TransUnion (TRU) 2017 Q3 法說會逐字稿

Good morning, and welcome to the TransUnion Third Quarter 2017 Earnings Conference Call. (Operator Instructions) Please note that this event is being recorded.

At this time, I would like to turn the conference over to Aaron Hoffman, Vice President of Investor Relations at TransUnion. Please go ahead, sir.

Good morning, everyone, and thank you for joining us today. I'm joined by Jim Peck, President and Chief Executive Officer; and Todd Cello, Executive Vice President and Chief Financial Officer.

We've posted our earnings release 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.

As a reminder, today's call will be recorded, and a replay will be available on the TransUnion 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, Form 10-Q and other reports and filings with the SEC. We do not undertake any duty to update any forward-looking statements.

So with all that out of the way, let me turn the time over to Jim.

Thanks, Aaron. Before I dive into our quarterly results, I want to spend a few minutes on the cyberattack announced by one of our competitors during the third quarter. First, we can confirm that we did not experience a similar cyberattack to Equifax. The moment we heard the news after market close on September 7, we activated our data incident response plan and followed our standard process to identify and address organizational implications. We focused on supporting consumers and confirming the effectiveness of our own security program. We immediately conducted a thorough global review of our systems and found no evidence of a cyber-intrusion like the one suffered by Equifax. Clearly, data security is an absolute top priority for TransUnion. We have consistently invested in it and built a culture around mitigating this risk.

We have a multilayered security framework approach to mitigate the risk of any single point of failure. This framework covers 3 major areas of focus: prevent, detect and respond. Our information security program also includes robust policies, employee training, expert staff and the latest technology all backstopped by support and oversight from our Board of Directors and executive management. In fact, in recent years, and in response to a growing number of cyber threats each year, our information security team has grown fourfold and our budget has tripled. We expect to continue to invest in information security and personnel as appropriate to best mitigate this risk. In addition to our own team, we regularly use multiple independent third parties to assess and measure the effectiveness of key elements in our security program.

Additionally, our security program includes experts to analyze and assess each critical element of the program and are continually working to ensure that we do everything we can to mitigate this risk. In addition to security experts, because we're a third-party service provider to companies subject to the Gramm-Leach-Bliley safeguards rule, it's routine for our commercial clients, including the largest financial institutions in the United States, to audit our entire security program.

Finally, our in-house cyber threat intelligence and internal investigation teams are staffed with experts who have backgrounds in law enforcement, government and the military. Results from our threat assessments are used to continually challenge and improve our prevention and detection processes and tools.

We have also maintained a sharp focus on helping consumers navigate a difficult situation. To that end, we immediately made investments in expanding our call center hours and operators along with additional bandwidth on our consumer website to accommodate the massive increase in inquiries. I want to take this opportunity to thank all of our employees for quickly rising to this challenge and putting consumers first.

While we did experience incremental cost to make these accommodations, they were the absolute correct actions. And as I will discuss in a minute, we were still able to deliver a very strong quarter. Looking forward, we continue to have constructive dialogue with politicians on both sides of the aisle, along with various regulators. At the end of the day, we are working towards an outcome that empowers consumers while reflecting the value that information providers like TransUnion offer to both lenders and consumers in facilitating strong economic growth through a vibrant lending environment. As cybersecurity remains the single greatest risk to our business, we will stay focused on taking all appropriate measures to mitigate it.

With that, let me turn back to our very strong quarterly performance. We saw double-digit revenue, adjusted EBITDA and adjusted EPS growth as well as almost 100 basis points of adjusted EBITDA margin expansion. As we've experienced for several years, the growth is coming from a variety of diversified sources. This gives us greater conviction in the long-term durability of our growth trajectory. We saw strength in core financial services business across our new verticals in our international markets and in Consumer Interactive. On top of that, since our last earnings call in late July, we completed two strategic acquisitions that I'll discuss in a moment.

As we enter the final quarter of 2017, we are on track to deliver another outstanding year and we are well positioned for a strong 2018 and beyond. Underpinning this confidence is a series of five focused, highly impactful strategies that provide the engine for our current and long-term growth.

Let's start with how we're driving growth through innovations. We've talked to you in the past about some of our key innovations at CreditVision, Prama and Fraud Solutions, and how they are driving growth across the economy. Today, I want to talk to you about our specialized risk group, or SRG, which leverages public record and other noncredit- related data to provide valuable solutions for customers in every one of our verticals. SRG is the outcome of a vision we had in 2013 when we bought a company called TLO out of bankruptcy.

TLO gave us 2 critical capabilities. The first is data aggregation of both public records and third-party data sources. The second is the ability to elegantly fuse or link all of this data. The outcome is to consistently link information about an individual to the right person across many disparate data sets. For instance, I suspect there are many Jim Pecks out there. But we want to be as sure as possible that when data is linked to my core information, that it's all the right data that pertains to the right Jim Peck. This capability has brought applicability across our end markets and brings significant value to our customers.

Let's take what we do in financial services as well as in diversified markets like retail and telco as a good example of what we can do. Of course we provide credit-related products for marketing and risk assessment. But SRG allows us to do three additional things.

First, SRG data is a part of what powers our Fraud Solutions that I detailed last quarter. In fact, the data from SRG allowed our fraud team to in-source some of the key demographic data that they use for identification.

Second, we help our customers with data hygiene. In other words, we monitor important information about their customers, like changes in contact information, name and location.

Third, if a borrower defaults on their loan, we help our customers with important information to help them stay compliant with collections laws, starting with the debtor circumstances like military deployment or whether they're deceased or in bankruptcy, that would preclude collections activity. If they then move to collect, we provide accurate contact information to enable a more efficient process. We do this both for when the original lender is collecting on their own debt and for third-party collections firms seeking to collect on someone else's debt.

In insurance, SRG works with claims adjusters who use our product to investigate potentially fraudulent claims by looking at the parties and assets involved in a car accident, for example. And in our government vertical, there are a number of use cases across federal, state, and local agencies. For instance, local and state law enforcement use SRG data to identify and track down possible witnesses and/or suspects in criminal cases. At the federal level, there's a growing demand for insider threat monitoring, which may involve helping to research and vet someone in a sensitive government position. We also help various agencies with entitlement and tax fraud.

These are just a few of the many applications of this cutting-edge technology. But I will emphasize that we leverage this capability in some fashion across every one of our verticals in USIS. And longer term, we have the opportunity to replicate this capability in some of our international markets. SRG is an outstanding complement to the credit- driven parts of our business and gives us a unique customer solution that is driving rapid growth for TransUnion.

The acquisition of eBureau this month is another great example of adding a foundational capability that can be leveraged broadly across our business. EBureau has one of the fastest model development and deployment capabilities in the market. We have always been able to produce custom models for our customers to appropriately meet their unique needs. However, current industry standard process is lengthy. EBureau is able to efficiently produce highly predictive models in a few days, where traditionally the process could take several months. Combined with TransUnion's extensive data assets, we can now offer an unparalleled custom modeling capability. Today, eBureau's primary market is transactional fraud identification, which fits nicely with our suite of fraud and ID products, IDVision.

As we discussed on last quarter's call, this set of offerings brings together robust data assets with advanced analytics that link, interpret and analyze information to discover anomalies and patterns of risk. Businesses receive actionable alerts and instantly delivered fraud risk scores so they can make timely decisions. As a result, customers across various industries, including financial services, retail, telco, insurance and healthcare can identify more good consumers and enable secure, confident and convenient authentication. Additionally, they can detect more fraud patterns at origination, during transactions and by monitoring portfolios.

The beauty of eBureau is our ability to apply its unique capability more broadly. We will be able to offer smaller customers the opportunity to design models that suit their needs instead of buying off-the-shelf products. We will also bring eBureau's rapid model development to our financial services customers of all sizes and customize it to their unique needs. EBureau also has a meaningful business building custom models for the collections market, where TransUnion also plays. EBureau's models are used for scoring and prioritizing collections activities to achieve the highest recovery rate. We see a natural attractive combination with the work we already do in collections that leverages credit and public records data, as I discussed earlier. And over time, as this capability is data agnostic, we can roll it out to our international markets.

The final point of leverage is the opportunity to apply rapid modeling to our cutting-edge analytic platform, Prama. As a reminder, Prama puts the power of TransUnion's data sets and analytics capability into the hands of our customers. Prama is a highly sophisticated suite of products for accessing and analyzing any of the immense amount of our diverse data and can also efficiently ingest data from third parties. To that end, we can build modules for different end markets and at different geographies, leveraging Prama's capability as a means of accessing and delivering the end product to our clients. We have always anticipated that Prama would ultimately expand beyond just analytics. The next step is to take the output from the deep analytics available in Prama and apply these seamlessly to a customer's underwriting. That evolution is accelerated with the acquisition of eBureau.

To round out this section on innovation, let me provide you with an update on our industry-leading trended data products, CreditVision and CreditVision Link. At the heart of both products is the ability to better understand consumers, making lending decisions more relevant, timely and risk-appropriate. As a reminder, TransUnion has the only product in the market that utilizes 30 months of trended data to improve risk in marketing decisions across all types of lending products. Beyond that, we are the only product that incorporates valuable, alternative data to providing rich scores that greatly expand the potential consumer lending pool.

We have deep penetration in the mortgage space as a result of Fannie Mae's decision to incorporate trended data in their underwriting platform. Similarly, we have driven the adoption in more than 90% of our FinTech customers, and they continue to expand the use of trended data as they see value across their business. We continue to see accelerating uptick with auto lenders. In fact, in the case of a very large customer, they increased approval rates for near-prime borrowers from 14% to 42% by switching to trended data. This resulted in a 13% increase in net portfolio bookings with no material change in risk. And finally, we continue to see solid usage in credit card marketing with a good line of sight to more opportunity in the future for this business.

Taken together, our trended products make a significant difference for our customers, and they also increase consumers' ability to access credit. CreditVision allows our customers to reliably score 26 million U.S. consumers who otherwise would have no credit score. With no score, consumers seeking credit often face denied access or significantly more expensive terms. Similarly, our products moved 23 million Americans into super-prime credit scores, allowing them to receive more favorable lending terms. The ability to reduce risk, increase predictive outcomes and reach more consumers makes these products incredibly valuable to both borrowers and lenders.

At the same time, consumers can benefit from greater financial inclusion and lower-cost credit. And as a reminder, this is not just a U.S. phenomenon. CreditVision is having a similar impact in Canada and Hong Kong, where it has been in market for several years. We have launched in India and Colombia this year already, with South Africa to come soon, and we would expect similar results over time.

I've talked about a number of innovations today that are at varying stages of maturity, which gives us great conviction in the short- and long-term health of our innovation pipeline. The second strategy I want to discuss is our expansion into new vertical markets, which have largely been growing revenue at solid double-digit rates and should continue to do so for the foreseeable future.

During the third quarter, we acquired Datalink Services, which gives us the ability to sell motor vehicle reports, or MVRs, in all 50 states. In our insurance vertical, we help our customers improve risk assessment, including policy, pricing, underwriting decisions and potential fraud, as well as helping them gain valuable consumer insights for marketing purposes. The addition of MVR rounds out what is now the most complete driving record solution in the market.

Prior to this acquisition, our DriverRisk product was an attractive, effective prescreening tool to determine if the underwriting needed to pull much more costly MVR. If they needed to purchase the MVR, though, they had to do so with one of our competitors. Datalink resolves this issue, and we can now provide both complementary products together in a single offering.

The initial feedback from customers has been extremely positive. They recognize the efficiency and benefits of having a single, powerful, bundled solution to help them assess risk, identity, driver's license status and violation history. Over time, through these combinations, we will offer additional data linking, analytics and decision logic to further enhance the solution's efficacy. While this helps our commercial customers, offering an integrated workflow solution also benefits consumers.

Insurers who use our suite of products will have an improved ability to provide bindable or near-bindable quotes and not risk frustrating consumers with what is referred to as rate migration. That occurs when the rate that is initially quoted varies significantly from when the policy is actually issued. By using our products, insurers can more accurately assess risk much earlier in the application or underwriting process compared to traditional methods.

Datalink is another in a long line of highly successful acquisitions that have bolstered the growth profile of our vertical markets. In recent years, Auditz and RTech in healthcare, Drivers History in insurance, and, as I discussed earlier, TLO across all our verticals have helped each propel our business.

Growth in international markets, our third strategy, also continues to help drive our business and has brought valuable diversification to our portfolio. In recent quarters, we discussed a number of our key markets, including Canada, India and Colombia. In each case, I touched on how we are able to leverage innovation capabilities, verticals and technologies across our global footprint. Given how important this lift-and-shift strategy is to our business today and over the long term, I want to spend a few minutes on a holistic view of what we're doing and what it means for TransUnion.

Strategically, we've designed our business to allow for rapid exportation of our best growth opportunities. As we've regularly highlighted, we have a global matrix organization, including technology, product development and marketing, to name a few, that supports and enables this capability. While we certainly see growth related to economic development and credit expansion in most, if not all, of our markets over time, we have the ability to meaningfully accelerate our growth rate.

Take CreditVision as perhaps the best example at the moment. Its rollout in Canada and Hong Kong in 2016 played an important role in both markets delivering double-digit organic topline growth last year. And we look forward to the same good results from this year's launches that I mentioned earlier. The same can be said of our launch of Prama in Canada in the second quarter. We were able to fully deploy truly cutting-edge innovation in a new market using an entirely different data set in less than a month. The speed and efficacy of each launch has been enhanced by having a global product development team build the product with a global view from the start. The same goes for having now built a common global technology platform. Then we can run our playbook in various go-to- market dimensions, like sales, marketing and pricing. Without this backbone, lift and shift doesn't work quite so well.

We're doing the same thing with our new verticals. In Canada, we have a solid-growing insurance vertical that continues to layer on incremental offerings from the U.S. At the same time, we're in the process of building out insurance offerings in India, Colombia and South Africa.

And next on the list is a nascent but growing government vertical in Canada, with more countries to come in the future.

I mentioned our fraud and ID solutions earlier. They're just now taking these capabilities internationally and see significant growth opportunities in the years to come.

And finally we've mentioned international direct-to-consumer before, and it fits the lift-and-shift story as well. Canada already has a robust direct and indirect business built off our industry-best CreditView platform. We have launched direct-to-consumer offerings in India, South Africa and Hong Kong already, and we're putting the platform in place in Colombia to do the same. In every case I mentioned, we have successfully leveraged unique, powerful assets and capabilities on a global basis. This provides our fast-growing international business with substantial incremental growth opportunities for many years to come. And as we develop and acquire more new products and capabilities, we will continue to fill the international pipeline over and over again for the long term.

Moving from international to Consumer Interactive. We had the opportunity to drive solid growth through new partners, verticals and geographies. The last couple of quarters, we had talked about the Chase Credit Journey. I'm pleased to say that the relationship continues to be productive for both of us as Credit Journey enrollments are ramping nicely. Capital One is also progressing well with CreditWise, a robust offering that we power to provide credit data access to millions of consumers for free. Further penetrating financial services is just one of the ways we look to extend our leadership position in the indirect channel, where we were first to recognize the significant growth opportunity.

In Canada, Credit Karma continues to gain good traction and recently added credit monitorings to their free offering. This service monitors a consumer's TransUnion credit report and notifies the consumer of any significant changes, which can help alert consumers of possible fraudulent activity.

I'm also pleased to announce that we recently signed a strategic partnership agreement with Intuit. They will leverage TransUnion's credit data to provide Mint and Turbo users access to their credit information free of charge. Through this offering, users can benefit from a view of their credit profile, which includes credit score and report, credit monitoring and alerts to help them protect their identity, as well as education tools like score simulators. TransUnion and Intuit are committed to improving consumers' financial lives, and we're excited about this multi-year growth opportunity.

All of these strategic partnerships leverage CreditView, our market-leading solution that empowers organizations with credit data and tools that allow them to connect and engage with consumers who value visibility to their credit profile, and seek access to products and services that improve their financial lives, along with our customizable technology platform and flexible and collaborative partnership model to meet a wide range of customer needs.

Given the discussion recently about freezing and locking consumers' credit, there's one final point that I want to make in this section. Since last year, we have had a free credit lock product, called TrueIdentity, available online to all consumers. It allows them to easily lock and unlock their credit online or using an app, all at no cost.

The final strategy is leveraging our global operational excellence. Previously, we've highlighted our technology investments and our ability to globally leverage our data assets. Today, I want to discuss our global research and consulting capability. This group focuses on engaging with customers at a sophisticated level to explore and understand the emerging trends affecting the markets that they serve. As part of our partnership with our customers, we provide deep insights into market dynamic, both risk and opportunities, based on our extensive data and industry knowledge.

The [overachieving market perspectives] we provide form a valuable component for our customers, setting effective strategies. These conversations are important for them to better service their customers by understanding the environment in which they do business and the forces acting upon their customer base. For consumers who have common fundamental needs that are satisfied by a robust credit economy, we're enabling financial institutions around the world to offer the right products and services to improve their lives. And for us, these efforts help us keep our fingers on the pulse of our markets, stay close to our customers and more quickly identify how and where we can help them navigate a dynamic environment, all while giving them the ability to share their interests and concerns directly with us.

In the U.S. and Canada, we have highly developed research and consulting capabilities and extensive customer interactions. In Colombia, Hong Kong, India and South Africa, we have active and growing research and consulting functions that will mimic what we've done in the U.S. over time. We engage our clients in a market through our own summits, seminars and advisory boards, through speaking engagements at third-party conferences, and by publishing fundamental research in industry journals and via mass media outlets. We also publish in-house research reports and educational materials for our sales force that increase in their knowledge of market trends and empower client engagement.

Let me walk you through a couple of examples of how we are creating value for our customers through these efforts. When the price of oil plunged a few years ago, we looked at the economic impact on certain Canadian provinces that are particularly reliant on oil extraction. We were able to draw the connection between oil price movements and consumer credit delinquencies and make predictions for our customers regarding credit performance that were proven out in subsequent months. This allowed them to begin to address changing consumer conditions before the consumer felt the full effect. As the impact of lower price also affected the U.S., we were able to quickly replicate this work looking at states with large oil-related economies like Texas and North Dakota. Again, we were able to share insights around the risks and opportunities of this situation with our customers so they can plan accordingly.

Another way we leverage our broad view of the industry is by looking across the consumer wallet. In other words, how do trends in one lending product impact others? For example, when home prices rise, home equity increases. And we know that more consumers will borrow against that equity through home equity lines of credit. Our research helps us see this dynamic can cause a headwind to both auto lending and credit card utilization. As HELOCs typically carry low interest rates relative to other products, offer large lines and tax deductible interest, we found that consumers will use this equity in their homes to finance purchases that they would otherwise make using a credit card or auto loan. As lenders use this information to offer more timely and appropriate offers, consumers benefit from more efficient, lower-cost credit products.

Being able to demonstrate these trends for our customers creates real value for them and makes our relationship stickier. The ability to be both market-specific and global at the same time is a unique capability that we developed and continue to build upon in order to enable sales and to build customer relationships.

That wraps up my look at our 5 growth strategies. Now I will turn the time over to Todd to walk you through the financials. Todd?

Thanks, Jim. I'll start by walking you through our consolidated and segment results. For the sake of simplicity, all of the comparisons I discuss today will be against third quarter of 2016 unless noted otherwise.

Third-quarter consolidated revenue was $498 million, an increase of 14% on a reported basis and 13% on a constant-currency basis. As expected, revenue from acquisitions contributed about 1 point of growth in the quarter. Adjusted EBITDA was $194 million, an increase of 17% on a reported basis and 16% on a constant-currency basis. Adjusted EBITDA margin was 39%, an increase of 90 basis points and roughly in line with our full year expectation. Adjusted net income was $93 million, an increase of 33%. Adjusted diluted EPS was $0.49, an increase of 30%. The adjusted effective tax rate for the third quarter was 36.4%, in line with our expectations of 36% to 37%.

Let's spend a minute discussing some of the key income statement items. Cost of services was $169 million, an increase of 20% compared with the third quarter of 2016. This increase was largely the result of increased product costs related to revenue growth and the incremental cost to provide quality service to consumers and conduct a thorough global review of our technology systems in the wake of Equifax's cyber intrusion that Jim discussed earlier. Another factor was our continuing investment in strategic growth initiatives to drive long-term top- and bottom-line performance.

SG&A was $142 million, an increase of 4% compared with the third quarter of 2016, driven primarily by investments in strategic growth initiatives and an increase in incentive and stock-based compensation related to strong business performance. We continue to see revenue growth significantly outpace our SG&A, reflecting the substantial leverage we are able to realize from our business model. And depreciation and amortization was $60 million, a decrease of 5% compared with the third quarter of 2016, continuing the trend we've seen each quarter this year. Adjusted operating income was $168 million, an increase of 22% compared with the third quarter of 2016, driven primarily by the increase in revenue.

Now looking at segment revenue and adjusted operating income. USIS revenue was $312 million, up 14% compared with the third quarter of 2016, driven by strong growth across all platforms.

Starting with Online Data Services, revenue was $200 million, an increase of 12%, driven by the favorable macroeconomic environment and strength across products, including CreditVision, CreditVision Link and TLOxp. Marketing Services revenue was $48 million, an increase of 17%, due primarily to demand for our new solutions, including CreditVision, CreditVision Link and Digital Marketing as well as other batch jobs. And Decision Services revenue was $63 million, an increase of 18%, due primarily to revenue growth in our healthcare and rental screening verticals. Adjusted operating income for USIS was $110 million, an increase of 22% compared with the third quarter of 2016, due primarily to the increase in revenue.

International revenue was $95 million, an increase of 15%, or 12% on a constant-currency basis, compared with the third quarter of 2016. Emerging markets revenue was $61 million, an increase of 15% or 12% on a constant-currency basis. We saw strong growth in India and other key markets, tempered by ongoing softness in South Africa, where our business continues to navigate a challenging macroeconomic environment. Developed markets revenue was $34 million, an increase of 16% or 13% on a constant-currency basis. Both Canada and Hong Kong continue to show strong double-digit growth. Adjusted operating income for international was $32 million, an increase of 20% on a reported basis or 17% on a constant-currency basis, driven by the increase in revenue and continued benefits from leveraging our global operating model. Adjusted operating income margin expanded by 120 basis points as a result.

Consumer Interactive revenue was $107 million, an increase of 10% compared with the third quarter of 2016. Growth was driven by strong volumes with indirect channel partners, including Credit Karma and Chase. In our direct channel, we benefited from an increase in new subscribers for our premium offering in September. Adjusted operating income for Consumer Interactive was $48 million, an increase of 13%, driven by the increase in revenue and favorable shift in revenue mix, partially offset by increased marketing costs. Adjusted operating income margin expanded by 140 basis points as a result.

Now moving to the balance sheet. Cash and cash equivalents were $253 million at September 30, 2017, and $182 million at December 31, 2016. The increase was driven by strong cash flows from operations. In early October, we used a significant portion of this cash to pay for the acquisition of eBureau, which will be reflected in our fourth quarter results.

Total debt, including the current portion of long-term debt, remained relatively flat at $2.4 billion at September 30, 2017, compared with December 31, 2016, even after acquisitions and share repurchases. In early August, we amended and refinanced our credit facilities for the second time this year to opportunistically achieve interest savings, extend maturities and achieve other benefits. Specifically, we reduced pricing on our Term B loans, which represent approximately $2 billion of our $2.4 billion in debt, by 50 basis points. We increased borrowings on our Term A loans by $33 million to $400 million, extended the maturity by about 2 years to August 2022 and reduced pricing by 50 basis points. We also increased capacity under the revolver by $90 million to $300 million, extended the maturity by about 2 years to August 2022 and reduced pricing by 50 basis points.

Taken by themselves, these changes result in annualized pretax savings of approximately $12 million. We will realize about $4 million of this benefit in 2017. The remaining approximately $8 million of benefit in 2018 will be offset by higher LIBOR. As a result, net interest expense in 2018 will likely be up slightly. Overall, our balance sheet remains very strong as we continue to reduce leverage and minimize borrowing costs.

Moving on to the statement of cash flows. We continue to benefit from strong cash flow, which enables us to invest in our business for the long-term through organic growth initiatives and strategic acquisitions, and provides opportunities to return excess cash to our shareholders. Jim discussed our acquisition of eBureau and Datalink Services. Even as we continue to pursue strategic acquisitions, we remain keenly focused on making high-impact internal investments and we will fulfill our three-year $300 million share purchase plan.

That concludes my review of the financial results. I'll turn the call back to Jim.

Thanks, Todd. As I lay out our guidance, a couple of quick points about our assumptions for acquisition and FX impact.

For the full year, acquisitions should add approximately 1 point of revenue growth and about 2 points of impact in the fourth quarter. For FX, we expect to have no significant impact in either period. I also want to point out that our guidance does not include any impact from providing Equifax with TransUnion's portion of the three-bureau monitoring product they have offered to consumers. As the subscription window runs through the end of January 2018, we are not in a position to [properly] estimate that full impact. We will, however, provide you with an update when we report our fourth quarter 2017 results.

Now turning to our updated guidance for full year 2017, by raising our full-year 2017 guidance for revenue, adjusted EBITDA and adjusted EPS, we now expect revenue to come in between $1,910,000,000 and $1,915,000,000, up 11% to 12% on a constant-currency basis. Adjusted EBITDA for the year is now expected to be between $741 million and $743 million, up 16% to 17%. At the midpoint of our guidance, adjusted EBITDA margin is expected to be approximately 39%. This is the result of our strong revenue growth, the benefits of the investments we've made in the company, product mix and productivity improvements across the business as well as the favorable impact of recent M&A. Adjusted diluted earnings per share for the year are expected to be between $1.85 and $1.86, up 23%.

I also want to update a couple of minor guidance items for the full year as well. Although we still expect capital expenditures to be in the range of $130 million to $135 million for the year, we now expect that depreciation and amortization not related to our 2012 Change in Control Transaction and subsequent acquisitions will be approximately $105 million or $10 million lower than the low end of our February guidance. This decrease is primarily driven by changes in expected timing of our capital expenditures during 2017. As a result of the refinancing that Todd discussed, we now expect full year net interest expense to be between $80 million to $85 million.

Turning to the fourth quarter of 2017, we expect the following. Revenue should come in between $482 million and $487 million, an increase of approximately 10% to 11% on a constant-currency basis. Adjusted EBITDA is expected to be between $189 million and $191 million, an increase of approximately 12% to 13%. Adjusted diluted earnings per share are expected to be between $0.47 and $0.48, an increase of 7% to 9%. As a reminder, in the fourth quarter of last year, we realized a full-year benefit of some tax planning. This distorts the year-over-year comparison.

To wrap up, TransUnion delivered another very strong quarter with broad- based strength across each of our business segments. As I discussed, we remain focused on growing through innovation, diversifying through new, faster growth verticals, expanding internationally, continuing to strategically build our Consumer Interactive business, and leveraging global operational excellence. These strategies highlight the power of the TransUnion business model and give us great conviction in our ability to deliver top-tier revenue growth and strong bottom-line growth even as we invest organically and through the acquisitions for the long term. We are very well positioned to finish 2017 on a strong note, and we are set up for another very good year in 2018.

Now let me quickly turn this time back to Aaron.

Thanks, Jim. That concludes our prepared remarks. (Operator Instructions) Now, we'll be glad to take those questions.

(Operator Instructions) Your first question this morning will be from Tim McHugh of William Blair.

First, a question, I guess, is just the incremental spending on the consumer business, I guess, as well as you mentioned, I think, a review of your cyber operations. I guess everything related to that. What was the extra spending in the third quarter? And what do you assume in the fourth quarter? And is any of that kind of permanent that we should think about as we go into 2018?

Tim, it's Todd. To answer to your question, in response to the Equifax breach, we incurred incremental call center costs as well as costs to scale up our websites. And those costs, I talked about within the CoS component of the income statement. So that -- we would look at that as largely nonrecurring, that that's something that is pretty much done within the third quarter. What's important to note, that resides within our USIS segment, and that's where we have our consumer relations business at. On the Consumer Interactive business, the comment on the margins there, we did have increased revenues in the third quarter from our premium subscription product as consumers are more interested in that offering. So we did incur a little bit of incremental advertising expense in that space.

Okay, I get it. And did you say, in the cost of service line, I guess, how much incremental spending it was in terms of a dollar number?

No, we didn't.

The next question will come from Manav Patnaik of Barclays.

Maybe just a follow-up on that. You mentioned excluding the potential revenue impact, and then you referred to like a subscription window ending in 2000 -- on January 1, 2018. I was wondering if you could just elaborate on what that means. And just somewhat tied to this, I mean, do you guys -- are you willing to give statistics or your view on what that freeze/lock numbers look like, and if that would have any impact to the sort of the lending environment?

Sure. So, I think you're talking about the subscription period that Equifax is offering, where they will kind of allow consumers to sign up for free credit monitoring. And since we -- that period hasn't ended yet, we don't want to speculate on how many consumers that might be. And so therefore, we haven't reflected that in our forward-looking revenue. Once we know that, then we will be able to kind of give you better idea of what that is going forward. So that's what we meant by that. What was the second question?

Freeze lock.

Yes. So I think we've seen something like 2% of U.S. consumers putting kind of a freeze or a lock on. And that, we don't believe, is going to have a dramatic impact on our, I guess, the quality of our files, which you're asking about.

The next question will come from Jeff Meuler of Baird.

On the USIS business, I thought the growth was particularly strong. Can you just, I guess, comment? Does there appear to be any revenue or share benefits because of the competitor breach? Or if not, to the extent to which it's just underlying strength? Any additional color would be appreciated.

Sure, sure. So to answer your first question, it was only a month in. So I'd say it virtually had no impact on our USIS performance relative -- related to Equifax. As far as the business goes, we -- about half of our growth came from our innovation in new products, including CreditVision and others that we talked about. And the other half is just strong growth from the core. But we always kind of strive for doing things that are going to help us take share, and we'll continue to do that going forward. So we feel very good about the business as it performed, and we feel like it's going to continue performing well going forward.

The next question will come from Gary Bisbee of RBC.

I appreciate the opening, Jim, with the comments on how you think about IT security and risk there. I guess along that line, what, if any, risk do you see? Or is there any way to think about the risk from increased awareness of things like the free lock and unlock that you've been offering and that Equifax will be offering? How that might impact paid direct to consumer within the consumer business? And then more broadly, what risk is there at this point, or is there any way to frame it, from the regulators tightening up or changes and sort of backlash to what's happened to Equifax?

Sure, sure. Okay. Good. So you kind of got to remember here that free has been around for years now, right? And so I don't believe this will have a material impact on the for-pay because there are things in the for-pay that, for consumers who are interested in it, that give them a heightened level of service. If anything, there's probably more engagement from the consumer when these kinds of things happen. So we don't -- in our particular business, we don't see a material impact. And then like I said, there's just more of consumer (inaudible).

From a legislative standpoint, there's a lot of discussion going on right now. And I think people are trying to kind of understand the role that the credit industry plays in the whole economy and how important it is, making sure there are no unintended consequences of certain kinds of actions that can be taken. And so I think it's in the stage of kind of learning and education, and we're engaged in that process as it kind of unfolds.

The next question will come from George Mihalos of Cowen.

So just two quick things I wanted to dig into a little bit more. I understand that the breach happened in September and it didn't have much of an impact on the third quarter results. But just interested, Jim, if maybe the tenor or the number of conversations on the B2B side with banks has ticked up since then.

And then conversely, as it relates to conversations you're having with regulators and legislators, it seems like sort of the free lock and freeze products are out there. Are you seeing any sort of a push? Or can you envision more of a push to give other direct-to-consumer services away like monitoring?

Yes, sure. So on the question around, I guess, share shift is you're asking me. As you can imagine, it's more or less a way of life for TransUnion to try and innovate and bring new solutions to our B2B customers to take a bigger footprint in their operations. And so that hasn't changed. And we feel like we were already doing very well in that area, which has been driving our good results basically for the last 2, 3 years.

I think it's probably too early to comment on if there's -- due to this situation, there's going to be some share shift. And frankly, I think it's most healthy for TransUnion not to rely on that. But to continue to rely on being innovative, being thought leaders, et cetera, in order to drive share shift. Because that's what's really going to sustain us, not only in the U.S., but internationally in the long run. So that's the comment there.

As far as regulation, I'll just go back. I do think that the regulators and everyone are trying to understand kind of the whole ecosystem and how free locks and freezes and other things might impact the economy. At this point in time, we don't envision -- we already have a free lock, and it's instantaneous and it works. We don't envision a time where we would go and put something in like a free freeze. Those are all different by state and much more complicated than just simply using an app or an online version, essentially, of doing the lock. So that's what we're going to continue to support going forward.

The next question will come from Andrew Steinerman of JPMorgan.

Could you tell me how your healthcare vertical within USIS is doing, like eScan and ClearIQ?

Sure, Andrew. So our healthcare business continues to perform very, very strong, both on the front end and in particularly on the back end. And the acquisitions of Auditz and RTech also continue to perform very strong in their own right. And integrated in with eScan, it's increasing our yield so we're using all that IP in combination. And it's increasing the amount of, basically, the amount of revenue we are able to return to the hospital systems. The pipelines remain strong, and there's still plenty of kind of market share to gain there. So we see our healthcare business continue to perform very strong this year and going forward.

The next question will come from Andrew Jeffrey of SunTrust.

I wonder if you could, Jim, speak to, in your view, the sort of tenor of demand generally in the marketplace for indirect solutions. I'm thinking about from your -- from the Credit Karmas and the Chases of the world, whether there's been an uptick in inquiries. And sort of as a corollary, I know you've talked about the Equifax product, free credit product. Is there any way you could provide some insight directionally to what unit pricing might look like there?

Yes. So on your first question, in the indirect business, in the consumer space, so where we really use CreditView platform as a way to help our clients deliver solutions to consumers, demand has been and remains very strong. So with the customers we currently have, definitely an uptick. We announced that we now partner with Intuit. And so there are new players in the industry understanding the benefits that the consumer and they can get from providing these kinds of services. So I think the indirect business, yes, transactions are growing but also, the pipeline looks really strong with some very powerful partners. And so we feel really good about that business. As you might expect, we really can't comment on pricing for things like credit monitoring. But we will give you an idea of kind of the volumes once we understand them, and if we understand them, next time we all talk.

The next question will be from Toni Kaplan of Morgan Stanley.

I just wanted to get a sense of if you've seen any increased demand for Auditz or any other change in behavior from your B2B customers since September 8. And basically, have you had to increase staffing in response in USIS, if that's the case, or just any sort of changes in behavior on the B2B side?

Sure. Honestly, there hasn't been a real change in behavior. They've always been concerned with the various kinds of security we have and procedures we have relative to following the regulation that guides their industry and our industry. Certainly, there have been phone calls and discussions between our cyber folks and their cyber folks to understand or confirm our security stance. No particular increase in staffing associated with that.

As we've referenced then, I'll kind of reinforce, we've over time continued to increase our resources, both internal and external, that support our cybersecurity program as that's become a bigger part of, I would say, the world that we live in, not only our company but all companies. And that will continue to be an area of emphasis for us going forward. But that -- those kinds of things are all in what I would say is our guidance and our long-term guidance.

The next question will be from Kevin McVeigh of Deutsche Bank.

Just wanted to follow up on the USIS. I mean, the core growth accelerated despite a much tougher comp year-on-year. And just, Jim, it sounds like half was innovation, half strong core growth. Can you just help us understand the components of the core? Was it better than expected demand on the mortgage side or auto? Or just can we frame that out a little bit more?

Yes, I -- it's hard to kind of pick at each one of those because we don't always know exactly why each credit report is being pulled by our customers. And so I think I would just say overall, we expected mortgage to be down high single digits. It was probably not down that far. Card was a little soft compared to a really strong '16, but still positive. Headwinds in new car sales were kind of offset by the strength in used car sales. So that treaded water. And consumer lending is very strong, very, very strong for the FinTech space.

And that is largely driven by our ability to innovate and the uptake of things like CreditVision and some of the other things we're doing. So and of course, included in our USIS business is healthcare, which also continued to perform very, very strong. As you take that as a base and then you add on the new, I guess, contracts or the new revenue that we've gained from our -- things like Fraud Solutions and in our rental screening business and our SRG business and CreditVision, CreditVision Link and then just simply taking share, I think, in some cases, associated with these new things, that's what's driving our strong growth.

That's super. Just one quick follow-up on that. Any -- the kind of the step-up from the hurricanes around auto, is that on the come? Or you would have started to see that obviously in September?

Yes, we might see something going forward. So that's nothing you really saw kind of in either direction, good or bad, in September.

The next question will come from Dave Togut of Evercore ISI.

Jim, could you comment on how you expect the freemium versus paid consumer channel to evolve over the next couple years in light of the Equifax data breach? In other words, do consumers want a lot more handholding through a paid offering, or are they willing to take more of a basic freemium offering to protect their credit?

Yes, I would say that I think we need to learn from what has just happened. And so all the learning has not happened yet, but I don't think there's going to be a material change. I think any time the consumers get more engaged, it's good for the consumer and good for companies like TransUnion. Certainly, the free products are very effective. But there are consumers who want more, maybe in the areas to help them deal with fraud or other things. And so there always will be a demand there.

For our particular business, as you know, our consumer direct business is not relatively large compared to some others. And so our particular kinds of consumers, I guess you'd say, are ones who are probably going to stick around a little longer. It's just not -- we never built a big, huge business across the whole consumer base. So we're not necessarily dealing with maybe the Venn diagram of those who want, who were paying, maybe, can now go to free necessarily. So we don't have that dynamic occurring in our business.

That said, I do think there will continue to be a demand for free, continue to be a demand for the kinds of solutions that our partners are putting out using CreditView in their own services to help the consumer understand not only where they stand now as far as their credit ability, but also where they might go if they change some of their behaviors. Those are things like Credit Journey and other things that we do with some of our B2B customers. So I don't see a meaningful shift in what was -- what is happening already in the market.

The next question will come from Shlomo Rosenbaum of Stifel.

Jim, how much did the breach result in just the direct-to-consumer demand spiking after that happened? And how much -- has that continued on just kind of at the elevated levels? Or has that kind of tapered off a little bit?

Yes. So there was a lot of interest in September. And as you know, we grew the overall business by about 10%. I think we were guiding towards more of a -- we'd get back to mid-single digits. I will say, our indirect business performed very strong anyway, so we were likely going to overachieve that. But then you add on a little bit of a blip that happened at September, and that's what kind of helped us just kind of get that little extra to get to 10%. That has moderated since then, so I don't think that will be something that's kind of sustained going into next year.

Just if you don't mind, I just wanted to ask about free cash flow. Is there any pull-forward because there was really strong free cash flow in the quarter?

No, Shlomo, there was nothing of any significance that was pulled forward within the quarter. I think you're just seeing the output of strong performance in the quarter.

And the final question will be from David Chu of Bank of America.

So just around margins. I know it's a bit early to talk about 2018. But based on the breach, the Equifax breach, and other developments, is there any reason we shouldn't expect 100 basis points of expansion next year?

Yes. So we are not guiding, I don't think, to any specific number. But I will say, as you know, we have very strong margins in our business, and part of our operating model and objective is to always bring in quality revenue that produces or continues to expand our margins. That said, we always, as you know, like to say that if there are opportunities that are in front of us in any particular quarter that we think could really help us drive growth going forward, we're going to take those. But even with all that said, there's no reason to believe that we're going to change from our objective to continue putting on quality revenue that helps to drive margin expansion.

Thanks, everyone for joining us. We appreciate that, and have a wonderful day, wonderful weekend.

Ladies and gentlemen, the conference has concluded. Thank you for attending today's presentation. At this time, you may disconnect your lines.