TransUnion (TRU) Earnings Call Transcript & Summary

Hello, and good morning. My name is Andrew Nicholas. I'm the research analyst covering the information services, consulting and HR technology sectors here at William Blair. Before getting started, I'm required to inform you that for a complete list of research disclosures or potential conflicts of interest, please visit our website at williamblair.com. With that out of the way, I'm very pleased to welcome the management team of TransUnion to the 41st Annual Growth Stock Conference. With us today, we have CEO, Christopher Cartwright; and CFO, Todd Cello. Thank you to each of you for joining me.

It's a pleasure to be back, Andrew.

Excited to have you. So let's just get right into it. I thought one way to kind of set the stage for the rest of the conversation, would just kind of be to talk about how the business has navigated the pandemic, how the last 12-plus months have gone? And maybe speak to some of the major learnings or takeaways from that time frame, whether it's in terms of new product opportunities or customer demand dynamics or even on the cost side, whichever you think are the areas that are most important to the go-forward story?

Yes. Fair enough. And we may tag team on some of these questions. But boy, what a year, what a 15-month period it's been. We feel incredibly fortunate. I think our business model as an industry proved to be durable. And our company performance was solid. If you remember, we had a really strong Q1 of '20, we were about 11% organic year-over-year, and that included the fact that the last 2 weeks of that quarter fell off a lot. But look, Q2 of '20 was an entirely unprecedented situation for us, and we hunkered down and reduced some costs and waited to see exactly what the impact of the pandemic is going to be. But fairly early, we realized that there were some very important needs the clients had around assessing the risk in their portfolios, assessing the risk of our outstanding loans. And we port ourselves in to meeting those needs. So market demand shifted pretty quickly during that second quarter from customer acquisition to risk mitigation. And the CARES Act was passed pretty quickly. The industry had to digest how to accurately report on the status of various consumers. We developed a lot of new attributes that yielded insights into the consumer's current conditions during that second quarter and thereafter, and those prove to be very helpful for clients, right? And so despite the fact that we went from a marketing-intensive environment to a risk management one, we really had kind of dollar-for-dollar offset in terms of new sales over the course of '20. And as we know now, we had nice improvement in the third quarter, nice improvement in the fourth quarter and ended up growing about 2% and for the full year. I think most importantly, though, once we were confident in our foundation in probably the middle of the second quarter, we made a decision to invest in the business. And we'd already been investing, and we used it as an opportunity to accelerate, if you will. So we put more dollars into our most attractive organic growth opportunities. We also bought some businesses in the digital marketing realm that brought needed capabilities to our emerging position. And we implemented some organizational changes that are going to help us manage with more global intent, whereas previously, I'd say we were more kind of a multi-domestic model. And look, all of those things are bearing fruit and all of those things are continuing this year and going forward as we just continue to evolve from our current very strong platform. Now in terms of kind of strengths and weaknesses or changes in market demand that we kind of experienced. Todd, why don't you jump in on that one?

Yes. Sure. So thank you, Chris, and Andrew. Yes, as far as just the different strengths and weaknesses that we've experienced as many are already aware, TransUnion has a very sizable position with the fintechs. And that was a very popular question. Andrew, you probably would have asked us is like, hey, how are the fintechs going to weather the storm, so to speak. And I think what we saw, we definitely didn't anticipate pandemic happening, but we saw the resiliency of those -- of that business model, in particular, so and in addition to it, as they branched out into newer areas and capabilities, for example, in the buy now pay later space. We were there to serve those customers. Interestingly enough, both in the U.S. but also internationally as well to, in particular, in the U.K. So that was definitely an area of strength for us throughout last year, but more importantly, as we go forward. The other areas that I'd highlight as well is with commerce moving so digitally last year as we were at home. The use cases for our products in fraud as an example, really just continued to explode for us globally here in the U.S., but also, again, in our international locations. We developed new capabilities to help our customers onboard new accounts last year using the capability of a smartphone. So a lot of really great innovation came out of this as well. And the last area I'd highlight, and Chris alluded to this already, but we made a couple of acquisitions in the digital marketing space last year, which was a strategy that we were already on, but we accelerated it last year. So again, if you think about the dynamics of a more digital economy, being able to serve our customers by providing them better information on who to market to and how to get the best success. We feel that we've positioned TransUnion quite well in the pandemic, but as we're starting to hopefully exit it right now to be able to offer our customers just better tools to help with marketing. So definitely a growth driver for us as we go forward.

Sure, sure. No, that's really helpful. Maybe one thing I wanted to dive in a little bit further is kind of the international businesses and maybe how their reaction has compared to that, that we've seen in the U.S. And so maybe to start, is there anything that's going on in the past 12, 15 months internationally that maybe accelerates the traditional TransUnion growth playbook in those markets? I guess I'm curious if kind of a more rapidly evolving environment, particularly around consumer credit has opened any regions up more to more detail or more involved client relationships or maybe openness to other forms of alternative data that hadn't been as relevant to them in the past? Or any thoughts there would be great.

Yes. I mean, I think the factors that are influencing markets are fairly consistent around the world. Todd just talked about the tremendous growth in e-commerce during the pandemic. We certainly saw that in all markets globally, became a real economic life blood we couldn't get out and circulate, particularly in a lot of countries where they don't necessarily have the digital penetration, and they rely more on in-person transactions. It took a little while, but then you saw a pretty rapid increase. And so again, that means one of the things we're good at the core is identifying and authenticating consumers online. And we can do that based on all that we know about them, we can also do that based on recognizing digital identifiers, if you will, device characteristics, e-mails and all of that stuff. And knowing who you're dealing with precisely in e-commerce, making that trust possible, if you will, is a great facilitator of commerce, and it's in high demand. So I think you saw an a quantum leap, a quantum increase, if you will, in demand for e-commerce risk mitigation and digital marketing, targeting solutions. And those are both 2 areas of high growth that we've been focused on. I think the other thing is the pandemic accelerated the adoption of some of our more current and comprehensive information products, right? So over time, CreditVision will become a standard across markets and across segments. And certainly, CreditVision Link, which is the trended data plus various flavors of alternative data. But because assessing risk became so critical, businesses acted fast and it shortened the adoption cycle, which is a nice structural benefit that's going forward. Businesses also scrambled and looked for efficiencies. And one of the reasons you're seeing really nice growth in our insurance business in the first part of this year is a lot of carriers begin using our traffic violations data as a substitute for the traditional motor vehicle reports that they could get from the state level. And again, typically, these institutions would have a slow, measured approach to transitioning, lots of analysis, lots of double checking. In this case, because of the financial pressures, they just brought more focus and resource and did it quicker.

Yes. That's an interesting point. I think, obviously, constructive for the go-forward outlook. Maybe kind of focusing back on U.S. specifically. This is a growth conference, so I do want to spend some time just kind of walking through the bigger growth opportunities for TransUnion. There are a handful. So I don't know that we'll get to each of them. But the first one that I wanted to touch on was the gaming market. I think you announced your plans to enter the U.S. gaming market officially a little while ago. You touched on kind of your strengths in the identification market as being important to building that type of solution. So I guess my first question would be to maybe speak to that opportunity a little bit more why it makes sense for TransUnion to compete there. And maybe touch on what specifically TransUnion can do that is a differentiator relative to maybe some of the incumbents in this space?

Yes. So I think the most important point to take away from our entry into gaming and gambling is that we continue to apply the playbook. And the first principle in the playbook is to bring knowledge and focus to targeted sets of end users, specific verticals and sub verticals. And in this case, it's gaming and gambling. And typically, we'll identify a space where we think there's substantial opportunity to bring credit and identity and risk management insights. And then we'll bring in people who actually worked in that industry and understand the wants and needs in the analytic applications that are in place, and we'll start rounding out our product line to serve them. Now in this case, we've got a proven vertical in the U.K. We have a lot of know-how. And as the legislative and regulatory environment in the U.S. became accommodating of gambling, we're importing that into the U.S. and that really reflects another principle of the playbook. We want good ideas to flow across borders, right? And we do a pretty good job. And increasingly -- an increasingly important area of focus is just this global approach to operating the business. And that's not just a technology platform that can be built once and used across our markets, but it's through the organization, institutionalizing the sharing of IP, knowledge around markets, knowledge about how to compete and win, knowledge around the next attractive vertical to expand it to. I mean, look, we're excited about gaming and gambling. We can do a lot to authenticate gamblers when they come to sites to ensure that they're an appropriate age. It's even possible in the U.K. or in the U.S., we may be doing some type of gambling affordability measures in the future if regulators -- they're talking about that. They haven't affected it yet. But again, it doesn't change the overall TransUnion financial picture. It's just another contributor to our ongoing pursuit of high single-digit organic growth.

Sure. And maybe recognizing that the stable growth opportunities is what's most important. Is there -- specifically to gaming, is -- because you have a prior business or an existing business in the U.K., is it feasible to think that the ramp here in the U.S. is faster than maybe some of the other kind of newer growth initiatives, like maybe quicker to contribute?

Sure.

Okay. And is there any major differences between those markets that would kind of impact your approach? Or is it pretty uniform across those 2 regions?