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Edited Transcript of TRU earnings conference call or presentation 25-Apr-17 1:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 TransUnion Earnings Call

Chicago Apr 29, 2017 (Thomson StreetEvents) -- Edited Transcript of TransUnion earnings conference call or presentation Tuesday, April 25, 2017 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Aaron Hoffman

* James M. Peck

TransUnion - CEO, President and Director

* Samuel Allen Hamood

TransUnion - CFO and EVP

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Conference Call Participants

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* Andrew Charles Steinerman

JP Morgan Chase & Co, Research Division - MD

* Gary E. Bisbee

RBC Capital Markets, LLC, Research Division - MD of Business Services Equity Research

* Georgios Mihalos

Cowen and Company, LLC, Research Division - Director and Senior Research Analyst

* Jeffrey P. Meuler

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Kevin Damien McVeigh

Deutsche Bank AG, Research Division - Head of Business and Information Services Company Research

* Manav Shiv Patnaik

Barclays PLC, Research Division - Director and Lead Research Analyst

* Patrick Timothy Halfmann

Morgan Stanley, Research Division - Research Associate

* Shlomo H. Rosenbaum

Stifel, Nicolaus & Company, Incorporated, Research Division - VP

* Timothy McHugh

William Blair & Company L.L.C., Research Division - Global Services Analyst

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Presentation

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Operator [1]

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Good morning. My name is Crista, and I will be your host operator on this call. (Operator Instructions) Please note that this call is being recorded as of today, Tuesday, April 25 at 8:00 a.m. Central Time.

I would now like to turn the meeting over to your host for today's call, Aaron Hoffman, Vice President of Investor Relations at TransUnion. Please go ahead.

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Aaron Hoffman, [2]

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Good morning, everyone, and thank you for joining us today. This morning, I'm joined by Jim Peck, President and Chief Executive Officer; and Al Hamood, Executive Vice President and Chief Financial Officer. We've posted our earnings release on the TransUnion Investor Relations website at www.transunion.com\tru.

Our earnings release includes schedules, which contain more detailed information about revenue, operating expenses and other items, including certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are also included in these schedules.

As a reminder, today's call will be recorded and a replay will be available on the TransUnion website.

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

With that, let me turn the time over to Jim.

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James M. Peck, TransUnion - CEO, President and Director [3]

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Thanks, Aaron, and good morning to everyone joining us on this call and the webcast today.

As you saw in our earnings release this morning, TransUnion delivered a strong first quarter. In particular, I would highlight our double-digit revenue, adjusted EBITDA and adjusted EPS growth, as well as another 290 basis points of adjusted EBITDA margin expansion. Importantly, our growth continues to be broad based and driven by innovation, with especially good results across USIS, within Financial Services and our growth verticals as well as both developed and emerging markets in our International segment. On top of that, we continue to prudently deploy our robust cash flow, repurchasing almost 70 million of TransUnion stock and increasing our ownership stake in our fast-growing Indian business by another 10% during the quarter. Al will walk you through the details behind these results and actions shortly.

Looking at the rest of the year and our long-term view of TransUnion. We continue to have deep conviction in our ability to generate top-tier growth with a market-leading EBITDA margin. At the core of this view is the foundational transformation we have made in building TransUnion into a leading information services company. It is the outcome of our strategy to fully and effectively leverage the powerful data assets and analytical capabilities within the company by layering end market and geographic growth opportunities on top of core assets to consistently deliver strong performance. Underpinning this broad strategy is a series of 5 focused, highly impactful strategies that provide the engine for our current and long-term growth. I discussed each in detail in our last call, and we'll continue to talk to you about the business this way going forward.

The strategies are: driving growth through innovation; expansion into new vertical markets; growth in international markets; capitalizing on growth opportunities in Consumer Interactive; and leveraging global operational excellence.

Let's start with driving growth through innovation. On our last call, I briefly discussed our industry-leading analytical environment, SHAPE. And I want to expand on that today to help you fully appreciate its value in driving growth at TransUnion.

Before I delve into SHAPE, it's important to remind you about the benefits of our technology transformation and how that enables our innovation. The transformation, which is a great example of our strategy to leverage global operational excellence, entail moving from legacy architecture and mainframes to a big data architecture and open systems where we fully own our assets. This approach to hardware led to a sizable reduction in operating expense as well as a meaningful reallocation of our capital spending, where the majority now goes to our development and innovation instead of maintenance.

From an innovation standpoint, the more important benefit was the opportunity to rebuild the systems architecture in a way that makes it more flexible and scalable and able to handle the high-velocity and high-volume needs typically associated with big data. A key part of our technology transformation was bringing all the data in our system into a single instant private cloud called SHAPE. In a traditional environment, data enters a system and is tagged to a single application. The developer wants to work with the data outside of its original application that requires significant additional work and adds layers of complexity. SHAPE eliminates this issue by making all data assets available for new insights and solutions within legal and regulatory guardrails at any time. You can imagine insight generation time is massively reduced, in some cases from weeks or months to hours or days. This allows us to be faster to market and more quickly respond to customer needs. At the same time, SHAPE allows our data scientists and analysts to creatively fuse data to deliver more impactful innovation, with at least 10 years of data on more than 200 million U.S. consumers, including a full national credit file, public records data and much more in the SHAPE environment. That gives us a substantial amount of raw material to work with to deliver cutting-edge solutions.

While having this competitive advantage for our own development purposes is extremely valuable, we wanted to find ways to further leverage and deliver even greater value to our customers. To that end, we launched a concept called Innovation Labs and developed a unique analytical tool called Prama. With Innovation Labs, we can power real-time discovery and rapid iteration that helps compress our customers' development cycle. We bring customers on site, giving them access to our data and analytics, providing them with insights to help uncover new market opportunities, expand their target universe, develop new products and build customer models and scores. Customers uniformly have found the sessions to be highly valuable and efficient. They also often lead to asking about what more we can do for them, cementing a relationship that can lead to further opportunity for TransUnion.

The other way of accessing SHAPE is through Prama, which puts the power of TransUnion's datasets and analytical capability into the hands of our customers. It is a highly sophisticated tool for accessing and analyzing any of the immense amount of diverse data within SHAPE, and they can also efficiently ingest data from third parties. To that end, we can build modules for different end markets and in different geographies with the Prama tool as a means of accessing and delivering the product.

The first Prama modules have been focused on financial services benchmarking and analytics, allowing our customers to make and operationalize better decisions using 84 months of aggregated data from SHAPE. They can quickly see for themselves how their decisions compare to the market and how changes in strategy might impact their financial performance. Our customers gain access to critical decisioning and modeling capability, utilizing TransUnion's datasets via browsers in their offices or on laptops and mobile devices. Customers can also choose to use the data from Prama in their own analytical environment with their own tools that they choose. We can also provide custom peer groups to enable even more relevant analytics.

The first modules we've launched are for the U.S. financial services customers and uniquely provide specific focus on key end markets like mortgage, card, auto and consumer lending. However, we are in the process of developing modules for 9 U.S. markets, and we're launching Canada during the second quarter. We are also exploring the application of Prama to valuable datasets we maintain in our growth verticals.

Much like CreditVision, Prama is broad reaching and truly global. And such, it has a significantly greater long-term growth potential than a one-off product. Prama was launched about 1 year ago and is still very early in its rollout, and customer response and uptake has been very positive. And while the financial impact is relatively small now, Prama will help us continue our strong track record of innovation-led growth in the future.

A big part of our recent innovation track record relates to CreditVision, which is the first trended credit data product in the market that can be used for risk and marketing decisions and has demonstrated value across all financial products. We continue to deliver outstanding growth, especially in the mortgage market as Fannie Mae now requires trended data from mortgage resellers. However, we also have significant opportunities with a clear first-mover advantage with FinTech auto lenders, credit card issuers and other customers.

Let me walk you through our position in each of these end markets. First, consistent with our leadership position in the FinTech industry, the vast majority of our fast-growing, fast-adopting FinTech customers are using CreditVision. These online-only lenders tend to embrace innovation and have quickly begun to benefit from both CreditVision and CreditVision Link, the only risk model to marry trended credit data and alternative datasets like address stability, bill payment behavior, nontraditional credit relationships and deposit account management.

Second, auto lenders have also embraced CreditVision and especially CreditVision Link. For example, by using trended and alternative data in combination with advanced analytics, one lender was able to approve 37% of the loans that had previously been declined. These approved loans had a delinquency rate 25% lower than would have been experienced for traditional data and scores used to approve these consumers. On the strength of such meaningful improvement in underwriting capability, we continue to build our core customer base and have a number of auto lenders that will go live with CreditVision and/or CreditVision Link in the second quarter alone.

We also have a substantial opportunity with credit card issuers. Primary initial application of CreditVision is marketing, where issuers use CreditVision to target desired consumer behavior, resulting in lower marketing and promotion costs while boosting response rate.

Finally, in addition to card marketing, issuers are interested in products for risk decisioning such as origination, account management and collection strategies. Development and adoption are complex and require lengthier selling and conversion times, but we have confidence that over time, we will see further penetration into risk decision and meet our customers' needs.

Beyond the clear and significant opportunity in financial services, we are also exploring opportunities for trended data in telco and digital marketing as well as in our growth verticals. As we make headway in these markets, we'll provide you with further updates.

Well, the good news is that we've already gained traction outside of mortgage with a clear first-mover advantage. The even better news is that we have significant additional opportunities in these markets for CreditVision and CreditVision Link that should provide growth for years to come.

The second strategy I want to discuss is our expansion into new vertical markets, which have largely been growing revenue at solid double-digit rates and should continue to do so for the foreseeable future.

Over the past year, we've talked to you about our fast-growing health care vertical in detail several times. Health care delivered double-digit growth again this quarter. We continue to see favorable industry trends and have significantly enhanced our coverage discovery off learning through 2 strategic bolt-on acquisitions, Auditz and RTech, last year. Both transactions brought new customers, technology and data assets, strengthening our leading position in this attractive, fast-growing market. We continue to achieve share gains, sign new significant contracts and deliver meaningful increases in our yields for our customers, all helping to drive the business in the short and long term.

The insurance vertical also continues to deliver double-digit revenue growth. Our DriverRisk product has been extremely well-received in the industry as both a means of lowering underwriting costs by reducing insurers' dependence on motor vehicle reports and as a way to acquire more granular behavioral driving data in a more timely fashion than the insurer would receive from a motor vehicle report. DriverRisk is a significant source of growth today. And as we continue to add new states' data sources and customers, there's substantial opportunity in the future.

I also want to spend a little time on our rental screening vertical, which has posted solid double-digit growth and is poised to continue that performance as a result of further market penetration and product innovation. The largest part of the vertical is our Smart Move product, which is a highly convenient and effective screening tool for individuals who generally manage between 1 and 10 properties.

The product is very simple. The landlord invites an applicant to send tenant screening reports through Smart Move. A rental applicant must pass an online identity verification and authorize at the screening. Smart Move delivers screening reports and a recommendation to the landlord in a matter of minutes.

Landlords benefit from identification verification and credit, criminal and eviction histories, a complete range of information that TransUnion uniquely provides to the independent landlord segment of the market. Tenants benefit from using a secure online product that does not impact their credit score and keeps their Social Security Number and other personal information private.

This independent landlord market is highly fragmented and we hold the largest position. There are no other big players that offer the full range of screening products that we do for this customer segment. One of our biggest opportunities is a landlord who is satisfied with a handshake deal in their living room and does no screening whatsoever, likely because they don't know there's a better option. To further penetrate the market then, we have a nicely developed digital strategy to reach landlords on a targeted website as well as through a growing array of partners ranging from realtor associations to real estate firms.

The other part of our business focuses on large property managers, typically with thousands of units under management. We provide a range of services to them, including analytical services, to help them better manage their property, which often is the way to get in the door. The most common service is a customizable professional resident screening solution similar to Smart Move to properly meet the more sophisticated demands of these customers. For both independent and professional landlords, we offer industry-leading products and have significant opportunities to further penetrate an attractive, fragmented market, making renting -- rental screening another dynamic, fast-growing vertical that provides a very attractive portfolio diversification for TransUnion.

Our growth in international markets, our third strategy, continues to be a terrific story and has brought valuable diversification to our portfolio. In the first quarter, International delivered constant currency revenue growth of 16% with constant currency adjusted operating income growth of 36%. This was driven by an attractive global footprint that is 2/3 emerging and 1/3 developed markets. We've made a concerted effort to build our emerging market position as we feel that they will provide the best long-term growth opportunities.

I want to spend a few minutes highlighting some of the more exciting trends in a couple of our largest emerging markets.

Let me start with India, which remains perhaps the single most exciting near-in and long-term opportunity at TransUnion. More that 1.3 billion citizens and a government fully committed to building a middle class through the expansion of credit, we sit at the exact right place at the exact right time.

To give you a sense of the underlying growth, the Indian Credit Bureau market grew at 30% CAGR from 2014 to 2016 and is expected to continue to expand rapidly going forward as the market further emphasizes digitization and real-time fulfillment.

Working with the largest financial institutions in India, we founded our business there in 2000 and have invested heavily in data and technology over the past 17 years. At the same time, we continue to introduce new products and capabilities like CreditVision, fraud and ID, direct-to-consumer and insurance. It's the only meaningful credit bureau in one of the fastest-growing countries in the world that we hold a very strong position and are well-positioned to deliver long-term growth. And as I mentioned earlier, during the first quarter, we acquired another 10% of our Indian business, taking our ownership up to 92%.

Another market with strong dynamics is Colombia. We entered this market a little over 1 year ago through the acquisition of the Colombian credit bureau, CIFIN, which had grown revenue at a double-digit CAGR in the 5 years prior to our acquisition. With more than 40% market share in Colombia, CIFIN was already a solid player with differentiated data assets in the banking sector and some untapped data assets in the commercial and credit union markets. We see tremendous opportunity for rapid growth as we benefit from favorable macro trends as well as implementing our growth playbook by introducing new products, entering adjacent markets, better aligning sales teams and building out our global technology infrastructure.

First, some context on the positive macro situation. Colombia is the fourth largest economy in Latin America, with strong historical and projected GDP growth. It has the third largest population and one that is particularly young at an average age of 30 years. And, more importantly for us, there is an expanding middle class that was 25% of the population in 2015 and is expected to be 37% of an even larger population in 2020. Like most thriving emerging economies, credit is playing a critical role in this socioeconomic development. For instance, consumer credit transaction actually more than doubled from 2009 to 2014 and are expected to grow high single digits going forward. And while that is encouraging, the actions we've taken in our first year of ownership had meaningfully repositioned the business for success. In the past year, we've upgraded the talent in the business to align with our growth objectives. We have also recently assessed the needs of top customers in the market, and we believe that by executing our growth playbook, there's an opportunity to capture market share, similar to what we achieved in Canada. To facilitate this strategy, we also rebuilt our sales force. And to a certain extent, a sales force is only as good as the products they have to sell, so we are introducing new products like decisioning platforms, ID and fraud protection, CreditVision and direct-to-consumer.

Underpinning all of this activity is an ongoing technology transformation that includes the same type of redesigned data architecture that I discussed earlier and that will further enable us to deliver new solutions to the market. In just a year, we have radically improved our already solid Colombian business and positioned it for long-term growth in an exciting market. Considering that the business grew revenue double digits last year without the full benefits of these changes, we are confident that the future is very bright and that this investment will continue to pay off nicely for TransUnion.

Moving off from Colombia to update you on our international rollout of CreditVision, which we mostly talked about in the U.S. context. There's a meaningful opportunity in international markets, as we saw last year in Canada and Hong Kong, where CreditVision helped drive very strong growth, and we're seeing further benefits in those markets again this year. We're now rolling out CreditVision in our 3 largest emerging markets: South Africa, India and Colombia. All 3 rollouts are on schedule, and we should be in the market in the second half of this year.

We continue to be very bullish on our International business as we layer high-growth opportunities onto our existing International position. This provides us with additional portfolio diversification and an outstanding source of high-quality long-term growth.

Moving from International to Consumer Interactive. We have the opportunity to drive solid growth through new partners, verticals and geographies. Today I want to update you on 2 important partnerships and discuss some of our international opportunities, which promise to provide another stream of growth in the future.

On our year-end call, we announced the significant partnership opportunity with Chase to enable all consumers to access their credit information and educational tools free of charge. Chase is offering Credit Journey as in market, and we've seen a strong ramp of users in the first quarter post launch, demonstrating the value consumers see in this type of offering.

We also mentioned on our last call that we have signed a strategic partnership agreement with Credit Karma to power their offering in Canada. They are now fully in market and early signs indicate strong interest for their offering. We expect the opportunity with Credit Karma and other strategic partners to accelerate growth for our Consumer Interactive business in Canada.

This leads me to an important point about the next leg of our growth for Consumer Interactive. We see opportunities to expand our consumer business in regions where we already have an established presence, which is India, Hong Kong, South Africa and Colombia, just like we did in the U.S. more than a decade ago. In particular, we see a strong opportunity in emerging markets where consumer awareness of the uses and importance of credit data is rather nascent and access to credit information and education would provide consumers with the information they need to make better decisions and to improve their quality of life. These consumers are becoming more interested in the uses of credit information and how best to proactively manage their credit. We believe this international portion of our business could potentially triple over the next 5 years or so, reflecting strong growth across our global footprint. Taken together, these 5 growth strategies, along with the positive macroeconomic backdrop, give us great conviction in our ability to grow in 2017 and for the long term.

That wraps up my look at our 5 growth strategies: driving growth through innovation; expansion into new vertical markets; growth in international markets; capitalizing on growth opportunities in Consumer Interactive; and leveraging global operational excellence.

Now I'll turn the time over to Al to walk you through the financials. Al?

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Samuel Allen Hamood, TransUnion - CFO and EVP [4]

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Thank you, Jim, and good morning. Today, I'm going to walk through our consolidated and first quarter segment results.

First quarter consolidated revenue was $455 million, an increase of 12% on a reported basis and 11% on a constant currency basis compared with the first quarter of 2016. Revenue from acquisitions contributed about 2 points of growth in the quarter. Adjusted EBITDA was $172 million, an increase of 21% on a reported basis and 20% on a constant currency basis compared with the first quarter of 2016. Adjusted EBITDA margin was 37.7%, an increase of 290 basis points compared with the first quarter of 2016. Adjusted net income was $80 million, an increase of 38% compared with the first quarter of 2016. Adjusted diluted earnings per share was $0.42, an increase of 33% compared with the first quarter of 2016. The adjusted effective tax rate for the first quarter was approximately 36%, down about 70 basis points compared with the first quarter of 2016.

Now let me walk you through the details of our P&L.

As I mentioned, first quarter consolidated revenue was $455 million, an increase of 12% on a reported basis and 11% on a constant currency basis compared with the first quarter of 2016. Cost of services was $151 million, an increase of 1% compared with the first quarter of 2016 due to investments in people costs and key strategic growth initiatives, operating expense related to recent acquisitions and increased product costs related to the increase in revenue, partially offset by savings enabled by our next-generation technology platform and other productivity-related initiatives.

SG&A was $145 million, an increase of 9% compared with the first quarter of 2016, driven primarily by the investment in people cost and strategic growth initiatives, increased incentive and stock-based comp related to strong business performance, and operating expense related to recent acquisitions, partially offset by the benefit of focusing our marketing spend on more efficient channels.

And depreciation and amortization was $58 million, a decrease of 20% compared with the first quarter of 2016. This decrease was due primarily to the retirement of assets as a result of the implementation of our next-generation technology platform.

Adjusted operating income was $148 million, an increase of 30% compared with the first quarter of 2016, driven primarily by the increase in revenue.

Now looking at segment revenue and adjusted operating income.

USIS revenue was $282 million, up 14% compared with the first quarter of 2016, driven by strong growth across all platforms. Starting with Online Data Services, revenue was $182 million, an increase of 13%, driven primarily by an increase in credit report volume and our new product growth initiatives including CreditVision. Marketing Services revenue was $42 million, an increase of 14% due primarily to increased batch activity. And Decision Services revenue was $58 million, an increase of 18% due primarily to revenue growth in our health care, rental screening, insurance and financial services verticals.

Adjusted operating income for USIS was $99 million, an increase of 28% compared with the first quarter of 2016, due primarily to the increase in revenue.

International revenue was $83 million, an increase of 23%, or 16% on a constant currency basis, compared with the first quarter of 2016. Revenue from recent acquisitions contributed approximately 4 points of growth in the quarter for International.

Emerging markets revenue was $55 million, an increase of 24%, or 15% on a constant currency basis. We saw very strong growth in India, Colombia and other international markets, partially offset by macroeconomic headwinds in South Africa.

Developed markets revenue was $28 million, an increase of 21%, or 18% on a constant currency basis. Canada continues to deliver very strong growth on an innovation-driven share gains along with strong performance in our Hong Kong business.

Adjusted operating income for International was $24 million, an increase of 43% compared with the first quarter of 2016. On a constant currency basis, adjusted operating income increased 36%, driven by the increase in organic and acquired revenue, partially offset by increased incentive compensation and investment in strategic growth and productivity initiatives. This resulted in 420 basis points of constant currency adjusted operating margin expansion in International during the quarter.

Consumer Interactive revenue was $105 million, a decrease of 1% compared with the first quarter of 2016. These results are consistent with the expectations we communicated on our last quarterly call. To reiterate, we expect Consumer Interactive revenue in the first half of 2017 to be flat to slightly down due to our new long-term contract we discussed regarding Credit Karma and the acquisition of one of our indirect channel partners by a competitor, both of which occurred in the very early parts of the second half of 2016. Once these 2 items lapse, we expect growth in the second half of the year to be in the mid-single digits.

Adjusted operating income for Consumer Interactive was $50 million, an increase of 18% compared with the first quarter of 2016. The slight revenue decline was more than offset by the benefit of focusing our marketing spend on more efficient online channels as well as a more favorable shift in mix of revenues.

Now moving on to the balance sheet. Cash and cash equivalents were $131 million at March 31, 2017 and $182 million at December 31, 2016, driven principally by free cash flow generation, offset by equity purchases in our Indian Bureau and stock repurchases, which I will provide more color on shortly.

Moving on to cash flows. For the 3 months ended March 31, 2017, cash provided by operating activities increased to $67 million compared to $42 million for the same period in 2016 due primarily to the increase in operating performance. Cash used in investing activities was $76 million compared with $161 million for the same period in 2016 due primarily to a decrease in cash used for acquisitions. Cash expenditures were $26 million compared with $31 million for the same period in 2016. Cash used in financing activities was $43 million compared with a source of cash of $136 million for the same period in 2016 due primarily to lower borrowings to finance acquisitions and repurchasing stock.

On our last call, we provided an update on our capital allocation strategy. We announced that while we will continue to prioritize organic investments and superior strategic acquisitions, both of which continue to yield compelling long-term returns, we will also begin to return capital to our shareholders. During the first quarter, we repurchased $68 million worth of stock as part of our sponsor-led secondary offering, and we will continue to be opportunistic and consistent in executing our plan to repurchase up to $300 million of stock over the next 3 years.

That concludes my review of our financial results. I now turn the call back to Jim.

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James M. Peck, TransUnion - CEO, President and Director [5]

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Thanks, Al. As I lay out our guidance, a couple of quick points about our assumptions for acquisitions and FX impact. For both the full year and the second quarter, acquisitions should add approximately 1 point of revenue growth, while we expect FX to have no significant impact in either period, consistent with previous guidance.

Now turning to our updated guidance for full year 2017.

We are raising our full year 2017 guidance for revenue, adjusted EBITDA and adjusted EPS. We now expect revenue to come in between $1,845,000,000 and $1,860,000,000, up 8% to 9% on a constant currency basis and an increase of $10 million compared with our guidance last quarter. Adjusted EBITDA for the year is now expected to be between $720 million and $735 million, up 13% to 15% on a constant currency basis and an increase of $10 million compared with our guidance last quarter.

With the increase in revenue and adjusted EBITDA, at the midpoint of our guidance, adjusted EBITDA margin is now expected to be slightly above 39%, an increase of about 30 basis points from our guidance last quarter and more than 150 basis points compared to 2016. This is a result of our strong revenue growth, the benefits of the investments we've made in the company, product mix and productivity improvements across the business as well as the favorable impact of recent M&A.

Adjusted diluted earnings per share for the year are expected to be between $1.74 and $1.79, up 16% to 19% and an increase of $0.03 per share compared to our guidance last quarter.

And for the second quarter 2017, we expect the following: revenue should come in between $460 million and $465 million, an increase of approximately 8% to 9% on a constant currency basis; adjusted EBITDA expected to be between $176 million and $180 million, an increase of approximately 10% to 12% on a constant currency basis; adjusted earnings per share are expected to be between $0.42 and $0.43, an increase of 14% to 17% compared with the second quarter of 2016.

To wrap up, TransUnion delivered outstanding, broad-based top and bottom line financial results in the first quarter, setting us up for a strong 2017. As I discussed, we are focused on growing through innovation, diversifying through our new, faster-growth verticals, expanding internationally, continuing to strategically build our Consumer Interactive business and leveraging global operational excellence. We remain in an enviable position with significant growth prospects, meaningful opportunities to invest organically and through acquisition, and should benefit from a largely positive macroeconomic backdrop. All of these points give us great conviction in 2017 and beyond.

Now let me quickly turn the time back to Aaron.

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Aaron Hoffman, [6]

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Shlomo Rosenbaum with Stifel.

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Shlomo H. Rosenbaum, Stifel, Nicolaus & Company, Incorporated, Research Division - VP [2]

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Al and Jim, if you could talk a little bit more about what was behind the accelerated growth in Credit Marketing Services. Very often, I think of that as a kind of a precursor to growth in some of the area -- other areas of the business like Online Data Services. And if you could give us a little more detail as to what's going on there and whether we should think of that as a precursor to growth in the online, that will be helpful.

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Samuel Allen Hamood, TransUnion - CFO and EVP [3]

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It's Al. Credit Marketing Services or USIS did grow 14% in the quarter. It is broad-based growth across our larger customers as well as the FinTech space, predominantly on acquisitions in the credit card space. It's consistent with what we said about a healthy and buoyant credit market as we head into 2017 and as we exit the first quarter. Now that -- there is some lumpiness with Credit Marketing Services, but we didn't see any systemic trends, either significantly better or lower than what we said. So we feel good about it in the context of overall guidance, and it was strong. And you're right, it could lead to future better online volumes, but we don't want to get ahead of ourselves on that point.

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Operator [4]

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And your next question comes from the line of Manav Patnaik, Barclays.

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Manav Shiv Patnaik, Barclays PLC, Research Division - Director and Lead Research Analyst [5]

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I guess I'm just trying to understand. I think you guys are always typically conservative with your guidance, and you let that move along throughout the year. But maybe the question is, have any of the macro assumptions that you used at the beginning of the year changed in terms of mortgages or the U.S. outlook? And then maybe in the -- you alluded to South Africa being a little bit weak. Maybe you can help quantify that. And also, just if the India demonetization is now behind you, is that still holding things back?

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James M. Peck, TransUnion - CEO, President and Director [6]

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Sure. So, Manav, just as far as the macro trends, they're very much largely in line with what we described. And I think we got very specific with mortgage, and again, that's right in line with what we thought might happen with kind of a slowdown in originations and maybe a slightly accelerated refis. But overall, the market would be down. But as I think we told you, that only affects 7% of our revenue. And ultimately, if that had -- were to play out, it would be about a 1% decline. However, for us, that's offset by our tiered pricing, which kicks in when the volume is down, and also offset by, as you know, CreditVision going into the market. So -- and all the other trends are -- like Al just said, it's a buoyant credit market, so we're feeling very good about the trends being largely in line with what we said we were going to do. So it's not like they're holding up our numbers because a lot of our growth has been driven by the innovation and also in international markets. You mentioned South Africa. Of all the countries we're in, that's the geography that probably struggles the most. There's a little bit of political instability there and their economy really hasn't grown. But that's more than offset by our established markets in Canada and Hong Kong and then our emerging markets, Colombia, India and others. And as far as the demonetization in India, we did see a slowdown in the fourth quarter of last year, but we're largely through that. And although the business still grew very well in the fourth quarter, it's back to the kind of volumes we'd expect going forward. So to kind of summarize, we were largely in line with all our assumptions around trend. And then from a country standpoint, all the countries are performing very, very well, excepting South Africa, which continues to kind of have a struggle. But we're -- as you could see from the results, we're more than offsetting that struggle with the new solutions we're putting in these markets and also the -- just the kind of the building of the middle class in many of these emerging markets.

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Operator [7]

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And your next question comes from the line of Tim McHugh with William Blair.

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Timothy McHugh, William Blair & Company L.L.C., Research Division - Global Services Analyst [8]

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Just want to ask on the profit margins. Did they -- obviously, a good result this quarter, and you increased the EBITDA guidance this year about the same as the revenue increase and your guidance increase. So I guess just, is there any particular part of, I guess, the business that is seeing better incremental margins, I guess, than you would have thought coming into the year or even, I guess, 6 months ago, just in the margin trajectory? It seems pretty broad based, but if there's any 1 or 2 things you can highlight that are driving the strength, we'd appreciate it.

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Samuel Allen Hamood, TransUnion - CFO and EVP [9]

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Yes, it's Al. I would say first and foremost as a reference point, comparing the 2013 to our 2017 guidance, we've grown adjusted EBITDA margin by almost 500 bps. It is broad based, like you said, and it's really across several factors, including strong revenue growth, benefit from investments and productivity-related initiatives -- we talked about our technology transformation; favorable revenue mix; previous investments in innovations that were costs there are now turning into returns, very positive returns; and then scale achieved from M&A. When you first do an M&A deal, generally speaking, they're slightly depressed margins, below our corporate standard, but have a line of sight to those. So it is broad based. There's not any particular one timer in the quarter that we see or in the year that's driving it, and feel like margins today, adjusted EBITDA margins, are market leading and feel very good and positive about those in the way revenues are flowing through.

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Operator [10]

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And your next question comes from the line of Gary Bisbee with RBC.

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Gary E. Bisbee, RBC Capital Markets, LLC, Research Division - MD of Business Services Equity Research [11]

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Let me just follow up on that one, Al. So the growth in cost of services has slowed. I think it's something like 5 -- 4 or 5 quarters in a row. And you mentioned 2 things in your commentary about that: the benefits from -- savings from the technology work you've done several years ago and scale and whatever else. Where are we in those tax savings? I mean, would it be reasonable to expect the growth rate in that expense line to accelerate at some point in the near future? Because as I recall, you were expecting to have most of those savings already in the rearview mirror at this point.

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James M. Peck, TransUnion - CEO, President and Director [12]

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Yes, I want to make -- this is Jim. As far as the technology savings are concerned, yes, we mostly have seen kind of a year-on-year benefit of the reduction already. In the U.S., if -- then you can expect, I think you're saying, the expenses to accelerate or go up. But fortunately, no, we really don't anticipate that because we've gotten so much more efficient on both our OpEx and CapEx spend. And so that was kind of the beautiful thing about this, is that we've took down costs, but we also increased our capacity at the same time. And the capacity came in that we were able to apply our CapEx dollars to new development versus maintenance, and then we're also able to apply our OpEx dollars to new development. So we've actually unleashed another kind of a source of funding, let's call it, for these things without really negatively impacting our P&L, and we'll continue to do that going forward. So we've become very efficient. And by the way, the people who are working on our big technology transformation came off of that and are now working on things that are going to not just be base growth but are driving new revenue opportunities, things like that we've just talked about, Prama and other things that we're doing with fraud, et cetera. So the innovation kind of engine is getting fed in a way that will allow that to keep going without some kind of pronounced increase in either CapEx or OpEx.

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Operator [13]

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And your next question comes from the line of Andrew Steinerman with JPMorgan.

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Andrew Charles Steinerman, JP Morgan Chase & Co, Research Division - MD [14]

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I wanted to ask about Consumer Interactive. Could you go over why the CI margins were so strong this quarter despite the known revenue drags? And will revenue growth prospectively in CI be more skewed to the indirect channel?

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James M. Peck, TransUnion - CEO, President and Director [15]

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Yes. So obviously, with the -- as we told you, we were going to have a little bit of a decline there based on re-upping the Karma contract for the long haul and then off a customer based on an acquisition. What we did as we looked at the business, we're continuing to optimize the advertising. We actually made a choice. Based on the kind of client base, we wanted to move away from television advertising, which helped there. And we also -- I think as you just noted, we have a revenue mix shift where we continue to close indirect deals. We talked about the Chase deal. And of course, those have a different margin structure that's maybe a little more attractive, which enabled us to increase margins in that business for the quarter. I think the other side of your question might be, jeez, are you not investing in that business the way you should be? And that's not the case. Both on the direct side and the indirect side, we're doing the things we think we need to do to grow the business in the U.S., and we're very bullish that we'll get back to attractive growth. In addition, on the International front in that business in particular, we talked about Canada. On both on the direct and indirect side with India, Hong Kong, Colombia, there's a tremendous amount of upside. So we're -- we need to get through this half. And then when you take all things put together, that business is going to be a nice grower for us going forward.

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Operator [16]

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And your next question comes from the line of Toni Kaplan with Morgan Stanley.

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Patrick Timothy Halfmann, Morgan Stanley, Research Division - Research Associate [17]

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This is Patrick in for Toni. It seemed like competition among credit card issuers picked up late last year as a number of new cards came on the market, and it appears that may have carried over into the first quarter of '17. Could you give us an update on what you're seeing in the credit card market? And I'm wondering specifically if you'd expect that strength to maybe taper off as we progress through the year.

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James M. Peck, TransUnion - CEO, President and Director [18]

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Yes. So look, we see that, that credit card market as a buoyant market. You're right, there's competition among the issuers. And I can't really comment on what they're doing, but I can tell you we haven't seen any kind of slowdown, and we don't anticipate, based on the kinds of information we see, any kind of slowdown in that space.

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Operator [19]

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And your next question comes from the line of Kevin McVeigh with Deutsche Bank.

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Kevin Damien McVeigh, Deutsche Bank AG, Research Division - Head of Business and Information Services Company Research [20]

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Is there any way to kind of quantify where we are in kind of the trended data evolution, if you would, in terms of across the business lines and ultimately how big that market can become over the course of time?

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James M. Peck, TransUnion - CEO, President and Director [21]

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Yes. So we're -- we don't really try and pin down any specific numbers. Obviously, CreditVision now, our trended -- and CreditVision Link, our 2 trended data products, have been in the market for a little while. We were the first to market, and we've more or less fully penetrated the mortgage space with Fannie Mae, and that's still going to run out through the first half of the year and into the second half of the year. I think we're a month in there. But in our case in particular, we built these products to work across the workflow, not just in mortgage but also in card and auto and others. And in FinTech place in particular, where our customers are going to have probably a little more of an ability to move quickly, we've penetrated that space fairly well, but we still have room to grow. In auto, they use both CreditVision and CreditVision Link. And we still have a lot of runway there to go, but we're starting to get uptick. And then in card as well. And so we believe there's still a significant amount of runway for both CreditVision and CreditVision Link in the U.S. that we'll continue to take advantage of. And our customers now range from very small to Tier 1 and through established businesses more like the FinTech. So we think being the first to market has enabled us to get in this space outside of mortgage in a much bigger way. So we're learning a lot, and that's allowing us to continue to penetrate that market going forward. Internationally, lots and lots of runway there. As you know, we've talked about we're in Canada, not nearly fully penetrated. We're in Hong Kong. We'll be releasing the product into India, South Africa, Colombia, in which we're at 0 right now because we haven't released yet. And we feel like that we'll have continued strong growth there as well. So as you analyze that market, again we're not going to kind of try to put a size on it. A few important things to take away are that we are in it not just in mortgage. Our products are being used in the other forms of credit already, and we still have a lot of runway to grow.

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Operator [22]

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And your next question comes from the line of George Mihalos with Cowen.

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Georgios Mihalos, Cowen and Company, LLC, Research Division - Director and Senior Research Analyst [23]

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Just wanted to go back to the margins, if I could, for a minute. Obviously, a lot of outperformance in the first quarter, plus 290 year-over-year. The second quarter guidance at the high end seems to imply something around 120 basis points of expansion. And I'm just curious first quarter to second quarter, just on a year-over-year basis, what may be some of the challenges or maybe some of the dynamics that could cause the EBITDA margin growth to decelerate year-over-year relative to 1Q. And then maybe, Al, related to that, how should we be thinking about the stock-based comp over the remainder of the year? It was a bit more elevated than we were anticipating in the first quarter.

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Samuel Allen Hamood, TransUnion - CFO and EVP [24]

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I think our implied guidance has us coming in for the full year over 39% from an adjusted EBITDA margin standpoint. That's 30 bps higher than what we said and 150 bps -- or almost 180 bps over prior year. We really are balancing adjusted EBITDA margin and overall margins on the whole year. We're looking at investments and incremental opportunities to invest when we see the opportunity, as well as how quickly some of the returns that we originally planned are coming in into our base. So I don't think we -- well, we give second guidance. And from that, you can get the implied adjusted EBITDA margins, which do, on a sequential basis, actually show an uptick. And you can also look at the second half of the year implied guidance, and you'll see an uptick in margins on a sequential basis and feel very good that the trajectory we're on not only this quarter but as we look at the next 3 quarters is very good. But having said that, just like last year, right, as we went through the year when we raised guidance, it wasn't necessarily because we were trying to achieve a margin number, it's because either revenues were flowing in faster, the mix was coming in a little bit better, returns on our investments were coming in a little bit quicker, or, in some instances when we significantly outperformed as opposed to giving all of that street, we took some of that back and reinvested it in new opportunities. So you'll continue to see us play that way and participate that way while achieving and exceeding, hopefully, our guidance as we continue to move forward throughout the rest of the year. The other thing I would say is it's still early in the year, right, with Q1. We have 3 more quarters to go. And as a company, one of the things that has been great is our ability to generate market-leading top line growth, and we're able to do that because of the way that we're looking at investments. So we'll continue to do that as well as we progress throughout the year.

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Operator [25]

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And your next question comes from the line of Jeff Meuler with Baird.

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Jeffrey P. Meuler, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [26]

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You hit on some of the sales force changes in Colombia, I think, specifically. But Jim, in your letter, you also talked about building global sales and marketing capabilities.

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James M. Peck, TransUnion - CEO, President and Director [27]

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Sure.

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Jeffrey P. Meuler, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [28]

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Would love just a little bit more color there in terms of what's changing and how far along you are on making the changes.

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James M. Peck, TransUnion - CEO, President and Director [29]

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Sure. So this has been a journey that started when I got here right at the beginning of 2013, starting off with some systematic things you might think about doing around geographical sales force dispersion, number of talents, trying to maximize sales force selling time versus doing administrative things or kind of farming, if you know the figures of speech in this area. So a lot of it started there. And then as we also upgraded talent through change and also through training, and we're -- I think we're in the portion of our journey where the solutions that we're building and the ability to kind of bring them to our customer requires a much more sophisticated sales approach. And so we're kind of dovetailing that as we kind of built towards that with our sales force. So it's taken time to do that over almost now a 5-year period. And we're not done yet because we continue to bring more and more to market. And we've maybe started even creating specialization so that we can talk to customers across their full workflow. So while we still have generalists, of course, we also have specialists because we're just getting that much more sophisticated, if that's the best way we find to work with our sales -- I mean our customers, both in the U.S. and this is happening internationally as we kind of copy the model. You can see it most clearly in Canada probably. The other thing we're doing, I think it's important, we talked about our Innovation Lab, which is a big deal. You can find it with our Prama platform. And this is where you see it all come together. A salesperson can hold their own, having sophisticated kind of conversations but also bringing along an analytics team or a subject matter expert and having customers sitting right on site, solving problems real time and walking away with a solution. And I think that's ultimately where we want to be. So it started off as really fundamental stuff around just allocating people on the correct way, all the way to building to kind of a solutions approach to bringing effective tools to our customers. And I guess I should also point out we have tiered our customers, obviously. These are obvious things to do. And our tools that we provide are not only to our biggest sophisticated customers, they might be more customized. But as you go down the size, we also have tools now that can be tuned to smaller customers very cost effectively and also kind of brought to them by a salesperson who may not have all the support that a larger customer salesperson might get. But because we built them in such a way that they can be easily implemented, we've had a lot of good growth in the small to midsized market. So that's kind of a long-winded answer, but we virtually attack every aspect of our sales motion to dovetail with all the things we've done in technology and all the things we've done with our solutions and our verticals.

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Aaron Hoffman, [30]

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Fabulous. So that brings us to the end of the call today. Thank you, everyone, for joining us, and have a wonderful day.

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Operator [31]

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