Good morning and welcome to the TransUnion First Quarter 2020 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] 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. I hope that all of you are safe and healthy. 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, let me now turn it over to Chris.

Thanks, Aaron. I want to welcome all of you to our call and extend our most sincere hope that you and your loved ones are healthy and safe. Nothing is more important. From the earliest days of the COVID pandemic, our primary focus has been the health and safety of our associates, our customers, and the wider communities in which we operate. In each of the markets we serve, we seamlessly moved to working from home, allowing us to protect our associates in the broader population while continuing to serve businesses and consumers. We appreciate the work of legislators and regulators around the world for taking decisive, significant actions to support consumers, businesses and the economies in these unprecedented times. We especially appreciate and respect the heroic efforts of healthcare professionals, first responders, and other essential workers on the frontlines combating COVID-19 and supporting their communities around the world. Let's begin this morning with an overview of how our first quarter unfolded. From January through the middle of March, TransUnion track well ahead of its prior volumes and meaningfully ahead of the revenue guidance provided in February. We saw strength in the financial services, insurance and public sector verticals in the U.S. as well as robust results in India, Canada and the UK. In mid-March, most of the countries in which we operate implemented shelter-in-place policies in order to slow the spread of coronavirus while absolutely necessary to protect public health. This approach caused a dramatic reduction in economic activity, curtailed consumer lending, and trigged job losses unprecedented in their speed and scale. The rapid increase in unemployment in the U.S. and many other markets has introduced uncertainty into consumer lending well beyond what was experienced in the great recession of 2008 and 2009. Many lenders have pivoted from client…

Thanks, Chris. First, I want to extend my best wishes to all of our associates, customers, consumers, investors and analysts. I hope you and your families are safe and healthy. Now to build off Chris' comments about the long-term health of our business, I want to start with and stress that we have a strong balance sheet and are taking all appropriate actions to ensure that remains the case going forward. We finished the quarter with $306 million of cash on the balance sheet. During the first quarter, we had a number of annual cash obligations, like bonus payouts, debt service and cash related to the vesting of restricted shares that limited our ability to conserve cash. However, for the foreseeable future, and until we better determine the depth and duration of the COVID crisis, we will focus on building cash on the balance sheet. As many of you know, in recent years, we've actively managed our portfolio of debt, leaving us in a very good position today. First, over the past roughly 16 months, we prepaid $400 million of debt. Second, last fall, we successfully refinanced our entire portfolio of debt resulting in lower interest expense and meaningfully extended terms with no scheduled maturities until December 2024. Third, in February, we have to execute in the new hedge instrument to replace the one that will expire in June of this year, thereby locking in very favorable interest rates for the next five years. And finally, we continue to have access to a $300 million undrawn revolver and we'll use that facility should we need it. In terms of debt covenants, only our revolver and term loan A, which represent $1.1 billion of our $3.6 billion of debt have restrictions related to our leverage ratio. That covenant stipulates that the…

Okay. Thanks, Todd. So to conclude this morning, we've laid out a comprehensive, transparent and realistic view of our business and of the markets that we serve. We've outlined our plans to proactively address the situation with our cost structure and in the investments that we're making for the near and long-term. While we clearly will face some short-term challenges, our portfolio and strategy remain intact and will be as powerful and differentiated after the COVID pandemic as they were before. Most importantly, we're going to continue to prioritize the health and wellbeing of all of our associates and of the broader communities in which we operate in globally. And with that, I'll turn it back to Aaron. Thank you.

Thanks Chris, and that concludes our prepared remarks. For the Q&A, we ask that you each ask only one question, so that we can include more participants and for now we will be glad to take those questions.

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

My question was more just around the tech investment program, the innovation product, new product spend, just in terms of how you think the different scenarios impact that, and how you shift into maybe a different focus versus what was said before?

This is Chris, Manav. Good morning. I'll handle that question first but just a quick caveat. You know, obviously Todd and I and Erin are doing this from home, so if there's any pause or awkwardness in the handling of the questions, it's just due to that fact. As I mentioned, we're going to continue to invest in the strategically critical initiatives that we had talked about in the last earnings call and in various investor relations communications we've done. Over the last quarter of last year, the acceleration of our tech investments, our evolution, if you will, is foremost among those. It is part an acceleration of the migration of certain apps to the cloud. But as I also mentioned, it was the implementation of streamline technology architecture, across our core product portfolio as well as just a reduction of some of the sprawl that has accumulated through the years and around the world. As our revenues decline starting in mid-March, we looked at the expense base, we prioritized our capital spending, and we maintained a good level of spend in this area because we feel like we can execute very effectively in a work from home environment. And of course it's important for our medium-term and long-term success. It'll do a lot for positive development agility. It'll also reduce our cost structure. So in this base case that we've outlined in our operating to expect us to continue to invest in this program, we may not do it as aggressively, at least in the initial month or so until we get more confidence around the level of revenues that we're going to have. And of course, if we saw a material worsening in the environment, we would have to look at this area and other areas like personnel overall to determine how to appropriately size those investments. But we want to maintain the program, we think it's important and we also continue to invest in new innovation, I can think of half a dozen major product categories that have good plans being executed to strengthen our positions. And again, I think we can execute effectively in these areas, in this work from home environment. In fact, I have to say overall, our workforce has adapted very quickly to working from home. I am really comfortable in the level of service that we're delivering our clients and folks are engaged and productive.

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

Hey guys. Good morning. Hope you're all well. Chris, you mentioned a couple of times the concept of extended recovery number of your markets. Acknowledging that there's a lot of uncertainty remaining in the duration of the impact here, can you just help us think through maybe what within the portfolio you think could recover more quickly or where you might see that concept of extended recovery to be the most acute?

Okay, fair enough. Let me start at an overall level, we've had a lot of detail around our transactional volume performance, particularly in the U.S. markets. I believe that in the international markets, which are largely in countries with emerging economies, those countries went into deep shelter in place policies, probably a week or two weeks after the U.S. and so the downturn there has been a bit more pronounced. And I think that will probably be another couple of weeks or so before and again, I hope we see the type of stabilization and even recovery that we're seeing in the U.S. There are also some challenges and some of those markets where there's not the same degree of internet connectivity or digital penetration in general in consumer lending and originations and all of that, so it could be a little bit curtailed until a lockout ease and physical movement is again possible. But I do know really across all the countries in our portfolio, we see adaptations to the current circumstances, which I think bode well for volumes in the future. In terms of particular categories that would rebound and I think auto lending will rebound because folks will be able to visit dealers, even if they have to implement social distancing approaches. But right now, that's been a considerable lockdown, new home purchases could benefit as well. I think consumer lending, which has endured I think the most pronounced impact of the different lending subcategories. Once those lenders get a sense of the performance of their own portfolio and in the current employment situation, and the impact that they stimulus from the federal government is having, that's a category that could also bounce back. I think collections activity in the coming quarters could increase substantially. I like the way we're positioned in that space from a product and a capabilities perspective, but as I mentioned in my comments. collectors weren't geared up to work from home and there's a collection hiatus in place, but I do think that in the coming quarters lenders will have to collect on delinquencies and you'll see quite a resurgence in those activities.

Excuse me. This is the conference operator. I apologize for the technical problem there. If you'd like, I can go to the next question from Toni Kaplan, if you wish.

Please.

Thank you. Toni Kaplan. Please go ahead.

Congrats on the strong quarter and glad to hear that you're all safe. My questions regarding the guidance, I can understand wanting to be conservative, especially in the middle of such an uncertain time. And I know others have framed this in a similar way, but why is it your base case at the current trends remained for the full quarter in the second quarter, if states and countries start to open up? Just maybe if possible, if you could frame the likelihood around the different cases that you've provided here. Thank you.

I'm going to pass it over to Todd, but who I think can take us through the detail in our thinking and you are looking for some kind of probability I think of A, B or C. So with that, let me pass it over to Todd.

Hey, good morning, Toni, and thank you for your question in regards to the outlook scenarios that we are providing. As you know, the base case is showing, we are taking the current trends that we are seeing in our U.S. markets business as well as international and Consumer Interactive and running those trends out. But as you can imagine, those trends are different in every one of the end markets that we operate. And so, in particular you can see that within the online volumes that we've provided for our U.S. markets, financial services business, you can see that just the disparity between those in those groups. And you can also see that when you look at the commentary that we've provided for our international business on as wall to where you see, relative downturns in places, developed markets like Canada and the UK. So maybe things are a little bit more pronounced on emerging geographies like India and Latin America. So I think the important takeaway in the base case is that we are assuming, we're not necessarily assuming linear for everybody, we do have different assumptions in that base case, as to when those markets will see some type of recovery. So, internally, we are going through a very detailed bottom drop forecasting process that we put in place in mid-March. So each of the segment presidents and their respect to finance teams are presenting to me and Chris on a weekly basis, what those trends are. So, we have a good sense as to where things are going to ebb and flow. And I think you'll Chris already really kind of answered just like what are markets that we would expect to come back, sooner rather than later. So that's the base case and that's what we see today. I mean, we give you the day that through April the 24th as well in the U.S market. So, we tried to extend on that as far as we could and we're being optimistic that these trends are, will continue. However, we're not certain just like anybody else, what the implication of that is going to be. So that's why we thought it would be a prudent approach to provide the scenarios on that. So if you believe that the outlook that we're providing in our base case is not optimistic enough, that is why we've provided you with an upside case. We're not necessarily there at that point right now. And to be balanced, we put in a downside scenario as well to, just in the event that what we are experiencing right now. There is further deterioration or maybe there is second surge of cases, we just don’t know and that’s why we’ve taken approach that have. So, let me pass it back to Chris for some other comments on that.

Yes, I just realized from Todd’s comment there that I forgot to answer part of an earlier question, which is our perspective on the nature of a recovery, there's talk of V shape, L shape, U shape et cetera. I think we feel like it's going to look something like a Nike swoosh, where the descent was pretty rapid and then there'll be a slow and measured rate of improvement over time, but with some ups and downs along that trend line. And that's because, this is an economic crisis that's brought about by health crisis. And we're still having to manage within the constraints of our ability, to deal with the health crisis, and it's not as if we're all going to be able to just resume our normal social and economic behavior that had produced the growth that we were enjoying. It's going to take some time, it's going to have to be measured, and we're going to have to really get some disease transmission and treatment and all under control before we can get back to the way things were.

Would you be willing to give probabilities on the scenarios or no?

Well, I think we've given you our best thinking on this, and I feel pretty good that this is very comprehensive as to how we're thinking about it internally and we're literally sharing with you, what we're thinking right now. So, I mean, as I said, I think we'd be remiss to say our entire probability based on any of these scenarios. Again, that's why we get into the trends but we bid to serve as a foundation to anchor losses.

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

Yes, thank you for taking the question. Just I guess a clarifying question on how you're characterizing kind of the stabilization or recovering relative to the trend data that you gave us. And, I guess in my view is from looking at the graphs or the checks that you gave us is that, the year-over-year declines generally look like they're narrowing or improving across most of the U.S. financial markets. Products, you're talking about stabilization. So, I guess, just are you basically saying that there was this period of extreme freeze, a stay at home was implemented and then since then, they've been stable in recent weeks, just trying to understand why you're seeing stabilization and year-over-year to be getting better? And then this specific number that you gave us in those charts. Is that April month to-date year-over-year trend? Or is that the April 24th specific daily volumes? Thanks.

Okay, so we'll tag team on this question. But just to clarify our language, just because we say stabilization doesn't mean flat lined, necessarily, it probably just means more. It's not declining and it's either flat improving. If you look at the trend over the past 10 plus business days, we see flat to improving in all of those financial services markets, which is encouraging and we're looking at our volume trends every day from markets around the world. And so much of the earlier question while we're not getting probabilities, we do feel good about our base case and that is what we are managing towards currently, but we are prepared to pivot prepared to pivot and manage each of the cases that we outlined. As for the April question, let me hand it to Todd

Good question, and they sort of clarification on that. So, what the graphs are depicting and the volume decline is a comparison of April 24 of 2022, the prior year. So, it's not meant to be your summary of the trend or whatever it is. It's just the point in time where we were at the end of last week, and where volumes were on that.

The next question comes from Andrew Steinerman of JP Morgan. Please go ahead.

Todd, could you just tell us in the base case scenario when the Company says continuation of current trends? Are you using that last week number year-over-year like you just referred to? Or are you assuming all of April's trends on average continue year-over-year in May and June?

Hey, Andrew, good morning and thanks for the question. Yes, that's a good clarifying point to me too. So, we are when we extrapolate on trends forward, we are looking at the most recent data. We're not necessarily going back and looking at an average of the month of April as an example, but we are looking at maybe the most recent week and we're not as granular as saying, Oh, well, Friday was this, Friday the 24th is this. So, then that must mean every day is going to be like that going forward. There are some sensitivities on that we put into it. So, by and large what we're turning forward for May and June assumptions are taking the current volumes that we've been seeing over the last week.

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

Hey, good morning gentlemen. I appreciate you taking the question. Trended data have obviously been a pretty important driver for TransUnion over the last few years. And Todd -- sorry, Chris, you've made some interesting comments about demand for trended data. Can you opine a in a little bit on perhaps -- and I'm thinking even in emerging markets, how trended data might help risk management competencies to your customers? Is that something as we come out of this that could be a structural demand driver?

Yes. I think so. I mean, look, one of the, we've talked a lot about trended data through the years and on these calls, and we've succeeded in pushing it to many of the markets in which we operate around the world. And we think it's going to be especially helpful for understanding the risk of existing portfolios, and even, new client acquisition in this more limited environment. One of the data attributes, that's going to be especially helpful for lenders is, what we call aggregate excess payments. And overtime what we can see is, the amount of debt service in excess of the minimum required that consumers are making, and I think that speaks to several factors, that speaks to revenue or income and expenses getting to some type of a consumer free cash flow measure, if you will. And then it speaks to their behavior, their propensity to service, their data take care of it, which is more of a behavioral characteristic, and I think lenders will look at that when doing their portfolio reviews. We're also coming up with new attributes that we've already rolled out that are helping with more current signal. So, we're looking at how consumer trade lines are being reported in this environment, and we're able to characterize of those that has forbearance or other hardship relationships and disaster recovery codes, and that's an incremental current signal that all will go and help toward the risk assessment of the current portfolio. On top of that, there's some signal in our alternative data sets where prior mainstream consumers are now dipping into the payday loan market, that could be an indication that. And also any negative demand deposit activity. We're fortunate in that we're able to see bounce checks in any other negative activity on demand deposit accounts nationwide in the U.S. In some of our other markets, we actually get current income information from the major banks and we have pioneered that product in the UK, it's part of a debt leverage ratio that we have put out in the market for many years now that helped banks determine which consumers will likely need some assistance in meeting their obligations.

The next question comes from Seth Weber of RBC. Please go ahead.

Hey, good morning and thanks for all the information. I'm just curious about -- you have two markets, you have Hong Kong and the U.S. that are kind of starting to better stabilize. Again, can you just talk to any parallels that you've seen between, I guess Hong Kong was first and relative to the U.S.? And any parallels or differences in just how those markets have stabilized and started to recover? Thanks.

Yes, sure. I think I'll back clean up on this one because you know, before he was the CFO of all TransUnion, Todd was CFO of International, and he had great detail on these markets. So, Todd why don’t you fill them on the Hong Kong experience.

Okay. Seth, thanks for the question and happy to get into a little bit of the details. I guess what comes to mind when you asked that question about parallels to Hong Kong in the U.S., I guess first thing I think of is under very different businesses. So our business in Hong Kong is predominantly focused on financial services and we've branched out in some other verticals like direct to consumer. There's one example, but the U.S. it's more of a broad based portfolio as I'm sure you can appreciate. So, the other difference in Hong Kong is the way that the data is consumed. It's by and large purchased on a portfolio basis, so meaning in batches as opposed to just one off online credit reports on transactions. We do have that type of business in Hong Kong but predominantly the business that we have in Hong Kong is a lot more predictable because of the batch for that we do. So when we look at how that market has performed, because of that mix of business and the predictability of it, we didn't see such a steep downturn initially from it. But then conversely on the way back, I've seen big uptick as well too. And I think it's just the really important thing is just remember how different these markets are and how, how credit can be used in that. Well, obviously in the U.S, we're in the midst of it and I hope we've given you some good color, the trends that we're seeing and then answering the previous questions we have talked about what we feel like the recoveries are going to look like in various end markets. So Chris, I'll hand it back to you.

Yes, just two quick comments. I mean, I guess in summary, the difference in the product mix that we have or the weighting of the product mix in Hong Kong lends itself to stability. And you know that business has held up pretty well over the past year or 18 months. I mean, initially we had the protests and political instability, which caused some curtailment. And then we had the unfortunate fraud situation in our direct to consumer business, which took that offline and then of course the pandemic. All that said though, it's still a strong business and it's also just giving us insight as to how this pandemic and also the recovery may develop. Our employees have been going back to the office in Hong Kong, but in a measured and limited way and we've got the A teams and the B teams and we've extended the work day, we stagger some shifts. We only have one team in the office per day and we try to limit it to those that really need to be in the office. We've got a direct to consumer window that we have to manage. They're in Hong Kong. So, it's a little bit unique and frankly employees we're ready to get out and about and that's what I would expect is going to happen here in the U.S. We're just doing, we're just a few weeks or more behind that.

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

I just wanted to delve in a little bit more on the international side. Just serious, if you have anything similar in terms of updated friends at a country level to what you sort of laid out in the financial services segment and maybe to the extent you can get that granular. If we look at the base case assumptions for cue international down kind of in the low 20s. Can you maybe help ballpark for us, what geographies you're expecting to do worse than that or trending worse than that and which ones are doing better? Thank you.

George, I'll take that one. Thanks for the question. So, again I think I'd refer you back to the slide that we pulled together to depict kind of our sentiments on the international business and where we think things are now going to where the impact is now and where they will return. In particular, I think I answered this as well, too, when we look at more developed type of countries like the UK and in Canada, they have shelter in place that's similar to the U.S. So, the impact is relatively about the same as if what we're seeing. I think it's more the emerging geographies, as I alluded to previously in India, and Latin America, where the lockdowns are a little bit more severe on that we've seen more of an impact in the short term on that. So, the reason that, if you go to the base case, you'll also notice that we are providing an outlook for each of our segments so for the U.S. markets for international and Consumer Interactive. And we typically don't do that as you know, and the reason that we did that was to just simply give you a perspective as to how we are thinking, each of the businesses are going to perform. So, specific to your question on international when we talked about it's being down mid as low 20s in the second quarter, we're taking into consideration all the points that I just made and the trends from that we have articulated on that on the slide for each major geographies.

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

Hi, good morning. Just sticking with international, quick question on that, I think you talked quite a bit about the different components of those businesses that add diversification outside of the core financial services business. Is it possible to ballpark what those kind of cyclical or maybe acyclical businesses represent, as a percentage of the total international business mix in the aggregate? Thanks.

Yes. Hi, Andrew, if I understand your question, I think, you're looking for in the international portfolio where we would have countercyclical plays. I mean, is that right?

Yes. Just trying to get a sense for the size of maybe that portfolio diversification column on slide 12, or just kind of a ballpark of what might not be as heavily influenced by the economic trend.

Yes. I guess it's a general, general statement overall is that, I think, when we've talked to in the past about us having businesses that were countercyclical, we weren't necessarily contemplating a global pandemic, when we made those comments. And so, if you think back to discussions that we've had in the past about how changing who would perform in a recessionary environment, we talked about businesses like insurance and healthcare in the U.S. would be countercyclical, and our geographic footprint internationally would help us. Kind of unfortunately, what we're experiencing right now is broad-based, even the countercyclical plays as we've already articulated are down, maybe they're not down as much. But nevertheless, they still are. Specific to your question on international, I would say that, predominantly on those businesses our Financial Services focus with some exceptions. So, right, we've done fairly good jobs diversifying the business in Canada is one of your ample outside of Financial Services is meaningful positions on an insurance and a public sector as well as in direct-to-consumer. I would say that, our business in South Africa is diversified in the UK as well too. But predominantly, those geographies are a heavy on Financial Services.

And the last question today will come from Bill Warmington, excuse me, Warmington of Wells Fargo. Please go ahead.

Thank you very much. I've been called worse. So, thank you for making me in here at the end.

No problem, Bill.

So, you've mentioned Consumer Interactive is trending down mid-single digits, how is that trending for direct versus indirect? I think both trending mid single digit or is one channel doing significantly better than the other?

Yes. I'll start with this and without putting specific numbers on it, we're seeing the direct part of our business hold up pretty well. Consumers value the service and they are keenly focused on their financial management, right now, and that's encouraging and we're maintaining our marketing spend, our marketing returns are very acceptable, and we're going to continue to grow that segment of the business. On the indirect side, it's a little bit tougher sledding, if you will. Most of the revenue comes from lead aggregation business models. And because Financial Services right now is paused a little bit in terms of new client acquisition or the volume of activity is greatly diminished, our revenues from that segment have been more challenged than the direct side. But overall, the direct to consumer segment is performing quite nicely and we're encouraged by it.

Great, and that's going to bring us to the end of the call. We thank everyone for their time today and we want to just reiterate, we hope everyone is healthy and safe and continues to be. So let's have a very good day, all the best from TransUnion. Goodbye.

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