易速傳真 (EFX) 2018 Q4 法說會逐字稿

Good day, and welcome to the Equifax Fourth Quarter 2018 Earnings Conference 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'll 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 Argentinian peso-denominated net monetary assets.

Adjusted EPS attributable to Equifax also excludes legal and professional fees related to the cybersecurity incident, principally fees relating to our outstanding litigation and government investigations, as well as the incremental project costs 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 projects to replace and substantially consolidate our global network and 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 into 2020.

Adjusted EBITDA is defined as net income attributable to Equifax, adding back interest expense, net of interest income; income tax expense; depreciation and amortization; and also in the case for adjusted EPS, excluding costs related to the 2017 cybersecurity incident; costs associated with the realignment of internal resources and other activities; and foreign currency losses from remeasuring the Argentinian 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 post on our website, we are now posting certain a 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 of 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 the discussion 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 of '17, the 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 a strong 12%.

And International local currency revenue growth of 5% was impacted by a soft Australia and Argentinian 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 $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 $1.34 per share was about $0.02 above the midpoint of the guidance we provided last October.

Total nonrecurring and onetime costs in the fourth quarter were $181 million.

This includes $114 million of technology and security, $12 million of legal and regulatory, $9 million for consumer support and $46 million for the cost-reduction action we executed late in the quarter.

In our Investor Relations presentation on our website, we've included a chart that details the breakdown of these costs for each quarter of 2018 as well as our guidance for 2019.

So now a few more comments on the business units in the fourth quarter.

As I mentioned, USIS revenue was down 2% on a reported basis compared to last year.

But importantly, USIS was up 2% excluding the 400 basis point impact of the mortgage market.

For us, this is a positive sign of continued improvement and a return to a growth mode for this critical business inside of Equifax.

Online was up slightly overall and was up 4% excluding the mortgage market.

This is the second quarter of a row we've seen online growth excluding the mortgage market impact.

Mortgage Solutions was down double digits, as expected, given the decline in the mortgage market and to a lesser extent, channel shift with mortgage resellers partially offset by new products we introduced early in 2018.

CMS, or Credit Marketing Services, was up about 2%, which is the first time we've seen growth in this segment since the first quarter of 2018.

Overall, Financial Marketing Services was down about 1% as IXI saw volume declines.

And our commercial and telcom and utilities segments both grew double digits in the quarter.

As you can see, absent the substantial impact of the declining mortgage market, we're starting to see growth and recovery in USIS, which we expect to continue in 2019.

In terms of our U.S. customers, we're back to selling across the portfolio of our customer base.

As we discussed on prior calls, the substantial progress with customers started in mid-2018.

And so given our 6- to 18-months sales cycle, we should start to see those benefits of being in a commercial mode with our customers during the early part in the first half of 2019, with accelerating improvements in the second half of 2019.

We continue to believe that our differentiated data assets, coupled with our technology investments, will return USIS to its traditional growth mode, but we remain cautious about the pace of the recovery given the complexities of dealing with new customers and dealing with existing customers on new products.

USIS adjusted EBITDA margins of 47.5% were down from fourth quarter '17, but were at the highest levels in 2018.

I'm sure you saw our announcement a week ago that Sid Singh joined us as President of USIS.

Sid joins us from Global Payments, where he served as Group President of Integrated Solutions and Vertical Markets.

Sid brings a deep understanding of unique data and how to accelerate product development through leveraging data analytics and advanced technology platforms.

He is a high-energy growth leader with real depth in technology and an intense focus on customers.

Sid joined Global Payments in 2006 and was instrumental in developing the technology and software-led business strategies that helped transform Global Payments into a highly differentiated payments leader.

Prior to his work in Global Payments, he held senior management positions with HSB (sic) [HSBC] and Citibank.

We are thrilled to have Sid joining our leadership team.

As you saw in the announcement a week ago also, Paulino has agreed to work closely with Sid on his transition and help me with our strategy, M&A and partnership efforts.

Both Paulino and I will work closely with Sid to drive USIS back to growth and to assist in his transition into Equifax.

USIS continues to be a personal priority of me and the entire company.

Shifting now to Workforce Solutions.

That business had a very strong quarter with revenue up 12%.

Verification Services was very strong in the quarter with revenue up 15%, driven by strong double-digit growth across health care, government, talent solutions, debt management, card and auto.

EWS, like USIS, was also impacted by the decline in the overall mortgage market, which negatively impacted their revenue growth by about 400 basis points.

Ex mortgage, EWS would have been up a very strong 16%.

Employer Services also grew in the quarter, up 6%, principally driven by growth in I-9 and onboarding services.

The strong verifier growth resulted in a very strong adjusted EBITDA margin of 48.7% or an expansion in the quarter of 320 basis points.

As I've indicated before, Rudy and his entire team are laser focused on the Work Number record growth.

The team continues to execute on its strategy to identify and acquire new data contributors to expand its data assets.

The team added more records in the fourth quarter than any prior quarter over the past 5 years.

Total Work Number records are now approaching 90 million.

And I think as you know from your experience with the company, when we add a new record, it's quickly monetized.

We expect this Work Number growth to continue in 2019.

EWS is clearly an extremely attractive franchise business for Equifax with big growth potential in the future.

International revenue was down on a reported basis 3%, but up 5% in local currency, which was about consistent with third quarter '18, but weaker than the 8% delivered in the first half of 2018.

This slower growth in the second half of '18 continues to be driven by the weak consumer and commercial lending markets in Australia that really started to soften in September, and the ongoing weak economic conditions in Argentina.

Our Latin America business grew high single digits in local currency in the fourth quarter despite the continued headwinds in Argentina that began early in 2018.

Revenue growth was driven by double-digit constant currency growth in Chile, Ecuador, Paraguay and Mexico, and high single-digit growth in Argentina and Uruguay.

Our Latin America franchises are benefiting from the expansion of Ignite + InterConnect SaaS in 2018, which we rolled out, and strong NPI rollouts in both 2017 and 2018.

Our European business grew between mid and high single digits in local currency in the fourth quarter.

We continue to see high single-digit local currency growth in our European credit operations.

And as we expected, our European debt management business started to return to growth in the fourth quarter.

Shifting to Canada.

Our business in Canada grew mid-single digits in local currency in the fourth quarter, slightly below our expectation, reflecting the timing of some project-based revenues between quarters.

Canada's full year local currency revenue growth of 8% was broad-based, reflecting a focus on customer innovation and new products.

Our Asia Pacific business grew low single digits in local currency in the fourth quarter, down from the 10% plus growth seen in the first half of '18 and consistent with the weakening we began to see in September around consumer lending, particularly mortgage and other consumer credit markets in Australia.

While we expect to see continued weakness in Australia credit markets as we move into 2019, we're focused on innovative new customer solutions, specifically in our Australian commercial business.

Adjusted International EBITDA margins at 32.4% were up nicely in the fourth quarter, reflecting improvements in Europe and Asia Pacific.

I continue to be excited about our International business and the collaborative and innovation growth focus we are seeing from John and our global team.

Global Consumer Solutions revenue declined 12% on a reported and local currency basis in the fourth quarter and was in line with our expectations.

As we've discussed throughout 2018, our GCS U.S. consumer direct business saw substantial revenue declines as a result of our suspension of U.S. consumer advertising in the fall of 2017 after the cybersecurity incident.

The U.S. consumer direct business revenue declined almost 25% in the fourth quarter to $27 million, and was down over $40 million to $118 million for the full year.

Dann and his team began limited direct marketing to U.S. consumers in October, and that continued through the fourth quarter and into 2019.

While our marketing investment in the fourth quarter was lower than historical levels, we saw subscriber growth at costs that were consistent with our expectations, a very positive sign as we enter 2019.

Our GCS partner business, which includes ID Watchdog, delivered high single-digit growth in the fourth quarter and double-digit growth for the year.

We expect ID Watchdog to continue to grow double digits and continue to see growth -- nice growth opportunities in our partner business, both in the U.S. and internationally.

Adjusted EBITDA margins in GCS declined to 21.1% in the fourth quarter, as expected, as we saw the impact of the revenue loss and the impact of beginning to ramp our advertising as we went into the marketplace.

We expect margins in GCS to increase in 2019 as we see the benefit of fourth quarter and early 2019 advertising and leverage our growing partner revenue.

So before I get into a discussion of 2019, I'd like to take a minute to look back on 2018, which was clearly a challenging year for Equifax by any measure.

The 2017 cybersecurity incident had a massive impact on our business on many fronts, and we entered 2018 with a great deal of uncertainty, from changes in key leadership positions, including the CEO role; U.S. customer concerns that we worked on throughout the year; our competitors clearly took aggressive actions when we were on our heels; you know we're addressing a wide range of legal and regulatory matters; and we're executing on the multiyear security and technology transformation.

So looking back, although our path to returning to our traditional growth mode is taking longer than we expected, we made very strong steps forward in 2018 on our path back to growth and market leadership.

I'm very proud of several key accomplishments.

First, data security was a primary focus for our team, and we made great progress, including instilling a security-first culture across all of Equifax.

We have a much stronger data security infrastructure and are committed to continuing to invest to be the industry leader in data security.

We launched our multiyear technology investment transformation program that will take our technology to market-leading capabilities and deliver cost savings and speed of market -- speed of products to market.

This is a transformational investment, and I'll cover this in more detail in a few minutes.

We also made great strides in protecting and empowering consumers, launching new free services like Lock & Alert to lock and freeze consumers' credit files.

In our USIS business, we made massive steps towards regaining the trust of our customers and partners and are now positioned to operate in a normal commercial mode.

Lastly, we refined our go-forward strategy and execution plans for the next 2 years that, internally and externally, we're calling EFX 2020.

I'll cover this in more detail shortly.

We could not have accomplished these goals without the hard work and dedication of our 11,000 employees around the globe.

We clearly have work to do in 2019, but 2018 set us up with a solid foundation for returning Equifax to growth and market leadership.

So let me turn to 2019 as well as a few comments looking forward to 2020.

Since joining Equifax last April, I've learned a great deal about the company and the state of the business.

When I joined, I was clear that I believed the strategy and direction of the company was sound, and I continue to believe that is true.

However, there are some critical areas in which we must sharpen our focus to return to and exceed the levels of performance we've delivered in the past.

In late 2018, we launched what we are calling EFX 2020 as a framework for our investments and priorities for the future.

These strategic initiatives that will make up our EFX 2020 strategy represent a blending of the successful strategy in place when I arrived and these new focus areas.

First, Equifax is a data analytics technology company.

To be a technology company, we need to deliver market-leading technology and embed that technology as a part of our products.

We're convinced that our massive technology transformation to the cloud will differentiate our products by combining unique data assets, analytics and leading technology and will allow us to accelerate the speed of our new products to market and the ease at which they're consumed by our customers.

I'll talk a lot more about this in a minute when I discuss our technology transformation in more detail.

Number two, being an industry leader in data security.

This is and will remain central to our culture and our commitment.

We've made massive progress in the past 18 months, but we still have more work to do.

We are committed to being an industry leader on security.

Number three, creating a culture of customer centricity.

We talked in prior calls about how important this is to me and this is how I operate as a business leader.

And this starts by getting our people closer to customers, adding more feet on the street, our renewed focus on new verticals like fintech, embedding our data scientists and Ignite technology with our customers on their sites, collaborating with customers in our D&A labs to build products that they need, and embracing partners, a strength Equifax has and one that we are going to expand.

All of these efforts are focused on accelerating innovation and growth jointly with our customers' partners to drive new products and to drive growth.

This is an area which we are doubling down on.

Number four, being a market leader in data analytics through leveraging unique data assets and the application of artificial intelligence, machine learning and advanced visualization on the leading edge of delivery platforms is critical to our future.

To be a market leader, we must collaborate with customers and partners broadly and we must prioritize investment through the acquisition of new unique data sources.

We have differentiated data assets like NC Plus and TWN, but we will continue to invest heavily in new data sets organically and through M&A, like with our DataX acquisition last summer, and through partnerships.

This is a critical priority.

Number five, improve the consumer experience by providing value-added services through consumer-centric digital and voice consumer support.

We're building leading-edge services, and we will be rolling them out beginning in 2019, that will enhance our customer experience.

Number six, bringing innovative new products to market in collaboration with our customers.

Leveraging our global data assets has always been a strength of Equifax.

We are refocusing on our speed to market and leveraging products across our global footprint.

These 6 initiatives are all focused on driving revenue and profitable growth for our customers and our shareholders and returning Equifax to a growth mode and market leadership.

To succeed on each of these initiatives, we are also refocused on our execution and delivery.

Say do, that's how I operate, making and meeting commitments.

This was an Equifax strength and it will be again.

Shifting to the technology transformation we started in 2018, it's critical to the delivery of all of our strategic imperatives and will provide us with substantial product delivery and cost advantages.

Our EFX 2020 technology program is the largest investment program in Equifax history and has the complete focus of the entire leadership team.

This is not a technology project.

This is a technology and business-led transformation of Equifax.

During the second half of 2018, we provided guidance that our security and technology investment plan would continue not only in 2018, but through 2019 and 2020.

We also told you that we'd provide you a framework around our security and technology plan early in 2019, and we're going to do that today.

In 2018, we spent $307 million and expect Equifax 2020 spending to continue during '19 and '20.

We plan to spend $300 million this year in 2019, and 2020 spend will be below our 2019 runway.

Including incremental capital spending between 2018 and 2020, we will invest an incremental $1.25 billion to modernize our global technology and security infrastructure.

We're convinced this will differentiate Equifax and move us back into a market-leading position.

There's 3 basic principles that underpin our Equifax 2020 technology strategy that we're executing.

First, cloud first and cloud native.

This focus -- this effort is focused on moving our legacy mainframe server technology to the public cloud using native services provided by the public cloud providers to the greatest extent possible.

This includes our network and transportation.

From a security perspective, we will implement generally in virtual private clouds or private instances on the public cloud infrastructure.

Second, we're going to build on application services principles.

This isn't a new concept, but it's critical if we are to successfully execute a cloud first and native technology strategy.

In concept, this means building services or components that can be easily assembled or interconnected using standard APIs.

Again, this is not new, but it takes a tremendous amount of discipline to execute it.

Number three, a relentless focus on rationalization.

As we build out our company for the future, it's critical that we remain focused on decommissioning our legacy data centers, applications, data platforms and servers.

This will ensure we reach the robust security posture and long-term operational cost improvements we're committed to.

Number four, and most important, is great talent.

You've heard me talk and us talk about our new technology team led by Bryson Koehler.

Bryson has upgraded over 50% of his leadership team in the last 6 months with top talent from market-leading technology organizations.

We're building the right team to execute this critical transformation.

We have 5 major tracks to our technology transformation.

These tracks, underpinned by detailed resource plans and timelines, are expected to be executed between 2019 and 2020.

In the Investor Relations deck that we posted via our IR website this morning, there are diagrams for these tracks.

Here's a summary.

First, we will implement a common data fabric for data ingestion, governance, enrichment and management.

The data fabric replaces our multiple current purpose-built data ingestion, cleansing and matching processes and systems and the data exchanges themselves.

For example, Acro, our U.S. credit exchange, and The Work Number.

Our data fabric is being built on a Google Cloud platform in a virtual private cloud environment using Google's native tooling.

By executing in this way, we can take advantage of Google's vast scale and more importantly, the leading-edge tools that are proven at scale and speed and that Google uses themselves.

Our new data fabric will conceptually be one repository as opposed to the many silo-ed databases that we have today.

This single data fabric will deliver seamless real-time integration and data access across our many unique data sources.

As I indicated, our data fabric is already in place at Google Cloud.

And in the first half of '19, we'll be rolling that out.

We'll have our U.S. Acro credit exchange and TWN EWS exchange running in parallel with our current systems and available for multi-data insights in the first half of 2019.

Several of our other U.S. and EWS exchanges, including NCTUE, IXI, DataX and unemployment claims, as well as Ignite, will migrate to the common data cloud fabric by the end of 2019.

We'll begin decommissioning existing exchanges that will be migrated to the data fabric in early 2020.

We'll continue this migration of our U.S. and global exchanges to the data fabric throughout 2020.

Second, we will rebuild or migrate our customer applications using standard application and cloud-native services and operate them in the public cloud.

Fortunately, this track is one Equifax started a number of years ago in 2016 with the initiation of the InterConnect SaaS product, which is a set of application services that offers a global data gateway decisioning using spark logic -- Sparkling Logic and an API framework.

This continued with the launch of our Ignite application, which is a market-leading analytical application that allows customers to easily add Equifax, third-party and their own attributes and data for analytics and modeling.

Over the past year, Equifax has worked to migrate these applications to a virtual private cloud utilizing cloud-native services.

We're also making great progress in integrating Ignite + InterConnect app services to allow customers to seamlessly promote attributes and models defined in Ignite, including those driven by machine learning, into production on InterConnect.

We're working to make this broadly available by the end of the first quarter of 2019.

And in the fourth quarter, we completed implementation of Ignite Direct and InterConnect in a virtual private cloud in Europe and Latin America.

Deployments of Ignite Direct with InterConnect in the U.S., Canada and Asia Pacific are to be completed in the first quarter of 2019.

Ignite Marketplace was deployed for all regions in 2018 and is expected to be cloud native by the latter part of 2019.

This same process will be followed to build new applications or migrate existing applications going forward.

Third, we will migrate customers from legacy decisioning systems, interface systems and Ignite instances to InterConnect SaaS and Ignite in the cloud.

Globally, Equifax has over 4,000 customers operating on an Equifax decisioning or analytical system.

Over 2019 and 2020, we expect to migrate the vast majority of these customers to standard InterConnect SaaS and Ignite cloud applications.

In USIS, we expect to migrate 60% of our customers by the end of 2019, with the vast majority of customers migrating by the end of 2020.

Similar plans are in place for each region around the globe.

Fourth, we will migrate our global consumer systems and customer and consumer support systems using standard application services and cloud data services and operate them on the public cloud.

Fortunately, this is also a track that we started several years ago.

Our new consumer system that will include digital consumer support, called Renaissance, is in the process of being migrated to a virtual private cloud environment utilizing cloud data services.

We launched Renaissance in Canada in the fourth quarter and will launch in the U.S. in mid-2019.

Separately, we're deploying Salesforce and Genesys for customer and consumer support worldwide.

We expect significant deployment of all these systems to be ongoing throughout 2019.

Last, we'll move corporate and some of our business support applications to SaaS services in the public cloud.

For example, Equifax will be moving its e-mail and collaboration to Google Gmail during the early part of 2019.

Oracle financial systems will operate on AWS in the second quarter and our sales management applications will be moved to the Salesforce cloud between 2019 and 2020.

I hope this gives you a sense of the pace and urgency of our technology transformation as well as the measurable and real progress we are already making as we deliver new cloud-based technology to our customers.

As I referenced earlier, diagrams of these tracks are provided on our Investor Relations deck on our website.

During 2019, we plan to have our new technology leader, Bryson Koehler, provide more details to you around our Equifax 2020 technology plan.

And John will provide some more details on the cost estimates to execute this plan in his portion of the presentation this morning.

All of these actions are being executed consistent with our commitment to be a leader in data analytics and technology.

We're convinced this is a transformational investment for Equifax.

Now I want to make it clear one more time: This is not a technology refresh.

We're changing the way we operate, the way we go to market and the way we serve our customers through technology.

We made strong steps forward in the fourth quarter, and we'll continue our efforts in 2019 and 2020 as we complete elements of our multiyear plan on a monthly basis going forward.

As we discussed on the last call, and to align with our strategic goals, we need to make some structural changes within Equifax, focused on driving more of our resources and decision-making closer to customers and further optimizing our resource structure.

As you may recall, in August, we realigned our resources and decision-making to move our organization closer to market-facing business unit teams and away from headquarters.

This was an important element of how I operate of having our teams closer and more focused with our customers.

In the fourth quarter, we completed a plan to optimize our G&A and headquarters cost.

In connection with these activities, we took a onetime charge in the fourth quarter of $46 million.

While these actions are expected to improve our margins, we plan to reinvest some of the cost savings into more D&A resources and more sales resources to drive growth.

We're also moving to embed more of our commercial and D&A resources in our customers' locations to further drive engagement, service and growth.

Net full year run rate savings from this fourth quarter action are expected to exceed $50 million.

I'm energized about the steps we are taking to move our organization closer to customers and markets.

Shifting to New Product Innovation, this remains a key priority and a real Equifax strength.

We have an active pipeline of new product introductions with over 100 new products at various stages in the funnel, and we launched 61 new products last year, consistent with the number we launched in 2017 and 2016.

And as we talked on prior calls, protecting the resources and technology resources around NPI was critical to us in 2018.

NPI and new product growth is a real strength and focus of Equifax.

I talked about the growth potential of Workforce Solutions being in the second inning, a reference to the amount of runway they have in front of them to grow their database as well as provide innovative new solutions.

Recently, Workforce Solutions identified 2 new use cases for their Work Number.

The first uses our data, with consumer consent, to allow for enhanced identity matching.

Identity matching has become an increasingly challenging issue for most of our customers, and having a unique data asset like The Work Number is improving our customer processes and workflow and allowing consumers to more easily obtain the services and benefits they need.

The second new use case, also using our verification data, helps fintech customers and the online digital lending customers provide a frictionless and superior consumer lending experience by providing better lending decisions in a streamlined and automated manner.

As our fintech and online lending customers look to expand lending to near and subprime customers while controlling for risk, our new Work Number database provides meaningful data to make better decisions, benefiting both consumers and our customers.

So now let me shift gears and take a look at 2019 guidance.

For 2019, we expect total revenue to be between $3.425 billion and $3.525 billion, reflecting constant currency revenue growth of 2% to 5%.

This assumes the U.S. mortgage market will decline about 5% in 2019 or about a 1% headwind to our revenue growth.

FX will negatively impact revenue and adjusted EPS by just over 100 basis points.

USIS revenue is expected to be up slightly in 2019, including the approximately 150 basis point negative impact from the U.S. mortgage market decline.

First half growth will be more negatively impacted by the mortgage decline from a comparison standpoint.

EWS revenue growth will strengthen from 2018 with growth approaching 10%.

Verification Services, we expect to deliver very strong growth, and Employer Services flat to up slightly.

International revenue growth will grow about 5%.

First half growth being impacted by continued weakness in Australia lending markets and the Argentinian economy.

We're expecting to return to high single-digit growth in the second half of '19.

And lastly, GCS revenue will be flat in 2019.

First half revenue will decline year-over-year, but we expect to return to growth in the second half of '19 based on the new efforts that we have in marketing inside of that business.

For 2019, we expect adjusted EPS to be between $5.60 and $5.80 per share, reflecting constant currency improvement of about 1.75% to down 1.75%.

We expect to see expanded business unit EBITDA margins of about 50 basis points, led by nice revenue growth and margin growth at Workforce, to drive increased operating profit and EBITDA dollars from the business units.

Offsetting our increased margins are really 3 principal factors: number one, higher corporate cost of about $25 million, principally in security and related technology investments; second, increased interest expense of about $5 million, reflecting a refinancing executed midway through 2018; and third, a slightly higher tax rate of 24% in 2019.

John will provide more details on our guidance, EFX 2020 investment plans for '19 and '20 as well as the significant market factors impacting the first half of 2019.

Wrapping up, Equifax has made strong progress in 2018 in regaining the trust of our customers and partners.

We've moved back to a growth mode with our customers.

And we completed the first phase of our 3-year EFX 2020 transformation plan.

We're confident we're moving in the right direction, but we know we still have a lot of work to do.

We're investing at record levels to make Equifax a market leader in data, analytics, technology and security.

We're excited about our future and the opportunities ahead.

With that, let me turn it over to John.

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 have 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 our overall margins, some corporate items and provide the additional detail on our guidance.

In the fourth quarter, general corporate expense was $168 million.

Excluding the nonrecurring cost associated with the cybersecurity incident and the costs associated with the realignment of internal resources, the adjusted general corporate expense from the quarter was $76 million, up $23 million from 4Q '17.

The increase principally reflects 3 items: increased investment in security and transformation and related technologies; increased variable compensation, reflecting the reduced compensation in 4Q '17 following the cyber attack; and cost of Lock & Alert, the free consumer service launched in 2018.

Adjusted EBITDA margin was 33.2% in 4Q '18, down 160 basis points from 4Q '17.

The business unit adjusted EBITDA margin in total were up 50 basis points, as Workforce and International both grew EBITDA margins nicely year-to-year and USIS saw their margins increase sequentially.

The decline in adjusted EBITDA margins was 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 '18, 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 '18 effective tax rate used for adjusted EPS to be about 24%.

The lower tax rate reflects the reduction in our ongoing foreign tax rate due to recently issued guidance concerning the 2017 Tax Act as well as the year-to-date catch-up in 4Q '18.

The benefit between the 21.4% effective tax rate achieved and 24% was a benefit of about $0.04 per share.

For 1Q '19 and calendar year '19, we expect our effective tax rate used in calculating adjusted EPS to be about 24%.

Our effective tax rate for adjusted EPS in 2018 was 22.6%.

Now turning to 2019, I'd like to provide some details on the guidance Mark provided and some perspective on the changes from 2018.

A few important assumptions underpinning our 2019 guidance.

FX is expected to negatively impact by just over 1% and adjusted EPS by approximately $0.08 per share.

The greatest impacts on revenue will be in the first and second quarter at negative 3% and 2%, respectively.

U.S. mortgage market inquiries for all of 2019 are expected to decline about 5%.

1Q '19 inquiries are expected to be weak, down about 13%, just slightly better than we saw in 4Q '18.

2Q '19 inquiries are expected to be down mid-single digits, and we expect inquiries to continue to improve, getting to be about flat in 3Q and slightly positive in 4Q.

The impact of the mortgage market on Equifax growth is significant in the first half of '19, impacting total revenue negatively by about 2.5% and 1% in 1Q and 2Q, respectively, and then becoming positive in 4Q, just under 1 point.

For USIS, the impact is more significant, impacting revenue growth negatively by just over 4% and about 1% in 1Q and 2Q, respectively, and positively by about 1% in the fourth quarter.

The impact on Workforce is negative about 3% and 1.5% in 1Q and 2Q, respectively, and positive about 1% in the fourth quarter.

Australian credit markets are expected to stay weak through 2Q '19 and then begin to improve in the second half.

We're assuming Argentina's economic crisis will continue through 2Q and then begin to abate in the second half, with the economy remaining weak throughout the year.

The weakness in Australia and Argentina through the first half are expected to impact International revenue growth negatively by about 2% in the first half of the year.

As we look to our guidance for 2019, these market factors, specifically the U.S. mortgage market and Australia and Argentina market conditions, have a substantial negative impact on 1Q '19 and 2Q '19 constant currency revenue growth.

1Q and 2Q revenue growth are negatively impacted by roughly 3% and 1.5%, respectively, with this impact expected to actually swing positive -- slightly positive by 4Q.

This also impacts adjusted EPS.

If we are looking at 1Q '19, the negative 3 percentage points of revenue impact versus 1Q '18 is about $25 million of revenue.

At Equifax average gross profit, that revenue reduction impacts operating profit by more than $15 million.

Three additional factors are impacting quarterly timing and total 2019 results.

The quarterly timing of corporate expenses in 2019.

As Mark indicated, corporate expenses are expected to increase by -- in 2019 by about $25 million, principally in the first half.

The increase is primarily in higher security and related technology costs.

These costs ramped significantly during 2018, reaching a run rate in the second half.

In the first half of '19, we are seeing significant increases year-to-year as we are now operating at the higher run rate we reached in the second half of '18.

2019 full year variable and equity comp is up versus 2018, as 2018 variable comp paid out below target and 2019 long-term incentives have been adjusted to support execution over the period of our technology transformation.

Additionally, in the first half of '18, we did not have a full executive leadership team, so equity comp increases are principally in the first half of '19.

We have also increased our investments in data and analytics in 2019 relative to 2018.

In total, these increases are partially offset by reduced costs in corporate staff, such as finance, marketing and HR.

Approximately $15 million of the $25 million increase in corporate expenses will be in the first quarter of '19.

Global consumer performance in 1Q '19 will be down, as in 1Q '18, U.S. consumer direct revenue was still at relatively high levels and we had stopped U.S. marketing spend.

This will result in 1Q '19 revenue being down about $5 million and operating profit down about $8 million year-to-year.

GCS performance relative to 2018 is expected to improve each quarter in 2019 and, we believe, show growth as we exit the year.

The savings from the cost action taken in 4Q '18 will increase as we move through 2019 as well as the planned actions -- as the planned actions are completed.

Savings in 1Q '19 are just under $10 million.

The increase in our 2019 effective tax rate for adjusted EPS of 24% reflects the discrete benefits received in 2018 that we do not believe will occur in 2019.

We believe our run rate tax rate is slightly lower in 2019 than 2018.

For 1Q '19, we expect revenue in the range of $840 million to $855 million, reflecting constant currency revenue growth of flat to up just under 2%.

We're expecting adjusted EPS to be $1.15 to $1.20 per share.

FX is approximately negative 3% on revenue in 1Q '19 and negatively impacting adjusted EPS by $0.05 a share.

The combination of the market factors impacting revenue and the timing of corporate expenses, cost action savings and global consumer are impacting 1Q '19 revenue by about $30 million, operating profit by about $30 million and adjusted EPS by almost $0.20 a share.

As a reminder, these factors are expected to diminish somewhat in the second quarter and actually be a year-to-year positive as we get to the fourth quarter.

These factors, as well as increased interest expense of about $0.02 per share, is what is driving the decline in adjusted EPS in 1Q '19.

In 2019, we expect to incur approximately $350 million in nonrecurring expenses: $300 million in nonrecurring security and technology transformation, and $50 million related to legal and regulatory.

This does not include the cost of any potential judgments or other outcomes, should they occur.

For the status of the legal and regulatory matters, I would refer you to our 10-K.

Mark provided a perspective on total incremental spending on security and technology transformation over the 2018 to '20 period.

In that calculation, we include the expense on nonrecurring security and technology transformation and the incremental capital spending, defined as any spending above the $214 million per year we spent in 2017.

For 2018, the total incremental spend was about $460 million and our guidance for 2019 is about $450 million.

Beyond 2020, we will not exclude nonrecurring security and technology transformation expenses from our adjusted EPS.

And with that, operator, we'll open it up for questions.

(Operator Instructions) And we'll take our first question from George Mihalos with Cowen.

So just to kind of kick things off on the guidance.

The 2% to 5% outlook for '19, that high end is a little higher than what we were thinking, which is good to see.

So just want 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 per macro.

And then maybe just related to that, I mean, to hit that 5%, if you hit the top end, given the 0% to 2% that you're starting with, that would suggest that your growth rate is almost kind of going back to sort of the historic target that you had put out there.

How comfortable are you with that?

Yes, George, it's Mark here.

And John will jump in, too.

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 are kind of coming out of the fourth quarter quite strong, that -- 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 '19, but then we start getting into the 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 focused in your question is -- their recovery going forward.

And 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 in a more normal mode with NPIs 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 what we want to be clear about.

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 it's 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 is 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.

If you look at the fourth quarter and you exclude GCS, even with the very weak mortgage market, we had 4% growth again in the other 3 large businesses.

So again, what we think we're seeing is continued progress because holding at 4% given the substantial degradation in the mortgage market, we think, again, does show that we're continuing to see progress in the 3 main businesses.

And as Mark said, we do expect to see GCS do substantially better as you get into the end of next year, not because it's driving lots of growth, they're simply lapping a lower level of revenue as we get into the second half, and we're just expecting that we're going to start to see subscribers kind of flatten out as they can now 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.

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.

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 to -- 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 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, 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 the 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 you go through the year.

So you kind of mush 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, tech transformation.

We need to execute for that to be -- for us to be successful in 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 what I -- I covered it pretty fully.

And we'll take our next question from Manav Patnaik with Barclays.

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 2 years?

Yes.

So I'm not going to go out 2 years, right?

But in terms of CapEx, so I think CapEx 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 I think, 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; the substantially increased, obviously, nonrecurring technology investments; as well as some small acquisitions, we are able to continue to keep the balance sheet very strong.

And as our -- 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 is obviously a lot of change.

A lot of transformation, like you said many times, that has to happen.

I mean, it's pretty quick compared to, I guess, what we've at least seen before.

Like how do you plan around this to avoid any hiccups?

I mean, what's the game plan there broadly in how you're going to structure this?

Yes, Manav, it's a great question.

It's, as you might imagine, not lost on me and the rest of the leadership team that 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 at his prior business in 18 months.

Now we're not going to do it that quickly.

But he's been there, done that, knows how to do it, and he's brought in the team to make it happen.

So that's point #1.

So point #2 is just real rigor around the execution.

We have very detailed plans.

I tried to give you a flavor of that on the call this morning.

The other flavor I tried to give you is 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.

There's stuff happening in January and February.

So a real cadence of delivering these application upgrades.

And third is really partnering with the very best.

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 was 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 are installed, they're in the cloud.

On to 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.

Yes, Manav, on your question to me, I just want to make sure I was clear.

My commentary doesn't include the -- any impact from the outcome of the regulatory or legal matters that are ongoing.

Obviously, those would be on top of -- those cash outflows would be on top of anything I just said.

And we'll move on to our next question from David Togut with Evercore ISI.

Once you get to the end of Equifax 2020, where do you think you're going to be most differentiated versus your 2 primary competitors in terms of major product and service offerings?

Yes, it starts with, we believe that our speed to market of both injecting data more quickly, having it easier accessed by our customers, and then really the 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 it in that element.

And then the other is going to be cost, moving these legacy applications to the cloud.

As 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 massive to us.

And you actually touched on probably the third leg on this, speed, cost.

It's really going to be, what other features and having a differentiated access to our data could be revenue upsides.

Today, to access some of our multiple silo-ed databases 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, I think, 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's been a couple 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 that framework today.

So that's 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 6 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 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 from the U.S. mortgage market.

But seeing that consistency of recovery from USIS is important to us.

So when those 3 are in place, we're going to be ready to put our long-term framework back out there.

And we'll take our next question from Andrew Steinerman with JPMorgan.

Mark, do you see Equifax' prospective 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 that are in your sales pipeline and so really just, I would say, growth opportunities to Equifax?

Well, Andrew, as you know, it's probably a mix of the 2. We compete hard just like the other guys do for business, and we're out there doing that.

We had competitive wins in the last couple of months that I would say you could characterize them as a 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 talked a couple of times during 2018.

But there is 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 use sets, different markets, et cetera.

And our competitors have businesses that we don't compete with, or segments.

So I would say it's a mix of the 2.

The other place [of interest] is International, right?

Right.

Our International footprint, very different than our competitors.

So our opportunity to grow there is different than theirs.

And 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 2. We historically didn't have the presence that we should have there.

Our competitors were much more aggressive commercially.

We've changed that in 2018.

But there's 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 that.

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.

And we'll take our next question from Toni Kaplan with Morgan Stanley.

This is Jeff Goldstein on for Toni.

I know you previously talked about a $0.40 per share impact from ongoing IT and security and increased insurance cost related to the breach.

Is that still the expectation baked into the 2019 guidance?

Or has that number moved at all?

Yes.

So as we're looking forward to 2019, part of what's happened, right, part of what we talked about when we talked about the first quarter having increased security costs 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.

We -- and we would expect to see security cost continue to rise, but the very large increase that we saw during 2018 and the big one-time step up in insurance costs, those things occurred in 2018.

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 a 5% of sales number that occurred before 2017?

Or is 9% of sales a better way to think about it given kind of the new Equifax you're trying to create?

So I think about all we can say at this point is when the transformation is complete, the CapEx number should certainly decline.

To give you the exact number, it's way premature, but it should certainly decline.

I think that also, Jeff, is kind of leading into our financial framework, which we're not prepared to talk about on a long-term basis.

But I think John's comments are that the investments 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.

And we'll take our next question from Kevin McVeigh with Credit Suisse.

You talked about being out of the penalty box with your customers.

Any sense of what kind of the revenue loss on that was in '18 versus '17 so we can get a sense of what that opportunity is as we scale back into 2019?

Yes, I think you can probably do the math of what USIS's historical growth rate was kind of pre-cybersecurity incident and what it was in 2018.

I've done -- it was obviously quite significant.

You saw our growth and you saw our competitor's growth, right?

So there was a quite 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.

And we'll move on to our next question from Tim McHugh with William Blair.

Just wanted to follow up on the discussion on the technology.

I guess, how is that plan that you laid out?

Did that change meaningfully after Bryson came in, I guess, or just in the last 3 to 6 months as you've kind of moved forward with the process?

How -- is that plan any different than in the past?

Just trying to understand how it's developing.

No, it's 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.

And his team started to join us.

He changed out about half of his team as we rolled 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 as dramatically different given his experience, his team's experience.

Their lessons learned of doing this before has really shaped the plan that we've put in place.

And again, we tried 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.

Meaning, deliverables to the marketplace.

And I gave you a lot of color on things moving to the cloud in the fourth quarter and December and January.

It's just going to keep pacing through.

We've got a very deliberate and very focused plan to really drive this transformation over the 3-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.

I know you talked about new record growth.

So 2 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 is it -- are the new kind of use cases, are they really meaningfully moving the needle at this point in terms of the booking?

Yes, you hit both nails on the head.

That's their business model.

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 tier of companies to more easily connect to EWS and provide their data assets.

So that's one.

Meaning that the 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 come in.

As we pointed out, we added more records in the fourth quarter than we have in the last 5 years.

I think it's similar on the number of companies that are now partnering.

Meaning, we're really ramping that up.

So that's point #1.

And inside of that more record growth is just an increased focus and 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 on the second side, it's just more use cases.

Whether it's government that is 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's monetized tomorrow morning.

It's just the hit rates go up and 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.

This is a great Equifax business.

And we'll take our next question from Shlomo Rosenbaum with Stifel.

John, there's just an inherent difficulty in projecting pipeline conversion when you go through a situation where you have -- where there was like a gap and then you have kind of restart projects and stuff like that.

Where do you -- how do you feel right now in terms of your ability to forecast that pipeline conversion given the pace of the sales that are going on and the implementations?

You're clearly correct, right?

I mean, if you look through 2018, our ability to forecast our revenue was not nearly as good as it's been historically.

And I think we talked about quite consistently the fact that we expected it to be choppy, right?

Our conversion was choppy and our ability to forecast it was choppy.

Look, we feel a little better this quarter than we did last quarter because if you take a look at fourth quarter performance, really, the -- what we missed based -- really heavily based on the mortgage market.

And you back out the impact of the mortgage market, and we were fairly good in terms of the revenue forecast that we had for the company.

A little bit of weakness -- a little more weakness in Australia than we guessed.

But other than that, I think that -- but relatively good.

So we feel a little better given the performance in the fourth quarter, but we also expect 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 predictably is improving.

But we do caution people that it's still going to be choppy and it should be less choppy as we move through '19.

And as we get back toward the end of '19, as Mark talked about with the expected improvements in performance, we're expecting to start feeling a lot more normal, we would hope, as we get the toward the end of '19.

Okay.

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 the first quarter and much better pickup in the rest of the year.

Is there something, or just given your experience, you're stepping that back a little bit?

So we actually use inquiries.

So in period, what we're doing is we're trending the actual inquiries we receive, 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 3 or 4 different sources for third-party inputs on what we expect to happen with the overall mortgage market.

And then we trend the inquiries from that point going forward, right?

So it's not only mortgage originations 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 freely admit forecasting 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 improvements.

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.

And John, I just want to comment.

That's the first time I've heard a CFO summarize his guidance by saying mush that all together.

You don't know John well enough then.

And we'll take our next question from George Tong with Goldman Sachs.

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 1 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 2 numbers, okay?

We did indicate that we were going to see continued increases in security.

We didn't try to quantify it.

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.

So you should expect to see us grow our security spend 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 improve security.

So we separately gave a number around the tech transformation spend of about $300 million this year, which is down slightly from 2018.

That is not just security in any way, but the security spend that's nonrecurring would be embedded in that number.

And we'll take our next question from Brett Huff with Stephens.

Thanks for the additional detail on the strategic and tech plan.

That's helpful.

2 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 and testing it with you?

How does that -- does that elongate kind of somebody consuming a new product?

That's question #1.

And then #2, and I'll get off.

Is there any -- I know that you guys have put a lot of thought into this.

So have you dialed this into how the management team or even a couple of layers down are compensated related to that?

Yes, great question, Brett.

First on migration.

You hit on the head.

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.

And 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 and their cycle.

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 incentive, you hit on a really important point.

As you might imagine, you've got a leadership team here and 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, or whatever the right analogy is, in doing this 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, you know 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 one of the only companies out there that has this kind of a metric.

And the way it works is -- and we've got 3,000 people that are in our AIP bonus plan.

And there's a -- 25% of that bonus is tied to the organization's and the individual's 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 if we don't meet them in 2019, there could be a metric there.

I'm a 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.

And we'll take our next question from Bill Warmington with Wells Fargo.

So a question on the revenue pipeline.

Last time we talked, it was reaching a 2-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, I don't remember saying a 2-year high, but I probably did or one of us did.

There's no question the pipeline built 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 I'll address.

And that's continuing in the first quarter.

We just have active dialogues.

We feel like we're back to kind of normal commercial discussions.

The security discussions, we're not really having 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 we're doing a lot of best-practice sharing, which builds our relationship, our partnership with our customers.

But as we continued into first quarter, we see those pipelines continuing to be quite strong.

At the same time, we tried 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 of 2017 before the cybersecurity incident -- and as you know, that kind of new deal pipeline in September of 2017 went away, and we've been working hard to build that over the last 15, 16 months, and it continues 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 deals are going to close inside of USIS.

That's still to come for us.

And then as a follow-up, a question on The Work Number.

You highlighted the very strong records growth nearing 90 million.

What do you see as the total opportunity there?

And then how much are the match rates actually improving as a result of the higher records?

The first half of your question, we just see a lot of opportunity.

I used the term with you before and others on this call and I use it internally with Rudy and his team, EWS, that from my perspective, EWS is really in the second inning of their growth.

And as you know, we have owned the business for a decade.

Record growth is one of those.

As you know, there's -- I don't know what the right number is, something like 150 million nonfarm payroll.

We're 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 what's 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 is so different by customer and by application, it will be difficult for me to give you an average.

But 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 it a couple of times in this call.

The beauty of the businesses that we add 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 pick it, and your hit rates go up, that means your revenue goes up.

So it's quite an exciting business for us.

And we'll take our next question from Gary Bisbee with Bank of America Merrill Lynch.

On the Equifax 2020 initiatives, I guess -- so you said you won't add back any of the cost beyond 2020.

But is it safe to say the vast majority of the investment in change is completed by the end of 2020?

And as part of that, would it be reasonable to think that you'd begin to see some benefits during the next 2 years as this happens?

Or should we really think that the benefits really accrue beyond 2020, both on the ability to deliver stuff quicker to customers in your internal innovation and the cost saved?

Look, we expect to make a lot of progress in the next couple of years, but in terms of a 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 major exchanges 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 a financial benefit, but turning it off does.

So the turning it off parts, so the financial benefit, that's a lot more starting in 2020.

And Gary, I think we also tried to give some color this morning with actually -- when some things are happening, we try to spike them out, so things that were installed in the fourth quarter, things that 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 time frame and beyond 2020.

The benefits are going to accrue from these significant investments.

Great.

And then the follow-up.

Just 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 backloaded and aggressive Q1 to Q4 ramp that you're talking about?

We tried, Gary, to give you some color.

I think you got to be the judge of that, too.

But we tried to give you some color on the significant part on 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's 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 is 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, to a lesser degree, Argentina, and then the U.S. mortgage headwind in the United States, we tried to -- for USIS, we tried to put a box around those of what we think is reasonable.

But those have been -- have proven to be hard to forecast for us in the last 6 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 it's less predictable today than it has been in the past.

And we'll take our next question from Ashish Sabadra with Deutsche Bank.

And we'll move on to our last question for today from Jeff Meuler from Baird.

This is Nick Nikitas on for Jeff.

Just going to the tech transformation and timelines.

Just really helpful detail.

And understandably, it sounds like there's a lot still going on.

But just given the -- it sounds like it will remain fairly intense 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 applications.

So is that a dynamic that's a little somewhat material governor on new business?

Or are we kind of passed the peak point of headwinds and you're starting to see improvement there?

So 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've got focused and dedicated technology teams, where we've ramped up a lot more resources there.

So this is focused, and the teams that are working on it are working on it.

And 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 do some migrations of working with our technology team, with our customer's technology team and their counterparts inside of our customers.

But I don't see this having an impact on impeding growth in any way.

and the other element is when we talk to customers, you think about if you're going to be partnering with someone who's going to make this kind of investment in their infrastructure, we're doing it for our customers.

So it becomes a very positive dialogue about the partnership with our customers.

And they're quite positive about what we're doing on technology, what we're doing on data and 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 of this EFX 2020 transformation.

As we said in the past, right, I mean, the thing that we just have to keep in mind and focus on is the fact that when you add this much additional activity, it does create more complexity.

So as Mark said, we're focused on making sure that it doesn't impede the way we are 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 it's just something that we have to work through.

That makes sense.

Just a quick one on 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 into the end market forecasts you guys outlined?

Or I guess, it will be slightly incremental.

That's just -- in our business, we just go to market in 2 different ways in mortgage.

We have Mortgage Solutions, where we actually sell the tri-merge report.

We take our report, combine it with our competitors and sell the report.

Or we simply sell our report to someone who does the combination, to a reseller.

And we were just talking about that.

We see -- we have seen shifts, channel shifts, in and out of our core mortgage business as we moved through the year.

And as we get into '19, 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 is included in kind of the end-market forecast that you outlined?

Oh, yes.

It is, it is, absolutely, because it doesn't change the number of inquiries.

It just changes what we deliver.

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.