Good morning and welcome to the TransUnion, Fourth Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would like to turn the conference over to Aaron Hoffman. Please go ahead.

Good morning everyone and thank you for joining us today. I’m joined by Jim Peck, President and Chief Executive Officer; and Todd Cello, Executive Vice President and Chief Financial Officer. We've posted our earnings release on the TransUnion Investor Relations web site this morning. Our 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 the 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 web site. 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 done, let me turn the time over to Jim.

Thanks Aaron. TransUnion closed out a very good year in 2017 with a strong fourth quarter. The growth trends that we experienced throughout the year, continued. For both the full year and the quarter, revenue grew double digits for the total company as well as for USIS and International. Consumer Interactive delivered stronger than expected revenue growth of 6% for the year, and double digits for the fourth quarter. Adjusted and adjusted EPS both increased significantly for the year, and the quarter. Adjusted EBITDA margin for the full year expanded by more than 100 basis points. This marks three consecutive years of double digit revenue, adjusted EBITDA and adjusted EPS growth. Over that three year span, adjusted EBITDA margin has expanded by about 400 basis points. As we have discussed on previous calls, our strategy to deliver this sort of top tier performance from a broad based set of growth drivers, and over this time, our growth has come from a variety of diversified sources, ranging from new products to rapidly growing verticals, to attractive international positions. In fact, over the past three years, more than 50% of our top line growth has come from new products, growth verticals and emerging markets, and we expect a similar story over the next three years and likely beyond that. This gives us not only great conviction in the long term durability of our growth trajectory, but the diversification also limits downside risk that can come from overreliance on any one area of the business. A strong performance also makes a strong cash generator, and you have seen that our board has approved a dividend policy. I want to stress that we will continue to fully invest in our robust pipeline of organic and inorganic opportunities. Underlying our growth objectives are a series…

Thanks Jim. I will start by walking you through our consolidated and segment results. For the sake of simplicity, all of the comparisons I discuss today, will be against the fourth quarter of 2016, unless noted otherwise. Fourth quarter consolidated revenue increased 16% on both a reported and constant currency basis, with strong performance across all three segments. Revenue from acquisitions contributed approximately three points of growth in the quarter. This was higher than expected, as our guidance did not include the acquisition of FactorTrust during the quarter. We also realized about one point of growth, roughly $4 million from incremental credit monitoring business from a competitor. Adjusted EBITDA increased 16% on a reported basis and 15% on a constant currency basis. However, adjusted EBITDA margin was flat, largely as a result of two factors. First, we chose to invest all of the revenue related to the one time incremental credit monitoring business from a competitor. We used a significant majority of these funds to invest in new data assets, advertising and marketing, as well as some opportunities in South Africa. And second, we experienced the normal cost to integrate the three acquisitions we made late in the year, Datalink Services, eBureau and FactorTrust. Adjusted diluted EPS increased 13%. The adjusted effective tax rate for the fourth quarter was 35.6% and was 36.1% for the full year, in line with our expectations of 36% to 37%. Let's spend a minute discussing some of the key income statement items. Cost of services increased 20%. This increase was largely the result of higher product costs related to revenue growth and our continuing investment in strategic growth initiatives, to drive long term top and bottom line performance, as well as the investments funded by the incremental monitoring revenue. SG&A was up 2%, as…

Thanks Todd. To wrap up, I think when you put together the pieces of our discussion today, you find TransUnion in a strong enviable position. We have built a very solid track record since going public in June 2015, with significant top and bottom line growth, we have demonstrated the strength of our business model and our ability to deliver industry leading performance. At the same time, we have been good stewards of our shareholder capital. We have made meaningful acquisitions that are fueling our growth, and should do so for many years to come. We efficiently bought back shares in 2017 by participating in two of our sponsor's secondary offering, and we are now in a position to offer shareholders a dividend, even as we continue to aggressively invest in our business. While this paints a good picture of the past few years, it also sets us up for a strong future performance. We continue to have real conviction in our ability to drive top tier revenue growth and an attractive margin, while fully funding all of our best investment opportunities. With that, I will turn the time back to Aaron.

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. Now, we will be glad to take your questions.

[Operator Instructions]. Our first question comes from Andrew Steinerman with JPMorgan. Please go ahead.

Hi. I wanted to ask about the full year margin guide for 2018, which is essentially flat. And my question is, usually, when you have an [indiscernible] services company that's growing high single digits organic revenue growth, the incremental margins are so much, that you could invest healthily for your growth initiatives and show reported margin expansion. Is the difference here the M&A from 2017, or is it something else?

Thanks Andrew, this is Jim. I am going to let Todd go through the -- I think again. Although he went through a little bit already in his remarks. I will just kind of give my view. So as you know, at this point in the year, we feel good about our guidance, and we have had a strong history of excellent top line growth, and an ability to expand margins. However, that being said, we want to continue to invest in organic growth opportunities. Our guidance reflects where we are at, at this point in the year, and I think we essentially keeping our powder dry. But as always, we are going to continue to try and gain efficiencies. The revenue we are putting on is good revenue, and you are going to see us emphasize always attempting to expand margins, while we also invest in the organic growth opportunities to drive the business. You are on to something there, obviously the M&A has had some impact. But I think Todd should kind of restate the reasons.

Good morning Andrew. Thanks for the question. So as it pertains to the revenue growth Jim, I am just going to reiterate what Jim said. And you know that we continue to drive top tier revenue growth in our space, and a lot of that is dependent upon the innovation that we have brought, and we are able to take that innovation and not only deploy it here in the U.S., but also internationally. So there is obviously a cost to that, that we fully embrace, because we believe that the growth initiatives have significant runway ahead of them. So we are definitely looking at that, and think of that as more of investments in talent and on the development and the sales side, to keep that runway going. We have also talked about the importance of alternative data as well, and building out a more comprehensive view of the consumer. So we are investing also in data purchases, to further build out our position with alternative data. And finally, as you alluded to, M&A integration is definitely a factor of this, and we are excited about the acquisitions that we made. In particular, eBureau with the rapid model development, we feel that that's going to be a significant growth driver for us, as well as factor trusting in that alternative data space. So there is a cost pertaining to that as well. So all in all, we feel we are upbeat and excited about this, because we know it's going to drive future top line growth for us.

Sounds good. Thank you.

Our next question comes from Manav Patnaik with Barclays. Please go ahead.

Yeah, good morning guys.

Good morning.

Firstly, I applaud the move for the dividend. But I was just hoping if you could shed a little bit more light on how you came to that decision versus continuing the buybacks? And I know, you said your current M&A plans are unchanged, which has been mainly tuck-ins. But I was just curious on -- what if that bigger opportunity comes along?

So regarding the dividend, I think this reflects two things. Our strong cash flow, so we feel good about that, and we know that certain groups of shareholders really value the dividend. But I want to emphasize, that this is not in any way, going to change our desire and ability to fund organic growth initiatives, capital spend on those things, and also, our M&A activities, that are going to drive both top and bottom line growth, and we have a strong pipeline for those things. Regarding the size of an acquisition, I think I look at it in two ways. Our capability here now -- we have got at technology platform, that would allow us to do many interesting things, if the right acquisition came along, and that would include sizable cost synergies, sizable boost to kind of innovation, with new kind of datasets, at a cost that we have already paid for really. So you are investing in a company that has put tremendous amount of company, into a platform that I think is very unique in the industry. And the third thing I'd say there, is our management team is strong as it has ever been. I think it's one of the strongest in the industry, and it's reflected in all the ideas that we have, and all the opportunities we have to take new things to market. So I think we are well positioned for something you might call bigger. Whether that comes along, or whether we feel like it's the right thing to do, we will take that as we come. We know that we first have to look ourselves in the eye, and make sure that we could create a tremendous amount of value, if we ever did anything like that, and I have been through some of those things before. We'd have to look our board in the eye, and we'd have to look at our investors and our analysts in the eye, to make those kinds of things happen. But I would say, the option is there, whether we take it or not, time will tell.

Got it.

Our next question comes from Tim McHugh with William Blair and Company. Please go ahead.

Hi, thanks. Just to circle back on the margin topic. You talked about in the international business, I think it was mainly South Africa, you stepped up investments to reposition for growth. Can you elaborate on, I guess, what you did and were those onetime costs or those costs would stay with us here, and I guess what's the expected or improvement that you are looking for from that?

Sure. So South Africa, we kind of did a mini, what you'd call spark, and we needed substantial improvement into those core systems. So we spent significant time and energy on that last year. Why are we doing? South Africa in particular, has probably the most robust set of assets and kind of single supplier mode, whether it's credit data or insurance data or other kinds of information. So we believe the potential is huge there for us, as the economy recovers. So essentially, we were just positioning ourselves to serve that market, and in some sectors, we grew quite nicely, but we are facing headwinds as we describe for now. But that will not last forever, and whether we are kind of cruising along the bottom of the market there or not, it's hard to tell. But it appears we are. So we have just put ourselves in really good position, to maintain our leadership position in what is a relatively big market for TransUnion.

Thanks.

Our next question comes from Gary Bisbee with RBC Capital Markets. Please go ahead.

Hey guys. Can you give us an update on -- you mentioned it a couple of times, but just the fintech space in general is something you have talked about, as a growth driver over time. Could you either size that for us, or just help us understand the momentum there and how big an opportunity that is for the company? Thank you.

Yeah, sure Gary. So as you know, given some of the innovative products, CreditVision to name a few, has helped us establish a very nice position in that space. In my personal discussions with some of the leaders in that space, and from what we are seeing, we believe that that has a long run way for us, and that it is going to continue to drive good growth. I think the outlook for the players in that space remains very positive. There is a phenomena occurring, that they are not only trying to sell the core products, that kind of got them in the business, but now they are trying to do cross-selling, which is only good for us, as they expand the different kind of lending vehicles, that they can now cross-sell to their current client base. So we are very bullish on that sector of the market, for us.

Our next question comes from David Ridley-Lane with Bank of America. Please go ahead.

Yes, a question on the Consumer Interactive revenue outlook for 2018. Can you size how meaningful those nonrecurring revenue is, and then, kind of the underlying assumption, excluding the onetime revenue, you would [ph] see it from the competitor?

Yeah, so as far as the question pertains to Consumer Interactive's growth rate for 2018?

2018.

We had about 300 basis points, to answer the question of the total growth rate.

We want to make sure we are answering your question.

Sorry. So you mentioned that the growth rate in 2018 will be lower due to some nonrecurring revenue?

That's right. It will be -- and all I am giving you is that -- about 300 basis points to that nonrecurring is the impact in total.

To the total company.

To the total company. Correct.

Understood. Thank you.

Our next question comes from Nick Nikitas with Baird. Please go ahead.

Yeah. Thanks for taking the question. Going to the international markets and just the outstanding growth and develop, can you guys just talk about how far along from a penetration rate you are, with regard to some of the newer initiatives in those markets, and is kind of the high single, low double digit growth rate -- sustainable into 2018?

Yeah. Some of the initiatives are similar to the U.S., CreditVision, CreditVision Link, our fraud products are probably less penetrated and certainly our expansion into insurance segment, and we have also talked about the direct-to-consumer space, which also includes indirect. So you kind of take those all and sum, we have a -- I think a significant runway ahead of us on those products as well, and I think you will see us continue to sustain similar types of growth rates going forward.

Our next question comes from Andrew Jeffrey with SunTrust. Please go ahead.

Thanks guys. Appreciate taking the question. With regard to the elevated level of investments, assumingly across your business, would you expect to see sort of payback in terms of faster organic revenue growth, that you'd be calling out in 2018? Or is that more of a 2019 and beyond kind of development?

Yeah I -- first of all, I think we feel very good about 2018, and like I said, our guidance at this point, reflects how early on we are from here. And we have a large portfolio of -- let's say, comp growth initiatives there, in various states of penetration, whether -- like I said, CreditVision, CreditVision Link, our new fraud products, our new insurance products, our SRG, our strategic group products. And those are going to carry us through 2018. Now the fact is, when you are doing innovative things, you don't know always how quick some of your new ideas are going to be taken up in the market, and that's the nature of being innovative. So we believe some of these things will start having an impact in 2018, of some of the newer things we are doing. And for sure, we are going to start seeing some of these things in 2019, 2020, 2021 and going forward. But the horses were riding to drive a ton of growth this year, the ones that are in market, that haven't really -- anyway near fully penetrated in their full capacity. And I left out healthcare there, I want to mention, that's going to be significant driver of growth. So I think we have a really nice portfolio that's going to drive growth in 2018, and we expect to still be one of the top players in the market, as far as top line growth in 2018, and then we are doing things now, to ensure those things continue, and the new things start picking up, 2019, 2020, 2021.

Thank you very much.

Our next question comes from George Mihalos with Cowen. Please go ahead.

Thank you. Good morning guys. Todd, not to beat a dead horse on the margin front, but you have mentioned reinvesting sort of the competitor or the peer proceeds from the breach and then obviously, the M&A integration cost. If you were to isolate those items, how much of an impact is that having on 2018 margins? Just trying to get a sense of what sort of a normalized margin rate might look like?

George, thanks for the question. So as far as the margin is concerned on the competitor breach revenue. I mean, the way that we have put it into the guidance is that, we are just assuming a steady state margin at the consolidated level, right? So we are guiding that -- we will have $15 million worth of revenue. $5 million in each of Q1, Q2, and Q3, and we are in essence, assuming around a 39% to 40% margin in our guidance, that will assume that we will be opportunistic and spend some of that. So that's on the competitor's side. As far as the M&A integration, I look at that as just more of a first half type of event, and by the second half of the year, we will have already significantly handled majority of the integration efforts, and we will have had that done. And in total, it will be about 100 basis points combined.

Thank you.

Our next question comes from Toni Kaplan with Morgan Stanley. Please go ahead.

Hi, good morning. With more time passing since the Equifax breach, can you just give us an update on your view of share shift in USIS? Are you still not expecting any? Could it take a few quarters to play out? What have you been hearing from clients? Thanks.

Sure. So I will point out that we have, over the last several years, been taking share, which is driving some of our growth and taking it based on just new solutions that we are putting in the market, and that continues to happen. I would characterize it as some of that is happening more quickly now, where we can probably be more on the offense even and our competitor maybe in a position where they are trying to maintain. So certainly, we are able to probably gain audiences much more quickly to put in some of these new innovations. And so I think -- it's hard to tell what drives share shift all the time, but it continues to happen, and we think it will continue in 2018.

Thank you.

Our next question comes from Shlomo Rosenbaum with Stifel. Please go ahead.

Hi. Thank you for squeezing me in here. I just wanted to ask, just about the impacts from the margins, just -- you put different pockets out there Todd, as integration costs bring products to international locations, in essence, in South Africa. I was just wondering two things about this, number one, if -- can you rank order what are the highest impacts to the margin in this year, in terms of keeping the margin flat? And then second, have you built into the guidance, incentive comps? So if you outperform on the top line, you are still going to just have the margin flat? Or if you do outperform on the top line, is there potential to drop more to the bottom line? Thank you.

Okay. Thanks Shlomo for that question. So as far as how we would rank order the investments, I think it just goes back to what I initially said, as it pertains to the runway that we have on our new products. So I think of things like CreditVision, CreditVision Link, CreditView in the B2C space. We continue to invest heavily behind those initiatives, because the runway is there. Not only just the U.S. and other markets, but also internationally, as well on that. So that's an important thing. Obviously we just made some nice acquisitions also in the fourth quarter. So if I were to rank the integration, I'd put it right up there with that. We want to make sure that we get a good return for our shareholders on the M&A. So I would kind of rank order them there, and I think they are kind of tight one and two there, as far as that's concerned. The question on incentive compensation, we do have some modeling in there for potential overperformance in the business. We will just continue though, if the business does outperform during the year, as we provide guidance, any increase in incentive compensation will be part of that guidance. But right now, we do have a modest assumption in the guidance that we have provided.

Thanks. I guess with regards to -- you guys are focusing a lot on margin. I just want to make a point, that we are very aware of the importance of the quality of revenue at this company, and we are very early on in the year. We have many-many opportunities to invest, because we have put ourselves in a position to choose from different opportunities. I think as you see the year progress, if and when we overperform, we are very confident that we have good quality revenue, that can drive margin expansion. But it's February. We have a great track record, but like I said before, we like to keep our powder dry at this point in time. But we are very confident in the year that we are going to have. We are very confident in all the ideas that we have, and we think these are the things that are going to continue to drive this really strong top line growth for this company. So we will see what happens on our next earnings call. But I wanted you guys to understand that.

Our next question comes from Bill Warmington with Wells Fargo. Please go ahead.

Under the wire. So good morning everyone.

Good morning Bill.

So a question for you on the Throtle investment you guys made back in December. I just wanted to ask, how it fits in to TransUnion's identity resolution strategy, and how you think about that opportunity for you?

So, I will take that one Bill. So Throtle play in digital marketing for us. So we made a minority investment, as you already indicated in that business. Just simply, because we see where marketing trends are headed with our customers, and as you are well aware, they are headed more into the digital space. We do have two products AdSurety and AdFuel, which we have seen some nice traction with over the last three to four years. So we remain very interested in the space. We see that there is considerable upside in it. So we found Throtle, and saw an opportunity to better learn more about the business, and potentially be more of a partner to them.

Got it. Thank you very much for the insight.

Our last question comes from Kevin McVeigh with Deutsche Bank. Please go ahead.

Great, thanks. Just the comment on credit likely to remain soft. Can you help us reconcile that with -- are you modeling in any benefit from individual tax cuts in 2018, and could there potentially be some upside, as we work our way through the year?

I think we might have commented on credit cards themselves, might remain soft or not as attractive as some of the other sectors. So we certainly didn't take credit. I think the general view that the consumer right now is in a, let's call it a buoyant phase. Mortgage isn't going to be great, but it's not going to be as bad as last year. Certainly, the fintech space looks very good. Some parts of the auto market, especially used cars look very good. I think we are discounting that the credit card sector itself may remain a bit soft. So overall, we see it as being a -- a good market for credit and a good market for TransUnion.

Got it. Thank you.

You're welcome.

And that wraps up the call today. Thank you all very much for joining us and participating and have a terrific day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.