Q €“ Toni Kaplan: Thanks so much. First, I was hoping you could talk a little bit about the bearishness within the mortgage forecast. The 30% inquiries decline I think would imply that originations are even lower than that. And I think just — I know sometimes the third-party forecasts are a little bit optimistic. But I just felt like there was a pretty big delta there. And so if you could just go into maybe why your mortgage forecast is so bearish? Thanks.
A €“ Mark Begor: Yeah. It’s — first off, it’s very difficult to forecast. And I think we’ve shown over the last year that it’s a hard thing to do. We’ve been pretty good about forecasting inside of a quarter, meaning out for a couple of months because the trends are pretty clear on what we’re seeing on a daily and weekly basis. But as you get out a couple of quarters in this uncertain environment, it’s much more challenging. And John, correct me if I’m wrong, I believe for the last year we’ve had our outlooks south of the other forecasts, like MBA and stuff consistently. So that’s not a new approach for us. And Toni, as you know, we have real visibility to originations that are actually happening on a near-term basis, which is what we try to factor into our forecast. And you could call it bearish or conservative or, in our case, we tried to put it the most realistic outlook in place, that’s what we put out there.
A €“ John Gamble: Just a reminder, EWS, which is the bulk of the mortgage business, right, their transactions tend to look a lot more like originations, right? USIS does have that shopping behavior, which is better. But EWS now it’s really much closer to originations. It’s a much better proxy. And so also, as we talked about, I mean, what we did is we looked at run rates and then it just assumed kind of normal seasonality. I think what you’re hearing from some of the third-party forecasters is an expectation of some type of substantial recovery in the mortgage market. That could occur, and if it does, we’ll benefit, okay? But right now, what we’re assuming is we’re going to see a market that looks a little more normal in terms of its seasonality versus this year, and we’re going to wait to see that recovery before we start saying it’s going to happen.
Q €“ Toni Kaplan: Terrific. And I wanted to ask a little bit more broadly on consumer spending. When you think about your — what are you seeing, I guess, in year-to-date trends and how are you expecting that to play out throughout the course of the year? Thanks.
Mark Begor: Yes. Toni, really not a lot of change from the consumer from October, meaning they’re still strong. They’re working — like unemployment being so low, unemployment being so high and all the open jobs, that’s a good thing for the consumer. They’ve clearly — we’ve seen they spent down some of their COVID pandemic savings, but there’s still positive savings from where they were in 2019. So that element is quite positive. Obviously, at the low end, inflation is still pressuring the subprime consumer, and we’ve seen some uptick in delinquencies there. But broadly, we would characterize the consumer as being quite strong. Now when we look out for 2023 here in February, that’s where we talked about and we factored into our outlook a more uncertain economy, which should impact the consumer, call it, in the second half perhaps in the way we’re thinking about it with these continued rising interest rates.
And every day, you see another company announcing layoffs or hiring freezes. And that’s going to have to have an impact at some point, and that’s part of our outlook. On the B2B side, I think we talked at length about what we’re seeing in the hiring space that we’ve already — I just talked about. But that’s impacting our businesses in background screening and talent and then an I-9 and onboarding. We still expect to grow over 10% in those two businesses because of pricing and product and penetration. But the actual volume, we expect to be down on a year-over-year basis. So that’s going to have an impact.
Toni Kaplan: Perfect. Thanks so much.
Operator: Thank you. Our next questions come from the line of Seth Weber with Wells Fargo. Please proceed with your question.
Seth Weber: Hey, guys. Good morning. Maybe for John, is there any way to quantify what the delta is from — on the compensation side where you’re going from below plan last year to plan this year? Is there any way to just quantify what that represents as a year-over-year change?
Mark Begor: I think in the quarter, you talked about — in the first quarter, if you exclude that in the equity impact, margins are basically flat.
John Gamble: And just really the equity impact were pretty close to flat. So we didn’t — so we tend to try to list things in order of importance. So what you can take from the listing we gave is it’s fairly substantial. No, we haven’t quantified our — the total incentive and sales incentive difference year-on-year. But we’re saving — the $120 million savings is obviously quite substantial. And the most substantial area we’re offsetting is that change in overall sales compensation and incentive compensation as well as equity compensation. So it’s the biggest factor. Also, we are seeing increases in royalty costs. It’s both in mortgage. We talked about one of our mortgage vendors, increasing prices. We do get some benefit from that on the revenue side as a pass-through, but it also significantly increases our expenses.
And then also as we continue to substantially grow in Workforce Solutions, our partners, which we had an outstanding year, growing 10 new exclusive partners for in the fourth quarter, we do see royalties go up. But EWS is able to outgrow that and drive their margins higher. So anyway, those are the biggest things that we’re offsetting with the — that are offsetting the $120 million in cost savings.
Seth Weber: Got it. You actually anticipated my follow-up question. Just you mentioned this higher royalty and data costs to you. Is that kind of just a catch-up do you feel like, or is this more of the new normal going forward that these costs are going to be higher — structurally higher going forward for you guys?
A €“ John Gamble: So the specific comment around mortgage, I think that was probably — there was a large increase from a vendor, and everyone knows that. So that was a onetime effect or we’ll see what happens in the future. On EWS, we’ve seen an increase in their royalties over time as they continue to grow partner records, and that’s just part of the business model. And we think they can deliver 50% plus margins even as that grows. So it’s just — it’s a cost that we have to incur in the business, but it’s an extremely beneficial cost because the variable margin on those — on the revenue that those records generate continues to be high, but those costs are increasing. The other costs I didn’t mention, right, that we’re offsetting is we are continuing to see duplicate costs because we’re continuing to run the major US systems in credit and the major Canadian systems in credit through the middle of this year or into the third quarter.
And so that duplicate cost is something we’re still incurring, and that’s also something that’s partially offsetting the cost savings we’re generating.
Q €“ Seth Weber: Got it. Okay. Thank you very much. I appreciate the color.
