TransUnion (TRU) Q2 2018 Earnings Report, Transcript and Summary

Good day and welcome to the TransUnion Second Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note today’s event is being recorded. I would now like to turn the conference over to Aaron Hoffman. Please go ahead, sir.

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 and slides to accompany this call on the TransUnion Investor Relations Web site. 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 SEC. We do not undertake any duty to update any forward-looking statements. With that out of the way, I’m happy to turn the time over to Jim.

Thanks, Aaron. Continuing the trends we saw in the first quarter and over the past several years, TransUnion delivered another strong quarter. Our teams continue to execute against our strategies and deliver growth well above the underlying markets in which we operate. Once again, revenue, adjusted EBITDA and adjusted EPS grew double digits for the total company. We also had a strong performance across our segments with double-digit revenue and adjusted operating income growth in all three. We continue to see a majority of our growth coming from innovation across all markets, our new vertical markets like healthcare and insurance and fast growing emerging markets like India and Colombia. Our second quarter performance reflects our strong business model that broadly leverages data assets and capabilities across our organization to help us realize this industry-leading revenue growth with good incremental margins. While this approach certainly contributes to our financial performance, it has also created a more sustainable diversified growth profile that we believe can deliver relative outperformance through cycles. Our formula of selecting attractive verticals and geographical markets and layering world-class innovation and capabilities on top of them continues to drive our performance. We have been very deliberate in the construction of our portfolio. In my comments today, I will talk to you about how these decisions have formed the backbone of our growth engine. During the quarter, we closed on the acquisitions of Callcredit, iovation and Healthcare Payment Specialists. Each of these helps to further diversify our portfolio while entering very attractive new markets. I’ll spend a few minutes discussing how to add fuel for our continued long-term growth. Let me start with a short review of the four key strategies that we are executing against and provide you with some examples around each. The first strategy is driving growth through innovation. I think most of you have heard the story of CreditVision, our industry-leading trended data product and we’ve highlighted CreditVision Link which incorporates more than 100 fields of alternative data to help thin-file borrowers with no material change in risk to the lender. These two products continue to deliver exceptional growth and were up 40% in the second quarter in the U.S. That comes on the heels of 65% growth last quarter and 130% growth in 2017. Outside of the U.S. we now have CreditVision in production in eight markets, including our largest markets Canada, India, South Africa, Hong Kong and Colombia. CreditVision grew almost 50% outside of the U.S. in the second quarter and we expect the business to continue to expand in an attractive pace for the rest of 2018 and for years to come. As you can see, we’ve been aggressive in rolling out these products and see years of future growth ahead. However, we won’t be complacent with our success. We are planning to launch an updated version of CreditVision Link early in the first quarter of 2019. This product incorporates the incredibly valuable data we acquired when we bought FactorTrust in the fourth quarter of 2017. As a reminder, FactorTrust is a credit bureau for short-term lending. As such they collect both positive and negative data on about 25 million U.S. consumers, many of which are not represented in the data contributed to us and our peers by traditional lenders. Incorporating this alternative data with CreditVision Link will allow us to offer significantly more robust and attractive product unlike anything that exists in the market today. FactorTrust not only provides us with highly valuable data but it also opens another meaningful market for us to cross-sell our existing products like collections and fraud. FactorTrust is as good an example of how we’ve utilized acquisitions to create marketplace differentiation and drive-out performance. The second strategy is expanding an attractive vertical in geographic markets. I want to highlight the very strong organic performance we’re seeing in our insurance vertical thus far this year. Overall market conditions have been positive and our innovations are driving above market growth. First, I would highlight that our utilizing trended data fundamentally the same concept as CreditVision for our credit-based risk scoring model is gaining real traction in the market. As we’ve demonstrated, CreditVision provides a lift for scoring an individual’s behavior as a borrower. Similarly, trended credit is a better predictor of future insurance losses and using static information. We’ve seen several wins with larger auto insurers already and have a robust pipeline of additional opportunities. I would also highlight our driver risk offering. This is essentially a robust and highly detailed source of driving violations that provides underwriters with a way to more efficiently and cost effectively manage a critical element of the underwriting process. Driver risk continues to deliver strong performance. We are in the process of rolling out a solution that combines the prescreen capabilities of driver risk with the ability to also deliver where appropriate motor vehicle reports or MVRs. We bought Datalink Services in August giving us nationwide access to MVRs as well as vehicle registration and other department of motor vehicle data. Combined with driver risk, this creates a unique valuable offering for auto insurance underwriters to more efficiently assess the risk of drivers during a quoting and underwriting process and new business as well as with current policies at renewal. We are confident that our new solution will help continue the vertical’s strong performance. I would add that the ability to provide MVRs has also proven to be valuable to other lines of insurance like homeowners, commercial and life insurance as well as other parts of TransUnion like employment screening, rental screening, government and TLOxp. This is another example of fully leveraging an acquisition to help drive long-term growth just like FactorTrust. Switching gears to attractive international markets, we continue to see tremendous performance in India. As you may recall, our business there grew just over 30% in constant currency in 2017 and has delivered roughly 30% constant currency revenue growth in each of the first two quarters of 2018. We see no end in sight for their strong performance. We certainly benefit from very positive market conditions spurned by the Modi administration. However, our goal is to outperform our underlying markets as I mentioned earlier and we’re doing that in India too. The outperformance is driven by our lift and shift strategy where we’ve taken high impact innovation and capabilities and are leveraging them across our international footprint. In India we’ve launched CreditVision and CreditView, our industry leading direct-to-consumer dashboard that facilitates a stronger relationship between our partners and their customers. We are also building out an insurance vertical and fraud offerings there. I will quickly point out that both Canada and Hong Kong grew constant currency revenue by double digits in the quarter and handedly outperformed their underlying markets. Just as we’ve benefitted from lifting and shifting products and capabilities in India, the same is true in these markets. Both are benefitting from CreditVision, CreditView and fraud products. Canada also has a growing insurance vertical and a nation position in government as well as success with Prama. We remain confident that we can continue to deliver strong growth across our international footprint as we globally leverage the unique assets of TransUnion. We delivered another good quarter in Consumer Interactive behind strength in our direct business and the continued benefit of growth with key partners on the indirect side. On the direct side of our business, we’ve seen strong growth driven by the solid acquisition and retention of consumers that subscribe to our paid products starting in September and October last year, along with a heightened level of market interest from consumers managing their credit. On the indirect side, we launched our partnership with American Express in May. They are leveraging our CreditView Dashboard branded as American Express MyCredit Guide to provide all consumers free access to their credit information. This includes their credit report, credit score, factors impacting their score, credit alerts to help identify identity theft, as well as educational tools such as our credit score simulator to improve their financial help. We continue to work with all our partners on enhancements to drive greater value. We have a solid pipeline of opportunities to drive future growth. The final strategy is leveraging our global operational excellence. As you know, we completed a massive technology replatforming several years ago that has reduced costs, increased the speed of development, allowed us to focus more of our capital on innovation and created a true marketplace differentiation. It facilitates more rapid innovation and greater responsiveness to customer needs. At the same time we’ve continued to appropriately invest the very real threat of cyber security that everyone in our industry faces. We’ve done this even as we’ve maintained system reliability, availability and speed. Even with the best technology platform and architecture in the industry, we have avenues to get even better. The acquisition of eBureau is a great example of adding cutting-edge technology that keeps us decidedly well positioned in the marketplace. eBureau brings a unique approach to model development and deployment. Their technology can reduce the total bill time from weeks to days or even hours, the key requirement for high paced verticals like FinTech and peer-to-peer organizations. The essence of the technology is that eBureau builds and deploys models in the same coding language and the same production environment. Typical model development is done in one environment and one language and then rebuilt for production in another environment and another language. Not only is that time consuming and inefficient, it also results in score calculation errors due to maintaining two different sets of code. We see a wide range of benefits from the addition of eBureau, the incorporation of this unique technology allows us to service small and midmarket customers and financial services with custom models that they could never have accessed previously. At the same time much of eBureau’s business was built on transactional fraud models. We’ve already seen this help with new business for our suite of fraud products, IDVision, and it fits nicely with the acquisition of iovation. Over time, I expect a significant portion of TransUnion both domestically and internationally to utilize this technology in some fashion. Like FactorTrust and Datalink, eBureau is an exciting acquisition that can help drive long-term growth across TransUnion. That’s a good transition to the three acquisitions that we closed in the second quarter. Each fits our clearly articulated acquisition strategy. As a reminder, we focus on three key strategies with our acquisitions and have often found transactions that cross two or even three of them, which you can see on this slide. First, we invest in unique and differentiated assets that can augment the core contributory credit data we receive in virtually all of our markets. This allows us to create new value of our offerings for our customers while leveraging existing data assets. Our second strategy focuses on acquiring new capabilities to expand in our vertical markets. Finally, we want to continue to expand our international positions and obviously Callcredit fits squarely into this strategy. On our last earnings call, we announced the acquisition of Callcredit and we closed on the transaction late in June. We went into substantial detail about the business on the call so I will just quickly remind you of some of the important highlights about why we have great conviction that Callcredit will contribute to TransUnion’s long-term top and bottom line growth. The UK is the second largest credit bureau market in the world and Callcredit is the second largest and fastest growing bureau there with differentiated assets and technology. Similar to TransUnion, Callcredit has leveraged data and technology to deliver unique solutions to its customers leading to outsized growth. First, the core market has experienced underlying growth of about 11% per year driven by increased loan volumes and that is expected to continue. A key component of this expectation is the growth or introduction of some of the important trends we’ve benefitted from in the U.S. Driven by the rapidly expanding digital economy, we are seeing the emergence of FinTech lending, fraud solutions and trended data. Notably, we expect both CreditVision and CreditView to be in the market in the UK by next year. We’ve already confirmed with current and potential customers that they are ready to take these products. Second, Callcredit has already been outperforming the underlying market and taking share to superior data and technology. We believe that will continue and be enhanced by the introduction of TransUnion’s product and capabilities. Third, we believe there is meaningful opportunity to optimize the organization and the cost structure of the business. Just as we did in our own international segment in 2016, we can unlock value by leveraging our global scale and enterprise capabilities. While fundamentally this acquisition is about driving long-term growth and leveraging an incredible set of assets and people, there is no doubt that we can improve margin structure over time. In fact, by leveraging our global scale and IP, we expect to realize at least 15 million of cost synergies by the end of 2019 and another 15 million after that. We have real conviction that we will continue to outperform the underlying UK market while also delivering attractive margin improvement. Along the way, the acquisition increases our international segment revenue by about 50%. Similarly, iovation provides yet another growth path and additional diversification for TransUnion. We have a successful history in the fast growing fraud and authentication market with our suite of products IDVision. IDVision includes identify verification and authentication, our site of fraud models for fraud prevention exchange and transactional review as well as document authentication. iovation adds a very important new dimension with data and transaction history on about 5 billion mobile devices globally. They have hundreds of attributes about each of these devices through an exchange model supporting more than 35,000 brands across 50 countries. Using machine learning to identify suspicious patterns, iovation is able to quickly identify whether a device is suspect or safe. In addition, the clear key and launch key products diversify our offerings allowing us to not only provide solutions for new applications but also for account log-in and authentication. This is significant as we have seen 5x to 10x of volume around account log-in and authentication compared to new applications. Combined with our current data assets, we now have an unprecedented 360-degree view of both the online and online characteristics of consumers with the most sophisticated data and technology in the industry. As I mentioned, iovation already does business in about 50 countries including in the UK with Callcredit and others as well as in important markets like India. Additionally, the global fraud and authentication market is growing double digits and more than 20% in the U.S. The combination of a global footprint and market positions combined with iovation’s capability in a very fast growth market creates a compelling source of diversified growth. And finally, our healthcare vertical has been a strong source of diversified growth for many years and has been largely built through acquisitions. In healthcare, our focus is on revenue cycle management helping healthcare providers reduce uncompensated care costs and improve cash flow enabling them to spend more time focused on patient care. The revenue cycle management market consists of a frontend that addresses patient identification and authentication, verification of insurance coverage, patient payment estimation, patient propensity to pay and presumptive charity determination. The backend addresses accounts receivable management collections and insurance coverage discovery after services are rendered. We successfully built front and backend platforms that leverage TransUnion’s unique datasets allowing us to efficiently incorporate partner datasets and integrate acquisitions. The backend portion of the business is now the largest and fastest growing as we have the most comprehensive suite of products to support providers’ ability to receive appropriate payment from third party payers. As you can see on this slide, we’ve built the backend through a series of very successful acquisitions and recently bolstered that position through the purchase of Healthcare Payment Specialists or HPS. HPS builds on capabilities related to Medicare bad debt and disproportionate share hospital reporting. At this point, we have narrowed the gaps in our product offering and are working to complete our suite of products that cover every possible approach to recovering payment from our partners. Like all other acquisitions I have discussed today, HPS provides our healthcare vertical with the necessary fuel to drive long-term attractive growth. I’ll conclude by noting the value creating interrelationships of innovation, verticals and geography is supported and enhanced by a steady flow of truly strategic acquisitions. You can see that innovation in trended data with CreditVision Link and we are pressing our advantage with the next iteration leveraging FactorTrust. In insurance, DHI built on our core offering and now Datalink Services creates the next product evolution as we maintain a very strong industry position. And our best-in-class technology platform is hardly a finished product. Through new unique technologies like eBureau, we are able to further leverage technology as a differentiator that leads to marketplace success. And the next wave of opportunity has arrived in Callcredit, iovation and HPS providing the fuel to power future growth. Our portfolio has been carefully and strategically constructed with long-term differentiated growth as a clear goal. We are stewards of a tremendous set of assets and we have a clear mandate to fully leverage them while judiciously but aggressively adding to them. In doing so, we only enhance our conviction in the long-term growth prospects of TransUnion. Now I’ll turn the time over to Todd to walk you through the financials and provide you with updated guidance. Todd?

Thanks, Jim. As Jim mentioned, we had a strong second quarter. For the sake of simplicity, all of the comparisons I discuss today will be against the second quarter of 2017 unless noted otherwise. Second quarter consolidated revenue increased 19% on an as reported and constant currency basis with strong performance across all three segments that I’ll detail in a moment. Revenue from acquisitions contributed approximately 5 points of growth in the quarter. This was related to Datalink Services, eBureau and FactorTrust which closed in 2017. It also includes HPS and Callcredit which closed in June, so we recognize the revenue associated with those businesses from the close date. iovation closed on the last day of the quarter and thus had no financial impact. We also realized about 1 point of growth, roughly $5 million from incremental credit monitoring business from a competitor. So our underlying business grew 12% in the quarter. Adjusted EBITDA increased 19% on an as reported and constant currency basis. Adjusted diluted EPS increased 34%.The adjusted effective tax rate for the second quarter was 28.1% in line with our expectation for the full year. The lower tax rate accounted for 16 points of our EPS growth in the quarter, meaning that adjusted EPS without the benefits of the lower rate would have still been up 18%. Let’s spend a minute discussing some of the key income statement items. Cost to services increased 25% as a result of higher data costs associated with our revenue growth, investments in strategic initiatives and the operating costs related to the acquisitions I mentioned. SG&A increased 15% for many of the same reasons I mentioned in cost to services and also including incremental marketing in Consumer Interactive. Over the past few quarters, we’ve talked to you about the short-term impact of acquisitions on our margins. The headwind is caused by two simple facts. First, we don’t generally back out acquisition integration costs. So in the case of Callcredit, given its size and the level of necessary integration spending, we will back acquisition integration activity out for two years. The second reason for the headwind is that initially all of these acquisitions have a lower margin profile than TransUnion. As we’ve conveyed in the past, we are confident that over time they will improve their margins and look much more like TransUnion. This slide is designed to help you appreciate the impact and most importantly to better see the margin expansion in our underlying business. As you can see, excluding the impact to these acquisitions, the margin on our underlying business expanded by about 80 basis points in the first half of the year reflecting the typically strong incremental margin profile of our business. Now looking at segment revenue and adjusted operating income. USIS revenue grew 20% driven by strong performance across all three platforms. Excluding the impact of the acquisitions of Datalink, eBureau, FactorTrust, iovation and HPS, revenue would have been up 14%. Online Data Services increased 23% driven by the favorable macroeconomic environment and strength from innovative products like CreditVision, CreditVision Link and TLOxp. Datalink, FactorTrust, eBureau and iovation are in this platform. Excluding them, Online Data Services would have grown 14%. Marketing Services was up 21% due primarily to demand for our new solutions including CreditVision, CreditVision Link and digital marketing as well as an ongoing strength with FinTech customers. And Decision Services revenue grew 10% due primarily to strength in our rental screening and insurance verticals. The HPS acquisition is in this platform. Excluding that revenue, Decision Services was up 8%. Let me proactively address one of the questions you may have about this platform. Given that healthcare is the largest part of this platform, how did it perform? The backend continues to deliver good double-digit growth behind a true unique market position that Jim discussed. We continue to focus our investments on the backend as evidenced by the HPS acquisition as well as significant internal investments. However, on the frontend we recently saw a slowdown in our growth as a result of some very specific events at two customers that are nonoperational and unrelated to any market conditions. Given these circumstances, this year we expect our healthcare vertical to grow high-single digits to low-double digits and we maintain confidence that we’ll return to double digit growth for the vertical next year as we lap these isolated issues. Adjusted operating income for USIS increased 16% and was up 13% on an organic basis. Moving to international, revenue grew 22% both as reported and in constant currency. The Callcredit acquisition is reported in this segment. On an organic basis, the segment was up 13%. Developed markets, which now includes Callcredit along with Canada and Hong Kong, increased revenue by 40% on an as reported and 37% in constant currency. These markets grew organic constant currency revenue 12% as both Canada and Hong Kong were up double digits. A couple of points on Callcredit. You’ll notice that we have included a discontinued operations line in our income statement. This relates to a number of smaller entities within Callcredit that are not strategic fits for TransUnion and are likely a more value to someone else. When we provided you with baseline financials for Callcredit in April, we did not include the results of these businesses as we always anticipated selling the assets. And over the past three months we identified another business that will be included in discontinued operations. In 2017, all of these businesses generated about $25 million of revenue. We expect to complete the sales of these businesses within about a year. Also when we announced the transaction and indicated Callcredit had generated 190 million of revenue and 63 million of adjusted EBITDA in 2017, that was at the prevailing exchange rate at the time of about 1.4. So as a result of adding another business to discontinued operations and reflecting current exchange rates, Callcredit’s 2017 revenue is now $167 million and adjusted EBITDA is $57 million. Notably that implies a higher margin on the continuing business than what you had previously seen. Emerging markets revenue increased 12% on an as reported basis and 13% in constant currency. We saw strong growth in India and other key markets, as Jim mentioned. And in line with expectations, Africa revenue was flat on a constant currency basis as we continue to see the business stabilizing. Adjusted operating income for international grew 23% as reported and in constant currency. On an organic basis, it was up 14%. Consumer Interactive revenue increased 12% driven by growth in both the indirect and direct channels. Our indirect channel also realized about $5 million of revenue from the one-time incremental credit monitoring business from a competitor. Excluding this incremental revenue, Consumer Interactive would have grown 7%. Adjusted operating income for Consumer Interactive grew 10% driven by the increase in revenue. Along with closing the three acquisitions we discussed in the quarter, we also successfully financed them by raising $1.8 billion of debt between our Term Loan A and B instruments. Let me make some important observations. First, the offering was significantly oversubscribed reflecting a strong demand for TransUnion paper. This allowed us to upsize the Term Loan A offering from $400 million to $800 million and put the remainder on Term Loan B. The advantage is that Term Loan A carries a lower interest rate. At the same time, we were able to lower the coupon on Term Loan B by 25 basis points versus our initial offering price. The net impact of this helps us avoid about $5 million of interest expense annually. Second, as we communicated previously, the incremental debt along with a pro forma view of the adjusted EBITDA associated with the acquisitions puts our leverage at about 4.5x. We are confident that we will be back at or below 3.5x by the end of 2019 largely as a result of the strong incremental EBITDA generation of the company including the acquisitions. Third, you’ll see that our expected full year 2018 interest expense is now about $133 million. That may vary based on any movement in LIBOR over time. And finally and perhaps most significantly, our weighted average cost of debt increased only slightly largely due to higher LIBOR not the fact that we increased our debt by about 75%. To wrap up this section, our ability to execute this financing provides further confirmation of the market’s strong view of TransUnion and our cash generation capabilities. Turning now to our guidance for 2018, we admittedly have a lot of moving pieces that need to be factored into our guidance this quarter. Let me start with an update to some base assumptions. For the full year, acquisitions including those that closed in 2017 as well as the second quarter of 2018 should add approximately 9 points of revenue growth. For FX, we expect to see about 50 basis points of headwind impacting both revenue and adjusted EBITDA which is the result of seeing a small tailwind in the first half offset by an anticipated headwind in the second half based on current spot rates. We continue to expect approximately $15 million of revenue for the full year from the one-time incremental credit monitoring from a competitor. This represents about 50 basis points of growth year-over-year. Turning to revenue, we are introducing the concept of adjusted revenue primarily to account for the purchase accounting write-down of deferred revenue which is almost entirely related to Callcredit. It is not uncommon in acquisitions to have deferred revenue reduced on the opening balance sheet of an acquired entity. This is a non-cash adjustment to add back the revenue that is essentially lost as a result of the deferred revenue write-down that would have otherwise been recognized by Callcredit had the acquisition not occurred. We believe the best comparison for the next year as we runoff this impact will be adjusted revenue against as reported historical revenue. We’ll continue to be entirely transparent on this point going forward. With that said, for the full year 2018, we expect adjusted revenue to come in between 2.33 billion to 2.34 billion, up 21%. Adjusted EBITDA is expected to be between $904 million and $910 million, up 21% to 22%. At the high end of our guidance, adjusted EBITDA margin is expected to be up about 10 to 20 basis points from 38.7% in 2017. As I mentioned earlier, acquisition integration costs and the initial lower margin structure of the acquisitions is negatively impacting margins. Excluding this impact, we would expect our underlying adjusted EBITDA margin to expand by about 80 basis points in 2018 or in line with the historical flow through from our revenue growth. Adjusted diluted earnings per share for the year are expected to be between $2.42 and $2.44, up 29% to 30%. Of that increase, we estimate our reduced adjusted tax rate of 28% to account for $0.28 per share. Excluding this impact, adjusted EPS would be up 14% to 15%. As you’ll note, we are increasing our adjusted EPS guidance by $0.03 which is a combination of our second quarter outperformance and some accretion from the recently closed transactions, partially offset by two nonoperational headwinds. First, with the strengthening dollar we’ll face about $0.02 per share negative impact from FX. Second, higher LIBOR on the debt on the balance sheet prior to the June financing activities that I just discussed represents about $0.01 of headwind. In other words, had we not added the $1.8 billion of debt in June, our forecasted interest expense would have still gone up due to the change in LIBOR. So without these non-operating headwinds, we would be guiding to adjusted EPS $0.03 higher for the full year. I want to update you on a few other modeling items. First, what’s not changing? We still expect the tax rate of 28% and share count should be 191 million. What is changing? I noted earlier when I walked you through our new debt structure net interest expense will increase. This year we expect it to be $133 million based on the current one month forward curve. And D&A not related to change in control should be $124 million as a result of our recent acquisitions. Turning to the third quarter of 2018, let me start with our assumptions for the quarter. For revenue, we expect about 15 points of contribution from M&A and 1 point from incremental credit monitoring. We also expect about 150 basis points of headwind from FX on both revenue and adjusted EBITDA. Adjusted revenue should come in between $610 million and $615 million, an increase of approximately 23% to 24%. Adjusted EBITDA is expected to be between $237 million and $240 million, an increase of approximately 22% to 24%. Adjusted diluted earnings per share expected to be $0.61 or $0.62, an increase of 24% to 26%. $0.07 per share of the increase relates to the positive impact of U.S. tax reform. That concludes my review of our financial results. I’ll turn the call back to Jim for some final comments.

Thanks, Todd. Built on a very strong first half, I think we’ve laid out a compelling case not only for further industry leading performance for the remainder of the year but also for the long term. We’ve built a truly powerful growth engine on the back of cutting-edge technology, unique data assets and excellent capital allocation decisions. The six acquisitions we’ve closed over the past year, including the two largest in our history, provide yet another infusion of fuel for our growth and at the same time they create further portfolio diversification which gives us increased confidence in our ability to deliver relative outperformance through cycles. As I look at the near-term and long-term prospects for TransUnion, I’ve never been more enthusiastic or confident. As much as we’ve had a very good first three years as a public company, I firmly believe that the best is yet to come. With that, I’ll 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. Now we’ll be glad to take those questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Today’s first question comes from Manav Patnaik of Barclays. Please go ahead.

Thank you. Good morning, gentlemen. My question is maybe just taking a step back in terms of the pace of acquisitions you’ve done this year and as you mentioned the two biggest ones, can you talk about whether the cutting-edge technology, the tech replatforming that you mentioned, does that give – like what in that has helped you get comfortable integrating so many deals at once, the big ones? And maybe also as a side note just talk about management capacity to handle all this together?

Sure. So as we ended last year with FactorTrust and eBureau, the three acquisitions we made this year were clearly on our radar. And the big questions we had to ask ourselves was, did we have the management capacity to do them? Did they fit our strategy? And did we have the financial capacity? I don’t think we felt they were all going to happen as quickly as they did, but they did and we feel very comfortable with our management capacity. They’re all kind of in different areas. And FactorTrust and eBureau we kind of have under our belt. There’s more integration going on but we knew those companies very well. So we’re unequally good on that front. From a technology standpoint, these all just kind of fit in, Manav. It’s not rocket science, so it’s pretty straightforward. And going forward I think we’re going to obviously get these – the buffet table’s kind of full and we’re going to kind of get these integrated but they’re all right in our wheelhouse. We’re not trying to figure them out. We know exactly what to do and it just gives us great confidence. They’re in great markets. They’re already performing. We’re going to just make them stronger, take out costs and do our thing.

Today’s next question comes from Andrew Steinerman of JPMorgan. Please go ahead.

Hi, it’s Andrew. Jim, you were good enough to mention the growth rate of CreditVision and CreditVision Link on Slide 4. Thanks for sharing those growth rates. Could you give us a sense of size for those products? And in particular I’m interested in understanding the penetration on the trended credit side. How much of that has penetrated outside of mortgage and is this a marketplace that is rapidly adopting trended credit data outside of mortgage?

Andrew, we don’t really give and have not given you the size of these things, but we – obviously they are big. And we told you before we’re getting substantial growth outside of mortgage which is reflected in kind of the outsized growth we continue to have. And we’ve lapped mortgage now by – somebody remind me?

August of 2017 was when that lapped.

Right. So we’re about to see that – we’ve already lapped it almost two years now, so we’re obviously getting growth well outside of mortgage. This use of trended data remains – we’ve penetrated I would say certain, like the FinTech space obviously mortgage. We’ve gone into other areas outside of the mortgage itself. But with our biggest clients which can take a longer time to absorb these kinds of meaningful data changes, we have all that in front of us with this product. And we’ve also seen a meaningful pickup in the insurance space which we really hadn’t quite seen before and that’s CreditVision and CreditVision Link. So I would say there’s a lot of runway ahead. And then internationally kind of the same story, maybe just a year behind in a way because other than Canada because it takes time to digest these things. And I’ll mention from a Callcredit standpoint, we keep emphasizing this, we’re excited about it. We believe the UK market is kind of aching for this kind of solution. We’re already in the midst of implementing it. We’re laying the groundwork to implement it with Callcredit so it’s in market next year. So we still see a lot of runway not only in the U.S., not only in financial services but outside of financial services and then internationally.

Jim, thank you.

Thank you.

Our next question today comes from Tim McHugh of William Blair. Please go ahead.

Thanks. Just following up on some of your last comments there, can you talk about the pace of growth in Callcredit as you folded on the hood as well as what businesses did you decide weren’t a good fit I guess both initially and then the business you recently changed and added to that group?

Yes, so what we’ve stated is that the market in this area is growing around 11% and we believe Callcredit is going to outgrow that. I don’t think we’ve given specific guidance quite yet other than double-digit growth and we feel pretty good about that. And obviously we’ll layer on our or the TransUnion kind of core stuff around CreditVision, CreditView, et cetera. Regarding the companies that will be divested, look, they’re all good companies. We just think they’re going to be better in the hands of some companies that’s more core to their strategies. And obviously we think our business will perform better both strategically and financially growth without these businesses. We’re not right now able to tell you which ones they exactly are but that will be coming. This was all well thought out before we did the transaction. I do want to point out. So this is kind of just following our playbook now. And I think the people who work in those companies are also going to be happier because they’re going to be owned by or working with people who – that’s what they do. It’s core to their business.

Our next question today comes from Jeff Meuler of Baird. Please go ahead.

Thanks. I guess first, can you just verify what exactly the adjusted EPS methodology is? And I guess I’m specifically wondering are you continuing to include acquisition integration expense for the acquisitions other than Callcredit, including like iovation in the numbers? And if so, is the 2018 guidance impact from the acquisitions accretive, neutral or dilutive once you factor in acquisition integration expense that’s not adjusted out and increased interest expense? And if you’ll allow me a second since that one was kind of dry, Jim, could you just hit on the fraud suite go to market. I’m just kind of wondering how the different products and capabilities are incorporated, like how many different products are you selling as part of the suite? Thank you.

Where do you want to start? Let’s start I guess with the dry one --

We’ll start with the dry one, Jeff. This is Todd. So great question and I think it’s important to clarify what we are doing with M&A integration expense. As you will recall going back to our IPO, we stopped adding back M&A integration expense as a one time. So that’s why we’ve prepared the slide that we did today to show the impact that the recent M&A has had on our adjusted EBITDA margins. That being said, because of the size of the Callcredit acquisition we just think it’s the right thing to do to add it back because the integration expense is going to be significant and meaningful. So I think just from a sake of being transparent with our investors and shareholders, we think it’s the right thing to do to give everyone that visibility as to what we will be spending on integration. So Callcredit is the only one that will be added back for integration purposes. The other acquisitions that we made of HPS and iovation will not be added back. As it pertains to the accretion of the acquisitions, our updated guidance does assume that all three of these acquisitions are accretive on an adjusted diluted EPS basis.

So our fraud products include – we’ve bundled them under something called IDVision and I think it starts with what would be traditional identify verification, kind of doing out-of-wallet solutions. We’re able to bundle in digital verification. Especially with iovation now we’re able to look at devices which I think is the trend in where people or companies are moving. Further doing ID document identification and some with selfie or face recognition and authentication. Something very cool we have called the fraud prevention exchange. We’ve created a network of transaction histories and it kind of allows if a fraudster is trying to open multiple accounts all at once and doing loan stacking and things like that, we’re able to help our customers. First it was in FinTech and now it’s actually spreading out into all the banks to detect this kind of behavior. And so we’ve kind of bundle them all under one solution and we can sell them separately as well. I think if you got into it, you’d see that some of the bigger banks kind of do their own thing and they want point solution, some don’t. Some want the full solution. And then as you go down to midmarket and smaller, they want a turnkey solution. And so we’ve got all those things. And iovation is one of the few device ID companies that are out there that have any kind of bulk. And with that – I think it’s something like 500 billion devices and the data associated with them, it really fit into that kind of hole in our offering very, very nicely, growing very, very nicely on its own. And now we’re going to be able to sell that important part of identity verification into our customer base.

Thank you.

Today’s next question comes from David Ridley Lane of Bank of America Merrill Lynch. Please go ahead.

Good morning. I appreciate the details on the trends that you’re seeing in healthcare and insurance. Could you provide some additional commentary on revenue trends and some of your other end markets like mortgage, auto lending and credit cards? Thanks.

Yes, so for 2018 – I think you’re asking me what we’re seeing in the market let’s say for the rest of this year. Personal finance and FinTech are going to remain strong. Auto lending is strong mostly by positive trends in used cars. We continue to expect mortgage to be flat to down. The kind of dynamic that’s happening there, the refis are obviously declining but there is some new growth in new home sales. The credit card market is probably going to remain a little soft going forward. Internationally, good trends in India and Colombia. We’ve already talked about the UK. These are bigger markets growing double digits. So we pretty much see strong growth all the way around there.

Thank you very much.

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

Hi. Good morning. I was hoping you could give us just an update on the competitive environment specifically in USIS? So online data was very strong this quarter again organically but a slight deceleration from last year and so just want to know if you’re seeing any tougher competition from your largest competitors as time goes by since the breach? Thanks.

So I’ll maybe let Todd comment on any specific thing, but generally speaking if anything what I’ve seen change is that some of the commentary or the questions I get are, are competitors positioning relative to TransUnion so they’re almost telling the story relative to the TransUnion story, whether it’s we’re going to replatform now or we’re going to have something like Prama in the market. And so there’s definitely kind of an acknowledgement of what we’ve become, what TransUnion has become as a leader in innovation, leader in growth all while kind of maintaining or growing our margins. That’s probably the biggest thing that we’ve seen. As far as any specific negative relative to our ability to grow the business, no. We’ve always competed in a very – I guess I’d back up and say there are only three players if we’re talking about U.S. that have the kind of data we have in this market. And we’ve all gone in different directions while we’re strong. I think we all have the same kind of core mostly. So it’s not a zero-sum game in my view. However, we’ve through innovation been able to really take some significant positions in the FinTech space. We’ve been able to hold our own and grow in the largest customer base. CreditView has been an extremely strong grower and we think we have great competitive positioning there. Our fraud products continue to grow. We think we have great competitive positioning there. The acquisition of TLO gave us a nice footprint in kind of third and first party collections and we continue to grow in our other investigative tools. I do think that the fact that we have our technology replatforming behind us largely is something you’re always doing because you have to kind of stay relevant by doing that. We have that behind us so it is not a distraction. It’s an enabler to us. The bulk of our spending on let’s say software development or new product development CapEx is going towards revenue generating projects not just geez, let’s figure out how to ingest data in new ways and things like that. It’s already there. I think you’ve seen this. It’s enabled us to do acquisitions, to get them to be better performers almost immediately. So I think we’re in a great position maybe while at least some of the other guys are declaring they’re going to go down a technology path. I’ll take this chance to point out on cyber security I don’t think any company in the world is the same anymore. But certainly in our industry we’ve all had to invest significant dollars relative to this. So if you have other distractions going on while you’re also trying to continue to grow your capabilities in that area and you’re trying to have high availability which all our customers are demanding just puts a tremendous amount of strain on the organization. So you have to continue innovating, you have to protect your data which is a whole innovative chain in itself and you have to have high availability. And I think we’re proving that we can do that. That said, we aren’t resting. It’s a constant kind of way of life for us to be making good decisions around where we’re going to innovate and then to be the best as we can be in just far as availability and cyber security.

Thank you.

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

Good morning, guys. Congrats on the strength again this quarter. Jim, you’ve highlighted strength in FinTech and it’s been a very consistent theme for TransUnion. Just wondering if at a high level if maybe you can sort of ballpark growth rates or revenue contribution coming from that segment? And then where sort of the big geographic opportunities outside the U.S. are in servicing FinTech?

Yes, I don’t think we want to get into how big it is in the growth rate. Obviously then it’s meaningful and it’s double digit. So that said, we are seeing like in many of our markets we’re seeing other markets starting to embrace this FinTech model; Canada, the UK, India, virtually all the markets but I would say those are the three most prominent. And just like in our other businesses we’re taking CreditVision into those markets. Obviously we’re also taking CreditView into those markets which is another way – especially FinTech but now even the banks want to engage with their clients. So we’re well positioned we feel. Plus something we don’t I guess talk all that much about just the ability to support the FinTech in a way they need to be supported is something we embrace early. So helping them more or less set up what they need and to underwrite their customers in their way with their secret sauce is something that we’ve learned to do. And so we’re just applying that in these other markets. And we continue to build capabilities to allow our current clients in these markets to perform much better, whether it’s the fraud exchange or CreditVision Link or integrating FactorTrust data or the iovation data into our suite of products.

Thank you.

Today’s next question comes from Andrew Jeffrey of SunTrust. Please go ahead.

Hi. Good morning. I appreciate you taking the question. The performance in insurance was particularly impressive this quarter and I think you touched on some of the drivers, Jim. But I’m wondering if you could elaborate a little bit on whether you think – and I’m thinking about auto in particular, whether much of your growth in coming from greenfield around trended data solutions of if there’s some share shift that’s taking place broadly in insurance and maybe in auto in particular?

Yes, so our growth has definitely come from auto underwriting and we think the underlying trends are just more transactions happening there. I don’t think it’s fair to say that there’s been significant share shift. I think if you look at our new solutions, they’ve now been in the market for a while but DHI or drivers history combined with the new capability we have around MVRs that’s actually driving a good amount of our growth as well. So I think we’re holding our own with all our major clients and growing within them. We have gotten some new business for sure. But I wouldn’t associate it with any kind of major share shift. And I would say that the trended data portion of this is just beginning, so we have that to look forward to. We don’t think it was interesting. The models really weren’t proving big lift a few years ago, but as we’ve matured we’re starting to show more lift which is getting the attention of our clients in the insurance space.

Thank you.

Due to time constraints the final question comes from Bill Warmington of Wells Fargo. Please go ahead.

Under the wire. Thank you very much. So a couple quick ones then. I wanted to ask for some more color around the two healthcare customers that Todd mentioned that created that temporary revenue slowdown and your confidence on reaccelerating in 2019? And then if I can slip it in as a housekeeping one, just the mix of the fix versus floating on the new capital structure as it is going forward.

Sure. We obviously can’t comment on exact customers but these were customers in the frontend of our business that they had some issues with their own business which affected us in the short run. We chose our words carefully when talking about the business getting back to high-single, low-double digits because I think our guidance reflects high single digits but depending on the timing of some newer business, we could be right back at double digits in the third or fourth quarter. Either way we feel really good about the business heading into 2019 with the new deals we’ve closed and not to mention the acquisition itself. But the backend of the business is especially strong, so we feel good about double-digit growth going forward.

Hi, Bill. As it pertains to the debt, your second question, all of our debt is floating rate both on the Term Loan A and the Term Loan B. We do have a hedge in place that will get us to about 35% of the total amount that we can then consider to be fixed. And as you can imagine with the increase in the debt, working on a hedge program going forward is something that we’re focused on.

Thank you very much for the insight.

All right. Thank you very everyone for your time today. We appreciate that very much. And we’ll look forward to speaking with you next quarter and certainly over the course of this quarter. Have a great day.

Thank you, sir. Today’s conference has now concluded. We thank you all for attending today’s presentation. You may now disconnect your lines and have a wonderful day.