TransUnion

NYSE:TRU

Earnings Call Transcript 2019-Q3

[Operator]

Good day, and welcome to the TransUnion 2019 Third Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Aaron Hoffman, Vice President of Investor Relations. Please go ahead.

[Aaron Hoffman, VP, IR]

Good morning, everyone, and thank you for joining us today. On the call, we have Chris Cartwright, President and Chief Executive Officer; and Todd Cello, Executive Vice President and Chief Financial Officer.

We posted our earnings release and slides accompanying this call on the TransUnion Investor Relations Web site. Our earnings release includes schedules, which contain more detailed information about revenue, operating expenses, and other items, including certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to their most directly comparable GAAP measures are also included in these schedules. Today's call will be recorded and a replay will be available on our Web site.

We will also be making statements during this call that are forward-looking. These statements are based on current expectations and assumptions, and are subject to risks and uncertainties. Actual results could differ materially from those described in the forward-looking statements, because of the factors discussed in today's earnings release and the comments made during the conference call, and in our most recent Form 10-K, Form 10-Q, and other reports and filings with the SEC. We do not undertake any duty to update any forward-looking statement.

With that, let me now turn the time over to Chris.

[Chris Cartwright, President and CEO]

Thank you, Aaron. As you saw on our earnings release this morning, TransUnion delivered another strong quarter. In fact, it's worth noting that the third quarter saw a record adjusted revenue and adjusted EBITDA in absolute dollars, and the highest quarterly adjusted EBITDA margin in our history. The results reflect broad-based innovation-driven growth and attractive expanding margins, and we are very proud of our track record since our IPO.

Over the past seven years, we have expanded into attractive new verticals and geographies, built or acquired innovative solutions, and developed industry-leading technology. At the same time, we have also created a culture that emphasizes customer focus, individual accountability, and performance. Our stakeholders have come to expect this from TransUnion just as we expect it from ourselves each day. In short, we have built a company that understands the need of the customers it serves and can deliver best-in-class solutions to meet those needs. We are positioned to continuously deliver market-leading growth and shareholder value creation, and we continue to evolve our organization and to develop new capabilities in order to compete effectively.

Earlier this year, we created two new global leadership positions in order to accelerate product development and operational effectiveness. First, we consolidated responsibility for our horizontal solutions under a global leader. Examples of these solutions include fraud mitigation, decisioning, credit products, and our growing speed of analytics solutions. Second, we created a global operations role to support the development of customer-focused operational platforms through improved process efficiency and greater automation.

We have also expanded our investment in our vertical markets, where our leaders bring significant industry experience and deep insights into customer pain points by adding resources across telecommunications, utilities, ecommerce, gaming, and other verticals. This investment in market planning typically enables us to create more valuable solutions, leading to accelerated organic growth, and we continue to lead with deep and differentiated data. In addition to our traditional attractive positions in consumer credit data, we have added an array of alternative data, including trended credit, payday, and online short-term loans, retail loans, certain demand deposit information, utility, and other data. This extended data coverage enables us to provide credit behavior insights on millions of consumers that we could not previously.

We have also diversified our business portfolio overall with important extensions into insurance, healthcare, public sector, consumer identity, digital services, and other verticals and categories, and we recognize that while having deep differentiated data is important, clients also need effective and user-friendly solutions to visualize, analyze, model, and develop actionable insights from our data that enables better decisions across their enterprise. While much of our data analytics capabilities have been internally developed over these last seven years, we have also executed 18 acquisitions, and a host of strategic partnerships that have meaningfully augmented our capabilities and created value for our shareholders. Examples of key acquisitions include TLO, Drivers History, eScan, Home [ph] Credit, and iovation, which delivered new data and capabilities, and extended our geographic coverage and accelerated our organic growth.

Along the way, TransUnion has developed a flexible and effective technology platform through consistent focus and investment. Our efforts began with projects front, assistance migration from mainframe technology to a cloud-compatible architecture based on high performance, distributed clusters running both proprietary and open source software. We have deployed solutions and containers on our world-class technology stack and also the public cloud as appropriate. At the same time, we proactively improved our information security along multiple dimensions, including additional personnel, procedures, hardware, software, reporting, and the use of independent security excellence.

The combination of these efforts has produced a technology infrastructure that provides high availability and faster solution deployment at lower cost and with improved security. And we are improving our software development capabilities by continuing to use SAFe Agile across our products and technology organizations. This Scaled Agile for enterprises approach has enabled improvements in software development, consistency, speed, reliability, and security. We're enjoying more predictable outcomes and faster throughput than previously. And as technology inevitably progresses, we will continue to invest to improve our infrastructure and development capabilities to effectively meet market needs.

Our current efforts include material new functionality, standardizing applications, implementing a modern microservices architecture, developing an API layer, and leveraging the public cloud for solutions such as Prama, which require flexible computing capacity based on our customer's varying needs. In sum, we believe that we understand how to apply advanced information technologies to high quality datasets to create differentiated solutions for customers and superior returns for shareholders.

With that, let's talk about the strong performance we've enjoyed in each of our divisions starting with U.S. markets. We saw good performance in both financial services and our emerging verticals, which include insurance, healthcare, collections, rental screening, public sector, media, in a long tail of fast-growing diversified markets. In financial services, the momentum we saw in the second quarter continued as a result of several factors. In mortgage, lower interest rates drove an increase in refinancing activity against more favorable year-over-year comparisons. Our industry-leading trended and alternative data solutions, CreditVision and CreditVision Link also continue to grow rapidly. The third quarter was the largest revenue quarter for these products in our history. All part of the strength was due to the increase in mortgage activity. Credit card issuers also have increased their usage of printed data in both marketing and underwriting. We expect this trend to continue over the next several years.

Finally, FinTech lenders have resumed their growth by meeting consumer's expectations for fast low-friction lending experiences online. The launch of the Apple Card in the third quarter by our client Marcus is a good example of how lenders are responding to consumer demands for speed and ease-of-use. By working closely together, Marcus and TransUnion were able to provide real-time credit decisions and enable usage of the Apple Card through consumer's digital wallets in a matter of seconds. We were well-positioned to support Marcus on this launch based on our investments in our fast available and secure technology infrastructure to deliver the array of traditional and alternative data use to render such rapid credit decisions.

Another critical element of our focus on our customers comes through our consumer operations team, which works each day with consumers and businesses [ph] to increase understanding and resolve discrepancies. In addition to our outstanding in knowledgeable call center agents, TransUnion has developed easy-to-use applications to allow consumers to lock or freeze their credit with a single-screen swipe when they're not seeking credit, and again to quickly unlock their credit files when they become credit-active again.

Now, the other half of the U.S. markets, we've experienced good performance in our emerging verticals, highlighted by another very strong quarter for insurance and diversified markets along with a good quarter for our healthcare vertical. As a reminder, diversified markets represents a collection of high quality verticals that leverage a core data capabilities of TransUnion, such as investigative services, background screening and Telco.

I want to focus on several important areas of growth beginning with insurance. The core of the vertical continues to be auto insurance underwriting, where we provide a broad suite of solutions to support client prospecting, underwriting, account review, and claims resolution. The vertical was built initially using our core consumer credit file. In recent years, we've expanded our offerings through a number of acquisitions, Drivers History and Datalink services positioned us to identify motor vehicle violations and access state motor vehicle reports, and efficiently deliver this data within our client's workflow. eBureau has been deployed to rapidly develop propensity models for marketing applications. In TLOxp, which I'll talk about in detail shortly, provides a world-class investigative tool for evaluating clients. We've also expanded to serve commercial auto customers as well, where the industry continues to have profitability challenges and a desire to better assess the drivers using our robust data assets.

In the auto underwriting vertical, our team leverage their insights to improve our customer's decision-making. In life insurance underwriting, our TrueRiskLife score leverages our data to generate the predictive score to underwrite a life policy, without the invasive and expensive medical tests, otherwise, credit card, or recently we've expanded the solution to group size underwriting providing yet another avenue for growth. We've built a multimillion dollar business in life, and it continues to grow rapidly.

Similarly, we recently developed a commercial habitational risk score that leverages our existing data assets. These solutions helps PNC ensures to more accurately underwrite policies for apartment complexes and condo adults. The score is increasingly being used by our existing customers as well as new ones, and is already a multimillion-dollar business. We've built-in for diversified insurance vertical, that has a long significant growth runway ahead, fueled by the solutions as described, as well as the opportunities to continue innovating in this attractive market.

The secondary of growth I'd like to highlight is in our TLO business fueled by TLOxp, which is a powerful data aggregation and fusion tool that links a vast array of sources between individuals, entities, and locations. We are in a unique position as a bureau as we have both full credit files, and an extensive array of public records data provide differentiated and value-added solutions to a wide range of customers.

I already mentioned that we use TLOxp in our insurance vertical. And it also has application in almost every other vertical that we serve in U.S. markets, including our financial services, wear shoes for corporate data hygiene and to fuel first party collections, along with investigative services, third-party collections, and the public sector with their applications at all levels of government. TLOxp is well-positioned for future growth, as we increase and leverage our data assets and continue to address additional end-user markets. As I discussed today, we're seeing very good performance across the U.S. markets, and are confidence that this performance will continue as a result of our strong data assets, our innovation, our capability, and our vertical expertise.

Now turning to our international segment, we have a tremendous quarter. The growth was broad based, and generally well above the underlying markets in which we participate. As a result of internet of executing our international growth playbook, which focuses on innovation, extending into adjacent capabilities, improving go-to-market operations, and leveraging our core horizontal solutions.

I'll highlight two markets starting with the U.K., which delivered very strong performance with 12% constant currency adjusted revenue growth at an attractive margin. We experience for probably across our U.K. business. First, despite lingering questions and concerns about Brexit, we saw growth and our core lending business as the market for slightly but we were able to capture share. Second, one of the third of the business relates to fraud mitigation. That market continues to see outsized growth, and we are very well positioned to capitalize on it with differentiated solutions like Iovation. Third, we have an attractive position in the gaming markets that continue to see strong growth augmented by the effective application of our capabilities in foreign litigation and Id verification.

As we discussed last quarter, both TrueVision and CreditView are now in market and will take some time to penetrate as customers test the solutions and integrate them into their environments. As these solutions build momentum in the marketplace, we have confidence they will be drivers and incremental growth in 2020 and beyond. I would also point out that open banking is likely to be an important growth driver in the future. We've already built a very strong solution that has resulted in the wins for TransUnion, ranging from large banks to FinTechs. Our U.K. business is positioned for a sustainable double-digit growth behind strong execution in our core lending business, rapid expansion of adjacencies like fraud mitigation in gaming and a launch of TrueVision and CreditView.

The other market I want to highlight is India, where we continue to benefit from attractive overall market conditions in a truly diversified suite of solutions. While the core of the business remains consumer credit, we've augmented that with trended credit data, direct-to-consumer offerings, fraud mitigation, and analytics and decisioning solutions. We also have the industry leading commercial credit score, which is seeing rapid growth, the strength of the market in our broad suite of solutions positions us well for long-term growth in India. Across our geographic footprint, we see significant opportunities for continued growth as we effectively execute our international playbook.

And now shifting to Consumer Interactive, again we saw strength in both our direct and indirect channels. Growth in the indirect channel is primarily a result of continued strong performance by our broad portfolio of partners, as well as continually adding new partners. For instance, during the quarter, one of our largest FinTech lenders Lending Club began using our CreditView platform. This dovetails nicely with my earlier discussion about our leading position with FinTech lenders. We continue to expand our offerings to help them improve the consumer experience.

In our direct channel, consumer interest in credit management and identity protection remain strong. And our analytics driven marketing strategy has addressed these favorable market trends. We continue to focus marketing efforts in areas that deliver efficient returns, and these efforts have proven effective for growing revenues in the direct business.

We also continue to innovate in our direct channel. In the first quarter of this year, we launched CreditCompass an effective tool for consumers to see how good financial behavior based on real data can lead to better credit health and an improved score. It's important to note that these actions benefits the customer with virtually any lender and regardless of what score lenders are using to make an underwriting decision.

Now, that concludes my discussion of our business. I'll now turn my time over to Todd who will walk you through our financial results and our outlook. Todd?

[Todd Cello, EVP and CFO]

Thanks, Chris. As usual, for the sake of simplicity are the comparisons I discussed today will be against the third quarter of 2018 unless noted otherwise. So let's start with the income statement. Third quarter consolidated adjusted revenue increased 11% on a reported basis, and 12% in constant currency. Adjusted revenue from acquisitions contributed slightly less than one point of growth in the quarter related to the 2018 acquisition of Rubixis and the 2019 acquisition of TruSignal.

And one other reminder, the lack of incremental credit monitoring from the breach at a competitor was again about a one point headwind in the quarter. As we've discussed previously, we are receiving an immaterial amount of revenue this year compared to last year, as the offering is now handled by another provider and serve significantly fewer subscribers. Excluding the comparability impact from this revenue, adjusted organic revenue in constant currency would have grown 12%. Adjusted EBITDA increased 15% on a reported basis and 16% in constant currency.

As Chris noted, our adjusted EBITDA margin was the highest we've seen for a quarter at 40.7% while the third quarter is typically our strongest, this high watermark reflects strong revenue flow through even as we continue to invest aggressively in all aspects of our business. Third quarter adjusted EPS grew 16% with a 26.2% adjusted effective tax rate. The rate in the quarter was slightly lower than our full-year expectation of 27% as the result of realizing the benefits of certain tax planning initiatives.

SG&A increased 10% and cost of services was up 6% as a result of higher operating and integration costs related to our recent acquisitions, investments in strategic initiatives, and higher data costs associated with our revenue growth.

As we did all of last year, we want to show you the impact that recent acquisitions has had on our margin and to help you see the good performance of the underlying business. The reported margin expanded by about 135 basis points. Excluding the impact of the acquisitions, the margin on our underlying business expanded by about 160 basis points in the third quarter, reflecting the typically strong incremental margin profile of our business.

As the difference between reported and underlying is negligible and will only get smaller as Rubixis will fall out of the calculation in the fourth quarter. We won't show this slide again, until there are additional acquisitions, and it makes sense to provide these details.

I will wrap up my comments and our consolidated results, with a couple important points about cash flow and our balance sheet. During the third quarter, we voluntarily prepaid another $165 million of debt after prepaying $100 million last quarter, and $60 million in the fourth quarter of 2018. This brings our rolling 12-months prepayment total to $325 million. And for the remainder of the year, in the absence of significant transactions, I'd expect to voluntarily prepay additional debt.

Now, these actions clearly have a very positive impact by reducing our interest expense and helping to de-risk our debt profile, which is now approximately 77% fixed and 23% variable. At the same time, our leverage ratio continues to decline and was 3.4 times net debt-to-adjusted EBITDA at the end of the third quarter. We're committed to be at 3.5 times or less by year-end. So I'm pleased to report that we got there early. The key driver, as you could see on this slide, is our fast growing adjusted EBITDA and good cash conversion, reinforcing our ability to rapidly de-lever even as we aggressively invest organically, participate in strategic M&A, pay our dividend and prepaid debt.

Now looking at segment revenue and adjusted EBITDA, U.S. markets adjusted revenue grew 12%. Excluding the impact of the acquisitions of Rubixis and TruSignal, organic adjusted revenue would have been up 10%. Our financial services vertical grew 13% on a reported and organic basis. The other verticals combined grow 11% and 8% on an organic basis. Insurance, diversified markets and public sector continue to deliver strong results. Healthcare had another solid quarter as we continue to see earlier contract signings begin to monetize. As our recent acquisitions have integrated effectively, we are starting to realize cross sell synergies between them and our core backend business which keeps us in position to achieve our guidance of mid single-digit growth for the full-year.

Adjusted EBITDA for U.S. markets increased 18% on both the reported and organic basis. Moving to international, adjusted revenue grew 10% and 14% in constant currency. Four of our six regions delivered double-digit constant currency revenue growth, ranging from 34% in India, to 13% in Latin America, to 12% in the U.K., and 12% in Canada, Africa was solid with 7% growth and Asia-Pacific grew slightly as we continue to face the headwind for having temporarily shut down our direct-to-consumer platform. Without the impact of the direct-to-consumer platform, revenue would have grown low double-digits, reflecting continued strength in the Philippines, and an ongoing strength in our business-to-business trends in Hong Kong.

Adjusted EBITDA for international grew 12%. On a constant currency basis, it was up 16%. Consumer Interactive adjusted revenue increased 7% driven by balanced growth between the indirect and direct channels. As I noted earlier, this results includes the headwind of comparing against the lack of incremental credit monitoring from a breach at a competitor, and the segment would have grown low double-digits excluding that. In addition to good performance across the business, we also benefited from several one-time opportunities related to breach remediation. Adjusted EBITDA for Consumer Interactive grew 10%.

Turning now to our guidance for 2019 as we typically do, we're going to slow this quarter's outperformance through to the full-year. You'll note that greater FX headwinds are offsetting some of the ongoing trends in the fourth quarter.

Now let me start with an update to some base assumptions. For the full-year acquisitions, including CallCredit iovation, HPS, Rubixis and TruSignal should add approximately five points of adjusted revenue growth. For FX, we expect to see about one point of headwinds impacting both adjusted revenue and adjusted EBITDA. There is also a one-point headwind from the absence of incremental monitoring revenue from a competitor's breach. We expect adjusted revenue to come in between $2.644 billion to $2.649 billion, up 13%. So on an organic constant currency basis, excluding the incremental monitoring, adjusted revenue should be up 9.5% to 10%.

Adjusted EBITDA is expected to be between $1.048 billion and $1.052 billion, up 14% to 15%. At the high-end of our guidance, adjusted EBITDA margin is expected to be up about 60 basis points from 39.1% in 2018. Adjusted diluted earnings per share for the year are expected to be between $2.74 and $2.76, up 10%. This improvement from previous guidance reflects our stronger operating results, along with the benefits of prepaying debt and reducing our interest expense.

To update you on some of the modeling assumptions, there's no change to our tax rate expectation, which is approximately 27% in 2019. Total D&A is still expected to be approximately $360 million. Excluding the step-up and subsequent M&A portion, D&A should be about $155 million. And net interest expense should now be about $170 million as a result of prepaying debt in the quarter. We anticipate that capital expenditures will be about 7.5% of revenue this year, as we aggressively invest in new products and integrate our recent acquisitions. Though now slightly below previous expectations due to the timing of projects.

Turning to the fourth quarter of 2019, when we provide our assumptions for the quarter, for adjusted revenue, we expect about 50 basis points of contribution from M&A. There's approximately one point of impact in both adjusted revenue and adjusted EBITDA from FX. And there is a one-point headwind from the absence of incremental monitoring revenue from a competitor's breach.

Adjusted revenue should come in between $667 million and $672 million an increase of 7% to 8%. Excluding the impact of not having the incremental monitoring revenue, organic constant currency adjusted revenue is expected to be up 8% to 9%. Adjusted EBITDA is expected to be between $264 million and $268 million, an increase of 6% to 8%.

Adjusted diluted earnings per share are expected to be $0.69 to $0.71, an increase of 5% to 7%, you may recall that in the fourth quarter of 2018, we recognize a number of benefits from our tax planning initiatives. The tough comparison negatively impacts our EPS growth in the quarter.

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

[Chris Cartwright, President and CEO]

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

With that, I'll turn it back to Aaron.

[Aaron Hoffman, VP, IR]

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

[Operator]

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

[Andrew Nicholas, William Blair]

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

[Todd Cello, EVP and CFO]

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

[Andrew Nicholas, William Blair]

Thank you.

[Operator]

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

[Jeff Meuler, Robert W. Baird]

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

[Chris Cartwright, President and CEO]

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

[Operator]

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

[Manav Patnaik, Barclays Capital]

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

[Todd Cello, EVP and CFO]

Hey, Manav. Good morning. This is Todd. I will take the question on emerging verticals. So as you've already spoke about, the insurance vertical was very strong, and Chris obviously talked about that in his opening remarks this morning. When we think about -– we look at the rest of the emerging verticals, healthcare had a nice quarter. But, it also was rebounding against what we consider to be a weaker comp in the prior year, but the business delivered on the expectations that we were anticipating in the quarter. I would say that the only area that might be down a little bit is our collections vertical which is down on a year-over-year basis. And I think that's really just more of a testament to the overall strength that we're seeing just in the consumer space in the U.S.

The consumer right now is hoping that it gets reflected in our financial services results. So when you flip that over to the emerging verticals, that's the nice counterbalance we have in our business, right, by having the collections vertical there. It's down in good times, but it will probably be up as delinquencies on the consumer space pick up, and right now, we are not seeing that in a meaningful way. So, when we look at the growth that's what is pulling that back.

[Operator]

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

[Gary Bisbee, Bank of America Merrill Lynch]

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

[Todd Cello, EVP and CFO]

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

[Gary Bisbee, Bank of America Merrill Lynch]

Okay. Thank you.

[Operator]

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

[Toni Kaplan, Morgan Stanley]

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

[Todd Cello, EVP and CFO]

Hey, Toni, this is Todd. So, as it pertains to the consumer in our active business, when we think about the direct versus the indirect channel, think about that as one-third direct, two-thirds indirect, and then when you get into the overall margins of that business, a lot of it has to do with the type of products that the consumer is purchasing from us, right. So if it's a single Euro product, meaning that it's just a TransUnion credit report that's being provided, obviously that's a higher margin product for us to deliver, because it's our data that we're delivering.

The opposite of that would be where we're offering a free bureau monitoring product where we have to purchase a credit file from Equifax and from Experian to deliver that. So there is cost associated with it. So the margin profile gets hit. So when you look at the overall performance of the margin this quarter, yes, we did definitely benefit from a mixed shift, and that's not always something that's deliberate for us either, it's just depending on the buying patterns of our customers.

Just going back to the top line though, I would say that the business performed exceptionally well in both channels. First, the direct business has been an area that we've been investing incremental advertising dollars into, because we are able to attract high quality of consumers that we're able to retain. So they're interested in monitoring their credit and they're staying with us. Conversely, on the indirect side of our business, we benefited from a couple of breach services agreements, which we highlighted in our prepared remarks that also are providing meaningful growth, but then also all the rest of the indirect partners continued in general to grow overall very nicely for us.

[Toni Kaplan, Morgan Stanley]

Thank you.

[Operator]

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

[George Mihalos, Cowen & Company]

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

[Chris Cartwright, President and CEO]

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

[Operator]

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

[David Togut, Evercore ISI]

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

[Chris Cartwright, President and CEO]

I'm happy to share some thoughts and then, maybe Todd can tag team on this question, but the growth that we experienced in the third quarter in mortgage as I look forward or I don't know 12 or 18 months I would be surprised that we continue to grow up that trajectory. Again, it's a bit of a turnaround on top of a soft comp. That said, home prices are easing, interest rates are low and there could arguably be further downward pressures. That's always good for refinancing volume. We may even get an uptick in new home purchases in future all of that's been fairly slow. So, I would say nice mid-single digit volume growth perhaps for the future.

Auto is flat as we've talked about before from a volume perspective; however, there is starting to be a shift between new cars and used cars and typically a bit more credit gets polled to finance in used cars, so there is a certain offset to the volume slow down. You didn't mention consumer lending growth. There was nice growth again in consumer lending. I think the marketing that we're seeing there in the FinTech space is more restrained than it has been in prior years, but it is still active and a growth full category probably expanding the lending pie and also capturing some share from traditional lenders. And then card continues to turtle along nicely in the mid-single digits volume growth, high quality account origination from a risk perspective. And then really across all of these segments, risk is being well managed, the consumer and the economy is strong overall -- certainly, but delinquencies remain well below approved recession levels and so all of that is very good for our core financial services business and although it is a drag on our collections business as Todd explained before.

[David Togut, Evercore ISI]

Thank you.

[Operator]

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

[Bill Warmington, Wells Fargo]

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

[Chris Cartwright, President and CEO]

Do you mean CreditView or CreditVision?

[Bill Warmington, Wells Fargo]

I meant -- sorry, CreditView dashboard.

[Chris Cartwright, President and CEO]

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

[Todd Cello, EVP and CFO]

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

[Bill Warmington, Wells Fargo]

Got it. Thank you.

[Operator]

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

[Andrew Jeffrey, SunTrust Robinson Humphrey]

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

[Chris Cartwright, President and CEO]

Yes, so first commentary on market and share. I mean, and again, I'm this is more anecdotal than scientific, but I would my feeling is that the rise of the FinTech, the rise of online consumer finance is growing the pie, and it's not necessarily zero sum, right? No doubt there is some fear gained by this FinTech space collectively. And I mean, you can see that bear out is borne out by some of the numbers that we track internally. I would expect that consumer lending books, online lending will continue to outpace traditional lending market growth, and because we have first mover advantage and a nice concentration of share there, it means that we have a superior file, we've seen much more of the increase that takes place with marketing and origination activities that gives us a more robust data asset that reinforces the value and secures the share that we've got.

So that said, it's still a highly competitive space. There is price compression, as we've talked about before, as these lenders renegotiate based on the very substantial volumes that they've attained. That's not necessarily a bad thing. It's just the natural development of a market like this. And we're super excited to serve all of these clients and the way that we do. So advantage position or not, I wouldn't have stated so strongly, we're trying to compete aggressively in every segment that we serve.

If you look at the traditional lenders, their online capabilities are extremely impressive as well. And I think, as we try to convey in slide five, it's really all for the net benefit of the consumer. The rise of the Internet, the rise of data infused decision making in near real time, super user friendly applications. These are all in response to consumer demands for fast and frictionless experience and that demand is permeating the way all lenders are competing.

[Andrew Jeffrey, SunTrust Robinson Humphrey]

Thank you.

[Operator]

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

[Ashish Sabadra, Deutsche Bank]

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

[Todd Cello, EVP and CFO]

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

[Ashish Sabadra, Deutsche Bank]

Thanks. That's it from me.

[Operator]

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

[Kevin McVeigh, Credit Suisse]

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

[Todd Cello, EVP and CFO]

Yes, Kevin. So that's a great question, and that's one that we debate quite a bit as a management team, and when we are -- especially when -- we are approaching this year, the high end of our guidance for the full-year being at 39.7%, approaching 40% for the for the full-year. That's a significant amount of margin that's there, and I think the way we think about it is, first, we believe there is a lot of runway left with our organic offerings that we already have in market, but we're also excited about just products that are still gaining traction with so Chris has spoken about Prama as an example. So we're very interested in investing back in those businesses and in those products to ensure the sustainability of the top-line performance, and we go back to the Investor Day, and the long-term guidance that we provided, we said that we would grow revenues by 7% on an average over the next three years. So, we've always got that number in our mind that that's something that we've committed to the market is something that we want that we strive to achieve, and the only way we're going to do that is by continuously innovating and differentiating ourselves in the marketplace.

And when you get to the margin itself, approaching 40% is significant, and I think we've somewhat tempered expectations back on the Investor Day, where we said we would grow the margin 50 basis points on average, over the next three years, and really what that's getting to is the margin profile of TransUnion has changed so much from our IPO in 2015, when we are around 35%. We sustain that getting almost up to 40%, but it's really more of a question of how much margin do we want to squeeze out of TransUnion, or do we believe that there's long-term revenue growth potential. So we believe that. We believe that there's a lot more to go as I've already said. So, I'd expect on the margin side for us to be very deliberate and focus on top-line growth and making investments and maybe not having as much flow-through to the bottom-line in adjusted EBITDA.

[Kevin McVeigh, Credit Suisse]

Super. Thank you, again, congrats.

[Todd Cello, EVP and CFO]

Thank you.

[Operator]

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

[Aaron Hoffman, VP, IR]

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

[Operator]

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