequal or pre-approval products used early in the application by mortgage originators. These principally -- on 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.

Turning to 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 Circulo de Credito, 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 Circulo de Credito 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, Circulo's revenue is up a very strong 24% and delivering 47% EBITDA margins. We expect Circulo 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 and strategic bolt-on acquisitions to drive our financial results and shareholder returns. Including Circulo de Credito, 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 3 years ago. We are energized to be entering the fast-growing Mexico market with our Circulo acquisition that we expect to close in the fourth quarter of this year.

Turning to Slide 12. Equifax is executing a broad AI and Agentic 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 both 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 of 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

Thanks, Mark. Before we discuss 4Q and calendar year '26 guidance, I'd like to spend a minute discussing the current weakness in the U.S. mortgage market and the impact this had on 3Q '26 results as well as 4Q '26 guidance. Mortgage market transaction volume began to decline later in August as interest rates started rising with the decline accelerating as we move 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 $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, 4Q '26 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 of 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 8 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 has 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 versus 2025, 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 3x EBITDA. As referenced earlier, this provides the capability for us to complete the Circulo acquisition as planned in 4Q '26 while still executing share repurchases in 4Q '26.

Slide 15 provides the details of our 4Q '26 guidance. In 4Q '26, we expect total Equifax revenue to be between $1.605 billion 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, 4Q '26 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 digits 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 4Q '26 EBITDA dollars are expected to be $529 million to $546 million, up almost 6% at the midpoint. EPS in 4Q '26 is expected to be $2.07 to $2.17 per share, up about 1.7% versus 4Q '25 at the midpoint. 4Q '26 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 4Q '26 guidance are centered at the midpoint of both our revenue and EPS guidance ranges. As a reminder, our guidance for 4Q '26 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

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. 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 from strong -- 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 from strong cost management and AI-driven productivity despite the negative $80 million impact from the weaker mortgage market in the balance of 2026. Post Cloud, EFX 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 foundation is -- 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 VU revenue growth of low double digits in EWS, 6% to 8% in USIS and 7% to 9% in international. The 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 TWN 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 Circular 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 re-fin 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 that the incremental revenue, margin and free cash flow from mortgage upside will flow to our investors. Equifax is poised to deliver upwards of $1 billion of incremental mortgage market revenue and $700 million of incremental margin expansion 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 for 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

[Operator Instructions] Our first question today is coming from Jeff Meuler from Baird.

分析师问答

Jeffrey Meuler

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 like onetime 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

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 cost out -- net cost out from AI productivity. We doubled that in July to $150 million to give us -- because of the momentum we have. And we just 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 is highly tech-enabled with that huge investment we made over the last 5 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 '27 for '27. 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 the 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 '27, 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 '27.

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 the $1 advantage 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

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.

Jeffrey Meuler

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 don't know anything on identity solutions or potentially something on like TWN Data or alternatives if Agentic removes friction?

Mark Begor

Yes. It's still super early days on that, Jeff, from a customer perspective. Obviously, everyone is 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 '27, '28, '29 as that enables that 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 kind of AI cost efficiencies and productivity inside of Equifax and how we operate in tech and operations. That clearly is a big deal and part of the $150 million we've laid out as a multiyear 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 have -- 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. 17% 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

Our next question today is coming from Toni Kaplan from Morgan Stanley.

Toni Kaplan

On Slide 7, you noted that the TWN Indicators is driving share gains in mortgage. I was hoping you could just give some additional color on that. How much of the market in Prequel you think you have or however you want to quantify share in sort of that Tri-Merge area?

Mark Begor

Yes. It's a great question, Toni, 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 NBA meeting was last week. Our team was there in full force, and that's 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 TWN Indicator, it provides very unique visibility for our customers.

And there's a deployment implementation time frame 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 of reminders. Number one, we're also rolling out the NC+ attributes, the cellphone utility attributes. So 54 attributes we're adding to our mortgage credit file also for free to differentiate it in the prequal and pre-application process, and we're getting great feedback from customers there.

That's another example that, that takes time for our customers to really adopt to the ability to ingest those additional attributes and that underwriting they're doing in the prequal marketing phase is 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.

So second reminder is that we're doing the same thing in the TWN Indicator in auto card and P loan. So that's going to benefit our diversified markets business in USIS as we really do the same thing, work when 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.

Toni Kaplan

Great. And then in government, really nice momentum in the new wins and renewals. You've been calling that out the last 2 quarters. I guess now that we've passed the 9/30 fiscal year-end, how does that impact the sales processing 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? Like just wanted to understand the dynamic on the sales cycle and government.

Mark Begor

Yes, it's a great question. Not every state is on that 9/30. So others are on different time frames. But you really have to separate what I would call revenue showing up in our P&L, meaning the sales become online and active and become revenue versus the sales cycle. The sales cycle is -- can be very long in government as it is in all of our businesses, but in government in particular. And 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 of 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 case worker, 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

Our next question today is coming from Andrew Steinerman from JPMorgan.

Andrew Steinerman

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? What should we be thinking about of what's going to be the driver of Verify? I assume it's going to be government contracts.

Mark Begor

Yes. 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 data set.

Obviously, we have more records than that because people have multiple jobs. But the 110 million compares to 250 million income-producing Americans. So we have a runway to more than double the data set 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 their -- inside of their LTFF framework as we get into 2027.

Operator

Next question is coming from Shlomo Rosenbaum from Stifel.

Shlomo Rosenbaum

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 when you just 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 only -- if you're using Bi-Merge instead of Tri-Merge. But what are there 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

Yes. 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 the 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 3 bureaus on the credit file that pulling 3 delivers a more accurate and 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 2 or 1, that consumer may not get approved. And I think we know that there's 40 million to 50 million U.S. consumers, most of us on the phone that have a 20- to 40-point difference between the 3 credit bureaus because not every financial institution contributes data to all 3 bureaus. That's a meaningful difference.

If you're pulling 2, 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 1 or 2 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 HFA 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 2 as that dialogue has been in the press and so on. So that was our intention was to frame it. But 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

Okay. 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 like a 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 '27?

Mark Begor

Yes. Go ahead, John. Please.

John Gamble

So 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 8 months.

So as you'll remember, fourth quarter of '25 was a strong mortgage period. First quarter of '26 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

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 '27 is we've taken current run rates. Obviously, they're depressed over the last 8 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 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 0.25 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 time frame is. And as we move forward, that 17 million household number or mortgage number is only going to get larger.

Operator

Your next question today is coming from Jason Haas from Wells Fargo.

Jason Haas

Can I just confirm a follow-up 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? Was that for the overall EWS?

Mark Begor

Yes, 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 kind of improvements on a quarter-over-quarter basis from second to third quarter that we're pleased with. And we've provided some information on '27 that you can do your own math on some of the setup like the government contracts that we've signed that are substantially incremental in '27 versus '26 that give you some visibility.

Jason Haas

Okay. Great. And then maybe just a follow-up on government. So the $15 million of new government bookings in 3Q was very strong. Are you able to give us any expectation for -- I don't know in there if there was like any sort of big wins or not or if that's like 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 and then again in 2027? I think you had said that previously.

John Gamble

The 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. It 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 in 1Q, but really 2Q and 3Q tend to be the strongest just based on the way state budget cycles run.

Operator

Next question today is coming from Faiza Alwy from Deutsche Bank.

Faiza Alwy

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?

Mark Begor

Yes. I think we said a couple of times that the new contract signings are principally '27 kind of 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.

John Gamble

Yes 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...

Faiza Alwy

Okay. Got it. Okay. And then I wanted to ask about Vantage adoption, and you talked about moving to a paid model. So I 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

Yes. 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 0 margin, which is a pass-through to FICO. And if we sell the Vantage score, we make a $1 on each score. So that at current kind of run rate levels, if we move everyone, our piece of that would be a margin upside of in the $30 million to $40 million 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 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 dollar 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 dollar Vantage score exclusively because they're getting better score performance and 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 VantageScore for $1 is a huge savings. It's in the neighborhood between a credit file and the Vantage score versus a credit file versus a FICO score.

It's like a 45% savings for the originator, and that's just a lot of savings. And 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 1.

Operator

Next question today is coming from Manav Patnaik from Barclays.

Wahid Amin

This is Wahid Amin on for Manav. Just wanted to talk about in 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 3? And would it still be manageable? And outside of that, I understand the TWN Indicator and the NC+, but is there any other way you can differentiate the credit file outside of that?

Mark Begor

First, to be clear, 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 the unique solutions we deliver with the TWN attributes, the TWN 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 and how we deliver our credit file in the marketplace. So I think it's one that 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 the 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.

Wahid Amin

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 do you think the government is headed towards?

Mark Begor

Yes, it's one that we started deploying commercially a couple of years ago. It's clearly something that the -- many of our customers like the idea of the certainty of a subscription. And as you know, all budgets are complex, whether you're in the government side or if you're 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's 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

Next question today is coming from Andrew Nicholas from William Blair.

Andrew Nicholas

I wanted to dig in 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 kind of what is driving increased penetration? What -- how much of that outperformance is new products? And any other color on kind of the market makeup there and your evolution as a key provider to the space?

Mark Begor

Yes. We're pleased with the performance. They had strong performance last year. 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. The TAM is quite large here also. That's a multibillion dollar, $5 billion TAM. And again, here, we have, again, less than 15% of the market is 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. Every year, we take price up. We'll do that again on January 1 in the talent vertical. So when we look forward, we're still benefiting from the price we did in early this year for 2026. So a lot of really strong performance. And then, of course, record growth. 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.

John Gamble

We've also expanded into health care. We've launched more and broader health care solutions into the talent vertical as well, which we think is also going to help drive long-term growth.

Andrew Nicholas

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. I wanted to see if you had any thoughts on what that means for your business, but maybe more broadly, if you could touch on kind of your conviction in having exclusive relationships on that front or maybe, again, like the resilience of your model to competition?

Mark Begor

Yes. We view that more as a one-off that was really driven by some decisions that they want to make about how they go to market. We saw 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 and 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

Our next question today is coming from Ashish Sabadra from RBC Capital Markets.

Ashish Sabadra

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. So 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?

Mark Begor

Yes. 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 operations 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.

And we -- 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 Sabadra

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 like that high single digit, mostly on the first 8 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.

John Gamble

Yes. 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, right? 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

Next question is coming from Curtis Nagle from Bank of America.

Curtis Nagle

So, apologies if 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 business coming in. Yes, just a little more color, if you could, in terms of what's contemplated in the guide.

John Gamble

Yes. So we don't give specific guidance going forward by segment or line of business, right? So I think all -- what we have said is that we're happy with the pace at which we've added new clients and new customers in government that we've seen a fair number of the contracts we signed in the second quarter start to monetize and others would start to monetize in the fourth quarter. So we're very happy with that.

And then more broadly, when we talked about what we're seeing in the economy, we indicated that we are seeing some weakening in talent. And we are seeing some weakening just in industry run rates around auto and FI, right, and more heavily around things that are more interest rate sensitive. So what we said is we're looking at those. But as you're thinking about fourth quarter, those are some of the trends that we're thinking about as we look through the next quarter and into next year.

Curtis Nagle

Okay. Then maybe I'll just shift to somewhat of a 2-part of Vantage. Just I guess outside of the 3 large lenders that are currently originating, I think you're mostly 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 -- I think Mark, you alluded to this, the move to the unified grid potentially shifts more volume to Vantage?

Mark Begor

Yes. I think the industry has been preparing for quite some time. I think as you know, it's a year ago, July when the FHFA first announced that they were going to adopt Vantage. And then in April, they actually turned it on. And in that time frame, 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. So 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. And that's -- the numbers are just quite substantial. For the industry and consumers, it's $1 billion 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 to grow in the fourth quarter and then continue to accelerate in 2027.

John Gamble

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

Our next question today is coming from Surinder Thind from Jefferies.

Surinder Thind

Mark, just 1 question here. Can you talk about just 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. 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 changes in lender behavior?

Mark Begor

Yes. I think you've seen our USIS business, which is probably the right place to look and even EWS in our consumer finance or auto card loan business 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 a 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 it's still quite strong, meaning employment is still quite strong, employment is quite low.

When people are working, while they could be pressured and they are in many income demographics because of what's happening with inflation in oil, they still manage to pay their bills. And I think we've seen a lot of the bank earnings last week were very strong in their consumer businesses, meaning they're originating and operating in a quite normal way. So we don't see a change happening in that, and we don't expect -- it's hard to see one happening in kind of the medium term as we move through the quarter and into the early parts of 2027, that you just don't see that on the horizon as long as unemployment stays low.

Operator

Next question is coming from Kyle Peterson from Needham & Company.

Kyle Peterson

I wanted to dig a little more into talent. So I guess if I'm looking at the numbers there, it actually looks like you guys had a really strong quarter in talent, and you guys I think are being a little conservative there in the outlook. So I guess, is there kind of how the quarter trended or recent weeks based on some of the data you guys are seeing? Or are you guys gaining share? Just any additional color there to kind of explain the divergence and maybe a little more cautious outlook than I would expect would be super helpful.

John Gamble

Start with third quarter was extremely good, strongest we've seen in a long time, right? So -- and I think what we've talked about is we expect the talent business to continue to perform very well. But performing consistently at the level we saw in the third quarter, given maybe some weakening in hiring in general is probably something that would be difficult to deliver consistently. So we think talent is going to perform very well. They had a great third quarter. We expect them to continue to perform well. But we are seeing -- we did see some weakening in the overall hiring market and specifically as it related to white collar hiring as we move through the quarter, and we're just reflecting that in our guidance in general and in our commentary.

Kyle Peterson

Okay. Okay. That is really helpful, and I appreciate the additional color. And then I wanted to switch over to the international business, particularly Latin America. It looks like you guys had a really nice quarter there, especially on a constant currency basis. So I just want to see where is most of that growth coming from? Are you guys seeing more of this from some of the larger banks? Or are you guys seeing better adoption with the fintechs? I know fintechs in that region have been gaining a lot of share. So where are you guys seeing the most success there? I think that would be really good for everyone here.

Mark Begor

Yes. It's fairly broad-based. Brazil, which is Boa Vista, as you know, where we acquired that business a little over 3 years ago, performing very well. And we think gaining some share. They're doing very well with fintechs and also picking up some business with the larger banks. So performing well there. Broadly, I think as you point out, in Latin America, fintech is quite large and is performing well, and we're well positioned with them. So we've seen kind of broad performance in Chile and Peru and Argentina, Ecuador, some of the other markets in Central America, where we're performing well.

And then as I commented on the call earlier, we're super energized to get the Circulo deal closed. That business is also performing well. We don't own it yet. but we will soon. And that business has been up strong double digit, actually growing faster than the rest of Latin America and the fastest-growing kind of credit bureau business in Mexico because they were really focused on fintechs. They've got a very strong market position and actually don't do as much as we see an opportunity to do more business with the banks where the competitor plays, but the fintech growth has been super positive. And running all the plays you'd expect us to run.

We're now cloud native in Latin America. I think that's a big deal. We just completed that in the quarter. So having that complete. Most of the countries have been complete for months and years, but that allows the team to fully focus on growth. We're rolling out a lot of the new AI-powered new products. I think that's benefiting us. Some of the new scores that bring more data in is really powering their business down there, and we're pleased with how it's performing.

Operator

Our next question today is coming from Simon Clinch from Rothschild & Company Redburn.

Simon Alistair Clinch

I just wanted to start with the US B2B online business. I just wonder if you could give some color as to the trajectory of growth there. We've seen some kind of pickup here to, I think, mid-single digit last quarter, 4% this quarter versus low single digits before. But I was wondering if we could square sort of how to think about this going forward, given your comments around some of the slowing we've seen in those key markets? And if there's any sort of onetime or unusual impacts that we need to think about as well for this business?

Mark Begor

Yes, nothing onetime, but you're seeing some of the benefits. As you remember, the USIS was kind of our last large U.S. business, a very large U.S. business to complete the cloud. So they're kind of 18, 24 months into that post-cloud mode, and they've really accelerated their new product rollouts. Their vitality index is up above north of 10% now, which is really great news. It wasn't for years. It was kind of in mid-single digits kind of when they were doing the cloud transformation. So that's benefiting them commercially.

And some of the new solutions, we talked about TWN Indicator that we clearly have spent a lot of focus on in the mortgage space, but we're rolling it out in auto card and P loan, offering that as an addition to the credit file at no cost in order to drive some share gains. So we're starting to see some traction there. It's been quite modest because we're early days in the rollout, but we would expect that to be a positive for us going forward. So I would think about commercial execution.

We've got a new leader that we're really energized about. David Smith, who's leading the business now, and he's got his feet on the ground and really focusing on commercial execution. And then the new product rollouts, we expect to continue to be a positive for them in the quarter as we finish the year, but more importantly, in '27 and beyond.

Simon Alistair Clinch

Okay. That's useful. And just changing going back to Vantage. I was wondering if you could just help us think about -- so we've gone to a unified LLPA grid for Vantage and FICOs. That's been viewed as a real beneficiary for VantageScore. What if we move to an actual bespoke or specific LLPA grid for Vantage, which isn't just a one-to-one map with FICO, how does that impact the likelihood of lenders using the product or any of those dynamics? Any sort of color you can give around that would be useful.

Mark Begor

Sure. I would expect that to happen. I think it's just a matter of time when they get to that stage that they'd have really an LLPA table that's specific to FICO Classic, which they have today, and then they'd have one specific to 10T. But remember, the credit score in a mortgage underwriting process is really only used in the pre-application prequalification process in order to give an indicator to the consumer before the credit data is used, which is really what's used in underwriting, actually calculates the actual underwriting and then the actual price that, that consumer is going to be offered.

What the originator does is use the credit score early in the process before they submit the application to the agencies, and we're talking about GSE, FHA type loans. They use that credit score really just an integrator from those tables to tell the consumer that, hey, based on your credit score that we're looking at today, this is the kind of price that you'll have. And what they want to do is make sure that they're using the most accurate, complete information. And today, I think it's widely viewed that Vantage 4.0 includes more data than FICO Classic. So it provides a more complete picture on the consumer. So that's a reason.

10T will close some of that gap once it gets approved by the agencies. But that's only an indicator. And the fact that, that price is dramatically different of $1 versus 10 plus, when you're a mortgage originator, you really have to focus on both the performance of the score in that prequal process and the cost to actually use it. And it's just so substantially different. Our expectation is that, that's going to be a real determinant and we're seeing it with the mortgage originators in using the Vantage score because it just delivers a lot more value for the service.

And just as a reminder, once the application goes in, the score is really not used in the underwriting process, the credit data is used in the Tri-Merge report, including the report from Equifax to do that underwriting and to confirm the actual interest rate that's going to be offered on that mortgage based on the consumer's or the applicant's credit data, not the credit score. So we think there's going to be a lot of momentum to utilize the Vantage score because of the value it delivers, both on the performance, but also on the cost to use it.

Operator

Our next question today is coming from Ryan Griffin from BMO Capital Markets.

Ryan Griffin

Just 1 for me. I wanted to ask about the new mortgage score Select. I know that's still early innings, but what behavioral patterns have you seen from the lenders that have worked on that workflow thus far?

John Gamble

Yes. Well, we launched that solution specifically based on lender input, right? So we're expecting we'll see adoption. We think it creates a lot of flexibility for lenders as they're going through the approval process so that they could move forward and use the VantageScore. And to the extent they see some reason through the closing process, like, for instance, today with a VA loan that they need to pull a FICO Score as well that it gives them the flexibility to do that later at a lower cost, right, without having to repurchase the credit file. So we think it's in response to industry demand and something that will be adopted, we think adopted significantly. And we think it should also help promote movement to VantageScore more quickly.

Operator

Your next question is coming from Andy Grobler from BNP Paribas.

Andrew Grobler

Firstly, just to go back to John's comment from earlier about seeing some slowing in FICO and auto volumes in the latter part of the quarter. Can you quantify at all to what extent that slowed? And has that continued into the early part of Q4?

Mark Begor

Yes. I think we quantified that the mortgage market clearly slowed in the third quarter, and that impacted us in the neighborhood of $20 million negative in the third quarter. And then we also sized for you what the impact at current run rates, which is the only thing we can run off, the impact would be in the fourth quarter. Is that what your question is about?

Andrew Grobler

No, no...

John Gamble

I think we heard FICO. But we saw some slowing. We didn't say it was substantial, but we did see some slowing since it occurred. We reflected in what we're seeing in the fourth quarter, and we just wanted to share with you that, that was something we were starting to see as you're considering the fourth quarter as well. That's all.

Andrew Grobler

Okay. And then just a follow-up on the government vertical. So you had a very good quarter again in terms of growth. There has been some change in competition in that market with a relatively new entrant in True winning a couple -- at least a couple of state contracts. Are you seeing the dynamics in that market change at all? Is there space for all of you given the size of the TAM or anything else we should consider about kind of the changing competitive environment?

Mark Begor

Yes. There have been other competitors around for quite some time. I think you should talk to them about how large their contracts are or are not. Our understanding is they're quite small. But obviously, we focus on competitors that are trying to enter the space. As you point out, it's a very big TAM. There's a lot of space to participate. We think we have a very, very strong offering with the instant solution from Equifax through the TWN data set that's extremely competitive. And we've been investing in new solutions, particularly around consumer consented data where we don't have all the records to have an integrated solution.

And what we hear from our customers is that they really want an integrated solution because they think about the first place they want to check is the TWN database because it has such large coverage and then integrate into solutions like our consumer consented, which we've signed a couple of states on it. So big space. We think we have a strong position, and we're going to continue to invest to make sure we maintain that.

Operator

Next question is coming from Kevin McVeigh from UBS.

Kevin McVeigh

Great to see the cost momentum. I guess can you help us understand what drove the upside, the $150 million up from $75 million on the AI? And then I think you talked and maybe it's some nuances, but just cost management versus AI-driven cost efficiencies. Maybe just dimensionalize what those 2 things are. But I guess, first, just the $150 million up from $75 million and then the cost management versus AI efficiencies.

Mark Begor

Yes. I think as you know, we announced the 75 back in February. We doubled that in July to 75 because of the momentum we've seen on AI deployment. Our early AI deployment, think about the latter half of 2025 inside of Equifax was in operations. Most companies start there in call centers and document processing centers are kind of purpose built for that. I talked a bunch about on the call already this morning that we think the fact we invested so heavily in our tech stack over the last 5 years, and that's obviously behind us now that we're cloud complete and in the cloud, but that positioned us to really effectively deploy AI, we think, better than others. And so the 75 was our first step of sharing with you what we're doing internally as far as some of the AI productivity going forward.

And then we've just seen kind of rapid adoption. The big change between February and July and now is that the deployment of AI in Equifax in technology, that's our largest team -- as you know, we're a data analytics technology company, but using AI for coding, new products and capabilities has seen a really rapid adoption and deployment by our teams, which is super positive. And then we're also seeing in finance, HR, legal, AI being deployed there to drive efficiencies. And I said it on the prepared comments earlier this morning that we're still early innings on this. I think that's what's exciting for me and John and the rest of the Equifax team is that we just see a lot of potential going forward.

So when we think about that translating into operating margin dollars and margin rate, obviously, we have a metric we use is our margin rate. We started doing it ex FICO. So it's really more clear around the fact that FICO distorts that in some way because we pass through the FICO score with no margin on it. And we set a goal in our long-term framework to grow our margin rate 50 basis points per year. We set a goal early in the year to do 75. And as you know, we've outperformed it in the first, second and third quarter, which is why we now raised it to 100 basis points. So inside of that 100 basis points of margin expansion, the biggest lever we have is operating leverage.

If our revenue is growing and our costs are growing slower than the revenue, you get operating leverage that drives margin expansion. So that's the way I think about it, and we think about it, that kind of 50 basis points in our long-term framework is the operating leverage that we should get from our 7% to 10% long-term organic growth rate. So that is clearly a base part of how we think about the business going forward, and that becomes free cash flow. And that free cash flow, it becomes -- substantially ends up in buyback because that's where the incremental cash is going to go.

And then the new gear, the new lever for us in operating margin expansion is really the deployment of AI across Equifax. We branded it internally as AI for EFX. We have it as one of our strategic priorities that we set out in January was not only to deploy AI for our product models and scores to drive our top line, but also to really aggressively deploy AI across Equifax to drive speed, to drive efficiencies, to drive capacity and also to drive productivity. So that was the $150 million that we laid out in July, we were clear that was going to be a multiyear impact that's going to impact both OpEx and CapEx because a lot of our technology costs get capitalized.

So as we have efficiencies there, there'll be OpEx savings, but also CapEx. So we're really energized around our ability to deploy AI. And I think we're one of the few info services stocks out there that have put a marker out fairly early in the AI journey around the benefits that we expect to get from it, which is, again, that $150 million. And then obviously, it's showing up in our P&L in 2026 and with our ability to increase our operating margin rate guidance for the year while having the significant mortgage top line pressure, we think shows a lot to us as well as to our investors that there's some real positive change happening in how we run our business internally from an efficiency and AI productivity standpoint.

Operator

Next question is coming from Scott Wurtzel from Wolfe Research.

Scott Wurtzel

Just 2 on the government side of things. Wondering if you can talk about maybe how much of the new ACV that you're seeing is being driven by some of these new products that you've introduced into the ecosystem? And then just a clarification on the renewal ACV. Does that include any sort of like expansion with current customers or pricing increases? Or is that just a straight renewal of existing services?

Mark Begor

Yes. So on your second question, it would be substantially renewal of existing business, but there's always some element of price in a lot of the conversations. There's also the element of we add new solutions in those renewals. And then the new ACV, we think about as being kind of new customers. And there's clearly -- when you think about what's driving the bulk of that revenue, I would think about it as our core products about verifying income that we've been doing for a lot of years. But there's an element of the new solutions we've talked about over the last 6, 9, 12, 18 months that we're adding into the market like continuous evaluation for our customers and the complete income, adding that as a solution where we're adding some of the consumer consented stuff.

So the bulk of that new ACV would be in what I would call our core solutions and just really penetrating the TAM. I think a lot of us forget, meaning our investor base that we have a big business, obviously. And we have a big business that's growing, but we operate in a TAM that's substantially manual. When you think about the $5 billion TAM and the $4-plus billion of that TAM that we don't participate in today, that's states, that's agencies, that federal government, that's local government kind of social services that are being done principally manually. So that's the opportunity for us to really deliver the real value we deliver in our core solution, which is speed of social service delivery, case worker productivity. Think about a $5, $7, $10 transaction with Equifax versus a case worker who's paid $30 an hour with benefits working on it.

And then obviously, the huge integrity side, and there's been increased focus around attacking the way the federal government frames the $180 billion of improper payments that happened in the roughly $1 trillion of social service delivery. So we just have strong momentum in our pipelines and really a good runway going forward to continue to penetrate into that big TAM.

Operator

Next question is coming from Kelsey Zhu from Autonomous Research.

Kelsey Zhu

What is your expectation around paid VantageScore adoption in the mortgage vertical in the medium term? And any updates on FICO 10C implementation time line for the GSE loans and how that might change the competitive landscape between FICO and VantageScore?

Mark Begor

Yes. So the paid Vantage is still fairly small. I think we've been clear about that. The free Vantage is very high. And we think about that as an indicator of the industry's focus on preparing to move to full Vantage. And then when we talk to our customers and some of them put out press releases, you can check on that. There's clearly a lot of focus on taking advantage of the huge cost savings that come with Vantage. With regards to adoption and activation, as you talk to FICO. We're not involved in that. That's something FICO is working on. I suspect there'll be a point in time where it will be adopted, but we're not close enough to know what's happening or not happening in that space. We do believe that 1T will close what we view as a gap between FICO Classic and Vantage 4.0 from a performance standpoint.

I think it's well understood in the industry that Vantage 4.0 includes more data, has more trended data and provides a more complete picture on the consumer around what their creditworthiness is. So I think that's well understood. Our view is that 1T will close some of that. But then you've got the challenge of that's at least currently priced at over $10 a score versus Vantage is at $1. That's a massive delta that we think advantages Vantage even when 1T is in the marketplace.

Kelsey Zhu

Got it. Very helpful. Director also alluded to releasing the GSE credit scores to the marketplace. Is that something you've been working with agency on? And how are you thinking about having Fannie Score and Freddie score potentially competing with VantageScore in the marketplace?

Mark Begor

Yes. I think you'd have to talk to FHFA about their plans on that. While we collaborate very closely with them because they're a close partner, I wouldn't want to comment on what they are not going to do around their own credit scores. We know that they -- I think it's well understood that the way the underwriting process works is that after the application goes in, the score -- Vantage score or FICO classic score is not used in that underwriting process.

The credit data is used in that process, and they have an underwriting process that's very robust and very complex and very sophisticated that ingests all of the trade lines from all 3 credit reports in order to do their underwriting because remember, they own the loan at closing, and that includes some element of score calculation that they use internally, but you'd have to talk to them about what they think they might want to do with that in the marketplace.

Operator

Our next question today is coming from Craig Huber from Huber Research Partners.

Craig Huber

My first question is, if we go back to October of 2022, when the Biden administration proposed going to Bi-Merge. And then given all the pressure, et cetera, nothing happened on that front through the rest of the administration, roughly 27 months. I guess my question to you is, what's changed in the marketplace out there that even if Pulte wants to go that route here, besides the fact that we have a different administration, what's changed now that it would actually get implemented somewhat quickly? Obviously, you talked about the treasury being against it, a lot of Congressmen being against it, regulatory folks underneath Pulte have been against it, much of the industry against it, et cetera. But what's changed that actually could get implemented this time if he wants to go that way?

Mark Begor

Yes. Craig, as a reminder, when you go back to the Biden administration, what they were -- they did a study and they got industry inputs. So it was a very formal process. They reached out to the industry. We provided inputs. I think our competitors did. I'm sure FICO did and the industry participants did. And they really asked to do a study on 2 things. Number one, moving from Tri-Merge to Bi-Merge. And at the same time, they proposed going to Vantage and FICO score, meaning requiring both scores be used. There was a lot of input from the industry.

I think universally, the industry input was a move from Tri-Merge to Bi-Merge wasn't a good thing for the consumer, wasn't going to provide a complete picture on the consumer was going to result in situations where consumers aren't approved. It was going to result in situations where consumers are paying a higher interest rate because you're not having a complete picture on them. And then it was also going to result in a less accurate, less complete underwriting because you're not going to have the trade lines, including some of the negative trade lines on a consumer. So there's a safety and soundness impact.

And at the same time, there was feedback from the industry that understands how the process works well that there was no value in having 2 credit scores used in really the prequal process. And then that's really how that unfolded. But that same sentiment around Tri-Merge to Bi-Merge hasn't changed today from my perspective, from what I know in my communications and our communications around the valley. The facts are the facts. Because of our contributory system in the United States is voluntary to the 3 credit bureaus, not every financial institution contributes every trade line to all 3 credit bureaus. And that results in meaningful differences between the 3 credit reports.

And when you're talking about something as substantial as a home mortgage that's the largest transaction any homeowner does, any consumer does, it can have significant impacts on whether they're approved what the price they pay if you don't have all the data on that consumer. So I think that's well understood. And then the safety and soundness is crystal clear. If you're going to exclude data, that's okay if it's positive data. But if it's negative data, and you don't know when you're only doing a Bi-Merge, whether you're getting all of the complete information on that consumer and whether there's negative data out there that means that loan is riskier, that's something that's on the shoulders of the federal government.

And I remind investors when I'm in one-on-one meetings often that some of the most sophisticated non-mortgage lenders pull Tri-Merge for all of the reasons I described. They own the loan. It's on their balance sheet. They want to approve every consumer. They want to give the consumer the right price, meaning the price that they qualify for based on all of their trade line data. And that's why even in non-mortgage, where there's no requirement, the most sophisticated lenders will pull a Tri-Merge because they want to get that complete picture on approvals to approve more. And they also want to have the complete picture on the loans they put on their balance sheet.

Craig Huber

I appreciate that. I mean I think what you say makes an awful lot of sense. You've said that many times over the years, publicly, I'm sure privately as well to the regulators. My question further is here, you've got Pulte, Director Pulte out there being very upset about what he perceives as the price to value for credit reports, but also the price increase as he goes on and on about now versus, say, last year. Can you just quantify for us how much apples-to-apples, if you're willing to, apples-to-apples, how much your credit file price has gone up this year versus last year -- just this year versus 2 years ago, however you want to talk about it. But just why is he so upset about the price increase from his vantage point?

Mark Begor

Well, I think you'd have to talk to him. We talk to him, lots of the industry participants, too. We've got a lot of respect for Director Pulte, and we've applauded his decision, which was really groundbreaking along with Secretary Turner at FHA to drive adoption of Vantage to drive some score competition. From our perspective, I think we all know what's happened with FICO pricing over the last 5 years, and I think that's been the principal focus of the regulators around the impact that's had on the mortgage industry as well as the impact that's had on consumers because remember, ultimately, consumers pay for their credit reports at closing. And so they've been bearing this cost of the rapid increase of the FICO score.

Our pricing is -- year-over-year is actually down on the credit file. We have been -- tried to be very supportive of the industry given the pressures that they're under and also supporting consumers. And I think the Vantage score itself, the fact that we're being super responsible and super supportive of the industry and consumers with the $1 pricing. And as I said this morning, last week, we announced to our customers, we're going to extend that not only through '27, but through '28, meaning keeping it flat at $1, so we can provide that support in a probably the most challenging mortgage environment that we've seen in decades and support consumers who are struggling with the cost of homeownership this provides clearly recognized a very small benefit, but a positive benefit for them of the dollar versus $10.

John Gamble

And remember, we launched free qual and pre-approval products, which are at much lower prices, which give our customers and mortgage underwriters the ability to manage their credit costs as they see fit.

Operator

Next question is coming from Craig Moore from FT Partners.

Just quick, I wanted to follow up on the international question. What are some of the trends you're seeing in APAC that drove the sharp acceleration in third quarter? And where is the largest opportunity for international growth in '27?

Mark Begor

Yes. Great questions. We're really pleased with the Australia performance. I think a piece of that is that they're really moving well down the path of their cloud completion. That's the last place that we have to finish. But I think they've got a lot of that complete, which is allowing them to more broadly focused on innovation and new products. Our leader, Mel Cochrane, is doing a great job down there in the marketplace. We've had some share gains versus our competitors in that marketplace, which has really been a positive. And we expect that to be a solid grower for us as we move forward in the future.

Your question around where do we expect to see growth kind of as we look forward internationally, Latin America is clearly going to be the fastest-growing geography for us. It's obviously a big place, and we've got big positions. And remember, we're -- we entered Brazil 3 years ago with the Bovista acquisition. A leader down there is doing a great job driving innovation and growth. Enrique Morales is doing a terrific job of really driving the growth in that business in Brazil. We're super energized to get Circulo closed. That business has been growing very kind of over 20% so far in 2026. So really strong performance there. So that will be a positive contributor as we get it closed in the fourth quarter as we move into 2027.

And then in the more, I would call it, traditional markets for us that are more developed markets, maybe is a better term of like Canada and U.K., we're looking for those businesses, some of the innovation, new products that they've got in the marketplace. We're seeing progress around share gains and performance in those markets. So we would expect them to be positive for growth as we look forward.

Operator

Next question is coming from Owen Lau from Clear Street.

Owen Lau

So going back to the LLPA question, if there are eventually 2 different LLPA grids, how will this impact like the back-end securitization part, how to harmonize the whole value chain and also ultimately, how will it impact which score to use?

Mark Begor

Yes. From our perspective, the credit score is not a big determinant in the capital markets. It's the underwriting that takes place by the mortgage originator and by the banks and financial institutions and agencies, whether it's Fannie, Freddie or FHA, is their underwriting process really supports the capital markets. And that underwriting process that includes robust data today, the Tri-Merge and making sure that you got the complete picture on the consumer, that's what drives the capital markets.

The change in the LLPA tables are important. The change that was made a few weeks ago by FHFA was important to really put on parity Vantage versus FICO. When they go to more custom LLPA tables, I don't think that has an impact on Vantage versus FICO. The real impact is going to be price. And with the significant price advantage that Vantage has, it's going to be a score that the industry is going to want to use just because a lot of those prequal loans don't move to application, and that becomes a COGS form and at $1 versus 10 plus, there's just meaningful savings. That's the $1 billion we talk about.

And in this environment and likely an environment in '27 where the mortgage industry is going to be challenged until rates come down, this kind of cost productivity for the mortgage industry is significant. So we think there's a lot of momentum around Vantage conversion as we move through the quarter and into next year.

Owen Lau

Got it. And then on the VantageScore adoption, can you please talk about the use cases of pulling both VantageScore and FICO at this point? I know like many of them can get Vantage for free, but I think they cannot use 2 different scores for the same loan in originations. So how are lenders actually leveraging Vantage when they have FICO?

Mark Begor

Yes. Remember, this was a massive change for the industry. For 25-plus years, the only score that was used was one, which was the FICO score. And their systems, their processes, think about the workflows that happen inside of a financial institution like a mortgage originator, those all had to be changed and rebuilt to have the ability to absorb a second score and have it work through their process. So that's why last summer, when FHFA and Director Pulte announced that they were going to allow Vantage to be used in the Fannie and Freddie underwriting process, the industry had to start investing in technology changes and process flow changes in order to make that happen.

That's a big project. It took a lot of time. It's substantially complete now. And that's why we made the decision last year to offer the free Vantage score with every paid FICO score, so our customers could start absorbing it, flowing it through. They could see the score difference on a consumer, which is very insignificant between Vantage and FICO. -- and also update their workflows so they could actually make that decision. And that process is happening. And as I said, we've got 200 lenders a bit understandably smaller lenders, but the big ones are -- have built their processes, built their workflows and everything we hear from them, they're going to start moving to the paid Vantage score to get that substantial cost savings versus the $10-plus FICO score going forward.

We rolled out a new solution last week because we heard from lenders that they may want to, for example, pull the Vantage score first for $1. And then on certain consumers, they may decide, well, I'm also going to pull the FICO score. And they wanted to have a process to be able to do that. So we built that technology in order to bring that through. From my perspective and our perspective, what we know with the industry, that will be more an anomaly than the norm that -- because remember, if you pull Vantage at $1 and then FICO at 10 plus, that's $11 you've got invested. If the $1 Vantage serves your purpose from a marketing standpoint, that's better for the consumer because they end up ultimately paying for it. And then it's also better for the lender because not every loan closes. So there's just a huge advantage with the $1 VantageScore.

Operator

Our final question today is coming from George Tong from Goldman Sachs.

Keen Fai Tong

I wanted to go back to the government business. Beyond the $150 million of new state business already signed, you mentioned active discussions around the new Medicaid work requirements. Can you frame the potential incremental opportunity there and where those states are in the decision and contracting process?

Mark Begor

Yes, it's a great question, George, and it's not only the work requirements, it's the new SNAP requirements where they have the error rate audit requirements from the federal government, if they're over the error rate, then they're going to have to start paying for some of the SNAP benefits going forward. So those are all changes that put in place a year ago, July with OB3 that are driving kind of new product rollouts by us, but also engagement by the states. And as the federal government intended, they wanted to have more robust verification of income to try to bring down that $180 billion of improper payments. So that's a part of the pipeline going forward.

And as I said earlier in one of the questions, our kind of our core solutions, again, as a reminder, I know you know this, George, because you know us well, when you think about a $5 billion TAM, we're less than 20% of that today. meaning less than half of the states use us for Medicaid, less than half of the states use us for SNAP, Less than half of the states use us for a lot of the other benefits. That white space, which we think about as new customers and new states and new agencies we want to do business with are doing their verifications principally manual today, and that's our opportunity. And that's a big part of our pipeline. It always has been. So that hasn't changed with OB3, and it's just -- OB3 has just increased the commercial discussions, the frequency of them, the level of them.

But the core value prop we have hasn't changed, and it's really around delivering that value of speed of social service delivery with an instant verification, the case worker productivity that delivers from our solution versus doing it manually. And then, of course, the integrity that comes in using our verified data to make sure that the applicant should be receiving the benefits or if they have the benefits, to make sure they should still be getting them. And as you know, the $180 billion is a lot of opportunity for the federal government working through the states to reduce the cost of social services for those that currently don't qualify.

Operator

We reached the end of our question-and-answer session. I'd like to turn the floor back over to Trevor for any further or closing comments.

Trevor Burns

Thanks for everybody today. If you have any follow-up questions, reach out to me and Molly, and we'll be available. Thank you.

Operator

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.