TransUnion (TRU) 2015 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. My name is Ian and I will be your host operator on this call. After the presentation we will conduct a question-and-answer session. (Operator instructions.) Please note that this call is being recorded as of today, Tuesday, July 28 at 4 p.m. 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.

Thank you and good afternoon everyone. Thank you for you joining us today. 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 takeaways from our second quarter results. He'll turn it over to Al for a more detailed Q2 view, and then Jim will conclude today's remarks by providing guidance for the year. After that we'll 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 measure are included in our earnings release.

We have posted our earnings release as well as an Excel file which breaks out historical revenue and operating income by segment on a gross basis followed by their corresponding intercompany eliminations for your convenience. These can be found on our Investor Relations website at www.transunion.com/tru.

The earnings release is also available as an exhibit to our current report on Form 8K furnished today with the Securities and Exchange Commission. Our Form 10Q for the quarter ended June 30, 2015, will be available on July 31 and available 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 gross comparisons related 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 press release, in the comments made during the conference call, and in our most recent Form 10K, Forms 10Q, 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. Thank you for joining us today on our first earnings call after our successful IPO last month. I'd like to thank all of you who participated in the IPO process, especially the small number of our hardworking TransUnion associates who worked on the IPO in addition to their day jobs, and a big thank you to all our TransUnion associates around the world who's dedication and contributions have built this strong business and who are deeply focused on delighting our customers and partners in order to deliver the robust results that Al and I have the pleasure of sharing today.

We're also incredibly pleased to welcome our new investors in the Company along with our existing ones that we've been privileged to have and we look forward to continuing to work with this analyst community coming out of the IPO.

We posted record Company revenues and very robust growth in the quarter. Besides this year's size and pace of the growth, the breadth was notable as we saw strength across all business segments, platforms, verticals, and geographies. We are reaping the benefits of diversification and investing wisely to drive growth. This has been born out of the transformation we embarked on in early 2013. When I joined TransUnion back then I saw an incredible asset that had a stable business that was primed to be expanded to a broader spread of risk and information needs across new verticals and geographies thirsty for data analytic solutions for both business customers and consumers.

We set a vision for a more diversified high-growth business, leveraging a common set of capabilities. We've since strengthened the management team which is now comprised of tech-savvy growth and results-oriented experts in their fields, all operating on a scalable growth playbook. And we've invested significantly in analytics and next-generation technologies, which we refer to as Project Spark, better enable us to harness the expanded breadth and depth of our data assets resulting in multiple new innovative solutions across a broadened set of verticals and geographies.

And although we are still in the early innings of going after this large and growing $50 billion worldwide data and analytics market in the big data space. Our results including our Q2 results provide reinforcing feedback that our strategy is a good one. We are passionate about what we do at TransUnion for our customers, we're committed to helping businesses optimize their risk-based decisioning, and enabling consumers to access analytical tools that help them understand and manage their personal information.

We go about this by serving our customers through a differentiated core set of capabilities starting with data, technology, and analytics. Often interfacing with customer systems directly with seamless and hard-to-replicate pipes through our customers, a global sales force, and a brand that is recognized around the world.

We apply these capabilities at scale across the workflows of many established verticals seeking to further penetrate our existing vertical such as financial services and insurance with new solutions and expanding into emerging and under-penetrated verticals such as healthcare and government.

We have built domain expertise in each of the verticals we serve and are poised to go after new verticals more profitably because our underlying platform and capabilities are designed to scale across them.

For business customers, our solutions are applied to mission-critical customer activities like customer acquisition and authentication, product design and customization, retention and cross-sell, and finally fraud reduction and debt recovery. We also enable law enforcement and other government agencies to identify fraud and find bad actors.

For consumers we are able to help them understand their own information and analytics and how it impacts their ability to gain access to goods and services like loans, insurance, and rental properties. We give them tools to do what-if scenarios to change behavior and decisions and to improve their attractiveness as clients.

Finally, we provide real-time alerts to help prevent fraud. We are important part of the ecosystem between service providers and consumers and we are able to replicate this model using the same technologies across multiple markets.

Our business model is one that we believe is quite powerful. Our solutions are often embedded into our customers' mission-critical workflows, technologies, and even more importantly into their policy engines. This speaks to just how core our solutions are to our customers. This results in long-term customer relationships and significant reoccurring revenue, including with the top US banks and auto insurance carriers, credit card issuers, auto lenders, and over 1,000 hospitals. Our core data assets come from contributory sources. We are privileged to be one of only three entities in the world with access to the consumer credit data on US consumers. We combine this with other unique data sets and the aggregation and linking of massive amounts of public record and other data create a significant and difficult to replicate data asset. These data assets can be matched, linked, and fused together to create new solutions and derive further insights that are extendable to many verticals and applications.

Our platforms and solutions scale across verticals as well as geographies to quickly generate profitable revenue on new solutions. We have a presence in over 30 countries with number one or two positions in several regions. There are powerful and economic and market trends enabling growth in many of the regions where we have chosen to operate. The market trends include a growing middle class, the expansion of credit to the underserved, and together these support growth for consumer credit and therefore demand for our solutions. We have a number one position in attractive emerging markets like India, South Africa, and Hong Kong.

Finally, our business model is powered by our analytics and next-generation technologies that I've mentioned, which provide us with cost innovation and time-to-market benefits. In Q2 this all came together to drive growth of approximately 16% revenue, 16% adjusted EBITDA year-on-year resulting in margins of 35.6% while continuing to invest in strategic growth initiatives in our business.

All three business segments grew revenue at a double-digit rate on a constant currency basis with USIS turning in 14% growth, international at 19%, and consumer interactive at 31%. As I mentioned, this growth was broad-based even within each business segment, so let's take those in turn.

In USIS we saw strength across our verticals with financial services, insurance, healthcare, and rental screening being particular highlights contributing to USIS double-digit growth rates. Let me take a relatively new vertical for us of healthcare as well as a traditional vertical of financial services to provide a bit of a cross-section on how we address and drive growth.

Healthcare is a great example of an area where TransUnion is providing value for our customers and driving growth in our USIS business based on our core competencies of data, technology, analytics, and distribution. Uncompensated care cost represents a $27 billion problem to hospitals and healthcare providers. The problem has grown for a variety of reasons including the increased size of deductibles for many Americans on insurance plans post Affordable Care Act creating a new class of under-insured patients.

TransUnion is in a position with the relevant assets to recover that otherwise uncompensated care revenue for our healthcare clients and can make the difference for them between profitability and unprofitability while helping consumers understand their self-pay responsibility and payment options. We do this through our leading solutions in the patient access and accounts receivable processes in the revenue management life cycle.

From patient access, our award-winning platform ClearIQ provides payment estimation and insurance eligibility solutions. This provides our hospital, physician, and healthcare customers with a clearer line of sight for treatment costs and payment that begins upfront, right at the time of scheduling a patient. The solution includes patient identification and coverage verification, patient cost estimation, prior authorization, propensity to pay, ID verification, and charity care determination.

Post-discharge in the accounts receivable management and collections workflow, our eScan offering is a market leader in insurance coverage discovery where we leverage our data and analytic solutions to find insurance coverage that both providers and patients are often unaware of. To date, we've helped our hospital clients recover $874 million in cash reimbursements with over $0.5 billion of that coming since 2013.

During the quarter this business was the primary driver behind our decision services business generating 20% year-on-year growth.

Healthcare had a record revenue and contract (inaudible) quarter with revenues up over 20% versus last year Q2. During the quarter we added several new prominent health systems as clients including Mercy Health, MultiCare, Dignity, and the University of Washington. Mercy Health is an excellent example of an organization that purchased all our patient access and collections solutions in order to create a holistic revenue cycle solution to address reimbursement uncompensated care challenges.

Likewise in looking at our healthcare customers we (inaudible) see many of them seeking to not only increase the amounts of reimbursements for patient care but also to consolidate the number of vendors and platforms for revenue life-cycle management, and they are choosing TransUnion solution to achieve both these objectives which results in increasing their revenues while decreasing their operating cost.

There has been much news and review of the Affordable Care Act, and this past quarter was no exception, though I'm often asked about what the various laws and rulings might have on our business. Our healthcare business has a broad portfolio of solutions that serve our customers well while helping to insulate our business from the impacts of outcomes and reviews of the Affordable Care Act itself.

The recent Medicaid expansion in states coupled with the affirmation of a state's ability to offer federal subsidies driving a greater demand for services to help navigate the healthcare system and coverage, and our solutions fit that bill. We are seeing and expect to see continued usage and demand for our estimation, eligibility, and insurance coverage solutions for the foreseeable future.

And even in the more traditional vertical of financial services, we are also seeing our model driving new growth. Financial services enjoyed a double-digit growth in the quarter and that is reflected in the strength of our credit marketing services and decision services platforms. This is a great example of not only being in the right markets where the core is strong and volumes are driven by healthy demand by our financial services customers, but we are also seeing traction from the investments made in innovative new products outside of the traditional core.

Almost half of our growth in our largest vertical of financial services was generated from new growth initiatives during the quarter, CreditVision being one good example. A number of you have heard me discuss CreditVision on the roadshow and seeing its revenue double in size over this time last year was not only gratifying but another reinforcement that the product is making a difference for our customers. Simply put, data at a point in time like a consumer's score does not tell the full story on which to optimize a decision about that consumer's financial profile.

For example, one consumer might be on a positive trend of paying down debt balances while another consumer might be on a negative trend. So although these consumers might have the same score at a point in time, they have very different trajectories and risk profiles not otherwise revealed by looking at only a static view.

So TransUnion pioneered combining historical data with hundreds of algorithms to better understand the changes and trends in risk and behaviors of consumers. A first-to-market solution called CreditVision is a market-leading offering providing greater precision and enabling the evaluation of behavior patterns and trends over time resulting in a more predictive view of the consumer. This has many benefits for our financial services customers including gaining better insights from analytics on more data points, expanding the market size served as a total population of consumers who can effectively be scored, and empowering campaign improvement by better targeting offers.

Having a product like CreditVision also benefits TransUnion in that it further enhances and unlocks the power and value of our data through next-generation analytics in a compelling offering.

Moving on to our international business which grew a combined 19% on a constant currency basis. Developed markets enjoyed 12% constant currency revenue growth fueled by growth in Canada where we're experiencing share gains and driven by growth in Hong Kong which benefits from healthy product adoption of recently launched products like CreditVision. Emerging markets led the segment increasing 23% on a constant currency basis with India and Latin America leading the pack. I'll drill down a bit on India to provide you with an example of our emerging markets approach.

India has been a good market for us. It is of course one of the fastest growing major economies in the world. It has over 1.2 billion people with an emerging vibrant consumer economy and a growing middle class with increasing purchasing power against the background where only 15% of the adult population of credit active. It's an honor to have our solutions support India's goal of fuller financial inclusion for its citizens.

One of those great examples being in employing information, not just for what it is but for what it can do to help people. And in this case, countries accomplish what we call information for good. Our leadership teams around the world in our significant markets are comprised of local executives and teams who understand their country's specific dynamics while also being equipped to leverage the TransUnion growth playbook and assets. This allows us to take our operating model and scale it for growth in often already high-growth countries like India while also appropriately modifying it for their country's specific needs.

TransUnion co-founded the first credit reporting agency in India in 2001 known as CIBIL, prominent Indian financial institutions, and although it is still in its very early days, we've gone on to develop a widely adopted suite of risk and information solutions including the CIBIL TransUnion score, which is the first generic credit score in India which we know can be a cornerstone to any country's ability to assess and appropriately price risk for better and more efficient access to the credit that powers economies.

Our alignment with CIBIL is strong, tightened by our majority ownership as of a year ago May, as well as with the appointment earlier this month of Satish Pillai, former TransUnion India Regional President, now CIBIL's Managing Director and CEO.

Turning to our consumer interactive business. As I said it generated revenue growth of over 30% with strength across both channels. The number of consumers we reach across all our channels have increased from over 35 million at the end of last year to over 50 million currently which we believe to be the largest set of customers in the industry. Our consumer business has enjoyed 4 years of consecutive double-digit annual growth.

Our consumer interactive business is another great example of an area where TransUnion is providing value for our customers, driving growth based on our core competencies of data, technology, analytics, and distribution, and our newly refreshed brand. Consumers are increasingly aware of the importance of financial literacy, impact that information about them can have on their ability to access goods and services, and there's a strong appetite for interactive tools that enable them to understand how their behaviors impact their financial profile.

In addition the increase in the number and severity of data breaches has driven consumer demand for monitoring services as well as identity protection solutions. TransUnion has been a leader in innovative consumer offerings and has also provided product enhancements, new features, and a compelling customer experience in order to increase the numbers of subscribers, drive engagement of those subscribers, and increase retention rates of subscribers. New paid subscribers during the quarter were up year-over-year, and just as importantly retention rates also increased.

We realized a while ago that there would be several approaches required to serve the highest number of consumers and delight the broadest consumer base with varying needs, consumption patterns, and monetization preferences. We see that this has blown out to be true in the industry, and this mindset I described has resulted in positioning us today as a recognized leader with a thriving consumer business that includes alternative consumer channels and monetization models.

Perhaps one of the most visible trends has been the proliferation of free credit scores offered by a number of providers we count among our customers by powering their offerings while also being compensated to do so.

Many personal finance sites and banks are interested in providing our services to customers including those who desire to go beyond the credit score by providing context tools and analytics for a more complete approach to financial management. We provide solutions with several large banks and are proud to have announced last month that US Bank has adopted our CreditView offering. US Bank is making CreditView available to all of their online banking customers. CreditView appears as a custom dashboard with the customer's TransUnion credit score, factors that are influencing that score, and other variables on which a customer can interactively simulate the impact of certain actions like paying off a credit card or applying for a loan.

Our over 30% growth in this segment was driven by strength across our channels. TransUnion is benefiting from our first-to-market advantage, strong execution, and recently launched consumer-friendly brand for a much broader distribution of our data and solutions, and we have a jumpstart in the market on the cycle of innovation. We look forward to the continued strength in this business and continuing to expand the market, accessing new consumers and empowering our customers and partners.

So in total the Company had robust revenue and adjusted EBITDA growth. This reflects strong execution on our growth strategy across the business. We look forward to continuing to deliver upon a strategy. Before turning to guidance, I'll now turn the call over to Al for more details on our second quarter performance. Al?

Thank you, Jim, and good afternoon. Today I'm going to walk through a quick review of our consolidated results and then I will move to GAPP P&L to operating income along with the adjustments to derive adjusted operating income. Then I will move to segment results and then I'll finish up on the balance sheet and cash flow statement.

As Jim mentioned, second quarter consolidated revenue was $379 million, an increase of 16% on an as-reported basis and 18% on a constant currency basis compared with the second quarter 2014. Adjusted EBITDA was $135 million, an increase of 16% compared with the second quarter 2014. These strong results were driven by broad-based growth across all segments offset by investments in key strategic growth initiatives to continue driving long-term future growth.

Now let me walk you through the details. As I mentioned, consolidated revenues were up 16% on an as-reported basis, 18% on a constant currency basis. Operating income increased 59% compared with the second quarter 2014 driven by the increase in revenue and a slight decrease in cost of services due primarily to an acceleration of fees in 2014 for a data matching services contract that we terminated along with savings primarily enabled by our technology transformation partially offset by increased variable and non-variable product cost related to the revenue growth, inorganic increases in operating expense from recent acquisitions that have not fully lapsed, and investments in IT productivity initiatives.

This was partially offset by 19% increase in SG&A with increases driven by investments in growth initiatives, inorganic increases in operating expense from recent acquisitions that have not fully lapsed, and increased advertising expense in our consumer interactive segment, and a 24% increase in D&A due primarily to shortening the useful life of certain assets starting in the third quarter of 2014 to align with the expected completion dates of our technology transformation initiative and upgrade our corporate headquarter facilities. The increase in D&A was also due to the overall increased capital expenditures in 2014 and 2015 related to the upgrade of our technology platform and improvements to our corporate headquarters as previously mentioned.

Adjusted operating income increased 13% compared with the second quarter 2014 after adjusting for the following items as noted in schedule 5 of the earnings release. Stock-based comp, mergers and acquisitions, and business optimization, costs associated with the project to transform our technology platform, which is Project Spark, and amortization of intangible assets from our 2012 change in control and amortization of acquired intangible assets after the 2012 change of control.

Now looking at the segment revenue and adjusted operating income. USIS revenue was $239 million, up 14% compared with the second quarter 2014 driven by robust revenue growth across all platforms and verticals. As Jim mentioned, financial services, insurance, healthcare, and TLO were some of the highlights contributing to the USIS growth. Excluding the impact of acquisitions, USIS revenue grew 12%.

Looking at the platforms, online data services revenue was $159 million, an increase of 12% driven primarily by a 10% increase in credit report volume in financial services, insurance, and healthcare, along with robust double-digit revenue growth from TLO. The investments we made in TLO is driving diversified and sustainable revenue growth through customer and verticals, leveraging the combined distinct assets of our comprehensive database of consumer credit and public records data and data fusion technology capabilities.

Marketing services was $35 million, an increase of 10% due primarily to increased batch activity and financial services derived from demand of our newer solutions such as CreditVision and digital marketing, and revenue from the acquisitions of DHI and L2C.

Decision service revenue was $44 million, an increase of 28% due primarily to revenue growth in the healthcare, financial services, and insurance markets, and revenue from the acquisition of DHI.

Adjusted operating income for USIS was $84 million, an increase of 11% compared with the second quarter 2014. This was due primarily to the increase in revenue along with the savings enabled by our technology transformation partially offset by investments in growth areas such as financial services, healthcare, and insurance, among others, and additional depreciation and amortization as previously mentioned.

International revenue was $68 million, an increase of 6% on an as-reported basis and 19% on a constant currency basis compared with the second quarter of 2014. International revenue grew 17% on an organic constant currency basis within our international businesses as follows. Developed market revenue was $24 million, an increase of 3% on an as-reported basis and an increase of 12% on a constant currency basis. The increase in revenue was driven by strong growth in both regions on a constant currency basis.

Emerging markets revenue was $44 million, an increase of 7% on an as-reported basis and an increase of 23% on a constant currency basis. The increase in revenue was driven by growth across all regions on a constant currency basis.

Adjusted operating income for international was $17 million, approximately in line with the second quarter 2014 as the increase in revenue was offset by investments in key strategic growth initiatives to help drive diversified and sustainable long-term revenue and margin growth along with additional depreciation and amortization. Excluding the impact of foreign exchange, adjusted operating increased 11%.

Consumer interactive revenue was $76 million, an increase of 31% compared with the second quarter of 2014 driven by double-digit growth for both direct and indirect channels. As Jim mentioned, our consumer business has enjoyed 4 years of consecutive double-digit annual growth and we look forward to seeing this business continue its strong execution.

Adjusted operating income for consumer interactive was $29 million, an increase of 43% compared with the second quarter 2014 due primarily to the increase in revenue partially offset by investments in advertising.

Now let's switch gears and talk about the IPO and the impact on our balance sheet and statement of cash flows. I'll spend a little bit more time on our balance sheet and statement of cash flows this quarter given the change that's occurred through the IPO to our capital structure.

The balance sheet and cash flow statement as of June 30, 2015, reflects significant changes from the prior year due to the IPO and debt restructurings I just mentioned. TransUnion completed its initial public offering on June 30, and issued approximately 34 million shares including the underwriter's full exercise of their over-allotment options at a price of $22.50 per share. Because these were primary shares, this resulted in net proceeds of approximately $715 million.

We immediately used $62 million of those proceeds to pay down the outstanding revolving credit balance, accrued interest, and certain transaction fees. TransUnion also amended its credit facility effective June 30, 2015, to among other things provide for a new $350 million term loan A, a new $210 million revolving credit facility that replaced the previous $190 million revolver.

On July 15, TransUnion used the remaining net proceeds from the IPO and new term loan A to redeem the $600 million 9.625% senior notes and $400 million 8.125% senior notes including accrued and unpaid interest plus a call premium.

TransUnion also amended its existing credit facility on June 2, to, among other things, reduce the effective borrowing cost on the existing term loan B by lowering the LIBOR floor to 75 basis points from 100 basis points.

Taken collectively, the [reduction] of the senior PIK Toggle notes and the amendments to the credit facility will result in annualized pre-tax interest savings of approximately $86 million beginning on July 16.

Now looking at the balance sheet, cash and cash equivalents were $758 million as of June 30, 2015, compared with $78 million as of December 31, 2014. This included approximately $691 million in the United States and approximately $67 million in its foreign subsidiaries. Adjusted for the July 15 redemption of the senior PIK Toggle notes, cash and cash equivalents were $80 million.

Total liabilities decreased to $3.8 billion at June 30, 2015, compared with $3.9 billion at December 31, 2014, largely due to the repayment of the borrowings under the former revolving credit facility.

In addition, we reclassified the aggregate $1 billion of senior PIK Toggle notes to the current portion of long-term debt to reflect the June 15, 2015, redemption notice to bond holders and subsequent extinguishment of those notes on July 15, 2015.

The full $210 million revolving credit facility was also available for use by TransUnion as of June 30, 2015. Adjusted for the July 15 redemption of the senior PIK Toggle notes, total debt was $2.2 billion.

Total net leverage measured as total debt less cash and cash equivalents divided by adjusted EBITDA and adjusted for the redemption of the senior PIK Toggle notes was approximately 4.4 times as of June 30, 2015, adjusted for the July term loan A borrowings and senior PIK Toggle notes redemption.

Moving on to the statement of cash flows. Cash provided by operating activities was $117 million compared with $46 million for the same period ended 2014. Cash used in investing activities was $77 million compared with $121 million for the same period ended 2014. Capital expenditures were $68 million compared with $74 million for the same period 2014 due to a decrease in spending to upgrade our corporate headquarter facility we did in 2014. Total capital expenditures are expected to be lower in 2015 than 2014 as a percent of revenue as the improvement to the corporate headquarters are complete.

Cash provided from financing activities was $642 million compared with $58 million for the same period ended 2014. This increase was primarily due to the IPO proceeds and lower financing fees partially offset by debt repayment. The effect of exchange rate fluctuations on cash with a $2 million decrease, the net change of cash and cash equivalents for the 6 months ended June 30, 2015, was an increase of $680 million compared to a decreased of $18 million for the same period ended 2014. Again, and as previously stated, this increase was largely due to the financing activity related to the IPO.

That concludes my prepared remarks on the second quarter financial results. I will now turn the call back over to Jim.

Thanks, Al. Now let me turn to our forecast for the full fiscal year beginning with some of our key underlying assumptions. For our 2015 forecast we have assumed the following macro economic conditions for the remainder of the year. We expect to continue to be impacted by the strong dollar. For the full year and second half we expect about 2 points of drag on revenue growth rates year-on-year due to foreign exchange rates. Additionally, interest rates last year at this time in the second half were trending down, providing macro tailwinds. For the second half of this year, however, we see rates going up providing a slight headwind.

Now for our guidance. We expect fiscal year revenue to be about $1.455 billion growing roughly 11.5% including the foreign exchange impact I just outlined. Adjusted EBITDA for the year is expected to be around $510 million, up about 12% for the year. Although adjusted EBITDA is expected to grow faster than revenue for our full year, I'll point out that in the second half and in Q3 in particular, we will make investments in strategic growth initiatives so long as we continue to see the related growth coming from those investments.

We feel good about our long-term strategic operational and financial objectives that we've set out to achieve and our full-year guidance reflects that.

So before we open it up to Q&A, just a few final comments. Overall we're very happy with the results during the quarter. All three of our businesses performed very well and we posted revenue and adjusted EBITDA growth in the mid-teens for the quarter while continuing to execute on our growth strategy. We feel good about our model in the markets in which we've chosen to compete and how we are going about leveraging our core capabilities to scale and to further penetrate and grown these attractive markets. And we believe we can do so in a differentiated way in order to generate value over the long term for our customers, partners, and therefore our shareholders.

Our data sets are unique and we're the only scale provider of both FCRA and non-FCRA data. Our next-generation technology platform and analytics capabilities will serve us well in delivering innovative and valuable offerings to our customers and partners. We are well positioned in some of the fastest growing verticals like insurance and healthcare. We have number one positions in the risk and information solutions markets in high-growth geographies such as India, Hong Kong, and South Africa. We're a recognized pioneer in alternative consumer channels with innovative consumer offerings. And we've developed and will continue to invest to ensure we have a compelling portfolio of growth initiatives like CreditVision and eScan that you heard me discuss today among others that we've had an opportunity to discuss with you throughout the IPO process and many more that we will look forward to unveiling over time.

I'll now hand the call back to Colleen so we can get started taking your questions.

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

(Operator instructions.) Your first question comes from the line of Gary Bisbee from RBC Capital. Your line is open.

Hey team. First off, just congratulations on successfully completing the IPO. And with that out of the way, I guess I wanted to ask about one of the comments you made at the end there, Jim, where you said you were going to continue to make investments as long as you see the return on them in the back half. Was that specifically marketing in consumer interactive or is there other stuff that's included in that?

Yeah. What we meant by that certainly it includes some marketing in consumer interactive, but we are also continuing to invest in our international business, so new solutions that are driving growth and even efficiencies in our international business. And also we continue to invest in those growth initiatives that we talked about, things like fraud, digital marketing, CreditVision, and others that have actually driven the above market growth that you are seeing over the last -- really since last year starting in the third quarter. So we're just continuing to do what we've been doing to follow our growth strategy.

Good. And then the followup is just do you have a target as we think about the next couple of years, either like what percent of revenue you want to come from new solutions or some -- how do we think about productivity of these investments that you're making and their contribution to growth? Thanks.

Yeah. We don't have a specific target. I guess I would just point you to the growth that we have had, so the 16% growth that we delivered this quarter is a good example. About half of that came from our core business, and you can think of that as like financial services core, our developed markets, the two consumer interactives. But the other half came from these new areas, so new verticals like healthcare, rental screening, things like TLO, which by the way grew 60% from this quarter last year, CreditVision, fraud, and digital, and also our emerging markets internationally. So we expect by investing in the right places that that will be one of the significant drivers of the above-market growth we expect to achieve.

Great. Thank you.

And your next question comes from the line of Bill Warmington with Wells Fargo. Your line is now open.

Good afternoon everyone. A question for you on the consumer interactive side. You saw nice acceleration year-over-year going from about 23% to 24% up to 31%. And I wanted to ask specifically what had driven that lift in the quarter and then also to ask about what you would advise as a good range to model that particular segment at going forward?

Yeah. So I guess I'll just remind you that the business has grown double-digit over the last four years, and in this quarter in particular and in actually all those quarters it's been driven by double-digit growth in both our direct-to-consumer business, so our TransUnion.com product, and also our indirect business in which we very early on decided that we were going to partner with others who have different business models including companies like Credit Karma and many others and including banks to get to as many consumers as we can to penetrate that market as much as possible through the variety of channels available. And that's been very, very successful for us.

And so I think the best way to model it, and I don't think we're going to get specific here, is that we're going to continue to drive double-digit revenue growth going forward. Of course that will get more difficult as you can imagine as we get to the comparables from years like this year, but I think it's going to be a very successful business for us going forward and we're pretty bullish on being able to drive double-digit growth.

Did you add some new -- let me phrase the question did you add some net new clients in this quarter or had a ramp in a new client this past quarter that might have accounted for some of the lift?

Sure. Yeah. We've had multiple new clients. The one we are able to mention is US Bank. As you know we delivered our CreditView product to them which is a really differentiated offering. And they're not the only bank by the way, but that and others ramped quite nicely in this quarter to drive growth and will continue to ramp.

Got it. Also, are you seeing a pick up in the Affinity market? That's the one that had been quiet for a long time and it seems like they're starting to see some activity there, and I'm curious if you were seeing the activity, if you were participating in that, if you had any wins that you could talk about there?

Again, we don't talk about specific wins, but certainly the Affinity market is an area where we're engaged, and we see that there is potential for growth there as that channel I guess kind of revives itself.

All right. Well thank you very much.

And our next question comes from the line of Shlomo Rosenbaum from Stifel. Your line is now open.

Hi. Good afternoon. Thank you for taking my questions. Hey, Jim and Al, can you talk about how much you expect the acquisitions to contribute to growth this year? And then also as CIBIL is kind of anniversarying, can you talk about the growth that's happening, specifically there in India, kind of like what you did for TLO?

Yeah, Shlomo, we can do that. What I would say right now is if you look at growth related to acquisitions, or I'd say some acquisitions for the first half of the year, I think it's on a first half of the year revenue, total revenue on a constant currency basis it's been about 18.1%. On an organic constant currency basis, about 15.2%. So on an organic constant currency basis, it's added about 300 basis points of growth.

Now, CIBIL lapses out so that'll go away as we look at the second half of the year. Having said that, we are seeing very, very strong performance out of CIBIL in India. We don't give specific guidance, but you can see in our emerging market segment that's pretty strong. That'll continue to be strong and that'll be solid double-digit growth obviously the rest of this year and into the future.

And then could you just talk about some of the opportunities that you see just broadly to take the domestic products into all the various international locations, like South Africa and India and Hong Kong? You talked about how Hong Kong using some of the newer products over there. What are some of the highlights or some of the things that you think are near-term addressable that you can bring them into your international locations?

Shlomo, thanks for the question. I think the best example is CreditVision because it's happening as we speak. It's a product that we've actually brought to the market in the US. As far as revenue growth in the US along it's doubled since last time -- this time last year. We've also brought that market in -- that product into the market in Canada which is helping us take share. We've brought that market -- that product into market in Hong Kong which is helping us with driving attractive growth rates there.

We'll be taking that product into India as we continue to gain traction in that space as well as South Africa and basically every country that we're in it applies and it drives substantial more predictability of risk for our customers.

Okay. And then just in the interactive, you talked about sale to one of the banks that are out there. Could you talk a little bit about how this product or selling some of the things directly to the banks, how does that increase the runway for the growth of this business? This business has had such strong growth that the question is how long it will continue and people have been asking about that. Where do you see the bank area kind of extending the runway or some way you could talk about it either qualitatively or quantitatively?

I think more qualitatively at this point. I think as you know banks are increasingly interested in developing more engagement with their customers or consumers through more kind of interactive solutions. So CreditView is a solution that is in we keep mentioning US Bank, but it's also been put into multiple other banks, and we have a nice pipeline for continued growth. And that by the way is not only in the US but also in other countries where consumers are getting more and more interested in understanding how their credit profile and their behavior is affecting their access to business services.

So I would call it a meaningful part of our growth going forward. And one of the reasons why we continue to think that overall business will be performing at double-digits.

Great. Thank you so much.

And our next question comes from the line of David Togut with Evercore ISI. Your line is open.

Thank you. Could you break out the growth of the financial services segment within online data services, and in particular could you talk about the growth rates of mortgage, credit card, and auto within financial services, and in particular how you see those trending in the back half of the year?

Yeah. Let me tell you for the second quarter how those broke out. For 2015 Q2 total growth for online was 12%, total growth for credit marketing services was 10%, and decisioning services was 28%. The biggest driver behind decisioning services is what we continue to see in the healthcare channel, which is a very, very strong outperformer. And as you can with double-digit growth in both online and credit marketing services, it's broad-based growth in our complete USIS business.

As it relates to segmenting out auto, credit card, and mortgage, here's what I would say, here's the way that we kind of talk about it. Because we don't always know what our end-user customers are doing with the credit -- what they're using it for, generally speaking within our business financial services, or core financial services within USIS represents roughly 50% of the overall revenue base. Then to break that down even further within that 50%, auto is approximately 25%, mortgage is approximately 25%, and credit card and other consumer-related products such as HELOC, student loans, et cetera, represents approximately 50%.

And then based on that segmentation, our business is following the current trends with mortgage, auto, credit cards, so all those trends I think right now are fairly strong.

That's very helpful. Thanks. Just as a quick followup, could you talk about success you've been having in up-selling in the consumer interactive channel and are there any milestones we should be watching for in your up-selling initiatives?

Yeah. I would categorize it this way. We up-sell both in our direct-to-consumer as well as in our partner channel. I don't have a specific kind of event that's going to occur relative to up-selling other than I keep pointing back to CreditView which is essentially an up-sell from getting kind of the standard credit report and feedback, you're actually able to interact with that tool as a consumer to determine how -- what your -- how your behavior, if it changes, could impact your ability to get better loans or better rates.

Understood. Thank you very much.

And our next question comes from the line of Paul Ginocchio from Deutsche Bank. Your line is open.

Hi. This Ato Garrett on for Paul. Just looking at the margins, things look pretty strong. Margins are pretty strong right now and you mentioned you have plans to invest, particularly in the third quarter. So I just wanted to get a sense of what your thoughts were around the current level of leverage on the business and where do you think you might take that over time?

Yeah. So I think we've kind of alluded to the fact that we continue to invest in those things that are driving our really nice topline growth and we took the opportunity to do that here in the second quarter and will likely take the opportunity to do that in the third quarter. We're very comfortable overall this year that we're going to get to the 35% adjusted EBITDA margin guidance that we've already given you, so good comfortable there.

There are also a number of dynamics that we believe are going to allow us to continue to expand the margins. Those include Project Spark, which is our technology project which is driving efficiencies and will continue to next year. That's kind of an event-driven thing and we're very much on track there.

All of our initiatives essentially continue to perform well across the board and as they continue to perform, they're helping us expand our margins and I think we'll get back to a more normalized investment level because as you might recall, our strategy at the beginning of '13 was to invest significantly to jumpstart many of our growth initiatives as well as Project Spark. So all those kind of added up together give us good confidence that you'll see us continuing to expand margins as we go forward.

Okay, great. Thank you.

And our next question comes from the line of Andre Benjamin from Goldman Sachs. Your line is open.

Thanks. I think most of my questions have been answered. One modeling question. You mentioned that CreditVision doubled this year year-over-year, and I guess to put this achievement in context, is there any color that you can give that helps to indicate what percentage of the total business of USIS or any metric you would like to provide it is today and where that could go over the median term?

No. I don't think we're really prepared to do that, Andre. But what I would say is that CreditVision among many other initiatives, and I think I said this in the roadshow, is not performing at a single let's call it stretching into a double. And so we have many, many initiatives like CreditVision, digital marketing, fraud, some of the new things we're doing in rental, TLOxp, that are all starting to make a bigger and bigger impact on the business. And taken together, this is more a statement of our overall business, not just US with our emerging markets and our new verticals drove 8% of our growth this quarter.

And then we clearly have the full-yearend guidance and you've given some color on spending in the third quarter versus fourth quarter, but I was wondering is there anything that you think we should be mindful of in terms of the growth rates in the various segments third versus fourth quarter particularly given the comps get a bit tougher as we go into the second half of the year?

Yeah. I think you bring up a very good point. If you look back, the strategy that we've been on with our growth initiatives started to really kick in along with some tailwinds and good performance on the core starting in the third quarter of last year, so we're definitely lapping those comparables which make the growth rates more difficult to achieve. But we still will see very nice growth. I think our full year growth is going to be 11.5% and 13.5% on a constant currency basis. Still going to see very nice growth from the combination of our core and initiatives, and I would say we're not really counting on the tailwind that came from mortgage that accounted for 1.5 to 2 points of our growth.

But there will be -- Andre, it's Al. There will be probably same level of investment in Q3 as we saw in Q2, so probably the growth on a year-over-year basis will be slightly less than what you expect, and that starts to get out of our system in Q4 and sets us up very, very nicely for '16.

Thanks.

And our next question comes from the line of Sara Gubins with Bank of America. Your line is open.

Thanks. Good afternoon. A couple of questions. First, are you seeing any changes in the competitive dynamics in India?

Not substantially. As you know CIBIL is a very, very big brand there and has been for a very long time. And so we really are focusing in India on the agenda that basically the new Prime Minister has, which is a financial inclusion and building a middle class and helping their state-run banks become more efficient in lending, as well as adding our other solutions in the market around going direct-to-consumer and going in other verticals like insurance. So we really don't see any substantial competitor coming in and kind of -- our focus is really on our customers themselves.

Okay, great. And then separately, your clearly beating your near to midterm outlook of 6% to 7% revenue growth this year. As you look out a bit further what sort of assumptions around the broader economy are baked into that 6% to 7%? I'm wondering if we can stay on the current trajectory from the macro perspective if there is much upside to that 6% to 7% outlook or if that still seems reasonable?

It is Al. I mean here's the way that I think about that. Our USIS business as I talked about earlier, and if you take that paradigm I talked about, 50% of that is like core consumer credit. If you plan for that to be like a GDP type plus business, and that's where we're putting a lot of our new growth initiatives, that's going to propel that GDP type plus even higher than what it is right now.

The other half of that business is where we had a lot of our emerging verticals such as healthcare, insurance, government, rental screenings. Those were double-digit growers. So when you take that approximate $800 million pie, that's how we think about it.

When you move over into the international segment, we think that'll always be high to low double-digit grower, particularly the way India continues to grow and now that's organic. And then on our interactive pie of the business, that's consistently been a low double-digit grower.

So 6% to 8% on a combined basis is kind of what we see. Things that'll grow better could be interactive outgrows that, emerging markets if international outgrows that, and then the growth initiatives that we deployed in our core USIS business grow faster starts to bring that core up.

Great. And then just last quick question. Can you talk about how you're thinking about acquisitions going forward and what areas you're focused on?

This is Jim. The way we think about acquisitions is I guess in several categories. One, we think about what can bring us new capabilities, and that usually comes in terms of data and/or technologies, TLO is probably a very good example of that, or ones that get us into more meaningful into what we consider very attractive verticals like healthcare, so eScan is a good example. That or of course ones that get us into very nice and meaningful growth geographies, and India is a good example of that.

So we have a pipeline of opportunities that we continue to kind of cultivate and that will be our strategy going forward is we won't shy away from those opportunities when we see them.

Thank you.

We have time for one last question, operator.

And your next question -- your last question for today comes from Manav Patnaik from Barclays. Your line is open.

Good evening. Thanks for taking my questions. I just wanted to understand if you could help break out -- you said the interactive services, number of users I believe you said was 50 million. I was just hoping you could give us some color in terms of how much of that was direct versus indirect? Is that just a -- or is there a US versus international mix? I'm just trying to understand the level of overlap in counting that number between all the different partnerships and your direct business that you have.

Actually we don't disclose those numbers by channel or I guess break them down by country. I guess what I would say is that we have increased the overall subscribers to from 35 million at the end of '14 to over 50 million currently. So it is growing substantially, and that obviously is because our strategy has been to go to market through as many channels as possible, including our own, which is growing double-digits and our retention rates are better than ever. The latest vintages that reflect our newest kind of advertising campaign and offerings are doing very well, so we see good double-digit growth going forward there as well as all the different partners that we're using including companies like Credit Karma, which I know you're aware of, and others, as well as the banks we go to market to. So we're basically covering the whole market.

Okay. And then I guess maybe just on the direct side of the thing, it sounds like you said you have healthy growth there. Most of the other peers of yours aren't seeing a lot of growth there. Is there something particularly embedded in your product? Is it just better marketing? Any color on the progress there versus the peers?

Yeah. So I call it a combination of things. We're trying to put in services that help us be very interactive with our customers, and as you can imagine because we're out in so many parts of the market we're learning a lot about what is effective right now. And so we've taken a much more scientific approach to identifying the kind of personas we want to go after, some of which are the kinds of folks who have maybe both a free offering and also a for-pay offering that's more robust, and by doing those things we've been able to, like I said, grow double digits. And that's primarily because our take-up rates are very good and our retention rates are very good on these latest vintages.

Thank you, Manav.

All right. Thanks guys.

And thank you everyone 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 mentioned previously, we will post the audio replay of this call on our website at www.transunion.com later today.

I will turn it back to the operator to conclude the call please.

This does conclude today's conference call. You may now disconnect.