TransUnion (TRU) 2015 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. My name is Mike, and I'll be your host operator on this call.

(Operator Instructions)

Please note that this call is being recorded as of today, Tuesday, February 16, at 4:00 PM Central Time. I would now like to turn the meeting over to your host for today's call, Colleen Healy, Vice President of Investor Relations at TransUnion. Please go ahead.

Good afternoon everyone, and thank you for joining us. This afternoon, I'm joined by Jim Peck, President and Chief Executive Officer; and Al Hamood, Executive Vice President and Chief Financial Officer.

Today's call will start with Jim providing some key take-aways from our fourth-quarter results. He'll turn it over to Al for a more detailed Q4 review, and then Jim will conclude today's prepared remarks by providing guidance for full year 2016 and Q1. After that, we will take your questions.

Our earnings release includes an addendum of financial highlights, which contains 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 included in our earnings release. These materials can be found in our investor relations website, at www.TransUnion.com/TRU. The earnings release is also available as an exhibit to our current report on form 8-K, furnished today with the Securities and Exchange Commission.

We plan to file and make available our form 10-K for the year ended December 31, 2015 on February 19, and it can also be found through these same resources. Today's call will be recorded. Please be aware that if you decide to ask a question, it will be included in both our live transmission, as well as any future use of the recording. Shareholders and analysts can listen to a live webcast of today's call at the TransUnion website. A replay of the call will be available at the same site, following the conclusion of the call.

As we discuss results today, all growth comparisons relate to the comparable quarter of last year, unless otherwise specified. 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 and 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, let me now turn it over to Jim.

Thanks Colleen, and good afternoon everyone.

I'll start today's call with a few key points from our fourth quarter's performance, followed by the primary drivers of that performance in each of our business segments. Then, after Al provides details on Q4, I will share our 2016 and Q1 outlook. Q4 caps off an outstanding year of performance for the Company. In 2015, we crossed over the $1.5 billion revenue mark for the first time, and generated over $200 million more in annual revenue than we did in 2014. Any full year that generates 15% revenue growth and 16% adjusted EBITDA growth is an excellent one.

And it is an especially notable performance coming off a prior year of double-digit growth rates, and against increasing FX headwinds. On a constant currency basis, the business grew even faster, at 18% revenue growth and 19% adjusted EBITDA growth for the full year 2015. Equally important, from my point of view, to the pace and size of the growth, is its breath across an increasingly diversified business. During 2015, all three segments, USIS, international and consumer interactive grew double digits on a constant currency basis. And unwrapping the drivers within those three business segments reveal yet even more diversification behind a strong performance.

Specifically, within USIS, all three platforms posted double-digit growth rates. Within international, each of the developed and emerging markets grew at a double-digit clip on a constant currency basis. And within consumer interactive, which turned in over 30% growth, each of the channels grew double digits. We are reaping the benefits of diversification and of selecting the best channels, vertical markets and geographies, to leverage our core competencies to serve customers and partners.

We're also pleased that in a year of investment, the robust demand for our offerings allowed us to continue to expand margins, yielding 2015 adjusted EBITDA margins of 35%. Turning to the quarter now specifically, we posted record fourth-quarter revenue, and those themes that I just outlined for the year also manifested themselves during the quarter. Revenue grew 15%, or 19% on a constant currency basis, with over 95% of that growth driven organically.

In USIS, all platforms grew revenue over 15%, and we saw strength across our verticals, with financial services, insurance, healthcare, rental screening, and government contributing to USIS's double-digit growth rate. We're delighted that our largest vertical, financial services, is on its front foot, with a focus on innovation and growth in both the core and new growth initiatives and solutions. It was roughly a 60/40 split between growth from the core versus growth from the new growth initiatives in our financial services business during the quarter.

We've talked quite a bit with you in the past about Credit Vision and TLOxp, which continued to perform extremely well. Today, let me give you a bit more color on our fraud and identity management solutions initiative, which will also give me an opportunity to discuss the acquisition of Trustev during the quarter. Fraud is growing in volume and sophistication, and legacy fraud detection approaches are increasingly ineffective. Fraud and identity management solutions is an area where we leverage our core capabilities to serve both businesses and consumer customers, across a number of verticals, channels and geographies.

TransUnion continues to invest in building our capabilities to help customers manage their risk. In December 2015, we closed on the acquisition of Trustev, a global provider of digital verification technology. Trustev's technology evaluates online transactions in real time, enabling customers to reduce fraud and authorize more legitimate purchases. Together, TransUnion and Trustev create a very powerful approach for identity and digital verification to stop online fraud. The combined platform offers customers new levels of confidence to support account acquisition, account management and online payments.

Customers have experienced up to a 60% decrease in fraud losses, while boosting approvals for the TransUnion and Trustev technology offered in our combined solution. Over the coming months, we will be increasing the integration of our technologies with core capabilities and operations. This acquisition augments our technology and talent, and builds on our success as a trusted source of fraud and identity management solutions. Moving on to our international business, revenue grew a combined 17% on a constant currency basis in the quarter.

Developed markets also experienced a 15% revenue increase on a constant currency basis. In Canada, our business continues to expand, including at some of the largest banks supported by our compelling Credit Vision offering. Emerging markets grew revenue 17% on a constant currency basis in the quarter. India once again propelled Asia Pacific to our fastest grower in international. Latin America also turned in a strong performance. Emerging markets represents over 60% of our total international business. And given some of the exciting activity that has transpired since our last earnings call, let's take a moment to update you on a couple of developments.

Starting with India, during the quarter in November, we took the opportunity to again increase our stake in CIBIL, the first credit reporting agency in India, that we co-founded in 2001, by another 6 points, to a 66% ownership stake. We've previously discussed India, and our business there, with you at length. So I will just say here that India continues to be an outstanding market for us, and a prime example of the sort of characteristics and dynamics we target. We seek high growth geographies that have a growing middle class, with increasing purchasing power, and where our risk and information solutions and innovations can make a critical difference in fueling, and even accelerating, economic growth.

Although very different countries, Colombia shares many of the same emerging market characteristics as India that we seek when entering or further penetrating a particular market. And we consummated a deal there, after the quarter ended, that we thought you might want to hear more about. On February 8, we closed the acquisition of a 71% ownership stake in the Colombian credit bureau CIFIN, for the equivalent of about $127 million, net of cash acquired, with plans to obtain the remaining shares in 2016.

Colombia is one of the largest Latin American economies. Its middle class is projected to grow from 25% today to 37% of the population over the next four years, with increasing opportunities to access credit. The largest Colombian banks have been investing significantly in Central America. TransUnion already has a number one or number two position in multiple countries in Latin America, and this asset nicely enhances our regional footprint. We believe we have an attractive Latin American portfolio, with a long run rate to outpace market growth.

Colombia's bureau market has both positive and negative data, and CIFIN was established 35 years ago, and has a strong foundation of full file data. This full file bureau data allows us for greater innovation through sophisticated solutions. Colombian banks are astute in their understanding and use of this data, and there is a strong market desire for new solutions and competition. CIFIN's data represents more than 2,700 traditional and alternative data sources, and provides credit reports and scores on 46 million individuals and 2.3 million businesses.

Its portfolio of products and services spans multiple industries, and although it has been growing revenue at a double-digit rate, with very attractive margins, CIFIN has not reached its full potential. We believe that our ability and expertise in operating the asset will enable growth beyond the market rate, over the long term. We plan to do this by following the same growth play book that we have successfully employed in other emerging markets, bringing TransUnion innovations to the Colombian market through advanced analytics, decisioning and fraud solution, an enhanced direct to consumer platform, and expansion into adjacent industries.

Given the number of solutions we would like to launch in that market, we will also extend our sales force effectiveness of program there. In short, Colombia meets the criteria of a high growth market, with attractive upside, an emerging middle class, and a banking system with which we can partner. Together, this provides a solid foundation on which we have a track record of successfully generating high demand for our solutions. The purchase price was financed through our revolving credit facility, at a pro forma net levered ratio of 4.2 times. A strong performance from our business has enabled us to maintain a net debt leverage close to where we exited Q3.

At these levels, we never felt more comfortable to drive growth in the business, and further achieve balance sheet efficiencies. The transaction will be slightly accretive to 2016 adjusted EPS. The impact and growth from this deal and Trustev will be included in the 2016 forecast that I will provide later on the call.

Moving on to our consumer interactive business, during the quarter, consumer interactive generated revenue growth of 30%. Our leadership position is a nice one to have in a space that continues to grow, as more and more people proactively manage and monitor the health of their financial lives.

We continue to be very focused on growth. The model that we pioneered continues to grow and bring more partners, both personal financial management companies and financial institutions, and consumers into the fold. In fact, we see our existing partners growing as the space grows. Or perhaps it would be more accurate to say that we, along with our partners, are helping to expand the opportunity, as we deliver on our mission of personal empowerment to help consumers achieve their goals, with better credit and financial management. We continue to attract new partners and renew relationships with existing ones. Additionally, this quarter once again drove higher retention rates over this time last year, which is key for recurring revenue streams, and realizing the return from our investments to acquire subscribers.

So turning back to company-wide results. During the quarter, we made the investments we'd previewed for you on our last earnings call, and we're delighted to share that the revenue out-performance resulted in adjusted EBITDA margin expansion during the quarter of 80 bips, to 35.5%, resulting in 18% adjusted EBITDA growth, or 22% on a constant currency basis.

In total, the Company had robust mid-teen growth, the adjusted EBITDA growing even faster than revenue, on top of a Q4 and 2014 that posted double-digit growth rates. Our strategy and execution across our business are strong, and sets us up nicely for 2016 and beyond.

Before I turn to guidance, I will now turn the call over to Al for more details on our fourth-quarter performance. Al?

Thank you Jim, and good afternoon.

Today, I'm going to walk through our consolidated results, and then I will move through the GAAP P&L to operating income, along with the adjustments to derive adjusted operating income. Then, I will move to the segment results, and I will finish up with a review of the balance sheet and cash flow statement, along with a few housekeeping items, as we think about 2016.

Fourth-quarter consolidated revenue was $386 million, an increase of 15%, or 19% on a constant currency basis, compared with the fourth quarter 2014. Revenue from acquisitions contributed less than 1% of growth in the quarter. Adjusted EBITDA was $137 million, an increase of 18%, or 22% on a constant currency basis, compared with the fourth quarter 2014. Adjusted EBITDA margin was 35.5%, and increase of 80 basis points compared with the fourth quarter 2014. Adjusted net income was $56 million, an increase of 82% compared with the fourth quarter 2014. Adjusted diluted EPS was $0.31, compared with $0.21 in the fourth quarter 2014.

The adjusted effective tax rate for the fourth quarter was approximately 38%. Now, let me walk you through the details of our P&L. As I just mentioned, consolidated revenue increased 15%, or 19% on a constant currency basis. This, again, was driven by strong, broad-based growth across each segment. Operating income was $49 million, an increase of 139% compared with the fourth quarter 2014, driven by the increase in revenue and lower operating expenses as a percent of revenue.

Cost of services was $139 million, an increase of 15% compared with the fourth quarter 2014, due to increased variable and non-variable product costs, increased variable compensation related to the financial performance of the business, inorganic increases in operating expense from recent acquisitions that have not fully lapsed, and investments. This increase was partially offset by savings enabled by our technology transformation, along with the impact of weakening foreign currencies.

SG&A was $129 million, an increase of 1%, driven primarily by increased variable compensation related to the financial performance of the business and investments in key strategic growth initiatives, including headcount to support these initiatives. The increase was partially offset by savings enabled by productivity-related initiatives and the reduction of 2014 M&A integration-related expenses, along with the impact of weakening foreign currencies. And the depreciation and amortization was $69 million, an increase of 3%, due partially to the overall increase in capital expenditures in 2014 and early 2015, related the initiative to transform our technology platform and improve our overall corporate headquarters.

D&A not related to 2012 change of control transaction, and subsequent acquisitions, was approximately $26 million for the quarter. Adjusted operating income was $110 million, an increase of 16% compared with the fourth quarter 2014, after adjusting for the following items, as noted in schedule 5 of the earnings release. Now looking at the segment revenue and adjusted operating income. USIS revenue was $245 million, up 17% compared with the fourth quarter 2014, driven by double-digit growth across each platform.

Starting with online data services, revenue was $158 million, an increase of 16%, driven by an increase in credit report volume. Marketing services revenue was $42 million, an increase of 17%, due primarily to increased batch activity, derived from demand for our newer solutions such as Credit Vision and revenue from our recent acquisitions. Decision services revenue was $45 million, an increase of 23%, due primarily to the revenue growth in healthcare and insurance markets, and revenue from the acquisition of DHI.

Adjusted operating income for USIS was $79 million, an increase of 16% compared with the fourth quarter 2014, due primarily to the increase in revenue. Along with savings enabled by our technology transformation, partially offset by increased variable compensation related to the financial performance of the business, investments in key strategic growth initiatives, and additional depreciation amortization. International revenue was $70 million, a decrease of 1% or an increase of 17% on a constant currency basis, compared with the fourth quarter 2014.

We saw strong constant currency revenue growth in both developed and emerging markets that was offset by an 18% decrease in revenue from the impact of foreign exchange rates, namely the South African rand, Brazilian real, and the Canadian dollar. Developed markets revenue was $25 million, an increase of 3%, or 15% on a constant currency basis. Emerging markets revenue was $44 million, a decrease of 3%, or an increase of 17% on a constant currency basis. Adjusted operating income for international was $20 million, a decrease of 7% compared with the fourth quarter 2014.

On a constant currency basis, adjusted operating income increased 11%, driven by the increase in revenue, partially offset by increased variable compensation related to the financial performance of the business and investments in cost management initiatives to drive operating efficiencies and longer-term margin expansion. Consumer interactive revenue was $77 million, an increase of 30% compared with the fourth quarter 2014, driven by growth in both the direct and indirect channels.

Adjusted operating income for consumer interactive was $31 million, an increase of 21% compared with the fourth quarter 2014, due primarily to the increase in revenue, partially offset by an increase in variable and non-variable product costs, and increased variable compensation related to financial performance of the business. Now, moving on to the balance sheet. Cash and cash equivalents was $133 million at December 31, 2015, compared with $78 million at December 31, 2014.

Total debt, including the current portion of long-term debt, decreased to $2.2 billion at December 31, 2015, compared with $2.9 billion at December 31, 2014. The reduction was due primarily to the recapitalization of our balance sheet, with the proceeds from our IPO. As of December 31, 2015, we had the full $210 million revolving credit facility available for use. However, we drew down $145 million from this facility to fund the acquisition. Our net leverage as of December 31, 2015 was approximately 3.9 times, down from 4.1 times as of September 30, 2015. With the acquisition, our pro forma net leverage is 4.2 times.

Moving on to the statement of cash flows. For the 12 month ended December 31, 2015, cash provided by operating activities was $309 million, compared with $154 million for the same period in 2014, due primarily to the increase in revenue, along with the decrease in cash paid for interest. Cash used in investing activities was $197 million, compared with $276 million for the same period in 2014, due to lower acquisition activity and lower capital expenditures. Capital expenditures were $132 million, or approximately 9% of revenue, compared with $155 million, or approximately 12% of revenue, for the same period in 2014.

Total capital expenditures were lower in 2015 than 2014, as the improvements to our corporate headquarters are complete and investments in the initiative to transform our technology platform have decreased. Cash used in financing activities was $51 million, compared to a source of cash of $92 million for the same period in 2014, due primarily to the net pay down of debt, partially offset by the net proceeds from our IPO. Before I hand it over to Jim for his final remarks, I am going to cover a few housekeeping items as we move into 2016.

Full year 2016, we expect depreciation and amortization not related to the 2012 change of control transaction and subsequent acquisitions, to be between $115 million to $120 million for the full year. The increase is due to the capital expenditure investments we've made over the past few years, primarily related to our technology transformation that is nearing completion and yielding tremendous benefit to our top and bottom line.

Interest expense, net of interest income, is expected to be between $85 million and $90 million for the full year 2016. Adjusted effective tax rate of 38% for 2016, and an adjusted diluted share count between 185 million and 186 million shares. Lastly, for 2016, we expect capital expenditures to be approximately $125 million, or approximately 7.5% of 2016 revenues.

That concludes our prepared remarks on the fourth-quarter financial results. I will now turn the call back to Jim.

Thanks, Al. Now turning to our forecast.

Let me first outline some of our key assumptions and inputs. The growth outlook and guidance that I'm providing today includes organic growth and the impact from acquisitions already closed, namely the Trustev and Colombian acquisitions. If, as the year progresses, we consummate any additional M&A activity, we will update our overall growth rates and guidance at that time. Also, we expect FX will continue to provide headwinds.

At today's rates, our guidance reflects about 2 points of drag on the year, and about 3 points for Q1, due to foreign currency rates. Starting with guidance for the full year 2016. We expect our revenue to come in between $1.6 billion and $1.62 billion, an increase of approximately 6% to 8% over 2015. On a constant currency basis, that translate to 8% to 10% growth. About 2 points of growth will come from acquisitions previously closed.

Adjusted EBITDA for the year is expected to be between $580 million and $590 million, an increase of about 10% to 12% over 2015. On a constant currency basis, that yields 12% to 14% growth. This results in adjusted EBITDA margins of roughly 36%, for about 100 basis point increase over 2015. Adjusted diluted earnings per share for the year are expected to be between $1.24 and $1.28.

For the first quarter 2016, we expect the following. Revenue should come in between $377 million and $380 million, an increase of approximate 7% to 8%, or on a constant currency basis, growth of 10% to 11% compared to the first quarter of 2015. Baked into that forecast is about 1 point of growth due to previously closed acquisitions. Adjusted EBITDA is expected to be between $127 million and $129 million, an increase of approximately 11% to 12%. Or, on a constant currency basis, growth of 14% to 16%, compared with the first quarter of 2015. Adjusted diluted earnings per share are expected to be between $0.26 and $0.27.

In closing, 2015 was an outstanding year for the Company, and it also marked a number of important milestones on our journey of transformation that we started in earnest in 2013. I am very pleased with the achievements that the team delivered, especially in the areas of product momentum and innovation, investments and acquisitions, and the initial public offering and employee engagement.

Let me take each of these in turn. Gains in product momentum were significant, and in many cases, our leadership drove innovation for our industry. For example, in past calls, we have discussed at length the benefits of trended credit, and our vision to take that more broadly to our industry, while driving growth for TransUnion with products like Credit Vision. We were delighted in 2015 to see the adoption of Credit Vision by key customers around the globe. Fannie Mae's announcement to integrate trended views, and our Credit Vision offering, in its assessment of mortgage applications beginning mid next year is an exciting one.

We are honored to be the pioneer in trended consumer data, and to be a leader in moving our industry forward with innovative approaches. We've also discussed unique offerings like eScan in our newer, higher growth verticals like healthcare, and how the approach we bring to our customers has made a real difference in their ability to post profitability in an area of rising un-compensated care costs. It was exciting to announce, in December, that our healthcare solutions over the years have helped more than 1,000 hospitals, and thousands of physician partners, to recover more than $1 billion in reimbursement from what would have otherwise been un-compensated care costs.

We've also pioneered a new dynamic approach to serving and expanding the consumer market within our consumer interactive segment. And we continue to innovate, directly and with our partners, to revolutionize the customer experience and the business model itself, serving the broadest consumer base, with its wide and varying needs, consumption patterns and monetization preferences. Our growth in our consumer interactive business is simply industry-leading. And these are just a few examples of the sort of leadership we're bringing as we continue on our cycle of innovation.

2015 was also a successful year in investing in key capabilities to capitalize on a tremendous and global opportunity in the years ahead. We feel confident about the areas in which we have chosen to invest for growth and productivity, and we are delighted to see early returns in our results. We're methodically going about executing our growth play book, to deliver a business model that scales across multiple high-growth verticals and attractive geographies. We are happy with the markets in which we participate, and the path we are on.

Furthermore, Project Spark, which refers to our investments and next generation analytics and technologies, remains on track for completion by the end of the first half of 2016. Important acquisitions were made in 2015. Such as increasing our majority stake of CIBIL in India and acquiring Trustev, and in 2016, buying a majority stake in CIFIN. Furthermore, acquisitions completed in the past are well integrated into the business, and their successor products or businesses are performing very well, from eScan to DHI to TLO to L2C, among others.

Of course, this year, as you know, we also completed our initial public offering, which turned out to be the eighth largest of 2015. We were delighted to expand our shareholder base, and welcome such high-quality investors into the name. It also afforded us the opportunity to reduce our net debt leverage from 6.1 times at Q2 of 2015 to 4.4 times immediately following the IPO and balance sheet recapitalization, to 4.2 times, pro forma, the CIFIN acquisition. Sets us on our way for further deleveraging and resulting accelerated adjusted net income and adjusted EPS growth.

As important as any of these significant milestones in our long term growth journey is the rising level of our employee engagement, who are enjoying as an organization. Our annual employee engagement survey reveals that our employees, whom we refer to as Associates, are excited about our mission and understand our strategy to deliver upon it. It means a lot to me that our Associates feel motivated to come to work, offering their best efforts, ideas and teamwork. And as a leadership team, we are committed to making this the best place to take careers forward.

My leadership team and I are delighted with the caliber of talent that the Company is attracting, retaining, and growing here at TransUnion. Our team is passionate about what we do at TransUnion for our customers, and we're committed to delivering upon it at a world class level. With this foundation, we feel good about our long-term strategic operational and financial objectives that we have set out to achieve. Our model, and the markets in which we have chosen to compete, and how we're going about leveraging our core capabilities, to scale and to further penetrate and grow these attractive markets, is paying off. We believe we're doing it in a differentiated way, in order to generate value over the long term for our customers, partners, and therefore, our shareholders.

I will hand the call back now to Colleen, so we can take your questions.

Thanks, Jim. Let's now proceed to questions. Operator, will you please repeat your instructions?

(Operator Instructions)

Andrew Steinerman, JPMorgan.

Jim, could you talk a little bit more about CIFIN? Three questions about CIFIN. One, what is trailing revenues? Two, what's the competitive landscape look like in Colombia? And three, why not acquire 100% up front?

I guess I will take them in reverse order there. There were some really administrative issues that were causing us not to be able to buy it all up front. And as we, I think, stated, in the next 12 months or so, we will be getting the rest of the Company. The competitive situation is, there is another bureau in Colombia. My view, and the reason we acquired CIFIN, was, it's a very nice economy there. I think it's the fourth largest in Latin America. They have really good data assets, and they are already growing at double digits.

And we've been actually in Colombia for quite some time. We introduced the first scores there, and we knew the company very well. So we know that we can take, for example, our Spark platform, along with things like Credit Vision, Credit Vision Link, our fraud products, and actually accelerate our growth. They're very ripe for that. And we think we're going to take a business that is already performing very well, and have them perform even better. I do not believe we have given out the revenue numbers at this point.

We said, for 2016, we acquired it in early February, in 2016, obviously. We've said that inorganic growth is going to contribute about 200 basis points, or 2% of our overall growth. And I would say CIFIN is the lion's share of that growth, Andrew. I would also say that it is a double-digit grower, has historically been, and accretive in 2016.

So Andrew, I will give you a chance to ask maybe a follow up on that, if you have any specifics.

No, not on what I said. But do you feel like the profitability of CIFIN could come up to Company average over time?

Yes, absolutely. It has the same business model as the rest of our businesses. And I guess I will take this opportunity to talk about the model that we are building. Which, as you know, when we build things once, we try and use them around the world, and this fits perfectly into that model for us. We're beginning the integration, and that process already.

Perfect.

Gary Bisbee, RBC Capital Markets.

Congratulations on the strong results. I wonder if you could give a little more color on the segment level, in terms of the revenue growth, the expectation for 2016? In particular, I know mortgage isn't enormous for you, but that is likely to slow. How do we think about that impacting the US business? And then, within the international businesses, what's -- are you expecting any variability in the growth rate, based on different economic conditions? Obviously, India is great, but a lot of Latin America seems to be struggling, and South Africa, obviously. So any comments on how we think about the relative growth rates?

Sure, Gary. I will paint a broad view of our 2016 guidance. The growth is coming virtually across every portion of our business, not only in the verticals in the US that you would typically expect in financial services, but also healthcare, rental screen, government. And it is coming through a combination of our core business growing, and also our new initiatives growing, just as we have told you they would do. So that is driving a good chunk of the growth.

In our international markets, we don't -- as we see the economies in each of the countries we are in, they are doing fine. The consumers are definitely engaged in the process, and our business customers are also very interested in expanding the middle class, or expanding credit to a much larger population. So that is driving a good portion of our growth. And in our consumer space, we're also seeing double-digit growth in our direct and indirect channels. So it is really broad-based growth across all of our verticals. I think -- why don't I turn it over to Al, and he can give you a little more color on each one specifically.

Yes, I will, and then I will answer the question on mortgage. I think, in the context of the guidance we provided of 8% to 10% on constant currency, within USIS, we expect high-single-digit growth. You're going to get double-digit growth from some of our new and emerging verticals, which is -- examples would be healthcare, insurance, and government. In our more core verticals, we are assuming mid-single-digit growth, driven by new product growth as well as a stable market.

International. International growth is high single digits to low double digits, and we're seeing strong constant currency organic revenue growth in both developed and emerging markets. So international continues to outperform. Out-performance in that particular market is compounded by very, very strong performance in India, where we continue to pick up equity interest, and continue to grow our presence there, and our recent acquisition of Columbia. Finally, as Jim said, consumer interactive growth is high single digit to low double digit, driven by growth in both channels.

One point on mortgage I just want to touch on. Our -- the TransUnion US mortgage business today, where our mortgage exposure is, is probably now about less than 10% of our overall consolidated revenues, which has come down dramatically from where it was years ago given the diversification play that we put in place. Having said that, when we look at the mortgage market in 2016, what we are assuming is flattish-type growth. We are not assuming any major rebounds, or any major recessions. And to offset some of what we're thinking around the market, there is pricing that we're putting in place, to help us get to what I would say to be more flattish-type revenue growth in that business.

Great. And the quick follow-up, any color on margins at the segment level? Is it reasonable to expect margins would increase in all three segments? Or any quick color there?

I would say margins are going to grow right around 100 basis points, or slightly above that, from 2015 to 2016. If I was to say -- a couple of things. One is, our international margins, you will see growth there. Why am I saying that? We talked a lot about, in Q3, and even in the Q2 call, we are investing in that particular business, both around growth, but as well as around productivity initiatives, to try and drive 2016 margin expansion.

So what you're going to see in 2016, particularly in international, is two things. One, you will see the cost that we put in play to remove the cost structure in 2015, go out. And then you're going to see the associated return on that drive further margin expansion in 2016. I think interactive margins right now are pretty solid, at a higher level. We don't think or feel like we need to grow those even higher than where they are right now, which is market-leading margins.

Shlomo Rosenbaum, Stifel.

Jim, can you comment a little bit about the -- what you're seeing from the consumer, both domestically and internationally? Your numbers seem to be in stark contrast to what the equity markets would be implying, with the valuations coming down. And are you noticing any slowdown in consumer credit, in any particular areas? Can you comment on that?

No, so we are not noticing any slowdown in any particular area. I think consumers remain extremely interested and inquisitive about their personal situations, whether it is credit or fraud or just reputational risk. And as you know, events often drive their interest in these things, whether they are buying a house, or they have had fraud committed against them, or there are new entrants into the market, perhaps just graduating from college. And a lot of what we do is market particularly to those kinds of events.

So we are not experiencing any slow down. In fact, we're seeing a very engaged consumer base in our international markets. And we've talked about it. We especially like the emerging markets, because the other dynamic is, the government is very interested in helping to build that middle class. And so it's -- industry works together with government, and we are part of that industry, to help reach more of the middle class. And that gets products like our Credit Vision, and other standard credit products, simply get more volume in that kind of market.

Okay, great. And from a modeling perspective, just wanted to get straight. If you net/net the acquisitions in the currency headwinds, we're talking about 8% to 10% constant currency organic growth. Just wanted to make sure I understand that. Then I want to ask a free cash flow themed (inaudible).

Yes, that is right. That's Al and I.

From a tax perspective, how should we think of free cash flow for this year? I know that you're going to have to burn through the NOLs that were generated through the LBO. But then you're also going to be finishing up on the technology transformation. How should we think about free cash flow for this year?

I would say, obviously, the way we define free cash flow is pretty clear and straightforward. It's operating cash flow minus our CapEx. As I look at 2016, and the guidance that I provided, what I would do is, I'd take adjusted EBITDA, which we gave you, of $580 million to $590 million, less net cash interest expense, which we said was between $85 million and $90 million, less cash interest tax expense -- and I will come back to that. Less spark, which is an adjusted item, but there's a cash component around $[15] million. Plus CapEx, which we said, around $125 million.

And then our use of working capital has been about $25 million-ish, over the last couple of years. I think that theme continues on, to be a use, as we continue to outperform on the top line. From a cash income tax standpoint, if you take our EBITDA less our interest expense of around $85 million to $90 million, less depreciation, true depreciation, I think you get to a number, multiplied by our tax rate, of about 38%, Shlomo. That gets you to a number, and we have around -- we have an NOL left of around $25 million. So I have given you all of the components of that, and happy to walk through that again.

Okay, great.

Paul Ginocchio, Deutsche Bank.

Jim, a couple of questions. First, it looks like, even with taking out the acquisitions, your USIS business was showing-double digit growth. It seems like it is a little bit faster than the market. Can you tell us what drove that above-market growth? And then second, typically, consumer interactive doesn't go down on a Q-on-Q basis, but it did here in the fourth quarter. Was that a breach contract rolling off, or was it something else?

Yes, so regarding USIS, the thing that drove growth was, around 60% of the growth of that business was driven by the core, and the core performed very well. And we've told you this before, you can imagine it is always going to be 50/50, 40/60, between those two drivers. The 40% of growth came from the new initiatives. So we've had significant penetration, with products like Credit Vision, that are really starting to pick up steam in the market right now, as they become more of the standard.

So you have heard us -- and you've heard about Fannie Mae will be using trended data. We had been working with them for years on that, and therefore, we have already gotten penetration. And you add, layer onto that, some of our fraud products that have now taken hold, and layer on top of that the acquisitions that have turned organic, like GLO, XP and DHI, in our insurance sector. And I keep layering here, because this is more or less our operating model, when it comes to growth.

On top of that, you lay on healthcare, which is a new vertical, and government, which is a new vertical for TransUnion, anyway. And you can see we have a lot of different growth drivers that keep contributing, and keep building momentum in the market, to help us drive above-market growth.

And Jim, you basically answered the question. I was talking more about online data services. But was it Credit Vision and fraud that drove the incremental acceleration, even excluding the acquisitions? From the third quarter?

Yes, I would say that is fair enough, yes. There are other things, but those are the two big drivers of that.

And then on interactive?

Can you repeat that questions, so I make sure I got it?

Sure. Revenue typically doesn't go down, Q-on-Q, in the interactive division, but it did in the fourth quarter versus the third. I was wondering if that was a breach contract rolling off, or something else?

No, it was not a breach contract falling off. We were getting a little feedback here. I think that from a -- are you comparing third quarter to fourth quarter?

Yes.

I really -- frankly, the way we manage it is, we compare the annual quarter to quarter, and that is where you take out any kind of seasonality. And so there wasn't anything really specific that fell off. The growth for the full year was 30% and 21%, so it was a very solid year, with good momentum heading into this year.

Bill Warmington, Wells Fargo.

I have a question for you on the trended data products. Your competitor, Equifax, has mentioned this product, too, and it raises a question in my mind of, what is the competitive dynamic going to be for trended data, going forward? Is it going to be all three bureaus potentially benefit equally? Is it an opportunity for someone to capture and hold share, in an industry where that sometimes has been difficult to do? What do you think?

Yes, Bill, so the -- we have been working with Credit Vision, or this trended data product, for years and years. In fact, we believe we are the ones who are setting the standard. And we have already -- are using this product in market, today, with some of the largest banks. And we've already have taken our product, and it is being used today. Not experimented with, not demo-ed, not prototyped, in countries like Canada and Hong Kong, where we are taking share.

Not only that, we are not in the first innings of this product for us. We're getting into the third and fourth, and we're using the same kind of trended data in all our alternative data sources. So nontraditional credit, and we call that Credit Vision Link, which is also driving growth. On the other hand, we know that, for something to become a standard, that the market, especially in the US, demands that more than one player be able to provide it. And we feel very good that Fannie Mae helped drive the industry to getting at least two players, us and Equifax, to supply this data to them, starting somewhere in the third quarter of next year.

So we believe that we have got a good head start that is already driving some market share gain for us, not only in the US, but internationally. And we're continuing to expand on it, as a product line. So I think, for us anyway, it is going to continue to be a good growth driver, going forward.

And then a question for you on the consumer interactive side. You have had a lot of success with the Credit Karma channel. Is there an opportunity to expand other channels besides that, besides Credit Karma?

Yes, so we actually do have quite a portfolio of partners, not only, let's say in that channel, but in that channel for sure. Also, our bank partners directly are doing these kinds of things, and utilizing our services. And also, I think you are talking about maybe Affinity, and other channels like that. Yes, we believe there is still a nice pipeline for growth in these channels. But we are also building our footprint within these very big partners in the current channels. So it is not just simple credit products. There are other things we're doing, in order to establish an even greater portion of the share.

And then a couple of housekeeping questions, around the organic growth. So I just want to make sure my math is right. If Q4 organic growth about -- if -- are you talking 95% of the 19% constant currency, or about 18% organic?

That is about right.

Constant currency. Okay. And then, on the amount of revenue from the acquisitions built into 2016, works out to be about $30 million? Just to make sure I'm not messing something up there?

Yes, that is about right.

Ballpark? Okay, good. And then for CapEx, I know you had mentioned 7.5% for 2016. How do we think about that, going forward? Is 2016 a transition year, to something lower in 2017? Or is 7% to 8% going to be the normal rate, going forward?

I would say, I would model approximately 7% CapEx, as a percent of revenue, going forward. 2016 is going to be a little bit of a transition, plus there is some CapEx associated with the deals that we have just done. But going forward, assume in 2017 and beyond approximately 7%.

Okay. And last question, I was just hoping you could give us an update on the Credit Vision Link, using the trended data and the alternative data? Whether you have been having some -- how the traction has been going there?

Yes, very good. We continue to -- first of all, we continue to close Credit Vision deals, not only here in the US but internationally, as I said. And we are beginning to now expand that to use Credit Vision Link. As you know, or may know, these tools are very powerful, and they really do affect the underwriting that our customers do, and the decisions they are making. So we are in the middle of a significant number of tests to expand the use of Credit Vision with Credit Vision Link. So we feel very good about that solution, going forward.

Got it.

Manav Patnaik, Barclays.

I wanted to ask, as a best case and worse case question. So your 6% to 8% organic growth that you are guiding for 2016, with all the commentary that you've given, it sounds like it could be potentially conservative. So just trying to understand what other set of areas you have given yourself some room for error, in terms of getting to the high end, or above that? And then the other end of that question is, you guys are obviously a much different company than what you were -- private, in the last recession. But just trying to understand how you guys [fared then]? And if you have any thoughts, and how things would be different this time around?

Yes, so I will tell you that the drivers of our growth -- if this helps, we obviously give ranges for a reason. But the drivers of our growth are broad based across the whole business. And so we don't see any particular area of weakness, if that is what you are looking for, I think, in your answer. We see a whole lot of areas for strength. At this point, we just felt the best guidance, and I think the 6% to 8% is organic -- it's all in? Okay. Is all in. And that is our best look, going forward.

I would say -- I would follow that up with saying, we're coming off of two years of double-digit growth, and six months out of the gate of an IPO. So we have now had a couple different earnings calls. And this guidance is actually higher than the long-term growth model we provided while on the road. My point being that this is a good guidance. I think it is a full guidance. And as Jim said, the variability between the 200 basis points, on a constant currency, all up and in basis, from 8% to 10%, is going to fluctuate, in terms of potentially different markets and new product growth, and some of the successes of those, too.

Your second question was more, I think, about our transformation? And whether we --

Yes, just around how we should expect the business to perform, if the equity markets are right in predicting a recession?

I would first of all, just to be clear -- Jim will talk about the recession. But the one thing I would say that impacted us the most, when there was truly a recession during the 2007, 2008, 2009 period, was mortgage and the mortgage market, and what happened with our volumes there, where we saw a dramatic drop. Our business today is a much different business from then. And today, the mortgage market as an overall percent of our revenue is less than 10%. So there would be some impact, but it would not be as dramatic as it was before. And even if you do the math, and you start taking 10% and running scenarios, it is not going to be material to our overall profile today.

That's right. So another way of saying it, I guess, is that we have significantly diversified our sources of revenue. And they are not nearly as subject to what some people might be predicting as a recession, but we are also not seeing those kinds of behaviors, either. So we're much more diversified, and I think the consumer is probably not going to disengage in this economy. And finally, our business model, which has changed substantially, leverages a lot of core assets. So that in a downturn, we're not -- we wouldn't see as significant as a hit on our EBITDA.

Okay, fair enough. And I just want to clarify again -- maybe I am getting the numbers mixed up here. But the implied guidance in 2016, for constant currency organic growth, is 6% to 8%, correct? I thought I heard you say 8% to 10% in there somewhere.

8% to 10% is constant currency revenue, all up and in, on an inorganic basis, what you implied is correct.

Okay. All right.

Andre Benjamin, Goldman Sachs.

I think most of my questions have been answered. One that I wanted to talk a bit about is the TLOxp business. You talked a lot about that when you were on the road. Maybe you could talk about a little bit about what it contributed to USIS growth in the last quarter? And are there any recent developments, in terms of customer activity, that can give color on how you are competing against market leader in [Lexis] there?

The business itself has grown at double digits, so it has been a significant contributor to USIS growth. And we are seeing that it will have strong momentum, going forward, so we expect it to be a double-digit grower, going forward. As you know, I know a little bit about the other company. We believe that we have certain advantages, by being a source of the information itself, the credit header file that feeds the TLOxp product.

In addition, we're adding new functionality into the solution all the time, and it is allowing us to compete and take share. And they are the market leader, with the most share. And we're -- our business model in this business, from the beginning, has been to go ahead and take share, leveraging our very trusted brand, and also our trusted sales force. So that model is working well for us.

A similar line of questioning, USIS growth has been particularly supported by the new initiatives like healthcare, insurance rental. Anything that you could point out there that is different than, say, the last couple of quarters? Or anything that would -- that we should be mindful of, as we continue to assume double-digit growth there?

Yes, we're going to continue to see very good growth there. And what drove it? I think you asked me what drove it the last few quarters, maybe differently than the previous quarters to that?

(multiple speakers) Is there anything that's different, going forward, relative to what has been happening the last couple quarters? Any changes in the environment, and what you're winning with?

No, we -- for -- I would say that we are expecting to see continued momentum in all of our new initiatives, across the board. We have not assumed any significant hiccup, good or bad, in mortgage. So I think we're assuming somewhere between flat and maybe down 2%, though that, you could say, might be a little different than the previous two quarters. So it is a combination of good, strong momentum in the core business, good uptake in our new initiatives, and flat to maybe just a little down in mortgage.

David Togut, Evercore ISI.

This is Rayna Kumar for David Togut. For 2016, can you quantify cost savings you expect to realize from technology initiatives such as Project Spark?

This is Al. We did not purposely talk about cost savings, or give particular guidance on it. I would say, if you look at our margins, dating back to 2013, when we really embarked upon our Project Spark program, and you look at where we are coming to today, they have grown 200 to 300 basis points since that time period. A large portion of that growth has come from our technology savings, which is dropping to the bottom line. Jim can talk a little bit more about the completion of it, but I will turn it over to Jim.

What I've said before, because we haven't gotten precisely specific, is the program is saving us in the tens and tens and tens of millions of dollars over the period, so very significant. But equally important is that we are able to innovate much more quickly, not only in the core infrastructure, where you are ingesting data and preparing it for analytics, but also the analytics platform itself is also new. And so it is allowing us to get these new products we talk about out much more quickly, not only in the US but internationally.

So that is allowing us to innovate more quickly, and obviously, it keeps our costs down, while allowing us to actually increase our output. The other thing that is important to understand is our CapEx spending. I think, Al talked about the range where you can assume it's going to be. What is happening now is, rather than investing a significant portion of that into things like refreshing technologies that don't really drive new revenue, we're actually investing in the higher proportion of that into building new solutions that drive new revenues. So we've changed the whole dynamic of how we're spending our technology funds, not just to maintain the core, but it is actually being used to drive new revenue growth.

And I think that's, among several things, the real secret to what is happening here at TransUnion, and our ability to innovate. We're able to just simply throw more dollars at new growth, while also taking cost out of the business, because we're not spending as much on things that do not drive revenue.

Operator, I think we have time for just one last question, please.

Sara Gubins, Bank of America Merrill Lynch.

This is David Chu for Sara Gubins. In terms of the technology upgrade, what is left to do? And if you can help us think about timing of when that might be completed?

Yes, so we -- it will be completed by the end of June. What is primarily being done now is, there's two major components. There's many more; I will simplify it. There's big batch components to what we do, and then there is online components to what we do. And most of the functionality for the batch portion is complete, and the customers migrated. We're just finishing up the online, and we will be migrating those customers, as well. So a lot of it is about migration at this point, and not necessarily building code or -- the problems are all solved. How about putting it that way? Now it is largely testing and the migration.

And how much of a benefit to margins is this exercise?

We haven't quantified out the exact benefit, because we have done a lot of cost initiatives, as well as we've changed the mix of our growth. But you will see, in Q3 and Q4, margins increase, probably relative to what you are going to see in Q1 and Q2. So you will see margins pop, as we start to get away from, and complete, the migration of this, and a couple other investment-related activities that we have going on in Q1 and Q2.

Okay, great. And just lastly, I think last quarter you mentioned that Credit Vision more than doubled in revenue. Can you help us quantify the revenue contribution in the fourth quarter?

From a product perspective, from Credit Vision, it was a triple-digit grower.

I would look at it this way with Credit Vision. There is a significant amount of ramp to go with [the] product. It is extremely powerful, and we've definitely taken the first wave, and probably the second, but we have many more to go. And now, it is getting even more integrated with the rest of our solution set. And so it is going to continue to be a very, very strong grower for us, going forward.

Got it. Okay.

Thank you. And thank you, everybody, for your participation in today's call. If you have any further questions, please feel free to call me, or Lindsey Whitehead, and my team, directly. As previously mentioned, we will post the audio replay of this call on our website, at www.TransUnion.com/TRU later today. I will now turn it back to the operator to conclude the call, please.

This concludes today's conference call. You may now disconnect.