Good day and welcome to the Equifax Fourth Quarter 2018 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Trevor Burns, Investor Relations. Please go ahead sir.

Thanks and good morning. Welcome to today’s conference call. I’m Trevor Burns, Investor Relations. With me today are Mark Begor, Chief Executive Officer; and John Gamble, Chief Financial Officer. Today’s call is being recorded. An archive of the recording will be available later today in the Investor Relations section in the About Equifax tab of our website at www.equifax.com. During this call, we will be making certain forward-looking statements, including first quarter and full-year 2019 guidance to help you understand Equifax and its business environment. These statements involve a number of risk factors, uncertainties and other factors that could cause actual results to differ materially from our expectations. Certain risk factors inherent in our business are set forth in filings with the SEC, including our 2018 Form 10-K and subsequent filings. Also, we will be referring to certain non-GAAP financial measures including adjusted EPS attributable to Equifax and adjusted EBITDA, which will be adjusted for certain items that affect the comparability of our underlying operational performance. For the fourth quarter of 2018, adjusted EPS attributable to Equifax excludes costs associated with the realignment of internal resources and other activities, acquisition-related amortization expense, the income tax effects of stock awards recognized upon vesting or settlement and foreign currency losses from remeasuring the Argentinean peso denominated net monetary assets. Adjusted EPS attributable to Equifax also excludes legal and professional fees related to the cybersecurity incidents, principally fees relating to our outstanding litigation and government investigations as well as the incremental project cost designed to enhance technology and data security. This includes projects to implement systems and processes to enhance our technology and data security infrastructure, as well as our projects to replace and substantially consolidate our global networking systems, as well as the cost to manage these projects. These projects that will transform our technology infrastructure and further enhance our data security were incurred throughout 2018 and are expected to occur in 2019 and in 2020. Adjusted EBITDA has defined as net income attributable to Equifax adding back interest expense, net of interest income, income tax expense; depreciation and amortization; and also as the case for adjusted EPS, excluding cost related to 2017 cybersecurity incident, cost associated with the realignment of internal resources and other activities and foreign currency losses from remeasuring the Argentinean peso denominated net monetary assets. These non-GAAP measures are detailed in reconciliation tables, which are included with our earnings release and are also posted on our website. In addition to the non-GAAP measures that we posted on our website we are now posting certain supplemental financial information on our Investor Relations deck on our website to better help you understand our business. In the Form 10-K to be filed later today, we will disclose that future losses from litigation and regulatory investigations associated with the 2017 cybersecurity incident are reasonably possible, but not yet estimable at this stage in the proceedings. Now, I’d like to turn it over to Mark.

Thanks, Trevor. Good morning, everyone. I’ll start to discuss this morning with a few minutes on our fourth quarter results and then move to a discussion on our strategy, technology transformation, and 2019 guidance. So first on the fourth quarter. Revenue came in at $835 million, which was up 2% in constant currency. This was at the – inside the range that we had given you a few months ago, but at the low end of that guidance. During the quarter, we experienced a weaker-than-expected U.S. mortgage market as inquiries were down approximately 15% or about 500 basis points weaker than we expected. Versus the fourth quarter 2017, a weaker mortgage market impacted overall revenue growth by about 2% and versus our guidance by just under $500 million – I’m sorry, $5 million. The mortgage market declines have been challenging to forecast well. Excluding this mortgage market impact, overall revenue growth was about 4%, which we were pleased with. Importantly, USIS revenue grew almost 2% excluding the impact of the declining U.S. mortgage market. EWS reported growth of the strong 12% and international local currency revenue growth of 5% was impacted by a soft Australia and Argentinean market, and in line with the third quarter. USIS growth of 2% excluding the mortgage market impact was another sequential quarterly growth for that business as it continues to return to a growth mode. Adjusted EPS of a $1.38 per share, includes $0.04 per share due to a lower tax rate than in our October guidance. Adjusting for the incremental tax benefit, adjusted EPS of a $1.34 per share was about $0.02 above the midpoint of the guidance we provided last October. Total non-recurring and one-time costs in the fourth quarter were $181 million. This includes $114 million of technology and security, $12…

Thanks, Mark, and good morning everyone. I will generally be referring to the financial results from continuing operations represented on a GAAP basis, but will refer to non-GAAP results as well. As Trevor mentioned, we have excluded certain items from our GAAP results in order to calculate adjusted EBITDA margin and adjusted EPS. We’ve provided the details on these items in our earnings release, so you can consider them in your analysis. As Mark covered our overall results and the business unit details, I’ll cover overall margin, some corporate items, and provide the additional detail on our guidance. In the fourth quarter, general corporate expense was $168 million. Excluding the non-recurring costs associated with the cybersecurity incident and the costs associated with the realignment of internal resources, the adjusted general corporate expense for the quarter was $76 million, up $23 million from 4Q 2017. The increase principally reflects three items: increased investment in security and transformation and related technologies; increased variable compensation reflecting the reduced compensation in 4Q 2017, following the cyber attack; and cost of Lock and Alert, the free consumer service launched in 2018. Adjusted EBITDA margin was 33.2% in 4Q 2018, down 160 basis points from 4Q 2017. The business unit adjusted EBITDA margin in total were up 50 basis points, as Workforce and the international, both grew EBITDA margins nicely year-to-year and USIS saw other margins increased sequentially. The decline in adjusted EBITDA margins is principally due to the increases in corporate cost I just discussed, as well as lower GCS margins as we have started to advertise. For 4Q 2018, the effective tax rate used in calculating adjusted EPS was 21.4%. In our 4Q guidance in October, we indicated that we expected our 4Q 2018 effective tax rate used for adjusted EPS to be about…

Thank you. [Operator Instructions] And we’ll take our first question from George Mihalos with Cowen. Please go ahead.

Great. Good morning guys. So, just to kind of kick things off on the guidance, the 2% to 5% outlook for 2019, that high-end is a little higher than what we were thinking, which is good to see. So just wanted to get a sense of what you’re seeing in the marketplace, kind of competitively? How things are shaping up if you’re seeing any sort of changes in some of your key verticals for macro? And then maybe just related to that, I mean to hit that 5%, if you hit the top end given the zero to two you’re starting with, I mean, that would suggest that your growth rate is almost kind of going back to sort of the historic target that you would put out there. How comfortable are you with that?

Yes. I think, George, it’s Mark here, and John will jump into it. I think you have to look at the pieces of the business obviously. I think you understand EWS pretty well and we’ve been pretty clear that they’re kind of coming out of the fourth quarter quite strong with the record growth that they have. So, there’s a lot of confidence in their growth going forward. GCS is another one that John and I talked about, the kind of sequential improvement in that is going to drive that revenue growth as we go into the fourth quarter and as you know, it was a drag in 2018. International, Australia is clearly a pressure for that business in the kind of latter part of 2018. We expect that to continue through the first couple of quarters of 2019, but then we start getting into a comparison, where it started to decline in September last year that will be helpful from a year-over-year standpoint. And then really the USIS business I think is where you’re probably focusing your question is, their recovery going forward in – we continue to see positive pipeline builds, there’s more discussions in the marketplace, we’re really out of the penalty box with all of our customers that kind of happened months ago and we’re back into a more normal mode with NPI and everything else that we have going on. At the same time, I would say that range reflects, we’re cautious about that recovery and that’s why we want to be clear about that – that recovery has been unpredictable. They’ve got the headwind of mortgage that again starts comping out in the second half of next year, where we expect the declines to abate and that helps from a year-over-year comparison, but the USIS recovery is one that we’re convinced is going to happen. We see signs of it. You look at the fourth quarter performance ex mortgage, we’re pleased with that for USIS and we expect that to continue going forward and the range we try to put in place is to show that there’s some predictability challenges, primarily in USIS. What would you add, John?

Yes. I think Mark covered it very fully. Just one other fact to be aware of, right. If you look at the fourth quarter and you exclude GCS, even with a very weak mortgage market, we had 4% growth again in the other three large businesses. So again, what we think we’re seeing is continued progress, because holding it 4% given that the substantial degradation in the mortgage market, we think again those show that we’re continuing to see progress in the three main businesses. And as Mark said, we do expect to see GCS to substantially better as you get into the end of next year, not because that’s driving lots of growth, they’re simply lapping a lower level of revenues you get in the second half and we’re just expecting that we’re going to start to see subscribers kind of flatten out as they can in our market. So, as we said, we do have a broad range still in our guidance, but those are the factors driving us forward.

That’s great. Really appreciate the color. And just as a quick follow-up, maybe on the margin front. I think you guys talked about the business units expanding margins by about 50 bps. Any sort of color you can kind of give on a segment level, and then just a point of clarity. It looks like what you’re saying is from an adjusted EBITDA perspective that EBITDA margins will be, call it, flat to somewhat up, given some of the commentary around tax and interest expense working against you? Thanks.

Yes. So as Mark said, looking at the business units, we expect them to be up. It’s really being driven by EWS. EWS is going – we expect to have a nice year, verifier is going to grow very strong, and as you know, verifier revenue is very, very rich in margin. We’re also expecting to see international to be up slightly. USIS margin performance, we think is going to be better than it was this year. It may not be up, but we’re expecting to see much better performance than we saw this year. And GCS, they’re going to be down. We said we’re going to start advertising, so you’re going to see declines. But when you add that all up, we think that’s why we get some comfort that we’re looking at BU margins that are better, again as you look across the range of our guidance that are flattish to up. So we think that’s absolutely a positive sign. Corporate expense, high in the first quarter, right, and it’s high into the first quarter, because of equity. So, you’re seeing corporate expense on an absolute basis should actually decline as you go through the year, because of the fact that the – our equity and variable comp is so much higher in the first half – in first quarter, sorry. And the other thing that benefits us quite honestly is first quarter revenue historically, and this quarter is low. So as revenue grows, the margin effect of those fixed costs in corporate that we’re talking about actually goes down, and that benefits our margins as we go through the year. So you get – you get kind of merge all that together and I think that’s how you get the improving margin performance we’re talking about through the year. Hey, there are risks; Mark talked about them. The biggest risk obviously is sector information. We need to execute for that to be – for us to be successful on our margins and as we move more and more things to the cloud, those costs will certainly start to affect us, but net-net, we think – we think that I covered it pretty full.

Great.

And we’ll take our next question from Manav Patnaik with Barclays. Please go ahead.

Thank you, good morning. My first question, John, maybe you could just help us understand what the free cash flow dynamics are, there’s a lot of moving pieces. Can you just talk about what CapEx should be and how we should think about conversion to free cash flow broadly for the next two years?

Yes. So, I’m not going to go out to two years, right. But in terms of CapEx, I think CapEx for next year – this year, sorry 2019, we’re expecting it to be kind of flat, right, with this year. The other dynamic that you’re going to see in 2019 is that we don’t really have the insurance proceeds recovery, but importantly, as you look at 2018, and obviously, we published our cash flow, the nice thing that you see is our net debt position actually improved as we went through the year. And even with the increased CapEx that substantially increased obviously non-recurring technology investments, as well as some small acquisitions we are able to continue to keep the balance sheet very strong and since we think our operating performance is somewhat consistent in 2019 versus 2018, as well as we’re talking about some lower levels of overall spending in 2019 slightly on the technology transformation, we would expect that we would be able to maintain a good balance sheet position as we go through 2019 as well.

Okay. And Mark, just I guess a broader question. I mean there’s obviously a lot of change, lot of transformation, like you said many times, have to happen, I mean, it’s pretty quick compared to, I guess, what we’ve at least seen before. How do you plan around this to avoid any hiccups? I mean, what’s the – what’s the game plan there broadly and how you’re going to structure this?

Yes, Manav, it’s a great question. As you might imagine that lost on me and the rest of the leadership team. This is a massive undertaking on our part, it’s one that you have to execute well and what are we doing about it? First, it starts with having great people and I talked about the rebuild of our technology and security organization, and we brought in really talented people that have done this before. Our new technology leader did a full legacy mainframe conversion to cloud it – in its prior business in 18 months. Now, we’re not going to do that quickly, but he’s been there, done that, knows how to do it, he brought in a team to make it happen. So that’s point number one. Point number two is just real rigor around the execution. We have very detailed plans. I’ll try to give you a flavor of that on the call this morning. And you know the other flavor I try to give you is this like things are rolling. We started really this technology transformation in a big way, ramped up in the middle of last year, and we’re starting to see the benefits of that, meaning, things are being delivered to the marketplace in the fourth quarter, the stuff happening – happened in January and February. So, real cadence of delivering these application upgrades. And third is really partnering with the very best. And we talk to a lot of the cloud providers and we use really all of them in different way, shape or form, but I think I highlighted in the call that we’re really focused on partnering with Google, just because of their capabilities, the quality of their cloud, the depth of the cloud is really important to us. So people, real rigor in the process, John and I, and the leadership team, have a regular cadence of looking at the projects of how are they being delivered, are they on cost, are they on budget, are they on time? Okay they’re installed; they’re in the cloud onto the next one. So there’s that kind of rigor around it. But we’re on it is really the approach that I have and it starts with people.

All right. That’s great.

Manav, on your question to me, I just want to make sure I was clear. My commentary doesn’t include the – any impact on the outcome of the regulatory or legal matters that are ongoing. Obviously, those would be on top of – those cash outflows will be on top of anything I just said.

Got it.

And we’ll move on to our next question from David Togut with Evercore ISI. Please go ahead.

Thank you. Good morning. Once you get to the end of Equifax 2020, where do you think you’re going to be most differentiated versus your two primary competitors in terms of major product and service offerings?

Yes, it starts – to start with, we believe that our speed to market of both ingesting data more quickly, having it easier access by our customers and then really a differentiator is going to be speed of getting new products to market. Today, we’re slower than we’d like to be, for sure and that becomes a competitive disadvantage if your competitors are faster than you are and we really believe this is going to leapfrog in that element, and then the other is going to be costs. Moving these legacy applications to the cloud is we’ve talked many times, we have multiple versions of the same application, we’re going to consolidate to one, then we’re going to move that to the cloud. And then when it’s in the cloud, we can also leverage it across the 24 countries we operate in and not recreate it in each market that we’re in, so that cost leverage is going to be a massive to us. And you actually touched on probably the third leg on this speed, cost, it’s really going to be what are the features and having a differentiated access to our data could be revenue upside. Today, to access some of our multiple siloed database is doable. We have products that bridge across that and technology. When we have that single data fabric, we’re convinced that that’s going to allow our customers and us to really access the wide array of differentiated data we have more easily.

Understood. And then once you finish this transformation at the end of 2020, what does the Equifax growth model look like in terms of organic revenue growth, margin expansion, capital allocation, bottom-line growth?

Yes, David, you probably know from prior calls. We’ve been crystal clear that we’re not prepared to put a long-term framework back in place. We want to do that, we will do that, but there has been a couple of things that we’ve been quite clear about that are going to be important to us to really get nailed down before we’re prepared to do that. First is really seeing a path on our legal and regulatory settlement framework and we don’t have a – we don’t have that framework today. So that’s the one that’s important to us to have real clarity on for you and us before we put a long-term framework in place. Number two is really this technology plan and we’re – we made massive progress in the last six months about getting this plan laid out. We still got some work to do around; really deeply quantifying the financial benefits on top and bottom line. So that’s still on our to-do list, but that’s something that we need to complete to put that inside of our long-term framework. And then third is really USIS, and really seeing some consistency of their return to growth. We’ve seen positive performance kind of quarterly in 2018, that’s been masked somewhat by the headwind that they have in the U.S. mortgage market, but seeing that consistency of recovery from USIS is important to us. So when those three are in place, we’re going to be ready to put our long-term framework back out there.

Appreciate it. Thank you.

And we’ll take our next question from Andrew Steinerman with JPMorgan. Please go ahead.

Hi, Mark. Do you see Equifax’s perspective revenue, organic revenue growth acceleration as a zero-sum situation? With the other credit bureaus or do you more see kind of unique offerings to Equifax during your sales pipeline and so really kind of just, I would say, growth opportunities to Equifax?

Andrew, as you know, it’s probably a mix of the two. We compete hard just like the other guys do for business and we’re out there doing it. We had competitive wins in the last couple of months that I would say you’re – you could characterize them as zero-sum game. That’s one where we move from secondary to primary, whatever, and our competitors are trying to do that to us every day, and that was happening before the breach and you and I have talked a couple of times during 2018. But there’s some unique aspects of our business. When you think about our EWS business, that’s one that’s quite unique. Our competitors don’t have a business like that, and that business growing at the rate it’s growing. I wouldn’t characterize that as a zero-sum game, because it’s really different. You said it’s different markets, et cetera, and our competitors have businesses that we don’t compete with their segments. So, I would say it’s a mix of the two.

Okay. Thank you.

The other place is international, right. Our international footprint very different than our competitors. So, our opportunity to grow there is different than theirs.

Okay. Thank you very much.

Maybe, Andrew, just to add an example, I think we’ve talked before in meetings with you and I about the FinTech space. That’s an example, where it’s a mix of the two. We historically didn’t have the presence that we should have there. Our competitors were much more aggressive commercially. We changed that in 2018. But there is also the element that I talked about in my comments earlier of taking our TWN data assets to the FinTech space is something that’s quite differentiated, our competitors don’t have there. So that’s a great example, where we hope to have some competitive wins in FinTech as we go into 2019, and we’re working on it as we speak, but we’re also bringing new data assets there that we’re really just helping that customer set like others, improve their decisioning.

Well said. Thank you.

And we’ll take our next question from Toni Kaplan with Morgan Stanley. Please go ahead.

Hi. This is Jeff Goldstein on for Toni. I know you’ve previously talked about a $0.40 a share impact from ongoing IT and security, and increased insurance costs relates to the breach. Is that still the expectation baked into the 2019 guidance or has that number moved that all?

Yes. So, we’re looking forward to 2019, a part of what’s happened, right, part of what we’ve talked about when we talk about the first quarter, we have increased security cost is because we’re lapping the increase in those costs in 2019 from 2018. So, we’re certainly seeing those increases and those increases are continuing and we would expect to see security costs continue to rise, but the – the very large increase that we saw during 2018 and the big one-time step-up in insurance costs, those things occurred in 2018. And so we shouldn’t see the same type of step in 2019, but we will still incur those costs.

Got it. And then understanding, you said CapEx will be flat year-over-year, but how should we be thinking about the run rate figure of that beyond 2020. Is it back to more like 5% of sales number that occurred before 2017 or is 9% of sales is a better way to think about it given kind of the new Equifax you’re trying to create? Thanks.

So, I think about all we can say at this point is when the transfer maintenance is complete; the CapEx numbers should certainly decline. To give you the exact number, it’s way premature, but it should certainly decline.

And I think that also, Jeff, you kind of leading into our financial framework, which we’re not prepared to talk about on a long-term basis, but I think John comment – the investment that we’re making should result in that coming down in the future, but I don’t think we’re prepared to talk about what that is yet.

Got it. Thanks.

And we’ll take our next question from Kevin McVeigh with Credit Suisse. Please go ahead.

Great, thanks. Hey, you talked about being out of the penalty box with your customers, any sense of – what kind of the revenue lost on that was in 2018 versus 2017, so we can get a sense of what that opportunities as we scale back into 2019?

Yes. I think you could probably do the math with USIS’s historical growth rate was kind of pre-cybersecurity incident and where it was in 2018 adjourn, it was obviously quite significant.

You saw our growth and you saw our competitors’ growth, right? So, there was a quite a significant difference, but for us to quantify specifically, that would be very difficult.

Okay. And then just in terms of the legal and regulatory framework, any sense of from a timing perspective, when that all gets wrapped up?

We put some expanded detail into our 10-K on our regulatory and legal matters, and I’d encourage you to take a look at that disclosure in there, which has a lot of detail about where we stand on that.

Okay. Thank you.

And we’ll move on to our next question from Tim McHugh with William Blair. Please go ahead.

Thanks. Just wanted to follow-up on the discussion of the technology, I guess. How is that plan that you laid out – did that change meaningfully after pricing came in, I guess, or just in the last three to six months that you kind of move forward with the process. Is that plan any different than in the past? Just trying to understand how it’s developing?

Dramatically different. When you think about 2018, the first half of 2018, our focus was really on doing a lot of security remediation improvements and all that. And Bryson joined us, his team started to join us. He changed out about half of the team as we roll through the second half of 2018 and his focus was really on helping us refine a plan that is what we talked about today. So, it’s – I would characterize it is dramatically different given his experience, his teams’ experience, there are lessons learned of doing this before. He has really shaped the plan that we’ve put in place. And again, we try to give you a flavor this morning that is detailed that there’s real ownership around specific projects. It’s not like nothing is going to happen between now and 2020, there’s stuff happening every week, meeting deliverable to the marketplace, and I’ll give you a lot of color on things moving in to the cloud in the fourth quarter, in December and January, just kind to keep pacing through. We’ve got a very deliberate and very focused planned to really drive this transformation over the three-year period, but going forward, over the next 22 months in 2019 and 2020.

Okay. And on the Verification business, that business seemed to get stronger, I think as you said, at year-end. And I know you talked about new record growth. So, two aspects to the question there. One is why has new record growth been as strong as it is? Are they finding different types of sources to get the data? And secondly, is there another factor, I guess, that maybe as it – are they new kind of use cases, are they really meaningfully moving the needle at this point in terms of the booking...

You hit both nails on the head, that’s their business model. And you know, they’ve invested heavily in their technology in the last 12 months or so to make it easier for what I would characterize the next year of companies to more easily connect to EWS and provide their data assets, so that’s one, meaning that they’re kind of mid-market customers or companies that have 1,000 employees or 2,000 employees versus 20,000, making it easier for them to commit. As we pointed out, we added more records in the fourth quarter than we have in last five years. I think it’s similar on the number of companies that are now partnering meeting. We’re really ramping that up. So that’s point number one. And inside of that more record growth is just an increased focus in success on partnerships, where we’re working with other payroll providers to have a partnership around getting data from that source as opposed to directly from the company. And then you hit the nail on the head the second side, which is more use cases, whether it’s government that, it’s one that grew for us strong double digits in 2018. We expect that to continue in 2019, meaning, above the average. And just other use cases as we continue to take that growing asset. And then lastly, as I mentioned, and you know this that when we added data – another data record there, another payroll record this afternoon, it monetized tomorrow morning. As just the hit rates go up, the monetization is very, very rapid as you grow that. So, we’ve got a very strong focus and Rudy has a very strong team focused on adding those data assets, and of course, he’s got vertical owners and commercial teams out there, building out how the data is used and how it can help in decisioning in lots of different industry segments. You guys – you know this is a great Equifax business.

Okay. Thank you.

And we’ll take our next question from Shlomo Rosenbaum with Stifel. Please go ahead.

Hi. Thank you for taking my questions. Hey John, there is just an inherent difficulty in projecting pipeline conversion when you go through a situation, where you have whether it was like a gap and then you had to kind of restart projects and stuff like that. Where do you – how do you feel right now in terms of your ability to forecast their pipeline conversion given the pace of the sales that are going on in the implementations?

Well, you’re clearly correct. Right, as you look through 2018, our ability to forecast our revenue was not nearly as good as it’s been historically. And I think we’ve talked about quite consistently the fact that we expected it to be choppy, right. Our conversion was choppy and our ability to forecast that was choppy. But we feel a little better this quarter than we did last quarter, because if you take a look at fourth quarter performance, really that what we missed based – really heavily based on the mortgage market. And I go back out to the impact of the mortgage market, and we were fairly good in terms of the revenue forecast that we have for the company, a little bit of weakness – a little more weakness in Australia than we guess, but other than that, I think – but relatively good. So we feel a little better given the performance in the fourth quarter, but we also accept, one quarter does not a trend make. So we are focused on getting better. We think our pipeline conversions are improving. We saw way better conversions in sales of batch jobs in USIS in the fourth quarter. All things that give us comfort, that things are getting better and our predictability is improving. But we do caution people that still it’s going to be choppy and it should be less choppy as we move through 2019 and as we get back toward the end of 2019 as Mark talked about with the expected improvement in performance, we’re expecting to start feeling a lot more normal. We would hope as we get toward the end of 2019.

Okay, thanks. And then just – when you are trying to forecast the mortgage market, are you putting a certain inherent conservatism in there, just as we ran the MBA application index for quarter-to-date last night, it sort of looked like, if you just kind of carry that forward where we are. You would actually have much better mortgage, I guess you could call it – less of a headwind in the first quarter and much better pickup in the rest of the year. Is there something where just given your experience you’re stepping that back a little bit?

So, we actually use inquiries. So, in theory, at what we’re doing is we’re trending the actual inquiries we received, which I don’t think you have access to. So, we – that’s the index we use. And since we see all inquiries, we think that’s probably relevant in period. So in period, that’s the basis going forward. We use three or four different sources for a third-party input on what we expect to happen with the overall mortgage market, and then we trend the inquiries from that point going forward. So, it’s not only mortgage origination that you’re seeing, but we’re also seeing the impact of whether people are shopping more or less and we try to build that into the forecast. We would really admit forecast in the mortgage market is difficult, it’s difficult for – I think everybody, but certainly difficult for us. We think what we have is a reasonable trend and showing reasonable improvement, but obviously, if the mortgage market gets better, faster, we’ll get the benefit of that, right. If it stays weaker, we’ll see that as well, it’s pretty direct.

All right. Thank you very much. And John, I just want to comment, it’s the first time I’ve heard the CFO summarizes guidance by saying merge that all together.

You don’t know John well enough then.

Thank you.

And we’ll take our next question from George Tong with Goldman Sachs. Please go ahead.

Hi, thanks. Good morning. You acquired DataX earlier in 3Q. Can you tell us what the organic growth was in USIS in the fourth quarter?

So, the impact of DataX was on the order of less than a point, right?

Got it. That’s helpful. I’d like to go back to ongoing data security and insurance costs in the business, you indicated that the step-up in 2019 should be smaller than in 2018. Can you quantify how much in ongoing breach-related costs are embedded into your 2019 guidance?

So, we tried to give two numbers okay. We did indicate that we were going to see continued increases in security. We didn’t try to quantify and this is our run rate, what’s included in adjusted EPS. So, I didn’t quantify a specific number and I think what I could say is, we reached run rate and we’re probably now going to see more normal growth in security spend and security spend growth rates are high, right. So, you should expect to see us grow our security spend like – like many companies would, but not have the significant step-ups we saw in 2018. In terms of our other spend embedded in our technology transformation is obviously investments that certainly improved securities. So, we separately gave a number around the tech transformation spend of about $300 million this year, which is down slightly from 2000 – from 2018. That is not – that is not just security in anyway, but the security spend that’s non-recurring would be embedded in that number.

Got it. Thank you.

Thanks, George.

And we’ll take our next question from Brett Huff with Stephens. Please go ahead.

Good morning, guys, and thanks for the additional detail on the strategic and tech plan. That’s helpful. Two questions related to that. Number one is, as you go through that tech refresh or the tech transformation, it’s substantial as you’ve talked about, how do you interact with your clients on that, and I guess, I’m thinking. If I’m a client and I want to partake in some of this new technology, does it take me longer to test it or am I going along in testing it with you. How does that – does that elongate kind of somebody consuming a new product? That’s question number one. And then number two, and I’ll get off. Is there any – I know that you guys put a lot of thought in this. So have you dialed this into how management team or even a couple layers down are compensated related to that? So thanks for those thoughts. Appreciate it.

Yes, great question, Brett. First on the migration, you hit on the head that in some regards, that’s the most challenging part of this process is moving your customers from a legacy platform to one of the new platforms and that’s not new for us. We’ve been doing that for a long time, because we’re – we’ve been constantly upgrading our technology. Our focus is to make it easy for our customers, to make sure that the new application is going to provide value-added services to them, and then we’re going to work with them in their cycle. You know they’re going to have specific cycles about when they’re ready to make a migration or a change given their technology plan. So, we’ll be – we are dialoguing. It’s not a new muscle for us; we’ve been doing it before with our customers and really working through that migration process going forward. On your second question around the incentives, you hit on a really important point. As you might imagine, you’ve got a leadership team here, an organization that is incented to run and grow the business, but at the same time, we’re going to change the tires on the car, whatever the right analogy is, doing a technology transformation. So, the answer is yes, we have put in some specific incentives with the leadership team around the EFX 2020 transformation. We think that’s really important to have them aligned. With that, this massive project as well as aligned with our investors around that project going forward. And then lastly, that we put a security metric in place in our cash bonus plan in 2018, we’re continuing that in 2019. We think that focus around the security incentive is the right one. I think you know we’re the only companies out there that has this kind of a metric and the way it works is in – we’ve got 3,000 people that are in our AIP bonus plan, and there is – the 25% of that bonus is tied to the organizations and individuals progress around security and it’s only punitive. So meaning, if we don’t meet our security goals, which we did last year, so there was no takeaway in 2018, but we don’t meet them in 2019, there could be a metric there. Other big believer in aligning people and the organization around what our goals are. So, we’ve got very good goals around growth and financial incentives. We’ve got the security goal and then we’ve added this EFX 2020 incentive to align the organization around this technology transformation.

Great. Thank you.

And we’ll take our next question from Bill Warmington with Wells Fargo. Please go ahead.

Good morning, everyone.

Hey, Bill.

A question on the revenue pipeline. Last time when we talked, it was reaching a two-year high. I believe although you had mentioned it was heavily weighted towards the first and second stages of that pipeline. I just wanted to ask, how you would describe that pipeline in those terms today.

Yes, Bill. I don’t remember saying a two-year high, but I probably did or one of us did. But there’s no question of pipeline build through the year last year and that continued in the fourth quarter. I think John talked about our execution on deals in the fourth quarter. I know you’re referring to USIS I believe in this, in your comments, which is what we’ll address and that’s continuing in the first quarter. We just have active dialogs. We feel like we’re back to kind of normal commercial discussions, the security discussions, we’re not having really anymore with our customers. Although, our customers continue to want to learn from us about what we’re doing, when you’re investing the amounts we are in security and technology, we’re putting cutting edge stuff in. So there, we’re doing a lot of best practice sharing which builds our relationship, our partnership with our customers. But as we continued in the first quarter, we see those pipelines continue to be quite strong; at the same time, we try to be clear on this call and prior calls that predicting the closure rate on those when you’re still building pipelines versus a run rate pipeline that we had in September 2017 before the cybersecurity incident. And as you know, that kind of new deal pipeline in September 2017 went away and we’ve been working hard to build that over the last 15, 16 months and continued positively, which is reflected in the guidance we tried to give for 2019 and how we see USIS progressing as it goes through the year. But again with that caution that this is hard to predict on when deals are actually going to close. So that’s the one that we’re not back to our normal ability as John mentioned a few minutes ago to really forecast how our yields are going to close inside USIS and that’s still to come for us.

And then as a follow-up question on the work numbers. You highlighted the very strong records growth nearing 90 million. What do you see as a total opportunity there and then how much are the match rate actually improving as a result of the higher records?

Yes. On the first half of your question, we just see a lot of opportunity. I use the term with you before and others on this call and I use it internally with Rudy and his team EWS. From my perspective, EWS is really in the second inning of their growth. And as you know, you own the business for a decade, a record growth in one of those. As you know, there’s – I don’t know what the right number is, something around 150 million non-farm payroll or 90 million, we’ve got a lot of growth opportunity to grow our records and we talked about how that record growth was accelerating In the fourth quarter and through the latter parts of the year from our technology investments, partnerships we have. So, we expect record growth to continue and with the top-end on that, it’s hard to say. But we’re energized about the opportunity going forward. The second half of your question on the match rate, I don’t know John, what that is?

And quite honestly, given that the way we serve customers are so different by customer and by application, be difficult for me to give you an average. Just needless to say as Mark said, right, as the database grows, our ability to respond goes up and it’s a significant benefit to us.

And again, I mentioned a couple of times on this call, the beauty of this business is that we had in that record today and it’s monetized tomorrow. That’s kind of the great thing about the business when you’ve got a lot of use cases, whether it’s mortgage or government or ticket and your hit rates go up, that means your revenue goes up. So, it’s quite an exciting workforce.

Got it. Thank you very much.

And we’ll take our next question from Gary Bisbee with Bank of America Merrill Lynch. Please go ahead.

Yes. Hi, good morning. On the Equifax 2020 initiatives, I guess, you said you won’t add back any of the costs beyond 2020. But is it safe to say the vast majority of the investment and changes completed by the end of 2020? And as part of that, would it be reasonable to think that you begin to see some benefits during the next two years if this happens or should we really think that the benefits really accrue beyond 2020, both on the ability to deliver stuff quicker to the customers in your internal innovation and the cost side? Thank you.

We expect to make a lot of progress in the next couple of years, but in terms of the specific response to your question, we need to let some time pass. And yes, we do expect to see benefits as we move forward, right. We said we’re going to see – we’re going to see major changes move into the data fabric in 2019. That absolutely benefits us as we go into 2020, operationally, speed to market, a lot of different ways. So, we certainly do expect to see benefits. Financial benefits don’t happen until you turn something off, right. Turning something on doesn’t give you financial benefit, but turning it off does. So the turning it off part, so the financial benefit, that’s a lot more starting in 2020.

Gary, I think we also try to give some color this morning with actually – when some things are happening, we try to spice them out as you know things that were installed in the fourth quarter, things are happening in the first quarter. So that is going to provide benefits. It’s not a switch that’s going to be switched on at the end of 2020. This is going to happen all the way through this timeframe and beyond 2020. The benefits are going to accrue from these significant investments.

Great. And then the follow-up. As both of you discussed the 2019 outlook and I appreciate all the commentary you provided. An awful lot of it sounds like it gets a lot better as the year goes on. I realize a bunch of that is comps and sort of market stuff around mortgage. But can you help us gauge your confidence just on the deliverability of what sounds like a much more back loaded and aggressive Q1 to Q4 ramp that you’re talking about? Thank you.

We tried Gary to give you some color. I think you got to be the judge on that too, but we’re trying to give some color on the significant part of the comps on this, meaning, the cost in the first quarter versus the ramp rate that we had last year, the mortgage headwinds that we start to comp out on as we get into the second half. So, there is a big element of that. And at the same time, we gave a range that we were intentional about for revenue and EPS, because there are some uncertainties out there that we wanted to make sure you understood. At the same time, there’s a number of our businesses, in particular, EWS that we have a lot of visibility and kind of clarity on, when you think about the headwinds in Australia for international and a lesser degree Argentina, and then the U.S. mortgage headwinds in United States, we try to – for USIS, we try to put a box around those of what we think is reasonable. But those have been proven to be hard to forecast for us in the last six to 12 months. And then you lay out the last factor on top of USIS, we think we’ve got a good case here inside of the range that we provided, but we know that is less predictable today than it has been in the past.

That’s helpful. Thank you.

And we’ll take our next question from Ashish Sabadra with Deutsche Bank. Please go ahead. And we’ll move on to our last question for today from Jeff Meuler from Baird. Please go ahead.

Hey, guys. This is Nick Nikitas on for Jeff. Thanks for squeezing me in. So just coming back to the tech transformation timelines, really helpful detail and understandably, it sounds like there’s a lot still going on. But just given it sounds like it will remain fairly intensive over the next 12 to 18 months. Can you just talk about how that’s impacting the go-to-market opportunity? And Mark, you talked about multiple versions for an application. So is that in a dynamic that’s still a somewhat material governor on new business or are we kind of past the peak point of headwinds and you’re starting to see improvement there?

Yes. From our perspective, Nick, I would and John you should jump in. We don’t see the tech transformation impacting our ability to grow. It’s really going to be a positive going forward and we got focused and dedicated technology teams. We’ve ramped up a lot more resources there. So, this is focused, the teams that are working on it are working on it. Our commercial teams are just doing what they should do every day, out there selling. Now, they’ll have a role when we get ready to use the migrations of working with our technology team, with our customers, technology team and their counterparts inside of our customers, but I don’t see this having an impact on impeding growth in anyway. And the other element is, when we talk to customers, you think about, if you’re going to be partnering with someone, who is going to make this kind of investment in their infrastructure, we’re doing it for our customers. So, it becomes a very positive dialog about the partnership with our customers. They’re quite positive about what we’re doing on technology, what we’re doing on data analytics, the ability for them to more easily access the data, this becomes an easier commercial discussion about doing things this week and next week, because of the kind of partner we’re going to be long-term for them when we complete elements in this EFX 2020 transformation.

And as we said in the past, right, I mean, the thing that we – that we just have to keep in mind and focus on is the fact that when you add this much additional activity, right, it does create more complexity. So, as Mark said, we’re focused on making sure that it doesn’t impede the way we’re able to deliver, but it’s also a significant challenge for our team that they have to stay very focused on, because when you’re going through a transformation and adding this much resource to try to do it at pace that it absolutely will impact your – it does create more complexity in your processes and just something we have to work through.

Okay. That makes sense. And just a quick one on the mortgage. I think, Mark, you mentioned some shift in the reseller end market. Can you just talk about what that was and if it’s incorporated to the end-market forecast you guys outlined or I guess it will be slightly incremental?

Yes. That’s just – in our business, we used go-to-market in two different ways in mortgage. We have mortgage solutions, where we actually sell the tri-merge report, we take our reports, combine it with our competitors and sell the report or – and/or we simply sell our report to somebody, who does that combination so, to a reseller. And we are just talking about that we see – we have seen shifts – channel shifts in and out of our core mortgage business as we move through the year. And as we get into 2019, we’re probably going to see continued channel shifts. We would expect probably away from us in core mortgage in the first half.

Okay. But all of that’s included in kind of the end market forecast of…

It is, it is absolutely, because that doesn’t change the number of inquiries. It just changes what we deliver, yes.

Okay, great. Thanks.

And there are no further questions at this time.

Great. Thank you very much.

Thanks everybody.

Thanks everybody.

And this does conclude today’s presentation. We thank you for your participation. You may now disconnect.