TransUnion (TRU) Earnings Call Transcript & Summary

All right. Good morning, everybody, and thank you for webcasting or Zoom-ing in here with us at day 2 of our Global Financial Services Conference. My name is Manav Patnaik. I'm Barclays' business information services analyst. And I'm pleased to kick off at least my day here today with TransUnion's CEO, Chris Cartwright. So Chris, thank you so much for being here.

Thanks for having me, Manav.

Just a few logistics for the audience. It's just going to be a fireside chat between myself and Chris. There is a button on the left, I believe, for you to send in Q&A. If I can catch it, I will get to it. Otherwise, we'll get back to you later with some answers. There are also 2 polling questions. So if you guys want to take a look at that, we'll see if we can get the real-time feedback towards the end as well. So with that, Chris, maybe just an opening question, and it's more something we've been asking all the companies, and that's just around how you're managing as a CEO in this virtual kind of COVID environment? Like, how challenging has it been from a cultural aspect? And part B is just more -- what are your return-to-office plans?

Yes, very good. Well, certainly unprecedented times and something that you don't necessarily anticipate in your disaster plans. I have to say though that our people have adjusted very well working remotely. And I think we're fortunate in the investment we've made, have made collaboration tools, because folks were able to stay home, particularly in the early phases of the pandemic where we had a stricter lockdown and be very productive because of our collaboration software investment. Clearly, staying home comes with a lot of challenges for employees, whether it's child care issues, with schools being -- schools having been suspended temporarily and also daycare and things like that. But we made available hardware for them so that they could have larger monitors, laptop upgrades, even ergonomic desk chairs, so they can work more productively. And what we found, and we surveyed our people pretty regularly, is that they're doing quite well at home, and they're very appreciative that the company has put their health and safety as the top priority. And they continue to work hard. They can engage effectively with customers. And so I think net-net, it's gone pretty well. I do miss the interaction with all of our employees. I miss the interaction with my management team. That said, we found ways to get together safely. We Zoom constantly. We do our quarterly off-site and strategic planning sessions via Zoom. The greatest casualty, I think, is the occasional numb posterior, but we're all figuring out ways to cope with that and, I think, doing pretty well.

Got it. And you took over as CEO a little over a year ago. And obviously, there were probably a lot of plans ahead, and this wasn't part of your plans. But just curious, in terms of the mark -- or are there any changes that you are trying to implement versus how Jim maybe had done. And even though they're subtle, just trying to get what your goals are here.

Yes. So officially, I was appointed CEO at the Annual Shareholder Meeting, beginning of May 2019. Behind the scenes, I was working in that capacity for probably about 6 months. I mentioned it because it gave me a chance to begin to think about changes that I and we wanted to make as a team on our business to really take our performance to the next level up. And when I became CEO, I quickly implemented a refined organizational structure where we created global responsibilities in the areas of solutions management, which think about it as a product management function around our core products and services that have application in multiple markets, and we stood up a global operations and formalized and deepened the global technology role, right? And since then, we have been planning and executing differently within the context of those functions because I believe that there's a lot of opportunity for TransUnion to perform even better than it has in the previous 5 or 6 years. Now we continue to execute our growth playbook, which starts with the market positions that we occupy. We like to bring in our diversification efforts, our strong capabilities in data management, in matching and delivery into markets where we can take an attacker's position and, with basic product, begin to better understand market needs, refine the product over time and progress upstream. That served us extremely well in insurance, in government, in investigative solutions based on public records. And really, it's a strategy that we apply to all of our business positions around the world. We continue to be a market knowledge-based or -led organization. The market planners are the general managers in our business. And typically, they come from the industries they serve. They have deep knowledge of what it means to be an auto lender or an automobile insurer, et cetera. And they appreciate the role that our products and services play in those business processes. But they also have an understanding of the other things that the customers need. And that informs our growth road map forums. And we're always trying to increase the portion of the proportion of our clients' need that we can address with our solutions, right? So we're always broadening and deepening and thinking about more effective ways to deliver our data and analytics. And I think it's that, plus the underlying quality of our data, plus the tech advantage that we have for a number of years, that's fueled our top-of-market performance.

Got it. And for TransUnion to do better over the next 5 to 6 years than it did the last 5 to 6 years, as you pointed out, that's quite a high bar. And I guess what are the key growth drivers that you are seeing in terms of your confidence in the future growth there?

Yes. Look, not to mince words here now, when I talk about do better, I'm not necessarily committing to organic top line rates in the low double digits like we enjoyed over the past 5 years. Our goal is to continue to lead the market in organic growth, independent of underlying market conditions. Now sometimes, there are anomalous conditions, but that's the bar that we're aiming for. But we continue -- I mean, look, the solutions that we've built over the past 5 or 6 years, particularly credit data enhanced with trended credit data, customized attributes and a growing tail of alternative data, there's a lot of room for market adoption there, right? There are very few segments of the market we can say are utilizing that information to its fullest extent. And even financial services where we've been pushing forward for some time, our penetration in card and auto remains very limited, and those are enormous markets. It's really in mortgage and in consumer lending, particularly in the fintech space, where they're availing themselves of the full complement of our data, which we call CreditVision and CreditVision Link when it's linked to a cascade of alternative data like payday lending credit data or utilities and wireless and rental and negative checking demand deposit activity. Those things provide a lot of incremental signal. So I emphasize that. So people realize that, look, we're still in the middle innings in terms of adoption in the U.S. of this data set. It definitely performs better. The pandemic and the concern over risk management of existing portfolios has actually stimulated demand for this full data set because lenders want to use the most accurate and comprehensive data they can to understand the condition of the consumers that underpin their credit portfolios. That's good for us. That's good for the industry longer term because it's typically in risk management, in marketing, where lenders start to appreciate the power of the next-generation data sets. And then once they convince themselves of the value, then they turn to their origination processes, and they'll start to integrate those data sets there. It's just more complicated to change origination models because of the need for extensive testing, for compliance evaluations, for model governance, all of those types of things.

Obviously, your tech transformation and the new product pipeline have been key elements of your growth here. And for the most part, it's a lot of singles and doubles, and then you get the occasional trended data type product, which is kind of a big product to stick on. And if that's a fair characterization, looking forward, maybe it's not a product, maybe it's a vertical, but like, what are the top areas that you think we should be keenly keeping an eye on?

Well, I will talk about fraud in a moment, right? But first, philosophically, I just want to emphasize what a firm believer I am in singles and doubles, right? I've run a lot of information businesses for a lot of years, and you have to put the responsibility on every P&L owner to grow every year. It's like what are you going to do new for the marketplace here? How are you going to sell better? How are you going to educate better, price more effectively in a day all the components of growth? And oftentimes, it's a series of incremental things that leads to the big breakthrough. CreditVision wasn't the result of some grand corporate strategy and a separate task force committee figuring out how to grow. Growth has to be everybody's job. And for TransUnion, it flows both out of really a partnership from the verticals who really understand the wants and needs of that particular marketplace and the solutions, the product experts, who are more versed in the general dynamics of the product industries that they're competing in and they bring kind of the art of what's possible, right? And it's the intersection of here's what customers are talking about and asking for, and here's what we think is possible. Those things come together, and they're really driving the nation. Fraud's a great example of that for us. If you turn the product back 10 years, and TransUnion in the bureaus, we had fraud mitigation products, but they were based on asking consumers information about what's in their wallet that only consumers presumably would have access to. When TransUnion acquired [ a driving records ] provider, well, now we had another information domain on which to ask questions and to configure the difficulty or intensity of questions. The problem is in an e-commerce-driven world and with the expectation consumers have for seamless interactions, pausing commerce to ask them questions that they may or may not know the answers is a real inconvenience. And it leads -- it introduces friction and sometimes transactional breakage that's not good for revenue. So we pushed into device base and device reputation through the iovation and Trustev acquisitions because there, we're able to understand, to a large degree, whether the device that is conducting a commerce transaction on the site has a good reputation or not, is behaving in a manner consistent with the consumer as opposed to a fraudster and is representing itself in a truthful way, right? And there's a whole variety of algorithms that are involved in doing that. But collectively, these different piece parts of e-commerce mitigation came together from different parts of the organization. And now they represent an opportunity for TransUnion to integrate all of that on a modern tech stack to expose the business rules and the configurations to customers and to bring advanced analytics of data that will identify and mitigate fraud threats that can be developed once and pushed out globally, right? So fraud's one of the areas that I think is worth calling out because, in addition to basic credit and credit-related analytics, this fraud area probably has the next most significant potential.

Got it. And just on the fraud area, almost everybody out there talks about how they have a fraud solution, and it's a big market. And I understand that, and I also believe it's not a zero-sum game. But if it's possible, in a simple way, like, how do we differentiate the fraud market that TransUnion is going after versus what everyone else talks about or maybe there isn't a difference?

Yes, there are differences. And it's a great question because the market for fraud identification and prevention is enormous and it's multifaceted, right? We participate at the front end of the process where we are identifying and authenticating individuals and devices, right? And so we help resolve identity in a definitive way and determine whether that identity and associated device and families of related devices have ever engaged in fraud or are currently behaving in a way that would suggest fraudulent intent. That's what we do. That's critical when you're opening new accounts or you are enabling the front part of the transaction. Now there are many other players that specialize in fraud transactional detection within the inner products, right? We currently don't participate in that, right? There could also be other aspects of fraud around knowing your customers or anti-money laundering and compliance and things like that. We have products in those areas. Some are derived from our data but some are resulting from partnerships with other players. But think of us as specializing in the front end of fraud. It's not the full market, but it's still an enormous market. And unfortunately, fraud's a growth area around the world, right? Fraudsters are very smart. They're increasingly sophisticated. As we've all been locked down at home and kind of the digital content of our lives that's been increasing, so is fraud, right? And it's a type of an escalating spy-versus-spy game that doesn't really have an end resolution that I can see. It's just going to be an ongoing cost of business. I mean I would say it's fair at this point to say that financial institutions spend more and are better at mitigating e-commerce fraud than they've ever been, but their losses are still higher than they've ever been.

Got it. A similar question but from a vertical perspective, I mean, the one vertical where it seems like you've done a few tuck-ins recently is on the media side. And I was just hoping for a little flavor on -- it's not the first thing that you think of, a TransUnion media, but maybe just what's the approach there?

Yes, that's a great question. It's something I'm happy to talk about. And I think really since I became CEO and prior to that, I talked about expanding into digital media as an opportunity for TransUnion. We are good at some of the foundational things that you needed to compete successfully in that marketplace. And we identified it as a market for expansion several years ago and have been moving purposely to acquire the piece parts necessary to compete. So one, you have to be good at managing large data sets, and we've got that capability. And you have to have a lot of data and expansive data to identify consumers and to allow audience creation by your marketing. The data technology that you house your data in, it has to have a front-end interface where marketers can come and interact with that data and slice and dice to get the exact audiences that they're looking for. And then you have to be very good at arraying the data around the consumer, around the individual. And that requires you to resolve the identity of the individuals at a very high degree of accuracy. What we've been acquiring is some of the unique skills in the digital area around creating a digital identity graph where the individual, all the related data as well as their persistent digital identifiers: things like device ID; to some degree, cookies, although cookies are going away; mobile phone; hashed e-mails. Things like that, that help you identify a consumer on the web, we've been accumulating that. That's what we got most recently through the acquisition of a digital ad business here in Chicago called Signal. The other thing you have to do is you have all this data and all this capability for marketers to come and identify the audience that they want to market to. But then you have to have pipes to all the publishers where you find and you interact with these consumers. And in the acquisitions we've done, whether it was Signal most recently or TruSignal about 18 months ago, we acquired kind of a critical mass of pipes to publish kind of business. So we will continue to look for complementary bolt-on acquisitions in this space. But I think pretty soon, we're going to have what we need to really begin to post nice growth in this area, and it's a focus for us going forward.

Got it. Looking forward to tracking that. You have health care, you have insurance, we just talked about media. As part of kind of your long-term growth plans, like, should we be anticipating many more verticals into the equation? Or how should we think about that?

Yes, it's a good question. Part of the growth playbook is continuing to expand into attractive geographies, in attractive verticals. And we've got much more vertical diversity in our U.S. business, but it does also inform a road map for how we can develop our positions in the different geographies in which we compete, right? Now not every vertical is going to be relevant in every geography. Sometimes those opportunities are unique to a given geography. But insurance is a good example. Again, you go back a dozen years, and we had an effort to sell credit into auto insurance underwriters because it turns out that credit is predictive of the likelihood of a consumer having an accident and the likelihood that, that consumer will then file a claim, right? So it's become one of several key pieces of information. We then pushed to begin expanding the information that we have available to support underwriters. We now have state motor vehicle reports, we've got a proprietary traffic violations database and we're accumulating claims and coverage. That diversification effort, we then took it and we expanded it to markets throughout our international portfolio. And so now in half a dozen other geographies, they're pushing into information for auto underwriting and policy renewal. Similar thing with our government efforts, which we launched 5 years ago, we should have been in the government business all along. And we were, but we had some compliance issues 15 years ago plus that led for us to exit the business. Well, we've reentered, and we're doing well in the U.S., but we're also using the know-how around how our employment screening and online fraud mitigation tools are very useful for governments. Governments around the world are disbursing funds to their citizens. The number one thing you've got to do is to make sure you're actually dealing with the citizen and not a fraudster impersonating that individual. And so it's been a great growth opportunity for us. We've posted wins here and the U.K. that we've spoken previously about. But I just think it's an example of how at TransUnion, our market planners and the leaders of geographies are always thinking about what's the next vertical we can expand into. Three or 4 years ago, we targeted utilities and telecommunications players. We've dramatically increased our business there. A couple of years ago, it was e-commerce, right, and we've been able, again, to grow e-commerce. There will be -- and there are other verticals in the pipeline. And so again, vertical and geography expansion is part of the playbook, and that remains the case.