TransUnion (TRU) Q2 2017 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. My name is Karrie and I will be your host operator on this call. [Operator Instructions] Please note that this call is being recorded as of today, Tuesday, July 25 at 8:00 AM Central Time. I would now like to turn the meeting over to your host for today's call, Aaron Hoffman, Vice President and Investor Relations at TransUnion. Please go ahead.

Great. Thank you, Karrie, and good morning to everyone and thank you for joining us today. This morning, I’m joined by Jim Peck, President and Chief Executive Officer and Al Hamood, Executive Vice President and Chief Financial Officer. We've posted our earnings release on the TransUnion Investor Relations website this morning. The earnings release includes schedules which contain more detailed information about revenue, operating expenses and other items, including certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to their most directly comparable GAAP measures are also included in these schedules. As a reminder, today's call will be recorded and a replay will be available on the TransUnion website. We will also be making statements during this call that are forward-looking. These statements are based on current expectations and assumptions and are subject to risks and uncertainties. Actual results could differ materially from those described in the forward-looking statements because of factors discussed in today's earnings release, in the comments made during this conference call and in our most recent Form 10-K, Form 10-Q, and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statements. So with that, I'll turn the time over to Jim.

Thanks Aaron. Before I begin my discussion of the business, I want to comment on other news we announced this morning, that Al has decided to pursue other opportunities and is leaving TransUnion on August 18. Al has been a terrific partner for me over the past five years through some very significant changes in personnel, culture, technology, business simplification, and the process of going public I relied on Al and he's been a great friend and colleague. While I am certainly sad to see him leave on behalf of myself, our leadership team, our employees and our Board, I want to thank Al and wish him nothing but success in his new endeavors. What I'm really pleased about is that we have a deep bench of finance talent and we're able to immediately backfill Al's position with Todd Cello. Todd has been with TransUnion for almost 20-years in a wide variety of critical finance roles including CFO of both our USIS and international segments, as well as the Head of Strategic and Financial Planning through our IPO and I believe some of you on this call have already met him. To our succession planning process, we have been proactively preparing Todd for this role. He is an outstanding talented finance leader who is going to continue to add real value to TransUnion. I also know that there will be a strong desire to meet him and we will do our best as Todd transitions into the role. With that, let me turn back to our quarterly performance. As you saw on our earnings release this morning, TransUnion delivered another strong quarter. We saw double-digit revenue, adjusted EBITDA and adjusted EPS growth, as well as another 170 basis points of adjusted EBITDA margin expansion. Importantly our growth continues to be broad-based and innovation driven with especially good results across USIS including financial services and our newer verticals, as well as both developed and emerging markets in our international segment. On top of that, we continue to prudently deploy our robust cash flow repurchasing about $65 million of TransUnion stock during the quarter bringing our total buyback this year to about $133 million. Al will walk you through the details behind these results and actions shortly. Looking at the rest of the year and our long-term view of TransUnion, we continue to have deep conviction in our ability to generate top-tier revenue growth with the market-leading EBITDA margin. Underpinning this confidence is a series of five focused highly impactful strategies that provide the engine for our current and long-term growth. These strategies are driving growth through innovation, expansion into new vertical markets, growth in international markets, capitalizing and growth opportunities in consumer interactive, and leveraging global operational excellence. Last quarter as part of my comments about leveraging our global operational excellence, I started out with the discussion of how we leverage our technology infrastructure on a global basis to drive innovation, reduce cost and increase our speed to market creating a real competitive advantage in the marketplace. There are numerous additional global leverage points that we'll discuss in future calls including sales force effectiveness, product development, and market specific thought leadership to drive customer engagement. Each one of these merits its own space and each is enabling growth. Today however I want to take a higher level view of how we leverage data and analytical capabilities across vertical segments and geographies to fully take advantage of the powerful assets that reside with TransUnion. As I walk through a variety of examples of our strategies, you will see this mosaic affect in all the benefits that we derive from appropriately leveraging our data and capabilities. You'll hear about how fraud and ID solutions, cross vertical, segments and geographies, how both CreditVision and Prama are becoming global and how we see the future path to extending them into other end markets. I’ll talk about our insurance vertical is leveraging our data assets to successfully develop new products to our growth while diversifying their offerings. We'll look at the influx of products and capabilities in Canada that's driving impressive growth in a developed market and I'll wrap-up with how we're leveraging our core capabilities and consumer interactive to a new partnerships and build-out our international footprint. Our ability to leverage TransUnion's powerful business model and valuable asset is critical to understanding how we grown our topline and expanded our margin in recent years. And importantly, how we have such deep conviction that these trends will continue over the long-term. So this is a backdrop, let's dig into how we're driving growth through innovation. I want to spend some time this morning focusing at our fraud and ID solutions. We have established industry leadership in number of facets of this fast-growing highly dynamic yet fragmented market. We delivered very good growth in recent years and see significant future opportunity for TransUnion. A way of background on the industry it's estimated that fraud losses amount to more than $0.5 trillion per year and are growing. To combat this problem, business has spent approximately 15 billion per year and that figure is expected to grow 10% to 15% per year. The fraud solution industry is largely made up of niche players with point solutions, in other words, smaller players who have a single product offering. TransUnion is just one of a few players that can provide a holistic enterprise-level solution for customers which is what we've done through our suite of product called IDVISION. This set of offerings brings together robust data assets with advanced analytics that link, interpret and analyze information to discover anomalies and patterns of risk. Businesses receive actionable alerts and instantly delivered progress scores so they can make timely decisions. As a result, customers across various industries including financial services, retail, telco, insurance and healthcare can identify more good consumers enable secure confident and convenient authentication. Additionally they can detect more fraud patterns that are at origination, doing transactions and by monitoring portfolios. IDVISION was largely created through internal development and one acquisition Trustev which enhance our ability to identify online fraud by authenticating the digital footprint of the transaction. In the past several years as we've refined our products and as industry demand for solutions has increased, our fraud and ID business has more than doubled and now represents a meaningful growing revenue stream for TransUnion. As I mentioned one of the real opportunities is bundling valuable services to more fully meet our customers' needs. TransUnion's IDVISION suite is comprised of multiple solutions addressing a variety of critical issues in the fraud and identity management space. Let me walk you through some of the most significant solutions. Our synthetic fraud model addresses the key questions of whether an identity has been fabricated or manipulated. Today fraudsters are creating identities compromise of fabricated data elements or compilation of multiple real identity elements with the intent to use these synthetic identity to open fraudulent accounts. In fact it's estimated that synthetic fraud now makes up 85% of all first-party fraud. Our synthetic fraud model is specifically built to analyze consumer behaviors by uncovering anomalies or suspect patterns in the development and usage of credit across all lines of business including credit card, auto loans, and personal loans. Our model helps detect this costly type of fraud before a fraudster cashes out. With best-in-class false positive rates so that good consumers aren't unconvinced in the process. We've seen very strong customer engagement particularly in the auto and credit markets. We also provide digital verification and authentication solutions to ensure consumers are who they say they are by examining hundreds of digital signals captured in real time during an online or mobile transaction. More recent addition to IDVISION is the fraud prevention exchange which primarily helps online lenders tackle the issue of product originations in real time. Including fraudulent loans stacking or fraudsters who seek out multiple loans with high velocity so quickly that lenders would otherwise be unaware of their activity. Exchange enables participating funds to confidentially provide inbound loan transactions to a single point. Exchange members receive real-time alerts when certain identity or digital elements have been reported as fraudulent by other exchange members are then associated with multiple rapidly similar transactions within a short timeframe. We have seen good participation by our FinTech customers and traditional lenders are now demonstrating strong interest in joining the exchange. We are in the process of building a fraud prevention exchange in Canada and see opportunities in other international markets over time even as we expand our service to other types of lenders in the U.S. Just as we've leveraged products like CreditVision and Prama globally, we're doing the same with IDVISION. We have developed a solid footprint in Canada already and our building our positions in Colombia, India, and Hong Kong. Over time we see considerable incremental opportunity in these markets. Beyond IDVISION, we are also able to leverage our fraud solutions and our consumer interactive segment. There we are the only bureau to offer free identity and credit protection to a product called true identity. To further enhance our consumer offerings., we recently partnered with Equifax and Credit Lock Plus, the first multiyear of Credit Lock tool. We're rapidly growing market with significant opportunities for innovation and coordination of offerings, we've done a good job of pacing the industry. And as the solutions impact all our segments, many verticals and our key geographies, it is another source of long-term diversified growth. I'll end this section with an update on two key innovations that we've discussed with you regularly that are also driving long term growth, CreditVision and Prama. Let me start with our industry-leading trended data products, CreditVision and CreditVision Link. As we discussed, TransUnion have the only trended data product that works for all lending types and utilizes up to three months of data. With CreditVision Link we've combined the power of trended credit report and highly predictive alternate data sources to allow our customers to score more than 20 million U.S. consumers who they could not score using traditional means. The ability to reduce risk, increase productive outcomes and reach more consumers makes these products incredibly valuable to our customers. As a reminder, Fannie Mae now requires trended data from all their resellers giving us nearly complete coverage of that market. Our FinTech customers were early adopters too. With the 90% of them have taken the product but more importantly they've been consistently renewing their contracts and more fully utilizing the products across the product portfolio. This has led to deeper penetration in incremental business and clearly validates the value of the products. I would also point out the uptake of CreditVision and CreditVision Link and auto lending has been accelerating. We are in the implementation process with several large national customers and have a robust pipeline of potential new accounts. Beyond financial services, we've seen some early traction with insurance companies and solid interest in the telco space. And I'll briefly mention here that we officially launched CreditVision in India during the second quarter and are on track to do the same in Colombia and South Africa by the end of the year. Moving on to Prama which puts the power of TransUnion's data sets and analytics capability into the hands of our customers. Prama is a highly sophisticated suite of products for accessing and analyzing any of the immense amount of our diverse data and can also efficiently ingest data from third parties. To that end, we can build modules for different end markets and in different geographies leveraging promise capability as a means of accessing and delivering end product to our clients. It was an exciting and busy quarter for Prama. We launched two new benchmarking modules, one for auto lenders and one for credit card issuers, as well as our new data extract product that allows clients to directly assess our credit data archives. In the third quarter we expect to launch a module focused on consumer lending with a mortgage product following that. We also rolled up Prama in Canada during the quarter and have seen high levels of customer interest and very rapid uptake. I'll spend a little more time on Canada shortly but this is another example of expanding our innovation across borders just as we're doing with CreditVision and other products. As you would expect, we have plans to launch Prama in additional countries in the future and the commonality of our technology platform allows that to happen quickly and efficiently. Looking a little further into the future, we have proof-of-concept Prama modules with several markets outside of financial services. While it's too early to predict the size and impact that they'll have, we're bullish that we have yet another powerful application of our industry-leading product. The second strategy I want to discuss is our expansion into new vertical markets which have largely been growing revenue at solid double-digit rates and should continue to do so for the foreseeable future. Today I'd like to spend some time discussing our insurance vertical which helps our customers improve risk assessment including policy pricing underwriting decision and potential fraud, as well as helping them gain valuable consumer insights. Historically, our insurance offering leverage credit data as an underwriting tool for auto insurers. About seven years ago, we began to diversify into new lines of the insurance business, as well as into other areas of the insurance value chain. That diversification has allowed us to better match our customers need and to deliver data-driven analytic tools that are driving considerable value in the industry. Starting on the auto side which is still the largest piece of the vertical, we haven't launched any relationships with 14 of the top 15 auto insurers in the U.S., as well as a large cross-section of small and midsize insurers. We provide them with a suite of solutions used for customer acquisitions, coding and underwriting, fraud and identity authentication, as well as a sophisticated investigative platform used in claims. Consumer credit data is a strong predictor of many behaviors including how an individual is likely to perform as an insured driver. And as such it provides the underwriter with a data-driven analytical tool to complement other factors in determining if they want to ensure an individual and at what price. We have successfully diversified our offerings beyond this traditional underwriting product that I discussed a few minutes ago, we are leveraging our fraud and ID capabilities across the company and the insurance vertical has utilized them to help carriers quickly verify the identity of the individual but also other key pieces of information like if they really live and garage their car where they have indicated, given the importance of where the vehicle is kept. We can also identify who else lives in their household. Is there a teenage driver living at the home that the applicant didn't declare and we're able to validate the authenticity of the asset being insured to help avoid a fraudulent claim for a previously damaged vehicle or even to avoid fraud associated with someone trying to ensure a phantom vehicle that never existed only to turn around and file a claim for a stolen vehicle. Carriers have become more exposed to fraud as more and more insurance is sold via Internet or through a call center. Further diversification is come from the acquisition of driver's history which led to the creation of our DriverRisk product. DriverRisk identifies risk associated with an applicant's driving behavior and provide insurers with a cost competitively timely and more detailed offering compared to state issued motor vehicle reports. From a cost perspective, we are able to sell DriverRisk at a price point that makes it cost-effective to be used for quoting new business. Given they have only about 30% to 40% of drivers actually have violations on [reckless], insurers are spending a lot of money to learn that there are no issues. DriverRisk can be used as a screening tool whereby the insurer looks at all applicant and then only orders additional underwriting reports for driver risk shows violation. In other cases, customers can use driver risk as a standalone underwriting tool given that the solution provides a greater level of detail about the driving and fraction that is currently available from traditional sources. Let me walk you through how DriverRisk differs from traditional sources. First, unlike a traditional MBR DriverRisk was so different that the driver was charged with and not just a final determination of a court. In situations the individual contest the ticket. This could show that the driver received a ticket for a DUI and plead to down to a lesser charge very valuable information to insurer. Beyond that, DriverRisk reflects ticketed violations quickly in the event that a driver challenges the ticket in court and MBR will not include that ticket and so the court makes a determination meaning that insurer could underwrite an individual while there are potentially serious track of violations pending in court and not be aware of them. DriverRisk will show the ticket even while the driver's contesting it. With a lower price point, superior timelines and more granular violation data, DriverRisk continues to gain share in the industry with a steadily growing number of auto insurers using the products today. We also continue to expand our national coverage. As of today we're in 31 states which represents 71% of the U.S. driving population. Even as insurance continues to deliver good performance, we also continue to see strength in our other growth verticals notably healthcare, rental screening and governments. All our verticals offer strong growth trends in attractive markets providing very valuable portfolio diversification for TransUnion. At the same time they leverage our diverse and powerful data assets and analytical capabilities to help us create unique positions in these markets. Growth in international markets our third strategy continues to be a very good story and has brought valuable diversification to our portfolio. We spent a fair amount of time in the past talking about our emerging market opportunity which makes sense given the potential end markets like India and Colombia. I’ll provide an update on those markets shortly but I want to spend time discussing our impressive fast growing Canadian business. Clearly the catalyst for sustainable solid double-digit growth in a highly developed market like Canada has not the underlying macroeconomic trends. The story of our business there comes back to our ability to quickly efficiently and effectively leverage our innovation and capabilities to win share and build new markets with our customers. Just like the U.S. and almost all our markets, the core of the business is consumer credit data. We saw financial institutions and help them acquire customers and manage lending related risk across all the same end markets that we serve in the U.S. Our ability to lift and shift their technology and the industry-leading innovation that it supports into Canada has enabled meaningful share gains with some of the largest financial institutions in that market. It started with the launch of CreditVision in 2015. As I discussed earlier, we're the leaders in trended data in the U.S. and internationally. Part of this cutting end new product and our refocus approach to the market, our sales force was able to just place our competitor and gain a primary position in several large national accounts. While we certainly benefit from selling our customers a higher value product like CreditVision, the bigger win is the substantial incremental volume that comes with being at customer's primary bureau. Customers place a premium on innovation that helps them better manage lending acquisition of risk which leads to real value creation for them. For us becoming a source of innovation and valuable partners makes the relationship sticky. With the launch of Prama in Canada in the second quarter, we are cementing our position as a innovation leader in Canada. As I mentioned earlier, we have seen very rapid adoption and have confidence that there is meaningful future growth opportunity. Beyond financial services, we have continued to diversify the business similar to our consumer interactive segment in U.S., we have both a direct to consumer credit monitoring business, as well as indirect partners including our recently announced partnership to power CreditKarma in Canada. The Canadian consumer business has delivered solid double-digit growth over the past four years as consumers are becoming more engaged and understanding their credit score and profile. We are also building our growth verticals in Canada. The largest is insurance where we continue to see strong growth and currently are the primary provider of credit dated to 8 of the top 10 Canadians insurers. Beyond that, we have nascent growing positions in government, credit unions, mortgage brokers and auto. Taken together our strong innovation pipeline, ability to win share and diversification into new verticals give us conviction in Canada as a long-term source of growth for TransUnion. It also offers a good template for how we are able to stimulate growth above and beyond underlying macroeconomic trends in the country. We could describe a similar situation in our other developed market at Hong Kong where we've seen solid growth beyond innovation and the development of a direct to consumer offering. This approach also has implications for our ability to generate above market growth in emerging markets like India, and Colombia. As I discussed last quarter, the underlying market conditions are strong in both countries and we're driving incremental growth by executing the same playbook of innovation, market focus and diversification. As a result, we continue to see very strong performance in India and Colombia and many other international emerging markets. Moving from international to consumer interactive, we have the opportunity to drive solid growth through new partners, verticals and geographies. Last quarter we talked about some important strategic partnerships including Chase with its credit journey offering in CreditKarma and their entry into Canada. I'm pleased to report that both are performing very well. In the case of credit journey, Chase is leveraging our credit fee dashboard giving them the ability to present preapproved offers to consumers that best matches lending criteria and the consumer's credit profile. Through this offering, consumers benefit from a holistic view of the credit profile. This includes their credit score, factors impacting the score, alerts to changes to help protect their identity, educational tools such as the score simulator and in most circumstances the means to access new lines of credit for which they can confidently know that we approved. Chase benefits from a new channel for affectively re-engaging with existing customers and acquiring new ones. With all of our partners, we leverage our highly customer credit view platform enabling rapid product development. Delivery and fast implementation and integration that each partner needs, and we are in the process of extending these capabilities into certain international markets. What is bringing on a new partner in the U.S., helping a partner launch in the new market, our own efforts to build a consumer offering in a new market we have the right technology platform available to quickly and efficiently meet the needs of customers and consumers. That wraps up my look at our five growth strategies, driving growth through innovation, expansion into new vertical markets, growth in international markets, capitalization and growth opportunities in consumer interactive, and leveraging global operational excellence. Now I’ll turn over to Al to walk you through the financials. Al?

Thanks Jim, and thank you for the kind words. I have appreciated our friendship and support since the day you arrived. It was a difficult decision to leave TransUnion after almost 10 years as a CFO but the time is right after key ownership changes, and IPO and several secondary. I also have great confidence in my team and know that I'm leaving the finance function in great hands. Todd has really been on the path for this position for many years. As Jim pointed out, he had both corporate and operating finance positions and played an integral goal in all the finding events at TransUnion over the past decades. My most sincere thanks to everyone at TransUnion who have made my 10 year here an absolutely amazing and rewarding experience. Okay, now back to the business. I’ll walk you through our consolidated and segment results. Second quarter consolidated revenue was $475 million, an increase of 12% on a reported basis and 11% on a constant currency basis compared with the second quarter of 2016. Revenue from acquisitions contributed about one point of growth in the quarter. Adjusted EBITDA was $186 million, an increase of 17% on a reported basis and 16% on a constant currency basis compared with the second quarter of 2016. Adjusted EBITDA margin was 39.2%, an increase of 170 basis points compared with the second quarter of 2016. Adjusted net income was $88 million, an increase of 29% compared with the second quarter of 2016. Adjusted diluted earnings per share was $0.47, an increase of 26% compared with the second quarter of 2016 with the adjusted effective tax rate for the second quarter of approximately 36% down about 40 basis points compared with the second quarter of 2016. Let me walk you through the details of our P&L. As I mentioned, second quarter consolidated revenue was $475 million, an increase of 12% on a reported basis and 11% on a constant currency basis compared with the second quarter of 2016. Cost of services was $152 million, an increase of 6% compared with second quarter of 2016 due to investments in key strategic growth initiatives, increased product costs related to increases in revenue, and the impact of strengthening foreign currency on our expenses of our international segment partially offset by savings enabled by our next-generation technology platform and other productivity initiatives and favorable revenue mix and consumer interactive. SG&A was $149 million, an increase of 3% compared with the second quarter of 2016 driven primarily by investments in strategic growth initiatives, and an increase in incentive and stock-based comp related to our strong business performance partially offset by benefits of focusing on marketing spend on more efficient channels. And depreciation and amortization was $58 million, a decrease of 21% compared with the second quarter of 2016. This decrease was primarily due - primarily to the retirement of certain assets as result of the 2016 implementation of our next-gen technology platform. Adjusted operating income was $161 million, an increase of 24% compared with the second quarter 2016 driven primarily by the increase in revenue. Now looking at segment revenue and adjusted operating income. USSI's revenue was $298 million up 16% compared with the second quarter of 2016 driven by strong growth across all platforms starting with online data services revenue which was $191 million, an increase of 13% driven by - still a strong macroeconomic environment and the continued success of innovative products like CreditVision and CreditVision Link and [indiscernible]. Marketing services revenue was $46 million, an increase of 23% due primarily to demand of our new solutions and increased batch activity. And decisioning services revenue was $61 million, an increase of 20% due primarily to revenue growth in our healthcare and rental screening verticals. Adjusted operating income for USIS was $110 million, an increase of 26% compared with the second quarter of 2016 due primarily to the increase in revenue. International revenue was $87 million, an increase of 13% or 10% on a constant currency basis compared with the second quarter of 2016. Emerging markets revenue was $56 million, an increase of 13% or 8% on a constant currency basis. We saw strong growth in India and other key markets that was offset by continued macroeconomic softness in South Africa. Developed market revenue was $31 million, an increase of 11% or 15% on a constant currency basis. We continue to see strong performance in both Canada and Hong Kong. Adjusted operating income for international was $27 million, an increase of 12% on a reported basis or 11% on a constant currency basis. Adjusted operating income margin expanded by 10 basis points. Although good growth and expansion in the quarter, we did make some one-time technology innovation investments to drive efficiency and innovation. Consumer interactive revenue was $105 million, a decrease of 1% compared with the second quarter of 2016. As expected, consumer interactive revenue was down slightly due to our new long-term contract with CreditKarma and the acquisition of one of our indirect channel partners by a competitor which occurred early in the second half of 2016. Now that these two items are behind us and have lapsed, we expect growth in the second half of the year to be in the mid-single-digits. Adjusted operating income for consumer interactive was $51 million, an increase of 13% compared with the second quarter of 2016. The slight revenue decline was more than offset by the benefit of focusing on marketing spend, on more efficient channels as well as favorable shift in business mix. Now I’ll move on to the balance sheet. Cash and cash equivalents were $142 million at June 30, 2017 and $182 million at December 31, 2016. Totaled debt including the current portion of our long-term debt remain relatively flat at $2.4 billion as of June 30, 2017 compared with December 31, 2016. During the second quarter we utilized our revolving credit facility to finance share repurchases. As of June 30, 2017, we had 45 million outstanding and excess to remaining 165 million of the 210 million revolving credit facility. Moving on to the statement of cash flows. For the six months ended June 30, 2017 cash provided by our operating activities increased to $174 million compared with $150 million for the same period in 2016 due primarily to the increase in operating performance. Cash used in investing activities was $105 million compared with $323 million for the same period in 2016 due primarily to decrease in cash used for acquisitions. Capital expenditures were $58 million compared with $55 million for the same period in 2016. Cash used in financing activities was $110 million compared with a source of cash of $181 for the same period in 2016 due primarily to lower borrowings and repurchasing stock. As a reminder of our capital allocation process we remain highly focused on organic investments and strategic acquisitions to help drive long-term growth. We also continue to execute against our plan to repurchase up to 300 million of stock over the next three years having already completed about $133 million in the buyback to the end of the second quarter. That concludes my review of our financial results. I will now turn the call back to Jim.

Thanks Al. As I lay out our guidance, a couple of quick points about our assumptions for acquisitions and FX impact. For the full-year acquisition should add approximately one point of revenue growth and we expect no significant impact in the third quarter. For FX we expect to have no significant impact in either period. Now turning to our updated guidance for full-year 2017. We are raising our full year 2017 guidance for revenue and adjusted EBITDA and adjusted EPS. We now expect revenue to come in between 1,870,000,000 and 1,880,000,000 up 9% to 10% on a constant currency basis. Adjusted EBITDA for the year is now expected to between $730 million and $740 million up 15% to 16%. At the midpoint of our guidance, adjusted EBITDA margin is now expected to be slightly above 39%. This is a result of our strong revenue growth, the benefits of the investments we made in the company product mix and productivity improvements across the business, as well as the favorable impact of recent M&A. Adjusted diluted earnings per share for the year are expected to be between $1.79 and a $1.82 up 19% to 21%. And for the third quarter of 2017 we expect the following revenue should come in between $470 million and $475 million, an increase of approximately 7% to 8% on a constant currency basis. Adjusted EBITDA is expected to be between $185 million and $189 million, an increase of approximately 11% to 14%. Adjusted diluted earnings per share are expected to be between $0.45 and $0.46, an increase of 21% to 24% compared with the second quarter of 2016. To wrap-up TransUnion delivered outstanding broad-based top and bottom line financial results in the second quarter setting us up for the strong 2017. As I discussed we're focused on growing through innovation, diversifying through new faster growth verticals, expanding internationally, continuing to strategically build our consumer interactive business, and leveraging global operational excellence. As I highlight over the course of the call, we are highly focused on efficiently leveraging our data assets and analytic capabilities to generate top-tier growth today and that gives us confidence and the suitability of our growth over the long-term. We take in CreditVision and Prama and the new geographies of verticals and we have leveraged fraud and ID solutions across vertical segments and geographies. We're using our assets to diversifying our insurance vertical even as we build it in international markets. Correspondingly, our international markets like Canada, India and Colombia benefit from a steady flow of new products, cutting edge technology and the diversification of new verticals and offerings. And in consumer interactive, we've built powerful platform approach that we can leverage to serve partners in the U.S. and our international markets. This is the power of the TransUnion business model at work and puts us in a strong position to drive top-tier revenue growth and incremental margins even as we invest organically and through acquisitions for the long-term. This gives us real conviction in 2017 and beyond. Now let me turn the time back to Aaron.

Thanks Jim. That concludes our prepared remarks. For the Q&A we ask that you each ask only one question so that we can include more participants and I'll be glad to take those questions.

[Operator Instructions] Your first question comes from the line of Tim McHugh from William Blair. Tim, your line is open.

Just want to ask about the marketing services practice, the pace of growth there is the strongest I think in a long while for you guys. So I know you mentioned new products and some batch I guess sales. So can you help describe I guess what new product specifically are showing up in that line and driving that growth and how I guess lumpy was some of the strength from batch processing just as we think about sustainability of the growth in that practice area? Thanks.

Sure, so a lot of that line is also traditional process right and as you - this is Jim by the way, as we discussed, before we’re in good position and we’re kind of taking share. The other thing to remember about batch that it's a little more choppy than other kinds of products because they come in batches. So I would say good percentage of that is simply a result of taking share. It also includes our new digital marketing solution so that will be something new you would see in there and that’s really what’s driving.

Yes I think just to reiterate what Jim said is, it is a lumpier line of business so we don't get too hung up on quarterly trends in year-over-year growth and it’s what we look at sustainability but in underlying that is what we talked about still a very solid and buoyant credit market and in feeding off of that half way through the year.

The next question comes from the line of Manav Patnaik from Barclays. Manav, your line is open.

Good morning, and I just like to offer my congratulations and good luck to Al on his next opportunity. One question I have for you Jim just a bigger picture, obviously your broad based growth continues organically very solid. It seems like it's a well oiled machine at this point in time and with that context I was just wondering as we look at the next couple of years, is there more appetite or is there a pipeline in terms of M&A and if so what sort of areas do you think TransUnion needs to go after from an M&A perspective?

Sure enough, so yes - I will acknowledge I think we have created a good growth machine and we’ve discussed all the drivers behind that including the technology and the other infrastructure. I think that does put us in a position to continue to buy certain kinds of assets. At least for now strategically we’re looking for stuff that's more in line with our core business. So consumer related that will either take us into new verticals or will bring capabilities that we can add to our existing capabilities to bolster our existing verticals. And we are as active as we've ever been as far as staying abreast with the different kinds of companies that are kind of targets in this space. And we'll continue to be that way and so there's no reason to think that we would not continue making similar acquisitions to the ones we've made up to this point, but I will say I think you'll always find that we’ll have a very clear strategic rationale for these things as we have always have in the past and very clear line to creating value.

The next question comes from the line of Andrew Steinerman from JPMorgan. Andrew, your line is open.

If I back into the implied organic revenue growth middle of the range for the fourth quarter it looks like it might be higher than the middle of the range for the third quarter. Is that accurate and what would be driving a higher biased growth in the fourth and the third?

That would be accurate I think having said that we're - I mean it’s, rounding right now due to the implied topline growth. I would not read too much into that. I think it’s the consistency that we’ve talked about which is a buoyant credit market. New products growth continuing to deliver, we feel good about that. Emerging verticals continue to perform above traditional growth rates, and our international emerging market is performing very, very well. So you're absolutely correct in your math, but I wouldn't read anything different from Q3 to Q4 from a trend standpoint. It’s pretty consistent and we feel good about it which is why we raised full-year guidance and revenue guidance by $20 million as we look forward.

How about consumer interactive maybe being stronger in the fourth than the third.

Consistent trend is exactly what we said, Andrew, and it’s exactly what we're seeing today. First half of year because of the renegotiation of a large contract and the acquisition, we’re going to be down flat to slightly down. And second half of the year, we see I - like we talked about, mid-single digit. So we feel good about that too.

Just to clarify, Andrew, what else of acquisition, it means the acquisition of one of our customers by competitors. So that's what.

Next question comes from the line of Toni Kaplan from Morgan Stanley. Toni, your line is open.

Thanks, good morning. You previously discussed repurchasing a $100 million a year for the next three years, but you're already ahead of that year-to-date. Do you anticipate sort of accelerating your program or should we expect no further repurchases for the rest of this year? And do you have any updated thoughts on dividend? Thanks.

Yes, two things, you’re right. We have purchased up to I think a 133, so I suggest grounding we said in the fourth quarter call, we were going to purchase 300 million over three years. We’ve exceeded that because we felt like the opportunity was right in terms of where we were and what we were doing, and feel good about that. I don't think we have a need right now to continue to rush or accelerate anything, we feel very good about our $300 million guidance over the next three years. What it does from a capital structure is it allows us to bring in some shares. But more importantly, continue to focus on building out and driving any organic related growth opportunities, pay down our debt as we continue to pay down our debt, and continue to build more cash on our balance sheet for M&A opportunities, something that has been a traditional and we believe a consistent grower for our topline as we diversify our business and we won’t see any change from that, and, no, we haven’t. We have no further discussion or thoughts on dividend, we feel very good about the financial policy that we've laid out and where we’re heading with that.

The next question comes from the line of Gary Bisbee from RBC. Gary, your line is open.

Good luck to you in whenever you do going forward, it’s been a pleasure. And then the question for Jim, I appreciate the color on the fraud and insurance opportunities and where your offerings are. Can you give us a sense how large these are and how fast they're growing? And if you don't want to comment specifically on each, at least an update on the newer verticals, and feel free to lump in healthcare and the rental screening market. But what's the scale these things now, how faster they're growing relative to the core, and any thoughts on where you stand in terms of penetration of those offerings into the potential customer base?

That's a big question. And as you know, we haven't gotten into kind of the details around each of the verticals, but I’d say they're all meaningful for us, and they're all growing double digit. So, certainly our core business is growing very well, but these are growing faster. Starting with healthcare, we have a very nice business there in the revenue cycle management space, frontend, backend. We think we have a tremendous amount of upside still because the market is fairly fragmented. We think we're the strongest player, especially in the backend, and our competition is largely the internal processes of many of these providers. And so we feel really strong about that segment. Rental screening also continues to grow very well, especially the kind of self-service of getting yourself background checked. And that demographic there, everything is kind of moving in the right direction. The insurance business, as you know, we have very strong ties from pipes into 14, 15 top insurance company. That allows us to -- we talk about DHI to give those kind of different kind of data or analytics into those pipe. That business is also meaningful and will also continue to grow nicely for us. With regards to fraud, kind of little color there. When I got here five years ago, we were being very opportunistic both with origination and even transactional fraud, right? So now, it’s been kind of a mission of ours to make a holistic solution. That’s really come together nicely. Right from when a consumer walks in the door or that you kind of see them on the Internet or whatever or online to understand, are they committing fraud to how they're behaving once you’re interacting with them or even when they're a customer, and that's what, you know, the product that we’re describing are really able to do. So we've seen substantial double digit growth there in the U.S., and we're able to take that outside of the U.S. because it uses all the same kinds of data in different countries that we have in the U.S. So we feel - and you know, I mean, that market has never gone away. It's only getting worse, and we intend to be a meaningful player there. Those are four of the verticals. Our government business is fairly nascent still, we have a ton of upside there. That’s a longer kind of row to hoe, but we feel good about that business as well. Those are just some examples.

The next question comes from the line of Jeff Miller from Baird. Jeff, your line is open.

Best of luck to Al as well for me. On the consumer interactive outlook, I would have thought you might have the potential for even faster growth as you anniversary the CreditKarma pricing adjustment, and the acquisition of your client on the indirect side, as well as I think Chase is performing well. And correct me if I'm wrong, but it gives the opportunity to cross-sell a similar solution to Chase to other banks. So with that long preamble, are you - what’s the potential offset? Is it something with - are you seeing accelerating cannibalization of the direct channel with some of the free to consumer alternatives, or are we hitting a saturation point in terms of consumers having access to this data from a lot of different sources? Just any thoughts would be appreciated.

So, I don’t think anybody out there could say that the idea of whether it’s premium or it’s actually free, it hasn’t impacted anyone's ability to sell a poor fee service. So certainly that had had some impact on our growth. You know, the karma thing, we left it but it's also not as bigger driver of growth as we’ve had in the past. And that’s something we’ve been very upfront with you guys. So we’re trying to kind of grow our way through that. And so our kind of outlook going forward which is reflected in our numbers, that we’re going to continue to penetrate the market on the indirect side which is going to drive good growth and that we’re going to continue moving our consumer business outside of the U.S. which really doesn't yet show up. In a big way, our number is starting to really pickup as well. So we still have we believe a lot of good growth prospects in that business.

The next question comes from the line of George Mihalos from Cowen and Company. George, your line is open.

Let me add my best wishes to Al. My question is, Jim, looking at some of the changes going on around credit scoring, I guess maybe excluding some of the negative data around tax liens and whatever else, do you see that as being any sort of a meaningful catalyst to your business and are there any vertical specifically that might stand out that might benefit from the modest change around that? Thank you.

Well frankly we don’t see that as having any kind of meaningful impact at all. Certainly there were changes that we had to make in order to deal with that change but we don’t see a substantial impact in either direction from that ruling and the core credit business remains as durable and strong as ever and I think I've talked about this before, it has all the upside associated with being must have kind of information and as we add other kinds of information to it, it allows us in which we’ve been doing to grow our business. I think the other thing that's happened with TransUnion is as we've been more innovative over the last several years our newer products are growing but also we are taking share which is by the bigger driver I think not only in the U.S. but around the world. And so I guess I mentioned the business model towards the end of my comment that is a business model, is taking - it’s very durable, repeatable asset taking innovation, building on top of that, saw all these new solution. And then that actually leads to a bit of kind of circular affect allowing us to take more share on that core. That's probably the most important dynamic going on. These other changes all I guess it might reflect is the continuing interest in how important this kind of information is kind of the fabric of the economy here in the U.S. and internationally.

The next question comes from the line of Shlomo Rosenbaum from Stifel. Shlomo, your line is open.

Al, can you talk a little bit about the marketing services again. I'm just trying to get a handle on in terms of the mix of revenue how much of that revenue is coming from batch work that would be a precursor to growth in the online business as usually there's marketing before you get a bunch of credit card stuff or in how much of it is taking market share and some of the newer products. Is there some like analytics you've done internally to see what's going on there?

Yes. I think Shlomo traditionally what you were saying may have been true but if you actually look back and all of this is public information, just use 2015 as an example and you push it through all the way quarterly then you compare that to online data services growth. That correlation doesn’t necessarily exist. In other words during that time period, you had low credit marketing services growth and higher online data services growth. So the way I would read it, the way I would talk about it and it wouldn’t read into big online volumes are going to come because the credit marketing services is in totality when you look at combined online credit marketing services as an example right, combine it’s probably low double-digit grower in the quarter. Not that dissimilar when you start talking about points and percentages from the first quarter and that really has to go with and to do with the overall U.S. consumer credit market today which we've talked about is pretty, pretty strong and it's very good across all of the segments. Mortgage is better than what we thought, credit card is obviously very good and you'll hear the bank talking about some of the different segmentation strategies that are going after to find new customers that all bodes very well for us, as well as even autos probably doing better than what we thought. In addition to the other credit products, when you take that coupled new product offerings such as digital marketing and some of the new entrance into the market space and CreditVision, CreditVision Link on the online side, it bodes well for our USIS business on the U.S. core consumer credit side. So, again I wouldn't read into these things, also these things can happen at the end of the quarter by our bank. Some things are predictable, some things are not, it's really the longer-term trend that we’re focused on. And if you look at 2015 and 2016, the growth in that space has been high single-digit close to double-digit . We're talking about percentages which is hard to forecast and predict.

The next question comes from the line of Kevin McVeigh from Deutsche Bank. Kevin, your line is open.

Jim, you made a comment around being a primary bureau choice. I just wonder, what does that means from kind of a revenue or a growth perspective as you shift to kind of number one versus number two historically. And does that help kind of boost organic growth 18 into 19 as you leverage kind of the trend data across different entities?

Sure. I would say 17, 18, 19, 20, right? I mean, it is part of the equation. I will clarify, I know everyone wants to make things to zero-some gain among us, companies that play in the credit space but when we've all chosen - we do compete obviously, but we’ve chosen different paths to grow on top of this core data assets we have. And I think for TransUnion, we’ve made some pretty good choices, and they’ve worked out. Now back to your question, we are very, very sticky. All three of us are very sticky. When we do happen to innovate and do new things that does help drag along core business revenue, and I think you see that affect, reflected not only in our U.S. business, but even where we compete in our international businesses. And that's what helps us. Part of what help us, certainly not all the, but close to all of it helps us stay in the top grower category. And I think you'll see us continue to do that going forward. And so I think it will affect '18. It's harder - I think 19, 20, 21, but our strategy is really to keep layering on innovative new solutions that are in our pipeline right now to drive growth that way and also to protect our revenue in the core and also to grow our revenue in the core by taking share. So it’s all part of that equation.

And the next question comes from the line of David Togut from Evercore ISI. David, your line is open.

All the very best Al. Jim, could you compare the opportunity for CreditVision in auto? What you see in mortgage kind of similarities, differences, particular in terms of the size and growth opportunity for TransUnion?

Sure. The CreditVision in auto for us is very still rather nascent, but we’re starting to get penetration, right. And it’s driven a lot by CreditVision Link. So that’s probably the big difference and CreditVision Link is standard data probably looking for more under banked kind of focus in getting them into a category where you go from subprime to primary, you go to no credit at all to subprime. So it's a different kind of layer there, but it is similar in that it helps more people get access to credit. As far as the size goes, I don't have a market size on that, but I will say it's meaningful, but obviously mortgage is - you know, I am wondering it's completely blanketing the market is, in my view, at least in the short run will have a much more rapid, or it just had a much more rapid penetration and a larger penetration. So you won't see the same kind of massive all at once shift because it's not regulated.

Great. And that brings us to the top of the hour to the end of the call. We thank everyone very much for their time today, and we will forward to talking to everyone again soon. And certainly, three months from now in the next quarterly call. Thank you.

Thank you, all.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.