TransUnion (TRU) 2018 Q3 法說會逐字稿

Good morning, and welcome to the TransUnion Third Quarter 2018 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Mr. Aaron Hoffman. Please go ahead.

Good morning, everyone, and thank you for joining us today. On the call today, we have Jim Peck, President and Chief Executive Officer; and Todd Cello, Executive Vice President and Chief Financial Officer; as well as Chris Cartwright, the President of our USIS segment. Chris is joining us to provide some additional color on the acquisition of iovation.

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 Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement.

With that out of the way, let me now turn this time over to Jim.

Thanks, Aaron. We're pleased to report another strong quarter, continuing the trends we've seen since our IPO more than 3 years ago. Driven by strong execution, leading innovation, growing vertical markets and an attractive global footprint, we again delivered growth well above our underlying markets. Adjusted revenue, adjusted EBITDA and adjusted EPS grew double digits for the total company. We also had strong performance across our segments with double-digit constant-currency organic adjusted revenue and adjusted operating income growth in all 3.

Even as we deliver this broad-based growth, one of the questions we field regularly about our growth is how much is coming from market share gain. Over the past 4, 5 years, we've gained share across our global footprint through industry-leading innovation and capabilities built on a modern differentiated technology platform. That trend continues as we recently won significant business from one of our competitors in a number of verticals, including financial services and government. We expect these new contracts and the associated incremental share to contribute, among other things, to another strong year in 2019.

Switching gears a bit. I want to make an important point about our strategic business model. We continue to uniquely benefit from the diversification of our portfolio, and I stress the word portfolio here. Our model is predicated on a wide array of growth opportunities. This means we don't have an overreliance on any single product, market or vertical. For example, if you think back to 2015 and early 2016 when our Consumer Interactive segment was growing revenue in the mid-teens to mid-20s. As you know, our consumer direct business slowed, and we saw a more fully scaled key indirect partner decelerate. However, TransUnion's growth rate has remained strong in spite of this. Similarly, we told you last year that our business in Africa, then our third-largest international market, declined 8%. And again, TransUnion continued to deliver strong top line performance given the strength of our overall portfolio. As we noted on last quarter's call, we are experiencing some issues with a few customers on the front end of our Healthcare business. We saw a partial impact in the second quarter and a larger full impact in the third quarter. And again, we posted strong results.

For further context, consider that Consumer Interactive was about 20% of our revenue in 2016, Africa was roughly 3% of our 2017 revenue, and Healthcare is less than 7% of our revenue now. Regardless of the size, the power of our portfolio overcame each of these events. The moral of the story is that we benefit from a strong diversified business that gives us the ability to weather isolated slowdowns without changing the overall trajectory of our performance.

The business performance year-to-year and quarter-to-quarter reflects our strong business model that broadly leverages data assets and capabilities across our organization to help us realize this industry-leading revenue growth with good incremental margins. While this approach certainly contributes to our financial performance, this has also created a more sustainable and diversified growth profile that we believe can deliver relative outperformance through cycles.

As we've done for the past several years, I want to spend some time highlighting our 4 key strategies that are driving our diversified growth: The first strategy is driving growth through innovation. Even though we've talked about trended credit products regularly, I want to spend a minute today addressing what the future looks like for CreditVision and CreditVision Link, which have already been incredibly successful. In the third quarter in the U.S., together they grew about 28% on what is now a very large business. That follows 130% growth in 2017 and about 50% growth in the first half of 2018. Outside of the U.S., CreditVision grew 44% in the third quarter and is up 50% year-to-date. That begs the question, how much more growth is there for the industry-leading products? A short answer is a lot.

In the U.S., we are launching the next iteration of CreditVision Link that utilizes the alternative data we gained from the FactorTrust acquisition. This allows us to offer a full range of models for our different customer needs at varying price points. This product has been in market for test and validation with outstanding customer feedback, and we will roll it out in full production next month.

For CreditVision and CreditVision Link, there is substantial opportunity for penetration in the credit card space and with the 5 or 6 largest financial institutions in America. These customers are modest users now, and we have confidence that there will be greater adoption over time.

Finally, in the U.S., one of the largest pipeline opportunities is the application of trended data to our credit-based risk scoring models into auto insurance underwriting. As we've demonstrated, CreditVision provides lift for scoring an individual's behavior as a borrower. Similarly, trended credit is a better predictor of future insurance losses than static information. We've seen a number of wins with larger auto insurers and have a robust pipeline of additional opportunities.

Putting this in context, our sales pipeline for CreditVision and CreditVision Link is about 50% larger now than it was a year ago, and about 1/4 of these opportunities are in the finalizing offer or implementation stage. In other words, we are in very good shape for many years to come. In fact, I would expect this business in the U.S. to roughly double over the next 3 to 5 years off an already substantial base.

Outside of the U.S., we now have CreditVision in production in 8 markets, including our largest markets, Canada, India, South Africa, Hong Kong and Colombia. Penetration varies from market to market at this point, from very high levels of adoption in Hong Kong and strong usage in Canada to early days in the most -- in most of the other markets. Clearly, there is a long way to go with the current footprint even as we've seen better than 50% growth outside of the U.S. thus far in 2018.

And the story doesn't end with these countries. We will have CreditVision in the U.K. in 2019 with strong indications of customer desire for the product. Given the size and maturity of the U.K. market, we are confident that CreditVision will be a success with real scale and impact on our results. At the same time, as it has in other markets like Canada, it may become an entry point with large customers for us to improve our overall share position.

Importantly, as I pointed out earlier, our growth isn't built on any one product. Someday, CreditVision will be fully penetrated, though we are many years away from that. The good news is that TLOxp, Prama, digital marketing, CreditView and many other initiatives that haven't come to market yet are there to ensure that we deliver strong above-market growth for the long term.

One of those areas that I believe is still relatively nascent despite its meaningful size and growth rate in our portfolio is fraud and ID. I asked Chris Cartwright to join us on the call this morning so he could walk you through our suite of fraud products and particularly, our recent acquisition of iovation. Chris and team identified the device authentication market as a critical new dimension for TransUnion. They championed the transaction, and I think you'll see that their vision will provide us with another very strong long-term growth engine. Chris?

Thanks, Jim. It's a pleasure to be on the call this morning and share more details about this great acquisition for TransUnion.

Before I jump into the iovation story, it's important to set the market context of why this acquisition is so valuable to our customers. With the enormous growth in online channels in recent years, fraudsters have become more sophisticated and aggressive, and our customers are facing a new set of challenges. First, we've reached the point where the vast majority of transactions are now digital, with mobile device transactions in the majority. This digital migration has supplanted in-person transactions, which were much easier to authenticate and much harder for fraudsters to perpetrate at scale.

Second, with more than 1,500 reported data breaches in the U.S. alone, there is a considerable amount of personal information available to fraudsters, making it easier for them to answer challenge questions about identity or even to build synthetic identities.

And third, as the need for more sophisticated intelligent fraud protection has increased, so, too, have consumer expectations for fast, frictionless online experiences.

So this is clearly a challenging landscape for our clients, and they need additional tools to protect themselves and their customers. And that's what's driving significant growth for products that reduce fraud risk and friction. As a result, the global fraud and authentication market is growing double digits overall and by more than 20% per year in the U.S., the U.K. and many other large markets.

So it's -- with this market context, Slide 6 provides an overview of the fraud prevention assets that TU has assembled with the acquisition of iovation. The left side of the slide shows the personal identity and reputational information that TransUnion utilizes within its IDVision suite of products. In simple terms, you can think of IDVision as a means to validate the identity of an individual typically as part of an application process or account opening, if you will. And this is highly valuable to our customers, and we've delivered strong growth in recent years as the prevalence of fraud continues to increase.

Now as you can see on the right side of Slide 6, we are combining this so-called off-line data with iovation's online device data to create a broad and powerful fraud prevention suite, which we can utilize both at account opening and throughout the account life cycle.

Let's take a moment to survey the massive amount of identity and authentication data that we can now bring to our customers. On the TransUnion side, we have 1 billion consumer records and 500 million credit histories across more than 30 countries, all updated regularly. We will now marry that with the digital data from iovation, which includes 13 years of history on 5 billion devices globally, with visibility into the interaction of these devices with the more than 35,000 websites and applications that iovation protects.

Importantly, this history allows us to connect devices to each other into device families. This means that if a fraudster uses a device to perpetrate fraud, that device is identified as unsafe. We're then able to link additional devices that have been used to access the same account back to the unsafe device, marking each one as suspect. This integrated, deep historical record around device families is unique to the industry and extremely valuable for reporting fraudsters.

So at its core, iovation is the contributory database into which clients provide real-time feedback on device behavior during account interactions, including whether a device is used to perpetrate a fraud. iovation incorporates this information in its massive history of device data for use across the iovation network. iovation also uses machine learning to identify suspicious online behaviors and to quickly identify whether a device is suspect or safe.

The iovation acquisition brings other important new products, such as ClearKey, which is a lighterweight, device-based authentication; and LaunchKey, which is a consumer-directed multifactor authentication. The breadth of this product enables us to provide solutions for both new applications and account log-in and authentication. Now this is significant as we see 10 to 20x the volume around account log-in and ongoing transactions compared to new applications. So it provides TransUnion with a major increase in our addressable market.

Combined with the current data assets, we have now an unprecedented view of both the online and the off-line characteristics of consumers with the most sophisticated data and technology in the industry. And to put this scale in perspective, in 2017 alone, through iovation, we reviewed about 8 billion transactions, and we found about 100 million of instances of fraud.

So the strength of this contributory model lies in the power of the network. As iovation reviews transactions, we gather about 200 data elements from the device being used by the consumer, including device-specific data such as the IP address, the device type, the browser version, the operating system. The other side of the contributory model is that we gain the real-time learnings from over 4,000 fraud analysts within our network of customers who provide us with over 1 million data points about adverse device behavior every month. In other words, we not only gain data about the device, but customers then identify devices that have been used for fraud, enhancing the efficacy of our products for all of our network partners.

And as fraud knows no geographic boundaries, the other benefit of this network is that we can acquire data from anywhere in the world without having to be present in that country and without having to buy data from anyone. So for example, if someone in a remote country where TransUnion has absolutely no presence goes online and conducts business with any of the 35,000 websites and apps we protect, we then acquire data about that device, and we add it to our archives for future use for any of our other clients. Thus, the bigger the global network gets, the more powerful it becomes.

And when we put all of this together, we now have the most comprehensive suite of products for personal and digital authentication in the world. We're able to verify a consumer's identity against a broad set of personal and digital data, authenticate a consumer onto a customer's platform and prevent fraud. The combination of our global footprint and market positions, along with our new iovation capabilities in a very high-growth market, creates a compelling source of diversified revenue growth for TransUnion. And we also believe we are in a position to become a leading source of truth about consumer identities and enable businesses and consumers to interact safely and seamlessly in a digital world.

So that wraps up my comments about iovation, and I'll turn it back over to Jim. Thank you.

Thanks, Chris. That's outstanding. I think iovation and our expanded fraud and ID capabilities represent a new growth avenue in a very fast-growing market.

I'll turn now to our second strategy, expanding in attractive vertical geographic markets. I want to spend a few more minutes on our health care vertical. I detailed the basics of the business on our call last quarter, so I won't do that again here. Rather, like I did with CreditVision, I want to offer you my perspective on where we see the vertical going. As I mentioned earlier, we have seen a slowdown largely as a result of some customer issues on the front end of the business. I'll stress again that these are not related to our service, product quality or value in the marketplace.

In the second quarter, we saw a partial impact from these issues as they cropped up. In the third quarter, they impacted us fully, leading to flat organic revenue performance for the vertical. Frankly, that was a little worse than we had expected. As such, we now expect to return to growth in the fourth quarter and mid-single-digit organic growth for the full year.

In no way does this change our view of the industry or our business. We continue to have high levels of conviction in the long-term strength of the revenue cycle management market. Fundamentally, we are helping our customers better manage increased margin pressures and rising uncompensated care costs. We are confident that we have the right suite of products to both drive increased revenue recovery and to win more business over time, particularly on the back end of the revenue cycle management workflow. Our optimism is based on the attractiveness of the underlying market, and our already best-in-class capabilities, combined with the recent acquisition of HPS and Rubixis, help expand our comprehensive suite of back-end products.

Now turning to attractive international markets, I'd like to update you on our recently acquired U.K. business. On our last 2 earnings calls, I provided details about our acquisition of Callcredit. Today, I want to update you on 2 key points: First, we are moving quickly to capitalize on revenue opportunities. As I mentioned a few minutes ago, we will have CreditVision launched in the U.K. in 2019. And I expect CreditView, our indirect platform used by our partners for lead generation, to be in market first quarter of 2019.

We are also actively working to build Callcredit's already solid suite of fraud products with IDVision and iovation. As a reminder, about 1/3 of the revenue at Callcredit already comes from the fraud and ID business. Callcredit has been gaining share with a real technology and product advantage over our competitors in the U.K. for a number of years, and we're moving rapidly to augment our position and continue that success.

The second part of the update relates to the expected $15 million of cost reduction by the end of 2019. In the third quarter, we made a series of organizational moves that set us solidly on track to fulfill this commitment. Even with all of this critical activity going on in our first quarter of ownership, our U.K. business still grew adjusted constant-currency revenue by 9.5%. We expect more good performance as we fully integrate the business and deploy the new solutions that I discussed.

Moving to Consumer Interactive. We had another good quarter behind the strength in our direct business and the continued benefit of growth with key partners on the indirect side. On the direct side of our business, we continue to see strong retention in our paid subscription products from customers who signed up in the wake of our competitor's data breach last year. In addition, consumers in the market for credit products, like cards and loans, are recognizing the value and utility of the features we provide in our paid services. During the quarter, we launched the consumer-facing credit free site along with the new mobile app, myTransUnion, to help consumers quickly and easily freeze and unfreeze their credit for free. This solution is part of our portfolio of tools that help consumers prevent fraud and data breach. We introduced this solution in time for consumers to take advantage of the free freeze law that went into effect on September 21. On the indirect side, our partnership in the U.S. with Chase, Capital One, American Express, Intuit and many others continue to perform well.

We've talked about our opportunities to grow Consumer Interactive internationally in the past. Pleased to report that we continue to rapidly sign new accounts like those you see on this slide. We've had a lot of initial success in Canada and Hong Kong and have launched the CreditView platform in our largest emerging markets, India and South Africa. And as I mentioned, we'll have that product in market in the U.K. during the first quarter of 2019. Taken together, this represents another significant source of long-term growth.

The final strategy is leveraging our global operational excellence. As you know, we completed a master technology replatform several years ago that has reduced costs, enabled innovation and allowed us to focus more of our capital on revenue-generating products and created a true marketplace differentiation. Even with the best technology platform and architecture in the industry, we have avenues to get even better and to address the natural tensions that exist in our business between innovation, cybersecurity and systems availability. Our platform clearly facilitates more rapid innovation and greater responsiveness to customer needs. We continue to aggressively invest in product development to drive strong performance and have seen the outcome of these efforts in our consistent market-leading performance.

To further enhance our innovation efforts, we recently launched a global innovation center in Chennai, India. Launching the innovation center allows us to fully leverage the talent pool to develop TU's innovative solutions. And just as we continue to invest in innovation, we have continued to appropriately invest in the very real threat of cybersecurity that everyone in our industry faces. I would expect that we, along with just about every other company, are going to see increased spending every year to defend against cyber threats. This is simply the world we live in and an absolutely essential part of our technology investment.

The final tension is systems availability. Ramping up innovation and building a hardened cyber stance in a dynamic cyber threat environment naturally stresses system reliability, availability and speed. We now live in a world where the standard is 4 9s or 99.99% systems uptime. Our customers run 24/7 and have very high expectations. On the strength of our system, we do an excellent job meeting these requirements.

Takeaway from noting these tensions is, first, that we don't operate in a simple technological world. And even with a best-in-class technology platform, we face natural tensions.

And second, we are not standing still. Building on this outstanding technology, we are pressing our advantage to ensure that we continue to lead our industry in innovation while appropriately managing cyber risk and still delivering world-class reliability and availability to our customers. These actions are easy to talk about but hard to do even with a modern, fully functioning technology platform. Our foresight to have built this system years ago is proving to be a significant advantage now and for the foreseeable future as it evolves to continue to meet our customers' needs.

That concludes my discussion of our strategies. Now I'll turn the time over to Todd to walk you through the financials and provide you with updated guidance. Todd?

Thanks, Jim. As Jim mentioned, we had a strong third quarter. For the sake of simplicity, all of the comparisons I discuss today will be against the third quarter of 2017, unless noted otherwise. I will also point out that the sheer size of our recent acquisitions creates some unusual comparisons on an as-reported basis. In our press release today and this slide deck as well as my commentary, we'll bridge through the impact and help you fully understand the underlying business trends.

To start, third quarter consolidated adjusted revenue increased 25% on a as-reported basis and 26% in constant currency, with strong performance across all 3 segments that I'll detail in a moment. Adjusted revenue from acquisitions contributed approximately 15 points of growth in the quarter. This was related to Datalink Services, eBureau and FactorTrust, which all closed in 2017. It also includes iovation, HPS and Callcredit. Organic constant-currency adjusted revenue growth was 11% in the quarter. We also realized about 1 point of growth, roughly $5 million, from incremental credit monitoring business from a competitor. Adjusted EBITDA increased 26% on a as-reported basis and 28% in constant currency. Adjusted diluted EPS increased 33%.

The adjusted effective tax rate for the third quarter was 26%, which brings our year-to-date adjusted rate to 27.4%. We now expect to deliver a full year 2018 rate of about 27.5%. We're benefiting from some successful tax planning that is being partially offset by our strong growth in high-tax international jurisdictions like India.

Let's spend a minute discussing some of the key income statement items. Cost of services increased 23% as a result of higher operating and integration costs related to our recent acquisitions, investments in strategic initiatives and higher data cost associated with our revenue growth. SG&A increased 34% for many of the same reasons I mentioned in cost of services.

Before I wrap up this section, let me point out that our pro forma leverage dropped from 4.5x at the end of the second quarter to about 4.2x at the end of this quarter as a result of our strong adjusted EBITDA growth and having paid off our revolving credit facility. I expect the ratio to continue to fall as we close out the year and position us to finish 2019 below 3.5x per our expectations.

As we did last quarter, we want to show you the impacts that recent acquisitions have had on our margin and help you see the good performance of the underlying business. As you can see, excluding the impact of the acquisitions, the margin on our underlying business expanded by almost 200 basis points in the third quarter and about 115 basis points for the first 9 months of the year, reflecting the typically strong incremental margin profile of our business. As a reminder, due to the size of the transaction, we are excluding the integration costs for Callcredit for 2 years, which is a departure from our normal practice.

Now looking at segment financials. USIS adjusted revenue grew 20%, driven by strong performance across the business. Excluding the impact of the acquisitions of Datalink, eBureau, FactorTrust, iovation and HPS, adjusted revenue would have been up 11%. Online Data Services increased 17%, driven by the favorable macroeconomic environment and strength from innovative products like CreditVision, CreditVision Link and TLOxp. Datalink, FactorTrust and part of eBureau are in this platform. Excluding them, Online Data Services would have grown 11%.

Marketing Services was up 23%, due primarily to demand for our new solutions, including CreditVision, CreditVision Link and digital marketing, as well as ongoing strength with fintech customers.

And Decision Services revenue grew 28%. iovation, HPS and part of eBureau are in this platform. Excluding that revenue, Decision Services was up a little over 3%. As Jim discussed, we continue to see some short-term headwinds in the health care vertical, which is the largest part of Decision Services, that we expect to resolve itself over time.

Adjusted operating income for USIS increased 19% and was up 15% on an organic basis. Excluding the impact of recent acquisitions in this segment, adjusted operating margin would have been up more than 100 basis points.

Moving to International. Adjusted revenue grew 53% as reported and 59% in constant currency. The Callcredit acquisition is reported in this segment. On an organic constant currency basis, the segment was up 12%. Developed markets, which now includes Callcredit, along with Canada and Hong Kong, increased adjusted revenue by 138% on an as-reported basis and 9% in organic constant currency. We continue to see broad-based strength in Canada behind CreditVision, new CreditView customers and continued success in our insurance vertical. We expect both markets to deliver double-digit constant-currency organic adjusted revenue growth for the full year.

Emerging markets adjusted revenue increased 6% on an as-reported basis and 14% in constant currency. We saw continued strong growth in India, which was up 37% in constant currency in the quarter, as well as double-digit growth in Colombia. Africa adjusted revenue was down about 1% on an organic constant currency basis for the quarter and flat for the first 9 months, in line with our expectations for the full year. We're pleased with the progress the team has made in Africa and expect them to deliver a good fourth quarter, setting up positive momentum heading into 2019.

Adjusted operating income for International grew 54% as reported. On an organic constant currency basis, it was up 18%, with margins expanding by almost 200 basis points.

Consumer Interactive adjusted revenue increased 11%, driven by growth in both the indirect and direct channels. Direct was up double digits on the strength of the growing attractive subscriber base that Jim mentioned. Our indirect channel, which represents about 2/3 of the segment's revenue, also realized about $5 million of revenue from the onetime incremental credit monitoring business from a competitor. Excluding this incremental adjusted revenue, Consumer Interactive would have grown 7%. Adjusted operating income for Consumer Interactive grew 21%, driven by the increase in revenue.

Turning now to our guidance for 2018. Let me start with an update to some base assumptions. For the full year, acquisitions, including Callcredit, iovation, HPS, FactorTrust, Datalink, eBureau and Rubixis, should add approximately 10 points of adjusted revenue growth. For FX, we expect to see about 50 basis points of headwind impacting adjusted revenue and 70 basis points of headwind for adjusted EBITDA. The strengthening U.S. dollar is clearly a headwind, and our forecast reflects the spot rates as of mid-October. We continue to expect approximately $16 million of revenue for the full year from the onetime incremental credit monitoring from a competitor compared with $4 million in 2017. This represents about 50 basis points of growth year-over-year.

As many of you are aware, our competitor had committed to free credit monitoring for 1 year for impacted consumers. However, there is no clarity about how long they will offer these services. Therefore, we are taking a prudently conservative approach and not including additional credit monitoring revenue in our forecast until more details are known.

We expect adjusted revenue to come in between $2.342 billion to $2.347 billion, up 21%. This reflects allowing the $6 million beat against the high end of our third quarter guidance being offset by $2 million of greater FX headwinds.

Adjusted EBITDA is expected to be between $912 million and $915 million, up 22%. At the high end of our guidance, adjusted EBITDA margin is expected to be up about 20 to 30 basis points from 38.7% in 2017. As I mentioned earlier, acquisition integration costs and the initial lower-margin structure of the acquisitions is negatively impacting margin. Excluding this impact, we would expect our underlying adjusted EBITDA margin to expand by more than 100 basis points in 2018, more in line with the historical flow-through from our revenue growth.

Adjusted diluted earnings per share for the year are expected to be between $2.46 and $2.47, up 31% or 32%. This guidance anticipates $0.02 per share negative impact from unfavorable FX and $0.01 headwind from higher interest rates on the debt existing prior to our incremental financing activities in June.

Let's turn to the fourth quarter of 2018. For adjusted revenue, we expect about 15 points of contribution from M&A. We also expect about 1 point of headwind from FX on adjusted revenue and 2 points on adjusted EBITDA. Adjusted revenue should come in between $620 million and $625 million, an increase of 23% to 24%. Adjusted EBITDA is expected to be between $243 million and $246 million, an increase of 24% to 26%. Adjusted diluted earnings per share are expected to be $0.62 or $0.63, an increase of 24% to 26%. $0.08 per share of the increase relates to the positive impact of U.S. tax reform.

That concludes my review of our financial results. I'll turn the call back to Jim for some final comments

Thanks, Todd. Let me end where I began. On the strength of our diversified portfolio and very attractive businesses and assets, we continue to deliver outstanding above-market performance. We have the ability to weather isolated slowdowns in the portfolio and keep up our growth trajectory. At the same time, we continue to make moves, whether organic or through M&A, to further enhance our portfolio and position TransUnion even better for long-term growth. We talked about that this morning with CreditVision, iovation, Callcredit, international CreditView opportunities and our ongoing technology leadership. I have every confidence that we've set ourselves up for a strong conclusion to 2018 and we are in great shape heading into 2019.

With that, I'll turn the time back to Aaron.

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

(Operator Instructions) First question comes from Timothy McHugh with William Blair.

First, just wanted to ask about the Healthcare business. I guess can you elaborate on, I guess, what the issues are and the confidence in that they aren't permanent, I guess, particularly on that front end of the business?

Sure, Tim. This is Jim. So I guess, first up, we remain very confident in the -- on our spot in the health care market. There's still billions of dollars of uncompensated care. And the issues are primarily in that front end that we talked about, with consolidation happening with some of our customers. In the back end, we have a well-rounded set of solutions. We just bought Rubixis, which gets into the underpayments and denials. And we've closed some deals recently that give us a lot of confidence heading into 2019. So we're very bullish on that business. And I guess we're trying to make a point, is that our overall portfolio is very, very strong, and we're able to absorb things when we may have a quarter that doesn't go the way we wanted for a particular business. And so we're able to overcome that. On the other hand, the silver lining is that comps on this business will get easier next year, and the business itself, fundamentally very, very strong. And so we're very bullish on it.

And just to clarify, I guess, this is an issue where client mergers are, I guess, negatively impacting it, and you just said comps get easier. Is this 3 or more quarters or 2.5 more quarters before those comps get easier, though, that we should expect the growth to be -- to stay at a lower rate?

So I was actually thinking about a full year, Tim, not trying to go quarter-to-quarter here. And I'm -- my statement of bullishness is primarily based on the back end and the amount of business that we're closing there.

The next question comes from Andrew Steinerman with JPMorgan.

It's Andrew. I wanted to dive in more on Online Data Services. Todd mentioned that's benefiting from a favorable backdrop and selling new products. Specifically, I wanted to know, in the third quarter, how credit activity by asset class helped or hindered TransUnion and how ODS organic revenue growth is positioned for the fourth quarter. I didn't quite get if you said you're not assuming any revenues from the TrustedID product from the other bureau.

Okay. So Andrew, thanks for the question. This is Todd. So let me just kind of dive into the trends that we're seeing in the Online Data Services. So I think your question really is just coming into the organic growth rate that we're seeing came in at about 11% in the previous 2 quarters. The revenue growth rate was a little bit higher. I would say kind of overall, the trends that we're seeing still continue to be positive. I would say the minor kind of blemish that we would see in the economy would be with mortgage, where we did see a little bit of a downtick in our volumes there. But otherwise, as far as our other end markets are concerned, when we kind of look across the portfolio, when we look at credit card, card looks pretty good for us and is on kind of the uptick. We're looking at home equity lines of credit. With the rising home values, there's a lot of consumer interest in those products. So -- and then auto continues to be about neutral for us. So overall, kind of -- and then the fintech space continues to be very strong for us as we kind of leverage the first-mover advantage that we've had in that space. So the end markets, all in all, kind of feel good. We're actually pretty proud of the 11% growth that we put out, and we expect this to continue on as we're able to weather kind of the slowdown that we're seeing in mortgage in particular. As -- I think the second part of your question pertains more to the credit monitoring revenues that we're getting from Equifax. And in essence, what we've done is we've just assumed nothing in our guidance just simply because what they committed to with consumers a year ago was 1 year of monitoring. And it appears that there's kind of an indefinite amount of time that they're continuing to offer these services. We don't know what the terms are on that. So we're just being very conservative in our guidance and not assuming that, that revenue is included. And if it does continue on in the quarter like we have done every other quarter, we will be fully transparent and tell you what -- probably what's in there.

The next question comes from Manav Patnaik with Barclays.

Jim, I think in your opening comments, you talked about winning significant business from competitors, setting up well into '19. I was hoping you could just elaborate on that. Was there any new sort of big wins that you had in the last quarter and how you think about what the opportunities are there into '19?

Yes, sure. So we can't get specific with names. But I think certainly, we're acknowledging -- let me step back, though. We've been taking share for a while, Manav, and I've been kind of consistent with that message based on innovation, based on new capabilities, even based on drag revenue, from things like Prama and our other -- like CreditVision, CreditVision Link. I will say a recent -- a more recent occurrence which we alluded to is that there were some RFPs being let out, and they take a while to work through, where we've actually taken share that maybe we otherwise might not have. And so that, as you stated, bodes well for 2019. And it takes a little while to get these things up and running, but they're meaningful to us and should help us have a good set of quarters relative to USIS revenue.

And just to clarify, sorry, was that a U.S. comment or is this a global...

Yes, it's mostly a U.S. comment, but I don't want to indicate that we're not taking share and winning business internationally. We're also doing very well across the portfolio there as well.

The next question comes from Gary Bisbee with Bank of America Merrill Lynch.

I guess I wanted to ask a bit about the fraud -- iovation and the fraud comments that you went through. How big an opportunity is there to really put iovation together with your fraud business and sort of sell it together? Or is it -- or should we think of this more as this is an ancillary, potentially bigger opportunity that rounds out the suite of products there? And as part of that, can you give us any sense just directionally how big fraud is or how fast that's growing for the business overall?

This is Chris Cartwright, and I'm going to take the question on fraud and iovation. I mean, obviously, it's a really exciting opportunity for us. The product, iovation, is highly complementary with what we have traditionally done here at TransUnion, which is to use the knowledge that we have about consumers, both from our credit archives but also our public data repositories, and use that to confirm identity. We've also developed various analytical models to determine if a synthetic ID is being used. We have onetime passcode authentication and things like that. And there's actually quite a bit more. We stitched all of that together in an integrated product suite which we call IDVision. And now at the core of IDVision is this market-leading digital device authentication and verification service which we acquired with iovation. So it's already been integrated into the TransUnion IDVision suite. We're already getting sales from countries in the portfolio around the world, which is really exciting. We've built a really robust pipeline, both in the U.S. and in our international markets. And there's just a lot of cross-selling capabilities across the suite. So we think this cements our market position as a clear leader in this space globally, and I think it's going to -- and I know it will further accelerate the already attractive growth we've been getting from our various fraud solutions.

And any sense as to the scale of it within TransUnion?

We haven't disclosed...

We haven't -- yes. Gary, we haven't disclosed the size of it. But our fraud products are relatively significant in our USIS business. So think about this just on a go-forward basis, by putting the assets together, the growth that it's going to be able to drive for TransUnion.

The next question comes from Jeff Meuler with Baird.

Maybe just a little different take on some of the earlier questions. I get that you're kind of talking about you have a good portfolio and that's helping power through a bit of softness in the health care vertical. But the market seems to be concerned about the housing market, the auto market, and bank stocks have generally been weak lately. So I guess just as you look at like the September and into October data and some of your leading indicators, are you seeing signs of that within your customer base in a way that would negatively impact you? And maybe if you can just give us a little refresher on when you've seen market inflections in the past, just roughly how long is your visibility into seeing the change?

So this is Jim. The -- I'm just going to restate what we've already stated. We've seen mortgage softness, and we plan for that relative to refi. And if you kind of look at some of our recent publications, we know HELOC is poised to grow and that will offset that somewhat. Card remains positive. Consumer lending remains positive. Auto, the new sales and lease sales and things like that are continuing to drive that. So we don't think that's going to grow from here, but we don't necessarily and aren't seeing a slowdown. And then the fintech space remains really strong. So we're not really seeing an inflection point that I think you're trying to anticipate. I don't know how to answer your other question because all of that depends. When we go all the way back to '08, when things really got bad, we had obviously a slowdown in growth. But we quickly transitioned out of that, I think, well before the rest of the market recovered, and we can get into more detail on that if you'd like to and enough time. So we find that we generally recover much more quickly than the rest of the markets. But that's a big question around it depends on which parts of the market's not working, but we simply aren't seeing that. And so I would not factor that into your thinking.

The next question comes from George Mihalos with Cowen.

Just wanted to go back to the point, Jim, on health care in terms of maybe the trajectory of how that revenue starts to come back. Does that start to tick up in the fourth quarter and then accelerate more so as we get to the back half of '19? And just thinking about the USIS business broadly, some of the changes that are going on in score and with FICO and the like, can that be a meaningful -- can the bureaus be meaningful beneficiaries from widening the credit box?

Yes, sure. So regarding health care, the way I would view it is that we feel very -- I mean, I do view, we feel very good about 2019. And we know we've closed these deals that will pay benefits in 2019. The way that business works, though, it does take some work by our customers to prepare to use this service. And so I would rather not try and say, "Oh, it's going to start at this point in this quarter." What I can say is I feel very good about the overall business into 2019. I feel very good about our fourth quarter that we've talked to you guys about. Regarding FICO, I'm going to let Chris answer that since we have him on the phone. I will generally say that the world seems to be migrating with using more and more different kinds of scores, and those are based on our data, in some cases, or in a lot of cases, we create our own scores. And so generally, that's a good thing, the kind of the diversification of our customers' use of different kinds of scores, whether it's in mortgage or other lending vehicles.

Yes. And just to amplify Jim's comments a bit, I think if you pull back the lens, the positive for TransUnion and the broad -- and the industry, is that there's a real appetite for developing scores based on an expanded set of information, whether you call it alternative or whatever term you choose. It's beyond the historic credit trade lines that were used to compute scores. That innovation really started quite a few years ago with the introduction of trended data, which is now becoming a standard and has provided great growth. But for quite a few years now at TransUnion, we've had alternative scores that were a combination of both our traditional credit data but also alternative data sources such as demand deposit information, club and continuity programs, rental payments and a variety of other information. Some of the acquisitions we've made through the years to cement our position in this space, first, we acquired L2C, which was a market leader and a longtime partner for us in the alternative credit score space. And then last year, we acquired FactorTrust because we wanted to have direct access to credit trade lines that were captured from payday lending and various online, small-dollar, short-term, unsecured types of loans. So I think with recent announcements in the market, what you're really just seeing is a continuation of a trend of using a broader set of data to calculate consumer creditworthiness and to help our customers more precisely segment the market and define and price risk. I agree with Jim, net-net, I think it's a real positive for the industry, and TransUnion is well positioned to benefit from these trends.

The next question comes from David Togut with Evercore ISI.

Could you comment on what percentage of Callcredit's revenue comes from domestic U.K. demand versus international? And what impact, if any, do you expect from Brexit in March of next year?

Yes. So the first part of your question is there's some revenue that comes internationally. It's based on their fraud products. But it's primarily, and I would think of it primarily, like almost all in the United Kingdom itself. And then you talk -- I think you asked -- the second half was about Brexit. Look, we don't -- we've analyzed this to depth. We just don't see that will have any impact on the Callcredit business at all.

The next question comes from Andrew Jeffrey with SunTrust.

Jim, very much appreciate the color on the long-term opportunity in CreditVision Link and particularly, the integration with FactorTrust. Can you talk a little bit about how you see sales cycles as you go to market with this newer solution? Should it -- do you think you'll see sales of the integrated FactorTrust offering ramp the same way that CreditVision Link did? In other words, perhaps, a reacceleration of growth in those products as we get into '19?

Sure. So we have Chris here, and he lives and breathes this every day. So why don't we have him answer that?

Yes, good question. Look, we're really excited about both products. And like Jim said, there's a lot of runway left for CreditVision, which is really calculated on what we call thick-file consumers, so 4 trade lines and more. And then CreditVision Link is more for evaluating thinner-file or no-file consumers that have less than 4 or even no trade lines. And we, again, leverage our access to alternative sources of data to do that. If you look at our results for the past couple of years, we've had robust sales of both solutions, right? So that's already incorporated in our recognized revenues and our run rates go forward. We continue to innovate, particularly with CreditVision Link, where we're going to continue to release improvements to that score as we incorporate more data elements and refine our analytic techniques. And I think that's going to help us continue to lead in this space. But I do want to be clear that we're selling a lot of this stuff already, a lot of CreditVision Link already. And for both Link and upmarket CreditVision, the pipeline looks really good for the future.

The next question comes from Bill Warmington with Wells Fargo.

So a question for you on the FICO Ultra score that was announced yesterday. And I wanted to ask whether you guys were going to be a part of that. And then also just a clarification in terms of the use of the alternative scores. Are you finding -- there's an increased use of alternative scores. Are you finding that in addition to the FICO score or in place of the FICO score?

Okay, this is Chris again. I'll answer this one first, and then we may have some other comments around the table. But to the point I was making earlier, there's been a continuum of innovation within the industry where score providers are continuing to drawing new refined scores to market based on a range of data beyond the core traditional credit, and it's improving precision in credit estimation. We are not directly a part of the Experian and FICO announcement of the Ultra score. But what I do want to point out is that if you look competitively across the industry, there have been similar competitor alliances and score announcements in recent years as competitors partner up to try to pull together the data that they need to create a more refined score. Because of the breadth of the data that we have and that we own and our focus on that, it's really a focus that we've had for over 5 years now, we haven't needed to do such partnerships in order to pull together the necessary data. And I'll point you to probably several years ago where another competitor partnered with LexisNexis and FICO to create an alternative risk score. I don't believe it's had material traction in the market, but it's just an example of the competitive dynamics that we see in the industry today. I also want to be clear that we work very hard in our data sourcing and analytics group to evaluate the potential lift that a whole variety of data sources have on our current best products. That's just part of our ongoing innovation. So what you should expect is that innovation is going to continue and it's going to lead to better and better products for our customers and ultimately for consumers.

Yes. And I'll just add, we're very comfortable with our position as the market leader in alternative data and thin-file scores. And to reiterate Chris' point, we've been focusing on this for some time, and we feel like this is maybe a competitive response to us. But we're also very confident in our pipeline and our closes, and this gives us a lot of confidence heading into 2019.

The next question comes from Shlomo Rosenbaum with Stifel.

Actually wanted to just ask a question that is not at all directly on your business operations. But just given the season that we're in and the potential that the Democrats could take the House, they're going to be looking for a quick legislative win. Credit reporting legislation is a potential for them. They clearly have the recognized champions and stuff like that. Have you guys kind of thought about that in the potential of things? Or has anything been floated that you can share with us? And just how do you look at that in terms of just the legislative risk?

So our, I guess, view or our position is we work well with, I guess, both sides of the House, and we try and stay connected to the legislation that they're thinking about. We don't have any conjecture on what might happen there other than we obviously stay close to it, and we work with them to provide -- to help build the best legislation possible for the consumer.

So this is not a "keep you up at night" type of thing?

No.

And that brings us to the top of the hour, to the end of the call. Thank you, everyone, for your time this morning. Have a wonderful day.

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