Experian plc (EXPN.L) Earnings Call Transcript & Summary

Okay. Thanks, everyone. Welcome. My name is Jane Sparrow. I recently joined the JPM Research team in London, and it's my pleasure to introduce Lloyd Pitchford, CFO of Experian, to you today. It's great to have you here fresh from obviously, last week's very strong first half numbers. So I'm sure some of the themes we'll pick up on in today's session was certainly evident in that strong first half performance and your very positive outlook for the second half.

So let's get into some questions. Perhaps we can start in Financial Services. You delivered very strong organic growth there, particularly in North America. And specifically, perhaps we can talk about the Ascend platform, which obviously has been a big investment program for you, clearly helping to drive that growth. So can you perhaps talk a bit about the penetration you're seeing with customers on Ascend, particularly the big Tier 1 customers, how much full adoption you're seeing and how you monetize that expanded functionality of that system?

Sure. Yes. I think the performance in Financial Services is really going very well. I think before I talk about Ascend, I think you're clearly seeing a continued sequential good momentum in the lending environment. I think with the benefit of hindsight, you look back over now 3 quarters, I think you've seen improvements in the core lending across categories across those 3 quarters, which I think has been helpful to the growth rates. Ascend, as you know, is our long-term plan to essentially create the workflow end-to-end of a consumer through the banking ecosystem into a platform. We launched it originally on the Ascend Sandbox, which is really how you determine and build a credit model. But since then, we've been building that out into lots of individual modules and connectivity and workflow between them. So great penetration. So over 20 of the top 25 financial institutions in the U.S. touch Ascend in one form or another. We've got about 2/3 of lending in the U.K. either in production or in trial, touching an Ascend module. And obviously, we're rolling out elsewhere. I think the penetration that you mentioned, it's shifting as the distribution platform for all of our products in Financial Services. So where we used to have, say, a fraud platform called CrossCore, it's now a center for fraud and all of the distribution of our fraud products is through Ascend, and you can connect to all of the other products. And importantly, optimize across products. That's the benefit of the platform. You're not just selling an individual use case, you're able to integrate data and workflow across lots of different use cases. So the job is to drive penetration and adoption. That's really where we're heading. This next year, one of the things we'll launch with Ascend is we obviously have quite a lot of customers who usually in Tier 2, Tier 3 who are data-only customers. Up until now, they've seen none of the functionality of Ascend. We'll reveal to them a very thin layer of Ascend functionality and the power of it on top of the data that we already provide to them. And we think that in trials, that's been a really important lead generator for us into the adoption of Ascend. So that's really the plan. We'll start in the U.S., and then we'll go to the other geographies over the next year. But lots of traction with this product across ecosystems. And I think versus competitor products, there isn't really a similar competitor for Ascend. There are competitors who provide individual services, whether it be decisioning or fraud, but the breadth, there isn't really a similar competitor. When we first launched Ascend, you may remember, given that strategy, Equifax and FICO launched a partnership to try and partner on capability. That didn't really gain traction. So it's at least a couple of generations ahead of the nearest competitor.

And I think you've talked previously about it's actually quite hard to gain share from the other big players in the market on certain things, the banks -- Equifax had their breach and customers stay with them and so on. So is this about deepening the offering you have with your existing partners? Or is it a market share argument? Just to understand that a bit more.

Yes. I think when people look at us, and I think the same is true for our competitors, they think that the majority of the way we try and grow is by taking share of existing wallet. Actually, that's not how we think. We operate in ecosystems with enormous value around the signals and data. The biggest way we grow is by finding new values in those signals, innovating around them, turning them into products and creating value for our clients. That value can be finding a loan that would otherwise not be originated in finding a fraudulent origination that would otherwise not have been found or helping them automate and reduce their labor. That's the biggest way that we grow. Clients are sticky in our ecosystem. You've seen it across every geography. It takes quite a lot to shift the client to move from one player to another player. I think when you have a unique capability and with Ascend, we have unique capability, you have a better shot than average, but it's still not easy.

Perhaps now a question that I feel like I have to ask, but you're maybe a little tired of answering it today. Just can we touch on FICO given recent market developments. Perhaps you could talk about how you think it might impact the opportunity for VantageScore and also specifically how it potentially impacts your supplier customer relationship that you obviously have with FICO.

So I think if you think about secured credits and mortgage, their historic position is clearly it's been essentially a regulated monopoly for FICO and their score. And that's now changed. You clearly are going to see a period of transition to score competition. We're clearly incentivized to provide pricing and product into the market to help clients make the choice for Vantage. So we'll clearly be working on that in the coming period. I think naturally, the time for people to shift is slower than you would think. It takes a little while for people to assess it. But the pricing models that we put into the market clearly provide a very clear economic incentive, particularly when compared with the forward signaling that FICO have put in around what their future pricing policy will be. Outside of that, our ecosystem is full of frenemy kind of relationships with customers, partners, suppliers, with many people in the ecosystem. And I don't expect that to change actually. I think we'll see how it develops. But our position, for example, in the consumer business is a strong partner with FICO. So we'll see how that develops.

Yes. And we just had Equifax in this room. They talked about their pricing responses on VantageScore. Could you just expand on -- you said you're going with the competitive pricing? Could you just talk about that?

Sure. Again, this is in secured credit. So we've said that we'll provide the VantageScore free inside our choice bundle as we've called it. So anybody taking a FICO score, we will get a VantageScore as part of the existing price that we have for that. And we're doing that to help people test a model. At the point that somebody wants to take just a VantageScore, we've said that for the foreseeable future, we'll price at least a 50% discount to whatever FICO's price is in the market. And of course, in those conversations with lenders, what we're essentially doing is putting a price point in privately agreeing to that price point for a sufficient period of time to underpin their economics in switching. So it will be clear, I think, that there is now competition. That's what the regulator has asked for and is encouraged, and we'll take part in that and make sure that Vantage earns its share in the market. I should say also, of course, we're providing all of our data and all of our processing of the data, and there isn't a score without data. So we'll also make sure that the data and the processing earns its fair rent.

Okay. And then moving from one hot topic to another, so from FICO to AI, the debate seems to sort of range about what AI means for various information services companies with the primary focus seeming to often be on the threat, but perhaps you could share with us some of your thoughts about how you feel you're protected from that threat, but also how you use it as both a growth driver and a productivity saver yourselves?

Yes. So I think if you think about our value chain, we have the raw material, which is the data, and we have huge proprietary data assets. We then have the value creation layer, which is how you find value in that data and monetize it essentially through a piece of software usually or a data point that you distribute. Then you have scale distribution. So if you think about those 3 bits, clearly, the ability to produce code to produce a software product, the barriers to entry there have reduced. So the ability to produce something that somebody could use. But without data and without distribution, it's meaningless. Think about our data assets. They're huge and they're proprietary. So we have, in the U.S., as an example, over 12,000 individual contributors, over 1.1 billion new data points every month and decades of history of understanding the signals in that data. And that's a really important point, understanding how the propensity to repay and all other signals that are embedded in that data add value to our customers. So we won't make that data available to other people to train their models on. We have a really defensible position. And the same is true across our other businesses outside of core Financial Services. I think at the other end of the spectrum, building scale distribution that's defensible is also another part of our strategy. Ascend, embedding Ascend in workflow inside big financial institutions that are regulated. We know those things are sticky. So I think what AI will enable us to do is it will enable us to find valuable signals in vast data sets more quickly. At heart, that is the company we are. If you think about what a credit score is, it's a signal embedded in credit history that tells about a propensity to repay. But it's a signal in data. And there are just enormous signals embedded in our vast data sets and AI will help us find propensity in those signals. And then we'll be able to turn them into product more quickly because the whole shift from individual coding to vibe coding, you're able to build software products much more easily. So the pace of product development will be quicker. And then inside the company, clearly, like everybody, we're becoming more productive through the use of AI. We've got about 11,000 people out of our 23,000 employees who are technologists, about 7,000 of them have hands on keyboard as product developers, coders deploying code. The productivity of those individuals is changing quite rapidly. If you go back 4 years, they were coding keystrokes. Back 3 years, they were using code repositories to reuse coding strings. 1.5 years, 2 years ago, they were using Copilot to generate code. They're now using vibe coding. That's a really big share of our employee base that you're seeing quite material advances in productivity. And we can see it at an individual product developer level. We have telemetry that we can see the productivity and the use of AI so we can optimize that in training and deployment.

And that was a pretty core part of your first half margin development, right? It was up organically very strongly, slightly offset by the acquisitions, but some of that is about that AI fueled productivity.

Yes. I think we're coming to a really interesting point in the company's history. So you're seeing scaling of some of the things that we started to deploy 7, 8 years ago, Ascend, the consumer platform, et cetera. So they're hitting a really interesting point in scaling. We also turn off our mainframe in North America. So we start to see the dual run costs that we've had build up, start to move from a headwind to margin to a tailwind to margin. We also -- some of the dilution from the acquisitions that we made, that's just temporary, that flows back. So I think we have a really interesting time to generate scale returns. The question is what do we do with them? Our forward guidance is to grow margin by 30 to 50 basis points. The bottom end of that range is really underpinned by the flowback of the dual run costs and the acquisition rescaling. So we have flexibility to make other acquisitions that are dilutive and still hit the margin target to accelerate our AI investment and still hit the margin target. So we have a lot more flexibility, I think, in this period than we've had previously.

Okay. And you talked about the consumer business scaling there. It's obviously a big differentiator for Experian versus some of your other listed peers on the data side and also as a business in its own right. That business has changed a lot in the last 5 years. Can you perhaps talk about the differences in that B2C business across the U.S., U.K. and Brazil? What the differences are in terms of marketplace development, membership penetration and app usage and so on?

Sure. So maybe just talk about the strategy. We took a very unique position, as you mentioned, versus some of our competitors. We always believe that technology would enable consumers to share data. And if you had a trusted relationship with consumers that they would share their data for value. And the value embedded in the transactions that a consumer enter into is enormous in comparison to the very large data sets we have today. But it needed to be curated in a trusted relationship. So that's what we've been building. We've been growing audience. We now have 208 million direct relationships across our main geographies, nearly 90 million here in the U.S. And what you've seen is that's enabled us to develop some very unique relationships that have given us data assets that have helped us generate new streams of revenue. We have 18 million connected bank accounts. So this is where consumers have seen value in sharing their transaction data in order to get a credit score that they deserve. And that's given us opportunities to talk to them about lots of other things, including things like car insurance. If you look across the geographies, we're on a journey to the same place. And that place is to have a product that meets every consumer in their need state. Some need state is credit building. So it might be somebody who is younger. Some need state is identity protection, usually somebody older with assets. But there are lots of other need states around saving money, around gaining reward, around do it for me, around giving time back. There are lots of those other need states. So now that we've built the audience, you'll see us build out more SKUs in distribution terms, which means that we can increase the lifetime value of a consumer relationship across an ever broader bit of products. Where we started from in each geography was slightly different. So in the U.S. and U.K., we started from a subscription business. So there, about half of our consumer business is still the subscription business. Very resilient. It grows. It's countercyclical. So it gives us a nice hedge to marketplace business, which tends to be procyclical. In Brazil, we started with a debt resolution service called Limpa Nome, which allows people to clear their name by settling old debts and negotiating them. That's about half the business in Brazil. So the legacy businesses, if you like, are about half in each geography. But the place we're heading to is a very diverse set of products. In Brazil, for example, we've got a payments platform where we process about $1.5 billion of debt -- of payments on our payments platform. We obviously have all of the signals data around those payments. We also have car insurance business in Brazil that we just bought, et cetera. So really positive diverse platform that we're looking to build. And of course, you see the benefit of that in the margin, where we've grown over the last 6 years. The margin of the business has gone from about 20% to about 30% as we've scaled the number of relationships.

And then can we just move on to the verticals that you've broken out. So you've obviously built very successful businesses in auto and health through a combination of leveraging existing data and supplementing that with additional data and technology. As you look forward over the next decade, obviously, 10 years ago, those businesses were a lot smaller. Are there other verticals? Or is it that those are the verticals and there's so much opportunity in them that you feel that's where the focus is?

There's a lot of opportunity in the verticals that we're in. And to bring it to life, if you take the auto business, the number of new cars sold in the U.S. has been static for about 15 years. That business has grown double-digit compound for 20 years. Less than half of it is credit. So how have we grown? Exactly the way that we've grown our other businesses by finding value in the data sets and curating product and selling it to people in the ecosystem. The health business is about a $650 million business, very high EBIT margins, about 40% EBIT margins. And that's grown consistently high single digit, low double digit for more than a decade. And the opportunity there is just enormous. If you think as consumers, you move from buying a financial product where you might be very digital and then all of a sudden, you're a patient, and it feels like you've gone back 200 years. That's the opportunity for us is to smooth with data, consumers' journey through the health care system. There, Waystar is probably our most relevant stand-alone listed competitor. And we just see huge opportunity in those ecosystems. If you stand back and say, okay, so why are we in these ecosystems? Just think of it from a consumer's point of view, the house we live in, the transport we have, gaining access to health care, the revolving credit that we need to finance our lives and the ad hoc purchases that we make in our lives, which is our marketing services business. These are some of the biggest industries and needs that you touch as a consumer, and we've got assets across all of them.