TransUnion (TRU) Q1 2019 Earnings Report, Transcript and Summary

Good morning and welcome to the TransUnion 2019 First 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. Vice President of Investor Relations, 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 USIS segment is also on the call today. In November, Chris was named Jim's successor effective May 8 of this year. We’ve 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. So with that, let me turn the time over to Jim.

Thanks, Aaron. We started the year with good results, allowing us to raise guidance for the full year. We achieved these results in spite of facing our most challenging comparisons for the year and some choppy market conditions in financial services. Chris and Todd will walk you through the specifics. But you're, again, seeing the power of the TransUnion portfolio to deliver top tier results. The growth continues to be balanced and diversified as well as driven by industry-leading innovation and distinct capability. As I've highlighted over the past four years, TransUnion not only participates in a dynamic growing marketplace for data and data-driven solutions, but we have established ourselves as a top player in the space. We ultimately occupy a special place by both enabling consumers to create a better financial situation for themselves and providing our customers with unique value-added solution. Underpinning this position is world-class innovation, consistent execution, attractive vertical in geographic markets as well as unique capabilities. Together, these make TransUnion a sustainable growth engine, one that is able to deliver relative outperformance above our underlying markets for the long term and through cycles. As you've seen since our public offering in June of 2015, TransUnion has been the consistent leader in the marketplace, and that had resulted in similarly consistent financial outperformance. I have no doubt that our future is every bit as bright and that TransUnion will continue to lead this industry. Now I'll turn the call over to Chris and let him walk you through the businesses. Chris?

Thanks, Jim. Like you, I believe the best of TransUnion is still to come as we continue to leverage the unique data assets and capabilities in our company. I'm confident that we're well positioned to deliver attractive top and bottom line growth in 2019 and beyond. As Jim pointed out, the power of TransUnion's portfolio allows us to weather challenges and consistently deliver top-tier results. We saw that again in the first quarter as very strong International and Consumer Interactive performance helped offset some temporal issues in USIS. So let me start there with USIS. As you know, we've consistently posted double-digit organic revenue growth in our largest segment. However, much as we expected, the first quarter was slower than we're used to due to a confluence of circumstances that were short term in nature and have already improved as we've moved through the month in the first quarter. So the first piece to consider is that the division faced a very difficult comparison to the first quarter of 2018 when organic revenue growth grew 16%, which is one of the strongest quarters this segment has delivered as a public company. So we knew that the comparable would be tough, and we guided you on this in our last call. Second, as we also previewed on our last earnings call, the mortgage market has deteriorated significantly since last year, putting stress on the financial services vertical. Recent comments from a number of large banks indicate that they saw originations decline substantially year-over-year. And sequentially, they were down in the mid-teens. However, and most importantly, though, the mortgage market picked up considerably late in the first quarter as the Fed changed its interest rate posture and signaled that it would not be raising rates for the remainder of the year. Now more broadly within financial services, which was also comping against its strongest growth quarter of the year, we saw customers early in the quarter pull back on their marketing activity after the stock market correction in the fourth quarter of 2018. They were likely waiting to see what sort of momentum the U.S. economy would have and what trajectory we would see with interest rates. Sentiment entering 2019 was generally cautious, and our customers reasonably slowed some of their marketing programs. The good news is that lending activity accelerated in the month of March and has continued into the early part of April, suggesting a great level of confidence from our customers as we head into the second quarter. Indeed, we have heard the same sentiment expressed by large customers during this earnings season today. Another point that gives us confidence in our 2019 plan and the longer-term outlook is the innovative solutions at TransUnion such as CreditVision and CreditVision Link, our industry-leading trended credit and alternative data solutions. We continue to see significant opportunities with a robust pipeline. To illustrate this point, in the first quarter of 2019, our pipeline for financial services and insurance these two products is building in total revenue, with the contract win rate being double where it was a year ago in the first quarter. Putting all this together, we continue to expect our financial services vertical to grow organic revenue in the high single digits for the full year. Now turning to our emerging verticals. One of the real bright spots was insurance, which had a very strong first quarter and is well positioned to continue to deliver good performance. Growth was balanced across new customer wins, new products and solid underlying market conditions. For instance, we signed meaningful new business with a large carrier on the strength of capabilities acquired with eBureau. And we also have our first customer in full production with our National Driving Record Solution, and the pipeline looks very promising for this product. As we've discussed on previous calls, we continue to see incremental opportunities in the insurance pipeline for trended data and alternative as well. Also, TLOxp and Driver's Risk Solutions are building momentum in this vertical. In other words, all of the elements that have driven the business in recent years are in place as we move through 2019 and set us up for success for many years to come. Now this strength was partly offset by weakening collections market, and that vertical declined again in the quarter compared to growth in the first quarter a year ago. While this is certainly a headwind, it is also an indication that the U.S. consumer and the economy remain healthy as default rates are still relatively low compared to their historical levels. Now turning to our health care vertical, which was lapping both a second quarter of 2018 customer consolidation and their strongest quarter growth for the year, we anticipated this situation in our plan and we previewed it on our last call. So while the first quarter had its challenges, the rest of the year should look stronger as we see easier comparisons in the anniversary of the customer consolidation. The acquisitions of iovation, HPS and Rubixis will flip to organic in the second half of the year, providing another growth catalyst as they're all expected to grow faster than the base business. And importantly, our flow of new contract signings continues to be good, further setting us up for much better results in health care this year and beyond. Putting this all together, we continue to expect stronger results in financial services and health care over the next three quarters, which then implies the same for total USIS as those two verticals together are about two thirds of the segment revenues. We continue to be highly confident that USIS will deliver high single-digit organic revenue growth for the full year. Clearly, our first quarter performance in USIS is not consistent with past results or more importantly, with our view of the future growth of the segment. We knew we'd have a slower start to the year. We planned for it, and we are just about where we thought we'd be with nine months left to go in the year. As I move on to our other two segments, I think it's worth reiterating my earlier point that there is a real and valuable portfolio effect within TransUnion. Our consolidated results were very good this quarter for exactly that reason. Just as there have been times when the strength of USIS helped drive the total company if there was a headwind or two elsewhere, we're seeing the exact same benefit this quarter with terrific results in International and Consumer Interactive. Let’s tackle International first. Results were strong across the board as we continued executing our international playbook of client engagement, new product, diffusion and focus on attractive adjacencies. We were deploying this approach around the world and with great success. Look no far within India where we certainly benefit from a robust market. However, we've consistently and meaningfully outgrown the market, and in the first quarter, clearly saw that play out with 51% constant currency revenue growth. The first quarter should be the largest year-over-year growth rate for India in 2019. There are a few reasons for this. First, we rolled out our global platform for commercial in a score in late 2017 and have seen revenue generation ramp nicely since. This solution has been very successful, and the year-over-year growth in the first quarter is significant but will taper off as we move through the year and comparisons are more normalized. The other point I'd make is that we saw some favorable timing in batch revenues and the direct-to-consumer business that likely won't recur later in the year. So sequentially, India won't continue to be quite as strong as it was in the first quarter, but we would still expect it to show growth rates more in line with what we saw over the past several years, which, of course, were outstanding. The takeaway here is clearly that we're very well positioned in one of the most exciting and dynamic markets in the world. We're also seeing strong results in other regions like Canada, Latin America and Asia Pacific, which all delivered outstanding revenue growth in the quarter. Canada has the most evolved execution of our growth playbook with products and adjacencies that are closest to the very broad portfolio we have in the U.S. In Latin America, the single largest market is Colombia, and we had a very strong quarter there. Since we acquired the business three years ago, we've implemented more and more of our playbook and we're seeing revenue growth progressively accelerate from the already attractive rates. In our Asia Pacific region, I'd call out the Philippines, which was a greenfield business we established in 2011 and is currently the only bureau in that market. Again, by executing our playbook, we've been able to deliver very strong growth. And in the U.K., where we are making very nice progress with each dimension of our approach, we saw local currency revenue pick up compared to the fourth quarter. At the same time, we're on track to launch CreditView and TrueVision, the name of our trended credit offering in the U.K., around the middle of 2019 while also investing in our organization and technology platform. In short, on plan as we fully integrate the U.K. into TransUnion and begin to fully execute our growth playbook. This sets us up for a solid year in the U.K., with double-digit constant currency revenue likely coming through in the back half of the year. I would point out that in the second quarter of 2018, the U.K. had some onetime business, which will pressure the comp, so expect revenue growth to be slightly lower than the first quarter. Moving to Consumer Interactive. We had another good quarter with strength in both our direct and indirect businesses. CreditView continues to be a compelling value proposition for financial institutions, contributing to strength in our indirect channel. One highlight for indirect in the quarter is that the first quarter is tax preparation season, and our partner, Intuit, has been offering a free credit score to its customers at the end of the tax filing process. On the direct side of our business, we continue to see a heightened level of consumer interests, and we've increased and focused our marketing program to reach these consumers. Consumers in the market for credit products like cards and loans are recognizing the value and the utility of the features we provide in our paid services. The results have been good with nice revenue growth and improved retention rates. Also in the first quarter, we launched a new product for our direct customers called CreditCompass, which is now a part of the TransUnion Credit Monitoring and provides specific, actionable steps that empower consumers to achieve the credit score they want over a period of up to 24 months. It creates an individualized plan by assessing a consumer's personal credit data as well as data from millions of real credit experiences of Americans who successfully improved their credit health in similar situations. This is another way we are empowering consumers to make smarter financial decisions. So this wraps up my discussion of our business segments. I'll now turn the time over to Todd, who will walk you through our financial results and outlook. Todd?

Thanks, Chris. As usual, for the sake of simplicity, all the comparisons I discuss today will be against the first quarter of 2018 unless noted otherwise. So let's start with the income statement. First quarter consolidated adjusted revenue increased 16% on a reported basis and 18% in constant currency. Adjusted revenue from acquisitions contributed approximately 12 points of growth in the quarter. This was related to the 2018 acquisitions of Callcredit, iovation, HPS and Rubixis. The lack of incremental credit monitoring from a breach of a competitor was about a one point headwind in the quarter. As a reminder, we are receiving an immaterial amount of revenue this year compared to last year as this offering is now handled by another provider and serves significantly fewer subscribers. Organic constant currency adjusted revenue growth, excluding the impact of the monitoring last year from a competitor's breach, was 7% in the quarter. Adjusted EBITDA increased 18% on a reported basis and 20% in constant currency. First quarter adjusted EPS grew 7% with a 26.9% adjusted effective tax rate. Cost of services increased 14%, and SG&A was up 20% as a result of higher operating and integration costs related to our recent acquisitions, investments in strategic initiatives and higher data costs associated with our revenue growth. As we did all of last year, we wanted to show you the impact that recent acquisitions have had on our margin and to help you see the good performance of the underlying business. The reported margin expanded by about 60 basis points. Excluding the impact of the acquisitions, the margin on our underlying business expanded by about 115 basis points in the first quarter, reflecting the typically strong incremental margin profile of our business. I'll wrap up my comments on our consolidated results with a look at some highlights from our balance sheet and cash flow statement. Cash and equivalents were up modestly to $201 million compared to the year-end 2018. This is largely a result of how we used our cash flow during the quarter. So let me walk you through those items from a First, cash from continuing operations was up a strong $25 million year-over-year, largely as a result of our good operating performance. Second, cash used in investing activities was up $20 million, primarily as we saw capital expenditures increase $15 million to $42 million in the quarter. That puts CapEx at about 7% of revenue for the quarter. As you'll notice from our history, we tend to see this metric increase over the course of the year, so we still anticipate spending about 8% of revenue on capital projects. Finally, cash used in financing activities almost doubled compared to the year-ago quarter. The increase is due primarily to two items. One is our decision to use cash to cover mandatory withholding taxes on our restricted stock program that vested in the first quarter. By using cash to retire treasury shares, this was a cleaner treatment for managing these tax payments and also reduces our shares outstanding modestly. The other item is the fact we didn't have a dividend payment in the year-ago first quarter and we do now. This increase was partially offset by a revolver payment in the first quarter of 2018. I'll quickly point out that leverage has fallen from 4.1 times on a pro forma basis to 4.0 times at the end of the first quarter. We continue to expect to see leverage drop to 3.5 times or less by the end of this year. Now looking at segment revenue and adjusted EBITDA. USIS adjusted revenue grew 8%. Excluding the impact of the acquisitions of iovation, HPS and Rubixis, organic adjusted revenue would have been up 3%. Our financial services vertical grew 4% on a reported basis and 1% organically. The other verticals, including health care, insurance, rental screening, collections and public sector, combined grew 13% and 4% on an organic basis. Insurance and public sector continued to deliver strong results, offset by lower-than-normal growth in health care and further weakness in collections as defaults remained at relatively low levels historically. Adjusted EBITDA for USIS increased 6% and was up 4% on an organic basis. Moving to International. Adjusted revenue grew 56% and 66% in constant currency. On an organic constant currency basis the segment was up a very strong 17% for the second quarter in a row. You can see the impact of the TransUnion International playbook across our other markets, highlighted by a 51% constant currency growth in India. The meaningful above-market growth is playing out elsewhere, with Canada up 11%, Latin America up 10% and Asia Pacific up 9% on a constant currency basis. Chris already mentioned the improvement in the U.K. and the fact that we expect constant currency revenue growth to be slightly softer in the second quarter before we see some acceleration towards double digits in the third quarter. I think it's important to emphasize that point and make sure that no one is surprised or concerned if we see that result next quarter. Adjusted EBITDA for International grew 97%. On an organic constant currency basis, it was up 53%. This outsized performance includes the reversal of a reserve for certain disputed claims that was the subject of litigation. Excluding the reversal, organic constant currency adjusted EBITDA would've still been up a very strong 41%. I also want to mention that last week we completed our sale of Noddle, the largest of the discontinued assets from Callcredit to Credit Karma. We have now closed three of the five sales and are on track to sell the final two pieces in the near future. Consumer Interactive adjusted increased 5% driven by balanced growth between the indirect and direct channels. As Chris pointed out, we are delivering solid growth in line with our mid-single-digit revenue growth expectation. Adjusted EBITDA for Consumer Interactive grew 6%, driven by the increase in revenue. Turning now to our guidance for 2019. Let me start with an update to some base assumptions. For the full year, acquisitions, including Callcredit, iovation, HPS and Rubixis should add approximately five points of adjusted revenue growth. For FX, we expect to see about one point of headwind impacting both adjusted revenue and adjusted EBITDA. There is also a one point headwind from the absence of incremental monitoring revenue from a competitor's breach. We expect adjusted revenue to come in between $2.603 billion to $2.618 billion, up 11% to 12%. So on an organic constant currency basis, excluding the incremental monitoring, adjusted revenue should be up 7.5% to 8.5%. Adjusted EBITDA is expected to be between $1.025 billion and $1.037 billion, up 13% to 13%. At the high end of our guidance, adjusted EBITDA margin is expected to be up about 50 basis points from 39.1% in 2018. Adjusted diluted earnings per share for the year are expected to be between $2.60 and $2.65, up 4% to 6%. As we discussed on last quarter's call, adjusted EPS will be negatively impacted by two nonoperational items in 2019. First, interest expense is higher as we added about $1.8 billion of debt to fund acquisitions in June of last year. And second, depreciation and amortization is higher as we extended the useful lives of our internally developed software in 2016 to reflect the impact of our technology transformation. That drives higher-than-normal expense in 2018 and 2019. While these nonoperating items will hold EPS growth back this year, we are highly confident based on what we know today that in 2020 and 2021 you will see a return to a more normal relationship between adjusted EBITDA and adjusted EPS growth. There are no changes to our full year modeling assumptions. Our tax rate should be approximately 27% again in 2019. Total depreciation and amortization is expected to be approximately $355 million. Excluding the step-up and subsequent M&A portion, depreciation and amortization should be about $160 million. And net interest expense should be approximately $180 million. We anticipate that capital expenditures will be about 8% of revenue this year as we aggressively invest in new products and integrate our recent acquisitions. Turning to the second quarter of 2019, let me provide our assumptions for the quarter. For adjusted revenue, we expect about eight points of contribution from M&A. We also expect about one point of headwind from FX on both adjusted revenue and adjusted EBITDA. There is also a one point headwind from the absence of incremental monitoring revenue from a competitor's breach. Adjusted revenue should come in between $642 million and $647 million, an increase of 14% to 15%. Adjusted EBITDA is expected to be between $253 million and $257 million, an increase of 15% to 17%. Adjusted diluted earnings per share for the year are expected to be $0.64 to $0.66, an increase of 3% to 5%. One final point I'll leave you with concerns how we account for the timing of when acquisition revenue becomes organic. As we made three acquisitions in June of 2018, I've gotten this question a few times and I want to provide some transparency for everyone's benefit. Our policy is that in the month when a transaction hits its one-year anniversary of booking any revenue, it becomes organic. And we count all of the revenue for the business for that month as organic. So of the three hitting that milestone in June, HPS closed on the first day of the month and Callcredit closed in the middle of the month. So we will count all of the revenue for June as organic. As iovation was acquired on the last day of June and no revenue was booked in that month in 2018, it will begin to benefit our organic growth beginning in July. Hopefully, this helps you as you model the quarter. That concludes my review of our financial results. I'll turn the call back to Jim and Chris for some final comments.

I’m going to let Chris offer you his final comments in a moment as he should given that he will lead TransUnion officially in a few weeks. I wanted to take a moment before we dive into Q&A to thank all of our shareholders and the analysts who cover TransUnion for your time, effort and support over the past four years. Stay tuned to see great things to come from Chris and team. I want to thank our highly engaged, highly demanding and very effective Board of Directors. All our shareholders should be aware of the diligent thoughtful level of board management interaction at TransUnion as it creates real differentiation and shareholder value. And TransUnion is clearly much more than a portfolio of businesses. It is really about the people and the culture that have evolved. I want to thank all the amazing associates of TransUnion for their dedication, passion and incredible work. TransUnion literally would not be the company that it is without you. So I pass the torch. Our shareholders are not just in good hands with Chris becoming CEO, but they will continue to benefit from all of our associates and our Board. Chris, over to you.

Thanks, Jim. I want to offer one more thank you for everything you've done for me but even more so for TransUnion and our associates; also, what we've done as a team to create value for our shareholders and our customers. While the company will surely and necessarily evolve in the future, you will always be a part of the fabric of what TransUnion is. So thank you. So I'll wrap up by putting my focus on what is most important: a consistent, relentless delivery of strong performance at TransUnion. This is a company that is built for achievement. From the outstanding markets that we serve with unique value-added products to our go-to-market approach and our ability to deliver leading innovation to high performance – in he high performance culture that we've built, in every aspect, we know how to compete and how to win. Across the company, I have deep confidence that our associates remain hungry and competitive and focused on continuing the outstanding track record that we've established. Given that, I have great confidence that we will have a very good 2019, even as we make the right investment decisions to generate durable growth over the long term. And with that, I'll turn the time back to Aaron.

Great. Thanks, Chris. That concludes our prepared remarks. So for the Q&A as always we ask you each only to ask one question so that we can include more participants and now we’ll be glad to take your questions.

[Operator Instructions] And today’s first question will come from Jeff Meuler of Baird. Please go ahead.

Yes, thank you. So I guess an order of magnitude question on the deceleration in both of the USIS sub-segments. I know you tried to address it, but I'm trying to get after just the order of magnitude here. So I guess just on financial services, I get that it's the toughest comps. Comps have also been tough for a while. Mortgage has been down. I think the market actually got a little bit better than when you've guided over the balance of the quarter. And then I guess Marketing Services is the other piece you're calling out. But just any other color on like the other lending categories, like any sort of fintech weakness or anything along those lines? And then similar question on emerging verticals because it sounds like a similar theme, insurance good, health care below longer term trend growth, collections down but it's obviously netting out to a step-down in the growth rate. And then just finally, on mortgage outlook. Are you embedding a better mortgage outlook in the full year guidance than you were when you last provided guidance? Thank you.

Yes, good morning, Jeff. This is Chris. I'm going to take that question. So in terms of orders of magnitude, as we've been saying for some time, I think part of the deceleration was driven by rising interest rates that cooled the mortgage market. And so we expected some volume declines and we saw them. And of course, as the banks have reported, that was just consistent with the primary performance across the industry. In terms of the comparables, while we have had high comparables for quite some time, 16% organic growth in the first quarter was a particularly high comparable. It was outside of the normal trend for the U.S. That's why we called it out. I think it's also important to go back to the fourth quarter and remember that business sentiment was considerably more pessimistic given that we were in the midst of a material stock market decline and correction even and a belief in the business community that the Fed would continue to increase rates throughout 2019. And I think that across financial services, that led to some pause in marketing activity after a very robust marketing year in 2018 as firms were, one, stepping back to evaluate the effectiveness of their mailing campaigns but also trying to understand underlying rate trends and looking for, I think, a floor and some stability. Now the first quarter is typically a seasonally strong quarter for marketing activity, and I think the uncertainty of the fourth quarter led to kind of below trend line marketing activity in the first quarter. Now it's interesting. January was rather slow as was February. We did feel a material improvement in both market sentiment and activity in March. And we're seeing that continue thus far in April. And of course, we're very pleased with that. As we know, the Fed has come out and said that they're not going to increase rates. And the economy, GDP growth remains strong, perhaps not as strong as it was Q2 of 2018 but still very strong. The consumer remains strong as well. Employment is very high. We even have pockets of wage inflation. If you look across lending categories, delinquencies remain low, kind of speaking to the industry's prudent underwriting practices. And so we're confident that even the combination of this and just increased certainty in the space is going to lead to a continuation of the positive online and marketing trends that we've recently experienced. Now on the emerging side, emerging is made up of a variety of industry subsegments. Insurance is one of the most material ones, and it had particularly strong organic growth based on the adoption of our National Driving Record Solution that we previously referred to as DriverRisk. All the other segments, be it rental screening, diversified markets, which is a whole series of different market segments, they all grew nicely as well. We called out the collection segment because I think it's indicative of two things. One, again, very solid underwriting practices across all lending lines in the industry and the fact that the consumer is healthy and delinquency rates are still below long-term averages. And I think that speaks well for growth in the coming three quarters where the comparables for our U.S. business seeds substantially.

And then the mortgage outlook embedded in the full year guidance, is it adjusted?

No. It's consistent with our earlier guidance.

Okay. Thank you, Chris as well as Jim.

Thank you very much.

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

Hi, good morning. Thank you. This is actually Trevor Romeo on for Tim. Thanks for taking the call. Just had a two-parter on financial services. So first, could you talk about the pricing environment in the financial services vertical? We know one of your competitors had signaled an intent to be a little more aggressive with pricing. So are you seeing any additional pressure there? And second, just a follow-up on the slowdown in the marketing. Was any of that a result of increased public scrutiny on data privacy at all? Or do you think that was completely attributable to the sort of economic and market uncertainty? Thank you.

Yes, thanks for the question, Trevor. I just think we participate in a very competitive space. And each of the players pursue business aggressively. I don't see any inconsistent pricing practices with kind of our long-term experience in this space. So really nothing to comment on there. And could you again repeat the second part of your question?

Sure. So that was just on the slowdown in some of the marketing activity that you saw. Was any of that a result of sort of increased public scrutiny on data privacy? Or do you think that was entirely just the market uncertainty in the fourth quarter?

Yes. I think it's the latter. I mean it's completely independent of the privacy discussion in the U.S. and any regulatory efforts.

Okay, thank you very much.

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

Hi, thank you. Good morning, gentlemen. I just wanted to follow up on the marketing piece as well. I think you said it was broad-based weakness from your clients. But maybe more specifically, like was it in line with what you guys had laid out as the kind of true-to-cycle performance when you gave that guidance on Investor Day? Because I think it's a decent size of the business, so just curious if you thought it was abnormal than what maybe you guys have assumed in that long-term guidance.

Hey, good morning, Manav. Thanks for the question. This is Todd. So yes, when we go back to Investor Day, I think the overarching kind of objective that we had was to lay out what we thought would happen on average over three years, right. And that was the revenue guide that we gave, right. When we look at what happened specifically in Q1, we're looking at this as almost something that was temporary, right. Our customer base, as Chris has already articulated, just really came in kind of uncertain. So when we set our guide that we gave in the middle of February, we have been experiencing this. We saw a little bit of what's going on. And so that was part of why the guide that we gave was around 7% because we knew that we were seeing the slower marketing. But I think the trend has definitely turned a little bit. So we feel pretty good that you're talking about one quarter here, you're not necessarily talking about a three year number that we gave on the Investor Day.

Our next question comes from Gary Bisbee of Bank of America Merrill Lynch. Please go ahead.

Hey guys. Good morning. I guess sticking with the theme of the questions you've had today. Can you give some more color on – now you cited improvement during the quarter and into April. Was that largely in the marketing area? Or there's some other areas where you've seen some strengthening? And I guess part two of the question, just what – can you order of magnitude rank the most important couple of things that have to go right to deliver the high single-digit USIS growth for the year? Thank you.

Okay. Well, with the Fed's more dubbish posture on interest rates, we have seen a significant improvement in the mortgage market. That's boosted our online volumes materially. But we have also seen improvement in our Marketing Services in March and carrying on into April. And I won't order them but they're both very material to our business and I think important to our confidence in our guidance. As we stand at this point, I feel like just the combination of factors that we've got across the U.S., first, in the context of materially slowing comparables in the second half of the year in particular and the strong revenue pipeline we have from new product sales, which continue to be very good, and again, the improving online context and I think just more time in the certain economic environment, we will see a resumption of marketing activity, perhaps not to the level of 2018, which, frankly, was one of the strongest years for client acquisition in recent memory, but back to a very solid level. But if I – as I look across all the different segments of the U.S. business, with the exception of collections, which is countercyclical and a bit of an anomaly, we feel good about the growth prospects of all these lines of business for the remainder of the year.

Our next question comes from Andrew Steinerman of JPMorgan. Please go ahead.

Hi, Chris, it’s Andrew. I wanted to go back to earlier in April where you announced all the successions underneath you and obviously that the people were the people that we all expected to get the promotions. What caught my eye, well, there were really new ways that the responsibilities and titles were being divided up than in the past, and maybe to me, it kind of looked maybe more by function. But I just wanted to get some of the logic on why change the kind of lines of responsibilities of the EVPs?

Okay, good question, Andrew. I think what we accomplished in this organizational evolution, if you will, is there were certain functions within the U.S. business around product development, some area of operation and even our selling function that were increasingly providing services to the global organization, at least around core solutions. And USIS was an entity within TransUnion that was starting to operate as a global service center. And so what I decided to do is take a couple of those most critical functions, namely the product development solutions category and our operations category, and elevate those to the executive team and really declare that these are global in nature. Now global in our case means that around our core solutions, we are going to develop them in a way that they can be leveraged across all of the relevant markets. The international businesses, though, they maintain autonomy. They have unique needs in their markets, and they have their own product development organizations that meet those needs. But in areas such as our risk assessment solutions like CreditVision or decisioning or fraud or alternative and analytics, et cetera, there's a lot that we can share, and I think this cements the concepts and the actual way in which we were operating by elevating these folks to the executive team.

Yes. That makes sense to me. Thank you.

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

Hey, good morning, guys. Just two quick questions as it pertains to the financial services side. I guess firstly, and I apologize if I missed this, was there weakness also on the fintech side? Or were you basically predominately talking about traditional FI and their marketing efforts there? And then secondly, I think, Chris, you talked about a meaningful acceleration March relative to January and February. Is it safe to say that growth in the financial services space return to high single-digit growth? Or was it potentially maybe even a little bit faster given maybe some of the pickup over the first two months that were slower?

Yes. Okay. So the deceleration in the first couple of months of the year was broad based. You call out fintech. Fintech continues to be a robust grower. There's a lot of activity going on in that space. But I really think it was just a function of kind of gloomy business sentiment because of the various elements of macro uncertainty in the fourth quarter. The acceleration that we have experienced in March and April, again, it's broad based and it's what gives us confidence and why we're reiterating our growth forecast for the year.

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

Thank you, good morning. You mentioned a number of reasons for the slowdown in USIS, and basically, most of them just being market related, slower mortgage, slower marketing. Just wanted to understand if there was anything different from a competitive standpoint. Just looking at it from the point of view of as time goes by since the data breach by one of your competitors, would you expect that you might see some increased competition just given that they might not have been able to compete as effectively in the short time frame post breach? And so does that make it a more competitive market for you? Are you seeing that all? Thank you.

Okay. Good morning, Toni. Listen, again, I've been here for almost six full years, and it's been a pretty intensely competitive space for the entirety of my tenure. Yes, certainly, the breach caused some disruption, but we really didn’t notice at any quarter a diminishment in the competitive intensity, right. So each firm has got strong offerings and quality people, and they're out there working hard to serve their shareholders. So no real change.

Thank you.

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

Hi, good morning. Thank you for taking my questions. Chris, I want to focus sort of on the UK. There was the – was a lot of a change that was put into place in the fourth quarter, there was a slowdown in the growth of that business that was expected to reverse over the course of 2019. Are you seeing the change as you expected? Are you seeing an acceleration in the growth of that business? And we saw a sequential down quarter in the UK from 4Q to 1Q. Is that just a seasonal thing like we have seen in other businesses? Or is there anything to look into that?

Hey, Shlomo, good morning. I know you addressed that towards Chris, but let me just kind of jump in and maybe talk just a little bit about the numbers and then Chris can add any color on that. I think you'll – if we go back to our last earnings call, we talked about just a significant amount of change that we implemented in the UK in the second half of the year post the acquisition. And admittedly, we caused a little bit of disruption in the business. And as they exited the business – I'm sorry, as they exited the quarter, the business started to gain some meaningful traction. So we are pretty happy that we saw 7% growth in Q1, right. And that was up sequentially from 3% that they grew in Q4 of 2018. In Q2, we're expecting kind of another similar mid-single-digit performance as I highlighted in the – earlier in my comments this morning. So – and then what that's setting us up for, though, is we introduce new products and capabilities as well as getting our sales force up to speed that's for a really nice, hopefully, growth trajectory as we exit 2019 where we expect to be in a double-digit type of range. From a seasonal perspective, when you look at it quarter-on-quarter from Q4 to Q1, yes, you do see a downtick. But Q1 has historically been a seasonally down quarter of that business. In particular, what happens is just customers kind of – they burn their budgets, so to speak, they spend to do two various initiatives at the end of the year and then they kind of reset back to normal in the first quarter. So hopefully, that gives you kind of the flavor of what's going on.

Okay, great. Thanks.

Our next question comes from Ashish Sabadra of Deutsche Bank. Please go ahead.

Thanks. Just going back to the marketing solutions. You also talked about robust pipeline for trended and alternative data. Can you just provide any more color there? And as we start to see more traction there, should we start to see also growth come back? And then maybe just a quick one on the analytics. Your competitor announced a partnership with FICO. Can you just talk about your analytics, Prama, and how does that compare to – in the competitive environment? Thanks.

Okay, great. So Ashish, I believe your first part of your question was about the adoption of trended and alternative and the overall growth. And I could tell you the pipeline continues to be robust and we are having some nice success closing deals. The overall volume was tempered because a big part of our trended data portfolio does relate to mortgage. So as mortgage volumes fell, naturally, we provided less trended data. But again, that's all part of the temporal issues we've been talking about with the first quarter. In terms of analytics and the recent announcement of a partnership between FICO and Equifax, it really doesn't change what we're doing here at TransUnion in developing our Prama suite. As you know, we've invested to develop from scratch and a modern technology a seamless way for customers on demand to access all types of data and all types of deep analytics regarding their credit file, market performance, their individual performance, individual vintages and all of that. Recently, we announced a robust data hub offering where clients can upload their own data, they can upload third-party data and they can match and append it with the TransUnion data set in our customer PII. They can upload models and scores and all of that. And we're already deeply integrated in the TransUnion's leading decisioning platform, which is an important consideration. Now in terms of the Equifax-FICO partnership, obviously I'll direct you to Equifax for a more detailed discussion of that. But I think it's just simply indicative that building out robust analytics capabilities for clients is a current frontier that we're all developing solutions for. It's kind of a current battleground, if you will. And for them, I think they felt the need to align themselves with FICO in order to provide robust competitive offering.

Thanks Chris.

Our next question comes from David Togut of Evercore ISI. Please go ahead.

Thank you. Good morning. Appreciate all the helpful detail on mortgage as it moved throughout the quarter and then what you're seeing in April. Could you also give some commentary on two of the other big drivers of U.S. consumer credit demand, auto and credit card? And if you could sort of break down your commentary on auto between the new car market and used car market from a demand perspective?

Okay. So starting with auto. For quite a few quarters here, we had said that auto volumes had kind of plateaued. New vehicle sales reached all-time highs and retreated a little bit from that. And so we're more or less flat there, if you will. The volume of used car sales had been increasing, though. And as we've said previously, your average sale of a used car requires more credit pulled than a new car. So overall, we're seeing a volumes flattish type of environment. As autos become more expensive and with some increasing interest rates, consumer auto balances, we're not – haven't been growing. But it remains a pretty strong market and I think it will provide some growth for us over the course of the year. Card is kind of a mid single-digits grower. We cleared some difficult comps late last year. And again, I think the industry is reaching new highs in terms of penetration. I think we have almost 180 million consumers in the U.S. with a general-purpose card. There are some new entrants in the space that are active and trying to acquire sub-prime consumers. So it remains a pretty good market. And then, again, I think, just to complete things, mortgage we've covered in detail. The consumer lending market overall, I think, remains the most robust grower, not just because of new fintech players but just overall unsecured consumer loans as a real growth area. I think almost 19.5 million to 20 million Americans now have one of these loans. And many of those firms are starting to expand into different categories, which is going to drive demand for our services. So that's kind of the landscape of the sub verticals within the overall FS space. And again, I think the conditions in each are such that it does underpin the guidance that we provided.

Understood. Thank you very much.

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

Good morning, everyone. So firstly, Jim, congratulations on a great run, and I look forward to seeing the next chapter.

Thank you.

And then for the question, if you could talk some about the partnership with Payfone you announced last week and what that means for the iovation, IDVision strategy?

Yes. Good question about an exciting area. So there are a lot of ways to authenticate consumers. And based on that understanding of who you're dealing with, adjust your security or your network service strategy, even your marketing offerings. One important piece of the equation is device ID and device behavior, which is why we acquired iovation. Another critical piece, though, is access to mobile phone information, right. And we believe Payfone, we've been in that partnership for some time, is the market leader in that space, very technologically innovative, and we simply wanted to secure our long-term interest by making an investment in them. So that's purely the motivation there and we'll be – we'll continue to partner on the product development side, and I just think in the big, it just reinforces our commitment to be a market leader in the online kind of digital thought mitigation space.

Got it, thank you very much.

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

Hey, good morning, guys. Appreciate taking the question. Jim, it's been a pleasure.

Thank you.

A question on health care. Aside from the anniversary of the acquisitions which should contribute to faster segment or subsegment organic revenue growth, can you elaborate a little bit just on visibility given some of the disruption last year you saw in that business in terms of new client onboarding and just the factors that could drive some variability to your outlook in that part of your business?

Okay, yes, good question. Comparables are certainly part of the answer here. But you have to remember, there is just inherent lumpiness in the back end adoption of – well, in the adoption of our health care solutions on the back end. I think the important part of the story is the accelerating pace of new sales in our health care business. We have focused on sales force effectiveness over the past half of the year. The team is doing a great job. We had really strong bookings in the fourth quarter of last year. That momentum has continued into the first quarter. And it's really our focus on accelerating new client acquisition and certainly, solution integration that's going to allow us to climb back to the high single-digit level that we're forecasting, really through the end of this year and as we exit into next year.

Our next question comes from Kevin Mcveigh of Credit Suisse. Please go ahead.

Great. Thank you. Let me add my congratulation to all around as well. Hey I wonder, just what would cause you to kind of be at the higher end of the guidance versus the low? Is it primarily the two areas you called out? Or are there any other factors that we should think about in terms of, I think, the financial service and emerging verticals within kind of the current range as it's constructed?

Yes. Well, I'll answer this initially, and then I'll let Todd jump on it. I mean, clearly, guidance is directional. There are always factors. We don't have a crystal ball. If we did, we would probably be in another industry. That said, we've got a terrific portfolio. Like Aaron and Todd both reinforced and myself as well, sometimes, it's the USIS business that's driving results. Other times, it's our terrific International business, which posted phenomenal numbers and is set up for a great year, or Consumer Interactive, which is doing a terrific job, and the recovering health care business. So it's a strong portfolio. We're now in an environment where not every component of the portfolio is operating at peak market volumes, right. But despite that, we continue to innovate. We continue to bring on new customers. We continue to cross sell. And we're posting, I think, very strong growth, and we're confident that we can do it for the full year. Todd, would you add to that?

No, I think when we give our guidance for the full year, as everyone is probably well aware, these are numbers that we have a high level of confidence that we'll be able to achieve. And when we look at it, as Chris already said, we're looking at the portfolio of businesses that we have and kind of how they perform opposite each other, which was an important point that we made at our Investor Day presentation. And I think you saw that play out in the first quarter.

Excellent. And that brings us a little past the top of the hour, and we are going to cut the call off at that point. So thank you all very much for joining us today, and we look forward to talking to you all in the very near future. Have a great day.

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