Good day, and welcome to the TransUnion 2019 Third Quarter Earnings Conference Call. All participants will be in listen-only mode. [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, we have Chris Cartwright, President and Chief Executive Officer; and Todd Cello, Executive Vice President and Chief Financial Officer. We posted our earnings release and slides accompanying 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 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 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 the factors discussed in today's earnings release and the comments made during the 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 statement. With that, let me now turn the time over to Chris.

Thank you, Aaron. As you saw on our earnings release this morning, TransUnion delivered another strong quarter. In fact, it's worth noting that the third quarter saw a record adjusted revenue and adjusted EBITDA in absolute dollars, and the highest quarterly adjusted EBITDA margin in our history. The results reflect broad-based innovation-driven growth and attractive expanding margins, and we are very proud of our track record since our IPO. Over the past seven years, we have expanded into attractive new verticals and geographies, built or acquired innovative solutions, and developed industry-leading technology. At the same time, we have also created a culture that emphasizes customer focus, individual accountability, and performance. Our stakeholders have come to expect this from TransUnion just as we expect it from ourselves each day. In short, we have built a company that understands the need of the customers it serves and can deliver best-in-class solutions to meet those needs. We are positioned to continuously deliver market-leading growth and shareholder value creation, and we continue to evolve our organization and to develop new capabilities in order to compete effectively. Earlier this year, we created two new global leadership positions in order to accelerate product development and operational effectiveness. First, we consolidated responsibility for our horizontal solutions under a global leader. Examples of these solutions include fraud mitigation, decisioning, credit products, and our growing speed of analytics solutions. Second, we created a global operations role to support the development of customer-focused operational platforms through improved process efficiency and greater automation. We have also expanded our investment in our vertical markets, where our leaders bring significant industry experience and deep insights into customer pain points by adding resources across telecommunications, utilities, ecommerce, gaming, and other verticals. This investment in market planning typically enables us to create more valuable solutions,…

Thanks, Chris. As usual, for the sake of simplicity are the comparisons I discussed today will be against the third quarter of 2018 unless noted otherwise. So let's start with the income statement. Third quarter consolidated adjusted revenue increased 11% on a reported basis, and 12% in constant currency. Adjusted revenue from acquisitions contributed slightly less than one point of growth in the quarter related to the 2018 acquisition of Rubixis and the 2019 acquisition of TruSignal. And one other reminder, the lack of incremental credit monitoring from the breach at a competitor was again about a one point headwind in the quarter. As we've discussed previously, we are receiving an immaterial amount of revenue this year compared to last year, as the offering is now handled by another provider and serve significantly fewer subscribers. Excluding the comparability impact from this revenue, adjusted organic revenue in constant currency would have grown 12%. Adjusted EBITDA increased 15% on a reported basis and 16% in constant currency. As Chris noted, our adjusted EBITDA margin was the highest we've seen for a quarter at 40.7% while the third quarter is typically our strongest, this high watermark reflects strong revenue flow through even as we continue to invest aggressively in all aspects of our business. Third quarter adjusted EPS grew 16% with a 26.2% adjusted effective tax rate. The rate in the quarter was slightly lower than our full-year expectation of 27% as the result of realizing the benefits of certain tax planning initiatives. SG&A increased 10% and cost of services was up 6% 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 want to show you the…

Thanks, Todd. So let me end where I started. The business model and culture of TransUnion are very strong and tuned for long-term growth and success. Our people data technology, capabilities, culture, and of course innovation are a synergistic blend that enables superior shareholder value creation. As you've heard regularly from us, including today, there are many avenues for our long-term growth. And you can be confident that our management team is pursuing them aggressively. With that, I'll turn it back to Aaron.

Thanks, Chris. That concludes our prepared remarks today. For the QA, as always, we ask that you each ask only one question, so that we can include more participants, and we will take those questions.

Thank you. And we will now begin the question-and-answer session. [Operator Instructions] Our first question today will come from Andrew Nicholas of William Blair. Please go ahead.

Hi, good morning. Just wanted to ask a quick question about EBITDA guidance, I think it implies that margins are down a bit in the fourth quarter relative to last year. Just wondering if you could talk about what's driving your outlook for margins. Is there anything in terms of investments or timing you would call out for the fourth quarter, or any reason you would expect margin expansion is slow?

Hey, good morning, Andrew. This is Todd. I will take that question. I think the way to think about it is if you look at our adjusted EBITDA margin in the fourth quarter of 2018, we were at 13.9%. So, the guide that we put out is in essence to maintain that margin, we are just staying flat to that, and if you think about that a little bit more, after 40% EBITDA margin if you round it, such that's very strong, and when we think about how we are going to operate the business in the fourth quarter, clearly there are some investments that we are going to make. So, we actually feel really good about this guide that we are able to make those investments and still deliver what's approximately 40% adjusted EBITDA margin.

Thank you.

Our next question will come from Jeff Meuler of Baird. Please go ahead.

Yes, thank you. The U.S. financial services performance looked particularly good to me, especially considering how hard that comp was in year ago. I know mortgage market is a factor, but just other factors worth I guess discussing like CV and CV Link, I understand that they are strong, but are they accelerating, and then I think Chris had a call out about the financial tech end market maybe being more active, but just any additional color on the U.S. conserve [ph] growth?

Good morning, Jeff. This is Chris. I think performance overall in financial services was strong and positive across the varying market segments. Certainly mortgage had a very strong quarter, given low prior year comps and the improvement in volume we saw because of low interest rates. We have got nice growth in the consumer lending space as well. Card originations continue to be moderate to strong. Even auto is showing some growth. So, it was a quarter of well-balanced growth across all our financial services. In terms of our Trended and our Trended plus Alternative data product, we continue to make a very nice new sale prior to implementations or ramping, contributing nicely to results. And again, I think the callout was that it was latest quarter in absolute dollars for those CreditVision and CreditVision Link to Trended product. So, we are excited.

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

Thank you. Good morning. I just had a question on the emerging verticals. I was hoping if you could elaborate a little more on the growth in the diversified –- in the non-insurance vertical there? And maybe just update us on if healthcare is coming back to the high single digit as you guys anticipate?

Hey, Manav. Good morning. This is Todd. I will take the question on emerging verticals. So as you've already spoke about, the insurance vertical was very strong, and Chris obviously talked about that in his opening remarks this morning. When we think about -– we look at the rest of the emerging verticals, healthcare had a nice quarter. But, it also was rebounding against what we consider to be a weaker comp in the prior year, but the business delivered on the expectations that we were anticipating in the quarter. I would say that the only area that might be down a little bit is our collections vertical which is down on a year-over-year basis. And I think that's really just more of a testament to the overall strength that we're seeing just in the consumer space in the U.S. The consumer right now is hoping that it gets reflected in our financial services results. So when you flip that over to the emerging verticals, that's the nice counterbalance we have in our business, right, by having the collections vertical there. It's down in good times, but it will probably be up as delinquencies on the consumer space pick up, and right now, we are not seeing that in a meaningful way. So, when we look at the growth that's what is pulling that back.

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

Hi, thanks. Maybe I could take another cut at that last one, you know, the comp in the emerging verticals got -- sticks a little more than six points easier, and yet the growth rate year-over-year was -- let's call it the same as last quarter. So I don't think collections is big enough that -- unless that changed dramatically from last quarter that would -- have that big an impact, so something else must have deteriorated, or healthcare just didn't get much better despite the comp, is there any more color and whatever it is, is it short-term in nature, or is there some reason that growth potential of that business is decelerating so much? Thank you.

Yes, Gary, great question, and a good call out on that. I really -- when we look across the portfolio, all the vertical markets that make up emerging are growing, and I would say the insurance, our business is outsized as you know, I already mentioned, and Chris talked about already this morning. Healthcare did post a nice rebound and delivered everything that we said. We saw good growth out of our diversified markets business, but yes, the rest of the verticals while they grew, they probably didn't -- they did not grow as fast as the 8%, right. So then that becomes the drag on the overall growth rate. So, but by and large, let's say the verticals that we're most focused in with the emerging space with healthcare, other insurance, we're very happy with the performance that they posted in the quarter.

Okay. Thank you.

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

Thank you. Consumer had a really strong quarter. Can you break out how much of your mix is coming from direct versus indirect, and sort of the trend you're seeing in each, are you signing new partners, seeing higher volumes, what are the main drivers there, and the margins were really strong too in consumer, so was that helped by sort of more the direct or indirect as well? Thank you.

Hey, Toni, this is Todd. So, as it pertains to the consumer in our active business, when we think about the direct versus the indirect channel, think about that as one-third direct, two-thirds indirect, and then when you get into the overall margins of that business, a lot of it has to do with the type of products that the consumer is purchasing from us, right. So if it's a single Euro product, meaning that it's just a TransUnion credit report that's being provided, obviously that's a higher margin product for us to deliver, because it's our data that we're delivering. The opposite of that would be where we're offering a free bureau monitoring product where we have to purchase a credit file from Equifax and from Experian to deliver that. So there is cost associated with it. So the margin profile gets hit. So when you look at the overall performance of the margin this quarter, yes, we did definitely benefit from a mixed shift, and that's not always something that's deliberate for us either, it's just depending on the buying patterns of our customers. Just going back to the top line though, I would say that the business performed exceptionally well in both channels. First, the direct business has been an area that we've been investing incremental advertising dollars into, because we are able to attract high quality of consumers that we're able to retain. So they're interested in monitoring their credit and they're staying with us. Conversely, on the indirect side of our business, we benefited from a couple of breach services agreements, which we highlighted in our prepared remarks that also are providing meaningful growth, but then also all the rest of the indirect partners continued in general to grow overall very nicely for us.

Thank you.

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

Good morning, guys. Thanks for taking my question. Chris, I wanted to ask a question on PSD2 in the U.K. and open banking, which is something that you highlighted in your remarks. Is that a potentially a meaningful driver of the U.K. business next year, and can you maybe kind of scope for us how you're thinking about that opportunity between servicing, FinTechs and traditional banks in the U.K.?

Okay. Hey, good morning, George. We are really excited with the growth that we posted this quarter in the U.K., 12% as you saw. It came from a broad mix of areas. We gained some market share in core credit originations services. We have a very robust fraud business there, and fraud mitigation is fast growing, and now with the addition of our iovation capabilities, it's made us even more competitive, and open banking is really just in the early phases of adoption in that market. As we look to next year, we do believe that open banking and kind of transaction categorization services will generate some interesting revenues for us, but we're really thinking about the U.K. as an opportunity to apply the same approach, the same playbook that we've applied internationally with success. Our growth playbook, it's a combination of just a good knowledge-based marketing and blocking and tackling in the field, having strong products, trended products, and alternative data as well. And then bringing in some of our global horizontal solutions like CreditView, like our ever-broadening Prama analytical suite, and again emphasizing iovation in that marketplace. So really we're looking for broad-based growth, and hoping to acquire additional share of the process.

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

Thank you. Good morning. You called out strengthened mortgage, solid performance in credit card and auto is driving the underlying strength in U.S. markets. Could you comment on the sustainability of these three big macro drivers of a U.S. credit reporting demand?

I'm happy to share some thoughts and then, maybe Todd can tag team on this question, but the growth that we experienced in the third quarter in mortgage as I look forward or I don't know 12 or 18 months I would be surprised that we continue to grow up that trajectory. Again, it's a bit of a turnaround on top of a soft comp. That said, home prices are easing, interest rates are low and there could arguably be further downward pressures. That's always good for refinancing volume. We may even get an uptick in new home purchases in future all of that's been fairly slow. So, I would say nice mid-single digit volume growth perhaps for the future. Auto is flat as we've talked about before from a volume perspective; however, there is starting to be a shift between new cars and used cars and typically a bit more credit gets polled to finance in used cars, so there is a certain offset to the volume slow down. You didn't mention consumer lending growth. There was nice growth again in consumer lending. I think the marketing that we're seeing there in the FinTech space is more restrained than it has been in prior years, but it is still active and a growth full category probably expanding the lending pie and also capturing some share from traditional lenders. And then card continues to turtle along nicely in the mid-single digits volume growth, high quality account origination from a risk perspective. And then really across all of these segments, risk is being well managed, the consumer and the economy is strong overall -- certainly, but delinquencies remain well below approved recession levels and so all of that is very good for our core financial services business and although it is a drag on our collections business as Todd explained before.

Thank you.

Next question will come from Bill Warmington of Wells Fargo. Please go ahead.

Good morning, everyone. So you mentioned in your remarks that you've got about six million consumers in India benefiting from CreditView dashboard. I just wanted to ask how that compared to a more mature market like the U.S. and how long do you think it'll take India to reach similar penetration, and if so, what kind of revenue opportunities does that present?

Do you mean CreditView or CreditVision?

I meant -- sorry, CreditView dashboard.

Okay. Yes, so the credit -- yes, just for clarity on the call, CreditVision is brand new for the trending product; CreditView is a white-label packaging but direct-to-consumer functionality that we license to lenders in order, so they can cultivate and eventually monetize the audience that they have. That product has done extremely well in the U.S. We had a nice order in the year-to-date of selling efforts. I can't tell you exactly the audience that we have. I'm not sure that all of our lenders would report that information back to us. So I'm just not clear on that. We have introduced that product into a variety of other international markets, including India. We're having some selling success there. I very much expected that will be a very complimentary product to our overall data offerings, and just a way for us to leverage the deep relationships that we've cultivated with both the traditional bank lenders and the non-bank financial companies.

Hey Bill, and just one other thing to add to that is, we're talking about CreditView and everything, Chris just explained, and that's the relationship that we would have with the financial institution for them not for credit, but we also have a nice growing direct business as well in India. So it's you got to think about both channels in that space similar to how we operate in the U.S.

Got it. Thank you.

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

Hi, good morning. Appreciate you taking the question. I wanted to ask about the FinTech performance and specifically looking at slide five in your deck. I wonder, Chris, you call out mortgage and how that might be a transitory tailwind but clearly FinTech demand and the success you've had there is more structural. How do you think about the potential zero sum gain that arises as legacy financial institutions when you share? Is that a net benefit to TU over time simply because you have such a leadership position in FY, or is that something you think about and talk about and try to balance in your long-term growth plans?

Yes, so first commentary on market and share. I mean, and again, I'm this is more anecdotal than scientific, but I would my feeling is that the rise of the FinTech, the rise of online consumer finance is growing the pie, and it's not necessarily zero sum, right? No doubt there is some fear gained by this FinTech space collectively. And I mean, you can see that bear out is borne out by some of the numbers that we track internally. I would expect that consumer lending books, online lending will continue to outpace traditional lending market growth, and because we have first mover advantage and a nice concentration of share there, it means that we have a superior file, we've seen much more of the increase that takes place with marketing and origination activities that gives us a more robust data asset that reinforces the value and secures the share that we've got. So that said, it's still a highly competitive space. There is price compression, as we've talked about before, as these lenders renegotiate based on the very substantial volumes that they've attained. That's not necessarily a bad thing. It's just the natural development of a market like this. And we're super excited to serve all of these clients and the way that we do. So advantage position or not, I wouldn't have stated so strongly, we're trying to compete aggressively in every segment that we serve. If you look at the traditional lenders, their online capabilities are extremely impressive as well. And I think, as we try to convey in slide five, it's really all for the net benefit of the consumer. The rise of the Internet, the rise of data infused decision making in near real time, super user friendly applications. These are all in response to consumer demands for fast and frictionless experience and that demand is permeating the way all lenders are competing.

Thank you.

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

Yes, [indiscernible] question, so, congrats on such a solid quarter. My question was just under 4Q revenue guidance, standard flights, like some amount of moderation in the organic growth. I was just wondering can you help us understand what's causing that slowdown, is that conservatism, or I guess all your assumptions around mortgage benefit, so any color on that front? Thanks.

Hi, Ashish. This is Todd. Thanks for the question. Yes, so typically what our positioning going into any given quarter is to provide the market with a forecast, and ultimately, obviously, this guidance that we feel comfortable that we can achieve, and that's really where we're at right now. When we go into our business review meetings and do the deep dives with teams and have a sense of what the pipelines look like, and the conversion of that, we feel good about the numbers that we put out for the fourth quarter, albeit at each of your point, it's a little bit slower than what we saw in the third quarter, but nevertheless, if there's over-performance to be had, that will materialize throughout the quarter for us.

Thanks. That's it from me.

And our next question today will come from Kevin McVeigh of Credit Suisse. Please go ahead.

Great, thank you. Hey, congrats on the margins, really, really strong. Hey, Todd, any sense of way to think about how much to the extent there's the incremental benefit on margins, how much of that goes to reinvestment to come to continue to spur the organic growth as opposed to get shared with the market, and does that kind of mix vary over time?

Yes, Kevin. So that's a great question, and that's one that we debate quite a bit as a management team, and when we are -- especially when -- we are approaching this year, the high end of our guidance for the full-year being at 39.7%, approaching 40% for the for the full-year. That's a significant amount of margin that's there, and I think the way we think about it is, first, we believe there is a lot of runway left with our organic offerings that we already have in market, but we're also excited about just products that are still gaining traction with so Chris has spoken about Prama as an example. So we're very interested in investing back in those businesses and in those products to ensure the sustainability of the top-line performance, and we go back to the Investor Day, and the long-term guidance that we provided, we said that we would grow revenues by 7% on an average over the next three years. So, we've always got that number in our mind that that's something that we've committed to the market is something that we want that we strive to achieve, and the only way we're going to do that is by continuously innovating and differentiating ourselves in the marketplace. And when you get to the margin itself, approaching 40% is significant, and I think we've somewhat tempered expectations back on the Investor Day, where we said we would grow the margin 50 basis points on average, over the next three years, and really what that's getting to is the margin profile of TransUnion has changed so much from our IPO in 2015, when we are around 35%. We sustain that getting almost up to 40%, but it's really more of a question of how much margin do we want to squeeze out of TransUnion, or do we believe that there's long-term revenue growth potential. So we believe that. We believe that there's a lot more to go as I've already said. So, I'd expect on the margin side for us to be very deliberate and focus on top-line growth and making investments and maybe not having as much flow-through to the bottom-line in adjusted EBITDA.

Super. Thank you, again, congrats.

Thank you.

And ladies and gentlemen, this will conclude our question-and-answer session. At this time, I'd like to turn the conference back over to Aaron Hoffman for any closing remarks.

Okay. Thank you very much, and we appreciate everyone's time today. As we're at the top of the hour, we are going to wrap things up. We hope you have a terrific day. Thank you.

The conference is now concluded. We thank you for attending today's presentation, and you may now disconnect your lines.