Good morning, and welcome to the TransUnion Fourth Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, 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 Chris Cartwright, President and Chief Executive Officer; and Todd Cello, Executive Vice President and Chief Financial Officer. We've posted our earnings release and slides to accompany this call on the TransUnion Investor Relations website. 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 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. With that out of the way, let me now turn it over to Chris.

Well, thanks, Aaron and welcome everyone to our call. We've got a lot of ground to cover today. So let me quickly review the highlights of what we will discuss. First, I'll walk you through our strong performance in the fourth quarter and also for the full year. Todd will follow me and provide you with fuller details. Second, I'll share the reasons for our confidence that 2020 will be another year of solid growth and organizational progress at TransUnion. Again, Todd will cover further specifics in his section. And third, I'll reinforce our longer-term ambitions for TransUnion and confidence that we can continue to deliver superior financial results. Finally, I'll review our strong and differentiated portfolio and prudent approach to growth. We're very excited about our businesses and solutions globally and believe that they provide a terrific foundation for our continued success. So with that overview, let's get into our financial performance. For the fourth quarter and the full year 2019, TransUnion again generated very positive financial results. Our revenue, EBITDA and EPS for both periods grew double digits on an organic, constant currency adjusted basis. This strong performance is the result of broad-based innovation-led growth across our portfolio. So, now let's review some of the highlights. So in the US markets, Financial Services, our largest vertical, delivered a very strong year, despite a slow start in the first quarter. Our insurance and public sector verticals also grew rapidly and healthcare positioned itself for return to high-single-digit organic revenue growth with a year of strong new sales and implementations and a robust sales pipeline going into 2020. International results were almost uniformly strong over the year. We remain extremely bullish on our diversified and market leading position in India. We saw our UK business accelerate to double-digit top line…

Thanks, Chris. Let me start with our consolidated results. And for the sake of simplicity, all of the comparisons I discuss today will be against the fourth quarter of 2018, unless noted otherwise, and all revenue discussions relate to adjusted revenue. Starting with the income statement. Fourth quarter consolidated revenue increased 10% on a reported basis and in constant currency. Revenue from acquisitions contributed slightly less than 0.5 point of growth in the quarter related to the May 2019 acquisition of TruSignal. And one other reminder, the impact of lapping incremental credit monitoring from a breach at a competitor was again about a 1-point headwind in the quarter. As we've discussed previously, we received an immaterial amount of revenue in 2019 compared to 2018, as the offering is now handled by another provider and serves significantly to your subscribers. So excluding the comparability impact from this revenue, organic revenue in constant currency would have grown 11%. Adjusted EBITDA increased 11% on a reported basis and in constant currency. Our adjusted EBITDA margin was 40.2%, up about 30 basis points from the fourth quarter of 2018. For the full year, adjusted EBITDA margin was 39.8%, up about 70 basis points and slightly better than the high end of our guidance provided in October. Fourth quarter adjusted diluted EPS grew 13%, with a 26% adjusted tax rate. The rate in the quarter and the full year were slightly lower than our full year expectation of 27% as a result of realizing the benefits of certain tax planning initiatives. I'll wrap up my comments on our consolidated results with some good news about our cash flow and balance sheet. During the fourth quarter, we voluntarily prepaid another $75 million of debt after prepaying $265 million earlier in the year and $60 million in…

Well, thanks Todd. And to conclude, TransUnion continues to be on a strong growth trajectory with a very good year in 2019 and very solid guidance for 2020. As we discussed today, our ambitions are clear and we'll continue to invest aggressively in our world-class, unique market positions and growth approach to ensure relative outperformance over the longer term. Before I move to QA, I want to take a moment to thank Leo Mullin, who we previously announced is retiring as the Chairman of our Board this May. Leo has made a tremendous contribution in TransUnion over these past six years. We're pleased to have also announced that Pam Joseph has been on the Board for the past 4.5 years, will succeed Leo. We've already greatly benefited from Pam's service, including having her as a highly engaged audit chair, and we look forward to her continued contributions. With that, I'll turn the time back to Aaron.

Thanks, Chris. So that concludes our prepared remarks today. For the Q&A, as always, 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.

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

Thank you. Good morning, gentlemen. My question is just more around the incremental tech investments you called out. I was wondering if you could just simplify that for us a bit. Is this a lot of catching up to newer technology or outbound sentiment? Is this trying to be one step ahead of the competition catch up? Just maybe three [ph] is around those banks does in terms of what's exactly going on there with the accelerated spend.

Okay, great Manav. This is Chris. Happy to elaborate a bit on that. I mean, let's start with -- as you know, we've been making continuous investments in our tech stack in recent years. After we completed the migration of the mainframe that was Project Spark. Post Project Spark allowed us to implement what I'd characterize as the Big Data architecture and technology stack, where we moved from the mainframe to distributed low-cost clusters of servers supporting both our credit operations and our public record. And essentially, that architecture runs in what you could consider a public cloud. So if you look at where we're at today, I'd characterize it as a cloud-ready architecture, but operated internally in our data centers, which we have consolidated over this period, too. And since we achieved that milestone, we've continued to invest in systems reliability, information security and of course, innovation. We've had a lot of functionality over that period. On the stability front, for about 18 months now, we've had almost 99.999% [ph] reliability, which is hugely important to our clients. And we've made a lot of investments, further investments in our information security. And as you guys know, that work is never done. Where we stand now, though, is we look at how the public cloud has evolved and the amount of functionality that you can now procure with code, and we think it makes sense for certain of our applications to migrate to the public cloud, which will require some adaptation and rewrite of the underlying code base to take advantage of the cloud providers full utility of services. So part of this tech investment is to just simply enable that migration and take advantage of public cloud economics, infrastructure and security. The other part, though, is as we take a more global perspective for operating our business, we have an opportunity to rationalize certain aspects of our tech stacks on a global basis. And so in recent years, we have developed an enterprise architecture, a services level architecture, and there are certain applications decisioning, for example, and there are others where we have some redundancy and overlap in our implementations globally. This is a chance for us to redevelop our next-generation application that is more functional and more mass configurable in the public cloud, and it becomes a destination to which we will, over time, migrate the various instances that exist in our different operations around the globe. So think of a tech investment as enabling just the next step in our evolution, which is, one, leveraging the goodness of the public cloud and getting some savings; and two, implementing the next-gen services and microservices architecture in key parts of our tech portfolio. So, I'll pause there.

Our next question comes from Andrew Steinerman of J.P. Morgan. Please go ahead.

Hi, it's Andrew. I surely understand the additional tech investments getting added back here for 2020 guide. When I look at the underlying implied margin of the 2020 guide, it looks like it's only up modestly maybe 20 basis points. Is that right? And why is that the case?

Hey, good morning, Andrew. This is Todd. I'll take that question. So yes, you're -- I think you're looking at the adjusted EBITDA guidance correctly. I guess what I would point out, first of all, is that the high end of the guide is contemplating that TransUnion will be over a 40% adjusted EBITDA margin for the full year. We view as very strong and leading amongst our peer group, and I think what that guide also contemplates is a significant amount of investment backed into TransUnion in 2020 and also setting us up beyond. Chris talked about the tech investment already. And yes, we're adding that back just due to the size and the magnitude of that, and we want to make certain, as I've already said that our shareholders have an appreciation for the milestones that we're going to deliver. But on top of that, we have a very aggressive agenda ahead of us to continue our top line growth rate. In particular, if you think about the changes that Chris made last year to the -- to his leadership team and the emphasis that he put on solutions to help find those next big ideas to drive our organic growth and as well as on operations. Putting someone in charge of that to find the efficiencies throughout the organization, whether that just be -- and the simple things like just doing business with TransUnion and trying to make that easier, we're putting a significant amount of effort against that. So, I think the way -- I hope you take away this guide is that we're going to let some of the goodness of our revenue flow through. But at the same time, we are still taking a very aggressive approach towards investing back into the business for future returns.

As a reminder, this -- yes, this is Chris. I just want to reinforce what Todd said, because you hit the nail on the head. I mean, certainly, we could post higher margins. But as you and I have talked about previously, we think we create a degree of shareholder value over time through very strong top line organic revenue growth. We continue to have a lot of ideas to grow the business. We're investing in them. And increasingly, we see opportunities to become more efficient and effective in our customer service and our customer operations, and we're investing in those.

Great. Thank you.

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

Yes, thank you. So Chris, I would love your response to kind of the thought that I understand that the tech spend is outsized for the next three years. But is it outsized on a semi-permanent basis going forward? And I'm asking from the perspective, it seems like Project Spark was created not or was finished not too long ago. So is it going to be the case that every five or seven years, you're going to go through this two or three-year period where you're going to have this elevated type of spend? Or is there some reason why there's kind of a unique set of circumstances right now? And I'm again, kind of keying off of the investments that's been made sense, but just how relatively recent Project Spark was. Thanks.

Yes. Okay, Jeff. I definitely understand the sentiment behind your question. And I would say firmly, I don't expect to have to declare incremental tech investment every three or four years kind of the means some other companies do outside of the space. It's ironic; when we're going through the Spark migration, our goal was to establish a Big Data architecture and get off of the mainframe. We didn't realize that we were actually commencing the journey of migrating to this thing called the cloud, which really wasn't popularized and mature at that point in time. Now it is, and now it does offer us the potential to become a little bit more efficient and also to liberate our programmers from doing some of the routine stuff and apply more of those resources around innovation. I actually think that this kind of seed investment or bubble investment where we have to spend to build out the future while we maintain the present, right? I think that's going to position us for a dynamic where we've got ongoing savings and ongoing development productivity improvements, which can drive the top line, which I think will be sufficient to enable us to continue to refactor application stacks, move things to the cloud, et cetera. I also expect that, overtime, we'll start to generate benefit from our operations program. And again, that'll give us the option of either delivering more margin to shareholders, more likely a balance between margin improvement and accelerated investments in new markets through additional product functionality or even go-to-market resources, right? So think of this as a seed investment to get the flywheel spinning in the positive direction and grow shareholder value through that dynamic.

Thanks, Chris.

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

Thank you. Just thinking about growth for a second. You had a really strong year in '19 and a solid fourth quarter as well. So just looking at the deceleration in top line growth embedded in the guidance. I understand you'd want to have achievable guidance. But I guess, you're about 75 basis points below where the guidance was at the beginning of last year. So I'm just hoping you could talk about is there something that you're viewing as worse in 2020 outside of maybe mortgage and then if you could maybe talk about the pipeline for growth, like how that compares to last year as well? Just trying to think about top line dynamics. Thanks.

Toni, this is Todd. Thank you for the question, and let me provide some more specifics around that. So yes, last year at this time, we guided our organic constant currency to be between 7.5% and 8.5%. And this year, we're at 7% to 7.5%. I think the first thing that I would call out is that when we look across our three segments, we're relatively consistent with what we've talked about being the targets for growth across those businesses. So for instance, in the US markets, we're still expecting a high-single-digit growth rate, International, low double digits, and then in Consumer Interactive, mid-single digits. So that's still kind of our expectations. I think the thing that really to call out is, you got to go back and look at the performance of our businesses throughout 2019. And we did see some pretty outsized -- significant outsized growth throughout the year. So in particular, India had a very strong year. And look, we expect the business to continue to perform well in 2020 as well, but maybe not at the same growth rate in excess of 30%, right? And I covered that earlier on the call. We're expecting it to still be in the 20%. So the business is bigger, it's a bigger base now. Still really excited about it. The innovation that we've driven on there is really just starting to take hold. So that's one area. Another area I'd call out would be insurance. We talked about this as well earlier. The Insurance vertical posted an exceptionally strong year. Again, we're expecting another good year from -- but probably not as strong on a growth basis. The other thing, too, is you've already alluded to this in your question, mortgage. I mean, right now -- or I should…

Yes. So my add to that, Toni, would be that in terms of pipeline, we know worldwide that our sales closes in 2019. We're excellent, right? So we had a good selling year and pipelines have continued to grow. So that does position us well for 2020. The other point I'd make, though, is quarter-by-quarter over '20, our comps will become more difficult. And as we get to the third and fourth quarter of '20, we'll be comping off of really robust Q3 and Q4 performance from '19. Now the business in '19 has been quite solid, as you can see from our results. However, the comps for '19, third and fourth quarter, were actually soft because of the downturn we experienced at the end of '18, right? So that factored a bit into our thinking that we are climbing a hill in terms of comps over the course of the year. But we do feel well positioned, and we're kind of excited at the condition of the consumer in the various markets in which we compete.

Thank you.

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

Good morning. So I guess, just on -- you continue to talk about investing heavily in innovation and product development, and now also with the continued evolution of your technology infrastructure. I guess sort of a two-parter. Do you feel like there's any issue around internal capacity to manage all of that this year over the next couple of years? And maybe could you just give us a couple of high-level thoughts on where the areas you're seeing the most opportunity in terms of innovation, product development at the moment? Thank you.

Okay. Yes, good question. Well, let me start by answering it at a high level. As part of our business planning, where we affirm our enterprise strategy and our strategy for the different divisions each year, and then from that, we develop very detailed tactical plans. In recent years, we've done an increasingly sophisticated approach of mirroring our ambitions for the business to our actual execution capacity. And all roads lead to technology in this business, And it's easy to oversubscribe the tech organization given that the number one focus is, of course, security. The number two focus is systems reliability and availability, and then we have to invest in innovation. And then, of course, structural changes like the development of a services-oriented architecture or the migration to public cloud. We've been pretty detailed and thoughtful about whether we have the resources to execute against this latest evolution in our tech stack. I believe that we do. I think we have kind of a measured and systematic approach to evolving what is already a highly performing and cost-effective tech stack. And again, we're doing it with a tech organization that really proved its capabilities and extended its capabilities with the Project Spark migration. And in the subsequent years of architectural refinement, security improvements and reliability investments. So we've got a battle hardened tech core. And most of this migration, I mean, essentially, it will entirely be done with our internal resources, which is one of the reasons that we can accomplish this for the price tag that we have outlined. So we're feeling pretty good about that. In the operational areas, we're exploring various opportunities. And again, what I -- in my experience around operational excellence is once you make that a focus and you start to examine your business, you find opportunities and you find quick wins and savings that can then become the raw material for further resource investment and an acceleration of an effectiveness program. I think you're going to see that dynamic unleashed here at TransUnion. In terms of areas that we're excited about. I mean, look, globally, there's an appetite to extend our go-to-market, right? When we hire a sales executive in any particular segment, there's an upfront investment period of about a year, maybe 18 months until it's breakeven. We also have different verticals that we're extending in our emerging portfolio, and that's true in the US and also internationally. There may be some opportunities to start up a bureau in a given geography or to certainly extend or bring in our product suite into other areas of the portfolio we're doing that actively. Yes; so those are some of the highlights. I don't know if -- I think Todd's good. So we'll leave it at that.

Thank you.

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

Hey guys, thanks. Thanks for taking my questions. Todd, just wanted to ask on the emerging vertical. The 6% growth that you saw there. It sounds like, given the momentum in healthcare, the continued strength in insurance and the like that we should, from this level, sort of see an acceleration going into 2020. Is that correct? And then, secondly, I think you had mentioned for going voluntarily some revenue within that vertical again. How much of an impact did that have on the quarterly growth rate? Thank you.

George, good morning and thanks for the question. Yes, when we look at the emerging verticals, I mean, I think first thing to think about, right, is emerging verticals contain several different vertical markets that we see an opportunity to be able to take TransUnion's core data assets and analytical capabilities into. So think of -- we talk about collections. We talk about tenant screening, diversified markets, insurance, public sector, media, healthcare, it's a whole collection of verticals that are in there that any one point in time are going to -- some are going to perform well, and some of them may be a little bit of a drag on the overall growth rate. So, when we look -- when you look at emerging verticals, as we've already spoken about, insurance had a particularly strong quarter as well as what we've done in public sector. So that continued to do quite well. The healthcare business, we've talked about this over the last couple of years, that this is a business that tends to be lumpy from quarter -- could be from quarter-to-quarter. So I think first thing to call out there is on a year-over-year basis, the comparable was a little bit tougher for the healthcare business. But I think the most important point to make about that is, what I've already addressed earlier is that, the business did exactly what we said it was going to do, being that it grew in the high single -- in the mid-single digits in 2019, and we're expecting it to ramp to the high-speed is still there for us. Collections continue to be soft for us. And I think that's again just the kind of a testament to the state of the consumer in the US, delinquency rates in general, are…

The next question comes from Andrew Nicholas of William Blair. Please go ahead.

Hi, good morning. In response to the last question, you alluded to your success in the public sector of late and it certainly seems like it's one of the bigger near-term opportunities for TransUnion. I was hoping you could provide a little bit more detail on the size of that business, what's realistic for that business in terms of a near-term growth rate? And then maybe what you consider to be the key areas of opportunity in that business over the next 12 to 18 months? Thanks.

Okay. Well, listen, happy to elaborate on that. We don't disclose the size of the subsegments within emerging on the quarterly calls. But I would say that public sector has attained a critical mass for us. And in terms of the nature of what we're doing there, it's everything from assisting with employment screening to ongoing active monitoring for security purposes. There's a lot of -- we leverage our fraud mitigation suite to identify and authenticate consumers as they access different government agencies in order to secure benefits provided, and it's a very broad and power need. We insist the government in various ways with our data to do various analyses really to mitigate risk and to optimize operations. We also have a nice component of the business from our public records based investigated product, which is called TLOxp, and that's sold to enforcement agencies at all levels of government, really, so federal, state and local. So yes, I think those are the highlights of the revenue components within public sector.

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

Thank you. Good morning. Embedded in your low double-digit revenue growth guide for international, could you talk about your expectations for the UK from a growth perspective? And in particular, how is your product set evolving for open banking? Is there a number of companies that have introduced new applications there in the last six to 12 months?

Okay. Yes, good morning and thanks for the question. We're expecting to have a good year in the UK based on the revenue momentum that we've established in the third and fourth quarter of this year. We reached double digits in terms of top line organic growth. That is an expectation for 2020 as well. It's a combination of good momentum from a more effective selling operation on all dimensions. We have confidence based on the business that we closed in '19, the robustness of the pipeline for '20 and the fact that a lot of the complementary products around our credit products that we've migrated into the UK are in market, and we're demoing them and we're building pipeline, and that's true, whether it's our trended credit data product, which we call TruVision in the UK or our CreditView Solution, or our fraud mitigation solution. Now in terms of open banking, we've been in market with an open banking product for many quarters now. And we're making good progress there. One of the more exciting use cases that we've established with the products is various financial institutions want to use our categorization logic from our open banking solution to apply to their own customers and their own transactions to better understand those consumers and those relationships. So we're winning a lot of business, helping provide that insight for our financial customers.

David, I'd just add one other thing just to emphasize the point that I made when I went through the 2020 guidance. And don't lose sight of the fact that we did divest of a small business in the UK that was called Recipero. Overall, TransUnion not material, so we weren't able to classify it as discontinued operations. So meaning, we'll have to deal with the comparable in the prior year. So when we talk about the UK throughout 2020, we will talk to you of ex that divestiture and consistent with what Chris just said when you exclude that, we do expect the business to grow double digits on that basis.

Understood. Thank you very much.

And the last question today due to time constraints comes from Andrew Jeffrey of SunTrust. Please go ahead.

Hey, thanks for squeezing me in. I appreciate it. I realized the comps get tougher in the Financial Services vertical as the year progresses. But Chris, I wonder if you can comment on just sort of generally, how much of the outsized growth you're seeing there is driven specifically by fintech? And we saw Visa making to acquire Plaid, for example. And I just wonder if there's sort of an intrinsic share shift that's taking place that's fueling some of that growth for TransUnion to that given your strong position?

Okay. Well, putting aside the question of share shift for a moment. The growth across the different segments of the financial landscape, be it fintech, overall consumer lending, car, auto, mortgage, is it's pretty diversified and strong. In a couple of those categories, namely auto and mortgage, we talked about being at kind of market peaks in previous calls, certainly true of auto where the challenge has been affordability as well as just the volume of vehicles being sold. However, we experienced nice growth in all these categories. We got an extra boost in mortgage because the rate environment is favorable to refinancing. As we think about 2020, we're not sure how long that is going to continue. And we attempted to model a conservative posture into our overall guidance. That said, so far, so good in the year, but we'll just have to see how that develops. But we're not overly reliant on any subvertical within the financial services landscape to attain our goals for 2020.

This concludes our question-and-answer session. I would like to turn the conference back over to Aaron Hoffman for any closing remarks.

All right. Thank you very much. We appreciate everyone's time today, and we look forward to speaking with you all very soon. Have a wonderful day.

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