Good morning and welcome to the TransUnion 2018 Fourth Quarter Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Aaron Hoffman. Mr. Hoffman, please go ahead.

Good morning, everyone, and thank you for joining us today. On the call today, we have Jim Peck, President and Chief Executive Officer; and Todd Cello, Executive Vice President and Chief Financial Officer. Chris Cartwright, the President of our US IS segment is also on the call today. In November, Chris was named Jim's successor effective May 8 of this year. We posted our earnings release and slides to accompany this call on the TransUnion Investor Relations website. Our earnings release include 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. Today's call will be recorded and a replay will be available on our 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, Forms 10-Q and other reports and filings with the SEC. We do not undertake any duty to update any forward-looking statement. I'd also like to point out that, beginning this quarter, we have enhanced our revenue reporting to now show you the largest US IS vertical, financial services, separately and we will also report six countries or regions in our international segment. At the same time, to better align with our management reporting and consolidated results, we will report segment-level adjusted EBITDA instead of operating income and adjusted operating income. On our website, you will find these new disclosures provided for 2016, 2017 and 2018, as well as each quarter of 2018. We believe this incremental disclosure offers valuable insight into the long-term performance and growth drivers of TransUnion. With all that, let me turn the time over to Jim.

Thanks, Aaron. We concluded 2018 on a strong note, capping an outstanding year for TransUnion. For both the quarter and full year, we delivered double-digit organic adjusted revenue, adjusted EBITDA, and adjusted EPS growth. This also marks five consecutive years of achieving double-digit growth for each of these three key performance metrics. That kind of performance is a testament to a very strong team and culture that we've built. We had world-class innovation, consistent execution, attractive vertical and geographic markets, as well as unique capabilities. We've made TransUnion into a highly sustainable growth engine. What that means is that we should be able to continue to deliver relative outperformance above our underlying markets for the long term and through cycles. As a result, we again saw strong top and bottom line performance in all three of our segments. This consistent performance year-to-year and quarter-to-quarter 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. This morning, we'll spend some time reviewing our performance and outlook for each of the three segments. I'll cover International and Consumer Interactive. Chris, as you'd expect, will talk about USIS. To start off, our International segment delivered an outstanding year, highlighted by strong revenue growth in most of our geographies and solid margin expansion. The other highlight was the acquisition of Callcredit, the number two credit bureau in the UK. As that's our largest international market now, let's start there. By the third quarter, and as we expected for the fourth quarter, revenue growth was impacted by substantial rapid and necessary changes…

Well, thank you, Jim. I really appreciate your kind words and the ongoing support over the past six years. It means the world to me and I wouldn't be here without it. I'd also like to thank all of the associates at TransUnion, especially those in the USIS who played such an instrumental role in our company's success. We literally couldn't have done it without you guys. It's an honor to have a chance to succeed Jim and to be given the opportunity to lead a world-class company like TransUnion. I don't take this responsibility lightly and I want to assure our associates, customers, partners and our investors that, while I am a different person than Jim, of course, you shouldn't expect any fundamental changes at TransUnion. We will still be the same intensely-focused, aggressive, innovative and collaborative company that you've come to know. We still have a broad array of powerful and unique data assets and we'll keep building off this strong base to continue to deliver best-in-class topline growth at an already good margin that expands over time. So, as you all know, I've been intimately involved in the creation of TransUnion as you see it today. And I'm very excited about the near limitless potential we have in the future. Now turning to USIS, we had a terrific year across the segment. Financial Services, which is roughly half of our revenues, grew double digits again on the strength of innovation and share gains. Underling that, we saw varying performance in our end markets. But, overall, it was a strong net positive. So, to dig in a little bit on the innovation front, CreditVision and CreditVision Link grew almost 25% in the quarter on what is now a very sizable base as we continue to fully penetrate each…

Thanks, Chris. To echo Jim and Chris, we had a strong fourth quarter. For the sake of simplicity, all of the comparisons I discuss today will be against the fourth quarter of 2017 unless noted otherwise. And as Aaron pointed out, we have some new disclosures and my remarks will be built around those as appropriate. So let's start with the income statement. Fourth quarter consolidated adjusted revenue increased 23% on a reported basis and 25% in constant currency, with strong performance across all three segments that I'll detail in a moment. Adjusted revenue from acquisitions contributed approximately 13 points of growth in the quarter. This was related to FactorTrust, which closed in 2017, as well as the 2018 acquisitions of iovation, HPS, Callcredit and Rubixis. Organic constant currency adjusted revenue growth was 11% in the quarter. There was an immaterial impact on our growth rate from the credit monitoring business from a competitor as we began receiving this revenue stream in the year-ago fourth quarter. Adjusted EBITDA increased 27% on a reported basis and 29% in constant currency. Fourth quarter adjusted EPS grew 32% with a 25.8% tax rate. Without the benefit of tax reform, adjusted EPS in the quarter would have been up 14%. For the full year, adjusted EPS increased 33%, with an adjusted rate of 27%. Excluding the benefits of tax reform, full-year adjusted EPS would have been up 16%. Let's spend a minute discussing some of the key income statement items. Cost of services increased 22% and SG&A was up 23% as a result of higher operating and integration costs related to our recent acquisitions, as well as investments in strategic initiatives and higher data costs associated with revenue growth. As we did last quarter, we want to show you the impact that recent acquisitions…

Thanks, Todd. With another strong quarter and year behind us, our focus is now squarely on delivering again in 2019. We are quite well positioned to do that as we execute against a wide range of opportunities. Overall, the markets we serve remain conducive to growth. Our innovation pipeline is as robust as it's ever been. Through the outstanding strategic acquisitions in 2017 and 2018, we've added considerable new data assets and capabilities in our verticals and international scope. Taken together, we are in an outstanding position to deliver another strong year. 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.

[Operator Instructions] The first question today comes from Manav Patnaik with Barclays. Please go ahead.

Thank you. Good morning, gentlemen. I guess, my first question is just more oriented around the emerging verticals. You would think that business should be growing faster than, I think, it is currently and, I guess, it was before. So, is that mainly just the healthcare drag that you talked about? And, I guess, I was just curious, when you think about healthcare, you used to call it a strong double-digit growth business. Now, it sounds like it's mid-single with high-digits getting lumpier. Like, how do you think about that fit within the company now?

Hey, good morning, Manav. And thanks for the question. Definitely, a good point that you are calling out there. As it pertains to the emerging verticals, yes, healthcare, clearly, is reported there. And as we noted in our comments this morning, the business did return to growth, but it's not at that double-digit pace maybe that we were accustomed to in 2016, 2017, early 2018 timeframe. So, that's a little bit of a drag. Also, sitting within our emerging verticals is the collections business. And what we're dealing with there is consumers are paying their bills. So, in essence, the business itself is not generating as much revenue just simply because delinquency rates overall are low. So, we're not seeing as much upside. So, I would say that those are the two biggest drivers of kind of what the disconnect would be there.

This is Chris. If I could add to that, the collections business is one of the countercyclical components of our portfolio. During this period of economic growth and really disciplined lending practices, delinquencies are low. Thus collections activity is low. That industry, the players, have been struggling. Some have gone out of business. Many have merged into one another. And it's hard to grow with that type of consolidation. Over this period, though, we have really strengthened our product and our selling capabilities. We are selling lot of net new business. And I do think, as we ride the credit cycle, it's going to return and be a real growth contributor. And then, I think of all the various other components of the emerging portfolio, we've got a lot of strength. We have a very positive growth outlook for them in 2019. And they do represent the high growth diversification that we've achieved over these past five years.

The next question comes from Andrew Steinerman with JPMorgan. Please go ahead.

Hey, Todd. This is just a simple one, net interest expense of $180 million for 2019. I am assuming that assumes no debt pay-down from here. Is that the probability that there won't be any debt paydown. And then, when you said financial leverage goes under 3.5 times by the end of the year, is that just coming from EBITDA growth then?

Hey, good morning, Andrew. Yeah, thanks for the question on that. So, yes, the $180 million of interest expense just assumes steady state for our capital structure. It doesn't assume any incremental M&A. And as a result of that, the free cash flow that we're generating is just assumed to build on the balance sheet in our models. However, as we just demonstrated in the fourth quarter, absent any type of M&A, we will have a more aggressive posture in 2019 towards making prepayments towards our debt. So, that's how you should think about the cash flow. Leverage ratio, yes. The EBITDA growth that we experienced is the main reason for the leverage ratio ticking down and trending in the direction that we've signaled all along to be below our target of about 3.5 times.

Okay, thanks.

The next question comes from Gary Bisbee with Bank of America. Please go ahead.

[Technical Difficulty] trends throughout 2018 that you highlighted and also the fact that the acquisitions lap about a quarter from now. Can you help me understand the significantly less margin expansion that you're calling for in the guidance? And as part of that, where's the incremental spend coming? Is it broad based? Is it largely bolstering the M&A? Is that underlying margin, if you will, going to slow sharply this year? And if so why? Thank you.

Hey, Gary. Good morning. This is Todd. I'll take that question. So, the guidance that we've provided for 2019 is kind of our all up and in guidance. So, when we are guiding margins to go up 20 basis points to 40 basis points. That's including the M&A that we did in 2018. So I think the way to think about that is we still do have some integration ahead of us because we're only about six months in through the end of 2018. So the underlying margin will be significantly stronger than the 20 basis points to 40 basis points because that's the all in number. So, similar to like what we did this morning in the slides, we will continue to provide that level of transparency every quarter to show you what the underlying margin would look like. But I would expect something similar to what you saw in 2018 as it pertains to that. However, we are still making significant investments back in our business. So, you will see an attractive margin profile, but we're not slowing down as far as making investments. And Chris, in his comments, highlighted Prama as one of those areas where we see just some substantial upside. So we're aggressively investing into those capabilities as well, just our analytic side [ph] just in general. So that's where I would say the priorities are going.

Your next question comes from Jeff Meuler with Baird. Please go ahead.

Yeah, thanks. First, congrats to both you and -- Jim and Chris. Questions on the 2019 guidance, understand there is a lot of global headwinds. But I think it's interesting on the organic constant currency side, as you called out, Todd, you actually are entering the year guiding the underlying growth slightly higher than you've guided the past, I think, three years. And you're calling out the H1 healthcare headwinds, mortgage and new car sales and there's some investor skittishness around macro and consumer credit. So I'm just trying to reconcile entering the year relative to past years where you've put up pretty consistent double-digit growth and Jim's feeling is good as ever about the business. Just anything on guidance methodology or what do you leave out of the guidance? What opportunities could drive upside relative to the guidance range? Thanks.

Good morning, Jeff. Thanks for the question. So, I would say that our playbook with guidance all along is to give you something that we sit here today and know that we can achieve and deliver on. So, sometimes we're called conservative. I like to think that we're actually prudent with that. Just giving what we know we're going to be able to deliver on. When you look at the guidance, and particularly in the first quarter, I think it's important to remember that Q1 of 2018 was the strongest organic growth that we had. We were up 14% and we're lapping that here in Q1 of 2019. And there were some headwinds which you already highlighted. So I think that would be the reason for maybe a little bit lower of a guide in Q1. But I think, just as far as -- you've seen how we handle these things, I would expect that, if we have a strong Q1 in 2019, that we would reflect that in our updated guidance for the full year as we always have. So --

Thank you.

The next question comes from Timothy McHugh with William Blair. Please go ahead.

Thanks. Just wanted to ask a little on International. I guess, two parts to it. Basically, South Africa, I think there's a pretty easy comp because 4Q '17 was fairly weak. So, I guess, more on an underlying basis, do you feel like that business is back on a solid growth trajectory as we go to 2019? And then, India, the growth really accelerated, I guess, it looks like, as the year played on. So obviously, a good number. But is there something happening that's driving even faster growth, I guess, as 2018 progressed?

Sure. Tim, this is Jim. So, with regards to South Africa, you observed correctly. We had a lot of reasons, including a pretty tough economy in South Africa, that caused the poor quarters last year or the year before. And so, the comps were not as difficult. On the other hand, we feel like we've gotten the business back on track. And so, you can expect growth from that business. Now, we've got to give it a few quarters to prove itself. But we're feeling much better about South Africa not being a drag on our business. India, on the other hand, as we've always said, is one of our most exciting opportunities. It's got a huge population, the drive to build the middle class, the very applicable -- or all our tools like CreditVision, Prama and others are very applicable in that segment. And so whether we can maintain these huge growth rates over time, time will tell. But we're very bullish on that country, and there's still plenty of upside relative to the number of consumers who are trying to become credit -- trying to become part of the credit system.

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

Hi. Good morning. Thanks for taking the question. I wonder if I could dig in a little bit more on healthcare. I guess, two things. One, how do you have confidence or gain visibility to being able to implement on the back-end deals that you've signed, given that there's been a little bit of disruption over the last year or so? And then, is the mix sort of structurally shifting more toward back end long term or are there more front-end deals in the pipe that might balance that out as we go through the year and look into '20?

Yes. I'm going to go ahead and take that one. This is Chris. So, as we told you last year, we had some challenge, non-operational, in the second quarter with healthcare, namely the merger between a couple of big clients that led to lower overall pricing. And that caused us to have a flat third quarter. Now, what's happening currently is that the team was continuing to sell in the market, win some new big contracts. We won several million-dollar deals that we were in the process of implementing and ramping revenue. And that's what allowed the business to return to growth in the fourth quarter of 2018. Now, we also had a very good quarter for new sales in Q4. It was the largest in healthcare's history. We closed five deals $1 million or more. Those deals were spread across the three parts of the business -- the legacy core business, HPS and Rubixis. And so, it gives us good line of sight into our 2019 performance in healthcare where we think we can return to mid-single digits. And longer term, we just remain really bullish on revenue cycle management. We think it's a high single-digit organic grower in a very large addressable market. And you are correct that our mix of revenue is shifting a bit more toward the back. The back end is driven more by contingency payments, so you can expect a bit more lumpiness. But we're excited to see the management team turning this thing around from a revenue standpoint and returning it to the growth that we've come to enjoy.

Thank you.

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

Thank you. Jim, you mentioned the 3% constant currency growth in the UK and you mentioned what you're doing to achieve the long-term growth rates that you think the business should be doing. Could you give us a better idea of what impacted growth in the quarter and how quickly you'd expect to turn it around? Was Brexit a factor? Was it the integration or maybe something more customer specific? Thank you.

Yes the issue was not I guess structural or whatever or systemic. It really was may be an underestimation on our part of the things that we had to do to put in the systems that we'd like relative to sales compensation revenue recognition. And it caused quite a distraction. and like any company they have a pipeline they're closing we've monitored that pipeline systematically let's call it. And the number of closes just slowed substantially. And they traditionally also had a big fourth quarter. The way to recognize revenue to kind of a push things. So that all kind of combined to slow revenue growth. And so I think you'll see we've already kind of seen the worm turning a little bit and they are getting back on track. And I think we'll get back to double-digit growth sometime in the second half of the year. So there's nothing wrong with the business. Everything is as we expect it. There's no we can tell there's no material impacts from Brexit CreditView and our trended products are going to fit very well in that space. We've got our new leader in place there who's establishing control. So we feel really bullish about the business.

The next question comes from Ashish Sabadra with Deutsche Bank.

Chris you highlighted share gains and financial services driven both by innovation. As you think going forward as traditional lenders trying to replicate what FinTechs are doing and you have such a great success at the FinTech how does that position you for gaining further market share in financial services both on the online side as well as marketing and messaging services?

I think it positions us well. I mean as we've said before we have a proportionate share in the FinTech space and the FinTechs are driving a lot of innovation across financial services. Some of the larger players established players are going to follow suit. And I just think we have very good credentials or credibility in that space. That said we think that the lending market overall is still robust. We think market conditions are strong. Maybe they're not as strong as they were a year ago but we still have very strong GDP growth very high employment beginning with some wage inflation a lot of and I think more stability than we had in the fourth quarter. So our outlook is positive for both the FinTech space very positive there. But really across sort of the entire portfolio of lending.

The next question comes from George Mihalos with Cowen.

Just wanted to ask a question on the guidance front may be a little differently. I think you did 11% adjusted in the fourth quarter. You're talking 7.5% to 8. 5% now for full year 2019. It sounds like from a vertical perspective outside of mortgage everything seems to be shaping up in line to somewhat better than what you may have seen in the fourth quarter. So is that in fact the case from a vertical perspective? And then just a question Todd as it relates to USIS and the margins there, is there any sort of noticeable difference in incremental margins from the emerging vertical and the financial services?

Yes as far as the guidance is concerned I understand we're coming off of double-digit performance here in the fourth quarter annual guiding 7.5% to 8.5% on organic constant currency growth. I think it kind of goes back to what Jeff's question and just really kind of our thought process around that just making sure that the guidance we are providing is something that is achievable. Another point that I would make is that guidance is a number that we give to make sure that the market understands where we're headed. But from management's point of view we run the higher numbers than this. So if we don't hit this number the guidance number incentive compensation is significantly impacted. So that's an important point I know we've talked about that before in the past. At the vertical market level I would say yes there's relative strength kind of across all the vertical markets healthcare. Obviously for what we talked about in these calls it had some slowdowns but were confident that this business is going to grow nicely. As it pertains to margins we don't anticipate giving the margins by each of our vertical markets but we'll continue to give it at the segment level. But to give you some type of perspective on that our core financial services margins are meaningfully higher than the emerging verticals. But I think that's just kind of the obvious. The obvious reason for that is they're emerging verticals right? So we're investing back into those businesses because we see a lot of future potential there in there. So let me ask Chris to add on a couple more comments on that.

Yes just some quick perspective about the conditions we expect in the user lending markets. Mortgage is the one that has the headwind. The first half of last year was pretty strong in mortgage stronger than we expected right. So in the first half of 2019 we've got high comp. The slowdown in mortgage started second half of last year worsened in the fourth quarter. That said we'll lap those easier comps towards the second half of this year. Mortgage should flatten or return to a bit of growth right? And that's the toughest scenario that we faced. Consumer lending personal loans very strong core lending stable and growing as well, may be a little bit sideways to down in the auto space. But remember we've got the surge in used car purchasing. Used car purchases typically require more credit polls. And so the net effect of that it won't hold us back much. But still overall very favorable macro conditions still a lot of confidence amongst lenders and the strength to consumers relatively low inflation and as said seems to have stabilized and the forecast for raising rates. So overall nice market conditions.

The last question today comes from David Togut with Evercore ISI.

Could you give us a perspective on where we are in the evolution of the freemium market? The Consumer Interactive growth rate has varied over the last couple of years between strong double-digit and now approximately mid-single digits. Is freemium still a high-growth market for you? Or is this business sort of entering the middle innings?

This is Jim. I don't know if it's entering what middle innings. But there's still plenty of opportunity. I think it's not only in the U.S. but internationally as consumers seek to understand their credit report their credit scores and how they work. Our partners including those like Credit Karma are continuing to add more functionality their new partners new large bank printers that are also seeking to establish kind of engagement with the consumer. I think now in one way or another I think we through our partners and our own site we touched like 166 million consumers. And that's good because they are learning about they're engaged and they're learning about how their credit works. So there's always other things that we can start putting in their hands for free that will also help us drive revenue growth. So I think it's going to be a strong grower the indirect channel we call it going forward.

Great. Thanks everyone for joining us today. As we are at the top of the hour we're going to wrap things up here. So we thank you all for your time today and I wish you a great day. Thank you.

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