TransUnion (TRU) Q1 2015 Earnings Report, Transcript and Summary

Welcome to the TransUnion Earnings conference call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host from TransUnion, Lindsey Whitehead.

Good morning, and welcome to TransUnion's First Quarter 2015 Financial Results Conference Call. I am Lindsey Whitehead, Director of Investor Relations. With me this morning is Jim Peck, our President and Chief Executive Officer; and Al Hamood, our Chief Financial Officer. Shortly after this call, an audio recording of this event will be made available on our website at www.transunion.com. We will not be taking questions on this call, which conforms to our typical practice. During this call, we will be making certain forward-looking statements, which, by their nature, involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from our expectations as described in our annual report on Form 10-K for the year ended December 31, 2014, and our quarterly report on Form 10-Q for the quarter ended March 31, 2015. The forward-looking statements and the earnings release that we issued earlier this morning or comments made on this call are made only as of today, May 7, 2015, and we have no obligation to publicly update any of these forward-looking statements. Our earnings release contains reconciliations of the non-GAAP financial measures, adjusted EBITDA, adjusted operating income, adjusted net income and adjusted provision for income taxes to their most directly comparable GAAP measures. You can find a copy of our earnings release on our website at www.transunion.com. 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. Now that the formalities are out of the way, I will hand it off to Jim.

Thank you, Lindsey. Good morning, and thank you for joining us. As with past quarters, I will provide you with an update on the performance of our business, along with some of the key trends impacting these results. Then I will turn it over to Al, who will go through the detailed financials. In the first quarter, we delivered 16% revenue growth and 20% adjusted EBITDA growth. These results were primarily driven by attractive organic constant-currency growth across all segments, along with the revenue from our recent acquisitions of L2C and Drivers History in USIS and CIBIL in International. We continue to see early returns on the previous investments made in both strategic growth and productivity initiatives, along with the market momentum in our core business. All of this led to adjusted EBITDA margin expansion of nearly 100 basis points. At the individual segment level, USIS is off to a strong start this year, with the first quarter revenue up 14% year-over-year, driven by broad-based growth across all platforms and key verticals. Our core financial services business saw higher credit report volumes this quarter, largely due to strong mortgage-related activity. Additionally, we saw strong new wins and continued execution of our growth initiatives driving top line growth. One example of this is Credit Vision. We're seeing increased demand for Credit Vision Solutions, which enhance lending decisions by leveraging an expanded view of credit data on each consumer that includes up to 30 months of historical information. This expanded view of data can reveal trends and behaviors, such as consumers making on time payments or paying more than the minimum amount due, and which direction these behaviors may be trending. The result of all this is that more consumers will be gain access to credit and potentially at lower interest rates, while lenders confidently build positive relationships with an attractive population of consumers. We've also deployed Credit Vision Solutions to some of our international markets. This is one of the growth initiatives that we've been investing in and we expect will generate significant revenue growth going forward. Our healthcare solutions saw another quarter of double-digit growth, driven by increasing demand for our comprehensive revenue cycle management solutions, such as payment estimation on the front-end and our reimbursement optimization solutions on the back-end. In the healthcare market, consumers continue to feel the pressure of rising healthcare costs with higher deductible plans, while healthcare administrators face the challenge of providing quality care, while also seeking fair compensation. TransUnion's healthcare solutions provide data and analytics at the point of need, enabling greater accuracy and transparency throughout the revenue cycle process. Thereby, assisting providers in lowering their uncompensated care, while also improving overall patient satisfaction. TransUnion is providing thought leadership and specialized industry expertise to capitalize on this growing market opportunity. Lastly, within USIS, our insurance solutions also experienced double-digit growth, driven by the stronger credit report volume, along with revenue from our acquisition of Drivers History, which was announced last quarter. Integration efforts are tracking to plan and the pipeline is building for our combined solution that will enable significant savings for insurance carriers by providing an alternative to costly motor vehicle records used during the underwriting process. The insurance market continues to be an attractive growth area for TransUnion. The acquisitions of Drivers History, along with our acquisitions of L2C and TLO, continue to provide us with unique alternative data sources that expand the breadth and depth of our solutions, enabling us to offer greater value to our customers and delivering stable diversified revenue growth. Across all businesses within USIS, we continue to execute on a series of strategic growth initiatives that leverage our core capabilities to further penetrate existing verticals, as well as to enter new attractive adjacent verticals with new products and solutions. Some of these initiatives are already in market, generating revenue, and we have a robust pipeline of future solutions that will provide significant incremental and diversified revenue growth going forward. In our International segment, we generated strong revenue growth in the first quarter, driven by broad-based growth across all regions despite economic slowdown in some markets, and from our acquisition of CIBIL in India. In India, we continue to see strong performance from CIBIL, particularly with online consumer and commercial volumes, and we're focused on developing new products and solutions to better serve the expanding needs of our customers in this market. India remains one of our fastest-growing emerging markets. Other notable activity within our emerging markets is the robust growth we are seeing out of the Philippines, along with greater market penetration in most countries of Latin America. Within our developed markets, we saw a strong local currency revenue growth in both Canada and Hong Kong. New solutions continue to gain traction such as Credit Vision and direct-to-consumer services. In Canada, other drivers of growth included share gains in financial services, along with growth in insurance and other key verticals. Hong Kong also had a strong start in the first quarter with key customer wins in financial services and growing revenue from new value-added solutions. Across the globe, key macro trends, such as a growing middle class and expansions of credit to underserved populations, continue to drive increased demand for our risk and information solutions. In consumer Interactive, we delivered 24% revenue growth, driven by strong performance in both the direct and indirect channels. Within direct, we saw an increase in the number of direct subscribers, as we continue to focus on delivering new and value-added solutions to our customers and are also leveraging our new TV advertising campaign. Within the indirect segment, we continue to grow through broad-based partnerships, providing consumers easy access to their personal and financial information. There are several opportunities in our pipeline, including some of the largest financial institutions and identity protection providers in this space. And we expect to continue driving revenue through this valuable channel. In closing, I am pleased with the robust performance we saw across the enterprise this quarter. All segments contributed to the double-digit revenue and adjusted EBITDA growth we delivered. As mentioned in past quarters, we've been making investments in several key strategic growth and productivity initiatives and are starting to see the benefits of these investments, including operational efficiencies from our upgraded technology platform. The acceleration of growth we saw towards the end of 2014 continues in the first quarter, and I believe we are in good position as we move through 2015 and continue to execute on our long-term strategic plan. Now I will turn the call over to Al to provide more detail on our financial results.

Thank you, Jim, and good morning. I'm going to discuss consolidated and business segment results for the first quarter of 2015. Then I will cover some additional financial information and balance sheet metrics. First quarter revenue was $353 million, an increase of 16% on an as-reported basis and 18% on a constant-currency basis compared with the first quarter of 2014. Acquisitions accounted for approximately 5% increase in revenue. First quarter net loss attributable to the company was $7 million, an improvement of $8 million compared with the first quarter of 2014. Adjusted net income was $29 million, an increase of 60% compared with the first quarter of 2014. Adjusted EBITDA was $114 million, an increase of 20% compared with the first quarter of 2014. Adjusted EBITDA margin was 32.3%, an increase of 90 basis points compared with the first quarter of 2014. During the first quarter, we saw margin expansion due to increasing revenue, along with operational efficiencies enabled by prior investments. At the segment level, total USIS revenue was $222 million, up 14% compared with the first quarter of 2014, driven by organic revenue growth across all platforms and revenue from our recent acquisitions of DHI and L2C. The growth was supported by favorable macro trends, including the low interest rates and, in part, due to a more challenging business environment in the first quarter 2014. Online Data Services revenue was $150 million, an increase of 14%, driven by an increase in credit report volumes, primarily due to strong mortgage-related activity. Marketing Services revenue was $33 million, an increase of 7% due to an increase in demand for custom data sets and archived information and revenue from recent customer acquisitions. Decision Services revenue was $39 million, an increase of 22%, due primarily to organic revenue growth in healthcare, financial services and the insurance markets and revenue from our recent acquisitions. USIS operating income was $31 million, a decrease of approximately 3% compared with the first quarter of 2014. The decrease in operating income was due primarily to incremental costs incurred as part of the strategic initiative to upgrade our technology platform, including additional depreciation and amortization resulting from the shortening of the remaining useful life of certain existing technology assets to align with the expected completion date of this technology initiative and operation and integration costs from recent acquisitions, partially offset by the increase in revenue. Adjusted operating income was $37 million, an increase of 3% compared with the first quarter of 2014. International revenue was $63 million, an increase of 16% on an as-reported basis, and 24% on a constant-currency basis compared with the first quarter of 2014. Higher local revenue from increased volumes in all regions and the inclusion of revenue from our acquisitions was partially offset by an 8% decrease in revenue from the impact of weakening foreign currencies. Incremental revenue from acquisitions accounted for approximately 18% increase in International revenue. Developed markets revenue was $20 million, an increase of 4% on an as-reported basis and an increase of 11% on a constant-currency basis. Emerging markets revenue was $42 million, an increase of 23% on an as-reported basis and an increase of 31% on a constant-currency basis. Incremental revenue from acquisitions accounted for a 28% increase in emerging market revenue. Operating income for International was $2 million, up 4% compared with the first quarter of 2014. Adjusted operating income was $3 million, essentially flat compared with the first quarter of 2014. Consumer Interactive revenue was $68 million, an increase of 24% compared with the first quarter of 2014, driven by an increase in revenue from indirect channel and an increase in direct subscribers. Operating income for consumer Interactive was $24 million, an increase of 24% compared with the first quarter of 2014, driven by an increase in revenue, partially offset by an increase in advertising spend. Now moving to the balance sheet and cash flow items. Cash and cash equivalents totaled $87 million as of March 31, 2015, and $78 million at December 31, 2014. Cash provided by operating activities was $17 million. First quarter capital expenditures were $30 million compared with $39 million in the first quarter of 2014, due to a decrease in spending in our corporate headquarter facility. We expect total capital expenditures to be lower in 2015 than 2014 as a percentage of revenue as we complete the improvements to our corporate headquarters in the first half of 2015. Net cash provided by financing activities was $29 million compared -- due primarily to additional borrowing. The effect of the exchange rates on cash was $2 million decrease. As of March 31, 2015, senior secured net debt was $1.9 billion and we had $105 million of available capacity remaining on our $190 million revolving credit facility. During the quarter, we borrowed $35 million from our revolver to finalize funding requirements from recent acquisitions. This concludes our prepared remarks today. Thank you for your time. And I will now turn the call back over to Lindsey.

Thanks, Al. As mentioned previously, we'll post the audio replay of this call on our website at www.transunion.com later today. Thank you for your continued interest in TransUnion. I will now turn it back to the operator to conclude the call.

Ladies and gentlemen, this concludes our conference call for today. Thank you for your participation. You may now disconnect.