TransUnion (TRU) Earnings Call Transcript & Summary

Good morning, everyone. Hi, I'm Ashish Sabadra. Thanks for joining. We are excited to host Todd, CFO of TransUnion. Todd, thanks for giving us this opportunity.

Thank you for the opportunity, Ashish. It's a great conference to be at.

We'll kick off with the number one question that we're getting from everyone. It's just such a fluid environment. You're seeing multiple factors at play. Consumer confidence last month dropped. You had the tariffs that got into effect earlier today. You also have 10-year rates coming down, a bank regulatory environment that's easing. These are just 4 things that I mentioned, but I'm sure there are 50 others. But when you put all of this together, can you just comment on what does that mean for the state of consumer lending? Like how do you think about consumer lending going forward?

All right. Well, an appropriate place to start. I could probably use all my allotted time to answer that one, but I'll do my best to be concise with that one. So what we've been -- what we have seen throughout 2024 and through our earnings call date when we put our guidance out, I would say, is relative stability with consumer lending volumes. So if you kind of unpack that a little bit and you look at it within our Financial Services vertical, just by the lines of business that we go to market in, you start with mortgage. Mortgage continues to be under pressure, and volumes we're expecting as we characterize it as modestly down for the year. We are seeing volumes that we haven't seen since the mid-'90s in mortgage, which is pretty stunning when you think about that level. So the recovery there could be very beneficial when it does come. But right now, with home prices where they're at and interest rates as elevated as they are, there's a lot of pressure on the mortgage market. Positively though, what we're seeing, our consumers are -- they're paying their obligations on mortgages and the delinquency rates are very low. So that trend continues on. When you look at our credit card and our banking customers, that group of customers also has been relatively stable as well, impacted in 2023 by the deposit dislocation that happened in the aftermath of the Silicon Valley Bank collapse. That has stabilized, and we've seen the small-, medium-sized banks, in essence, be stable. And also important from the consumer side is we're seeing delinquencies modestly tick down, so the consumers living up to their obligations there. Consumer lending, this is where a lot of our fintech customers are at. We've seen that get incrementally better as we exited 2024 and we get into 2025. Several of the larger fintechs, when they released their earnings, they had overall positive commentary and good results, and we're seeing that. But remember, we serve the broader ecosystem there on the consumer lending side. But we're encouraged by the marketing activity as well as the level of originations that are happening there. And then the last line of business is our auto LOB. And in auto, what we're seeing is good new sales, new car sales, but there's an extraordinary amount of shortage on the used car market that's having an impact overall. So origination volumes are actually lower in auto than they were pre-pandemic. But consumers are living up to their obligations and, in essence, paying their bills, delinquencies are in a historical range. So when we think about just the overall health of our customers as well as consumers, from a customer perspective, what we're looking for is that they have a good source of funding, whether that's deposits or their ability to be able to get into the capital markets. And to this point, we haven't really seen anything that's been disruptive. We also look at are they taking charge-offs or any loan loss reserves? And with the last earnings cycle, that seemed to be modest at best. So that's encouraging. When we look at things from the consumer side, the real driver on the consumers is employment. And unemployment continues to be low as well as real wage growth is another indicator. And that continues to be overall good. And what that's translating into is delinquency rates for the consumers, as I already just talked through with each of the lines of business, they're basically in line with historical norms for the business. So we're not really seeing anything that would indicate stress. If anywhere where there's stress in the system, it's with the lower-income consumers where inflation has taken a bigger bite out of their incomes. So we're seeing an overall healthy consumer. As we think about the news with the announcement of tariffs, we need to see how things play out. From the consumer perspective, if prices are passed through, what happens to their capacity to buy and then their willingness to be able to want to get into a credit product, right? So you need to understand the impact there. And then just from a business perspective, it's really about understanding the -- what they're going to do with the higher input costs with the tariff now, right, and how they manage their costs. So those are the things that we're looking at right now. Needless to say, the situation is fluid. So in recognition of that, our guidance that we put out for 2025, I mean, many of the issues that we're hitting -- hit with right now, we knew that there was something that was coming. So we are guiding 2025 revenue to be between 4.5% and 6% on an organic constant currency basis. The 6% at the high end, think of that as more of the same, the continuation of the trends that we've experienced from late 2023 throughout 2024. The low end of the guidance is where we've modeled in a downside scenario. So for potential deterioration on the factors that we just discussed. So with that, that's what we're seeing. From a regulatory standpoint, our regulator is -- our primary regulators, the Consumer Financial Protection Bureau, or the CFPB, obviously, well publicized that they're pretty much on pause. I just want to highlight that regardless if they're on pause or not, what we're focused on at TransUnion is financial inclusion. So we have a lot of things in common with the CFPB. That doesn't change for us. We put the consumer first in everything that we do. And then secondarily, we've had some consent orders and different agreements with the CFPB. Whether or not they're active or not, we're adhering to what we already agreed to from that standpoint. So as a result of that, that's -- we think that's good business and good for our customers as well as for the consumer overall.

That was a very comprehensive response and you really covered the ground. My multipart, 5-part question. Maybe switching gears a bit, let's talk about mortgage. Obviously, the lower rate -- or higher rates, but rates coming down off the highs is positive for the mortgage environment. A question that we get is, have you seen any change in the market dynamic in terms of the inquiries per origination? Pre-call side, are you seeing anything from 3B, [ 2, 1 ] or 2B on the consumer shopping side? Are you seeing any change in trends there? Or in terms of the tri-merge pulls, any shift in the number of pulls per mortgage? So a comprehensive questions on inquiries and how those are trending.

Okay. So let's talk first just about mortgage underwriting first before we get into prequalification. When the Federal Reserve cut interest rates for the first time in September, the 10-year treasury yield moved in tandem with the Fed funds rate, and the 30-year mortgage rate also went down. And we saw a significant amount of activity, whether it's purchase or refinance activity. But as the fourth quarter continued on and the 10-year treasury yield started to increase on inflation concerns and potentially higher interest rates, we saw that markedly slow down as far as the pace of activity. So -- and that's really what we continue to see. But we think that we're starting to see consumers as well realize that maybe mortgage rates that we had seen historically aren't the norm. And you really saw that again in the September, maybe early October time frame where we did see a significant amount of activity, and it was at rates -- 30-year rates that were higher than we had been accustomed to over maybe the last 5 to 10 years. So the challenge with mortgage will continue to be housing prices are just simply they're high right now. And then you couple that with interest rates that are as high as they are, it definitely is going to have an impact on the business. But now conversely, you look at where the 10-year yield is at today, and it's come down rather significantly from where it was at the beginning of the year. And if that continues to come down and the 30-year rate comes down, we should benefit just like we did back in September. So we're obviously watching that like everybody else. The second part of the question, I think, is on the prequalification. And that pertains to Fannie and Freddie making change to what they call their early assessment program where in the past, to be prequalified for a mortgage, you'd have to have a pull of 3 credit files. And they've said, "Oh, look, 2 or 1 would be sufficient." I would say what we've seen to this point over the last year plus is perhaps some changes on the margin. Nothing significant has changed yet. So our focus is to make certain that our offering is competitively positioned in the marketplace in the event that there is a rather significant change. But right now, we're not seeing much.

That's helpful. And just maybe on your competitive positioning, we've definitely seen your outperformance being significantly stronger compared to some of your peers. So can you just talk about what's driving that strong outperformance that we have seen over the last few quarters?

Yes. So the outperformance, I mean, first of all, it's the guidance and our philosophy is making certain that what we put out in the market for investors to assess is something that we have line of sight to. So we are -- maybe we'll get knocked for this, but we're conservative. And I would prefer that we are that way. So we want to make certain that we're able to be within range that we provide, but we run beating the high end of the guidance. So the only way that, that happens is just by solid execution of our product and our sales teams to be able to leverage the product that we have in market and to be able to deliver on the commitment. So I think that's the advantage that we've had. We've introduced a significant amount of product innovation just over the last year -- half year to a year, with replatforming our fraud products on the TruValidate platform; our marketing products in the TruAudience platform; as well as in communications, our Trusted Call Solutions. And all of those product capabilities are on our OneTru platform, and we're getting some significant benefit. So being able to leverage the efficiencies from that platform with the new product innovation, coupled with what I talked about with sales and the product people, is really what's given us the edge in the marketplace.

That's very helpful color. Maybe shifting gears a bit, just moving on to the Emerging Verticals. Can you talk about the dynamic there? You've continued to see really strong growth in insurance, double-digit growth. How do you think about the trends in insurance going forward? And then we'll talk about other segments as well.

Sure. Yes. So we're very excited about our insurance vertical. Last year, double-digit growth in that business. And when you've looked at the performance of the business overall in '22 and '23, still growth, but the growth was tempered. And primarily, what that was, was the impact of inflation on repair and replacement costs and insurance carriers not able to pass premium increases on to the consumer because they needed regulatory approval to do that. So by the time we got to the end of 2023 going into 2024, a lot of the rate increases had been put into effect. So what we enjoyed the benefit of is what we refer to as shopping activity. So if you see a premium increase, you may think that another carrier will be able to provide a better premium to you. So that shopping activity drives inquiries on our credit file. So that's been a positive for us. But I think what's more instructive about what's been going on in the insurance vertical for us is the marketing activity. So we've seen a meaningful uptick in marketing throughout '24 into early 2025, which means that the carriers are receptive to underwriting new business. So that's been a positive as well. So we're enjoying the benefits there. But we've been in the insurance vertical for a number of years. And as our insurance customers have grown, we've grown with them. And we've provided -- we've now -- we're now providing products and services that really complement what we offer with credit and marketing type of products, product that we call DriverRisk is something that is growing quite significantly for us. So that closeness to the customer, knowing what their pain points are and developing solutions that help their underwriting process has been a particular advantage and a strength for us in that vertical.

That's helpful. And then when we think about Neustar, I think Neustar did mid-single-digit growth in '24. But again, Neustar is split again between the Financial Services and the Emerging Verticals. So maybe if you can just talk about what you're seeing on the emerging vertical side in the retail, e-com, telco marketing, fraud products?

Sure. So Neustar, this is our fourth year of ownership. So '22 through 2024, Neustar grew at a mid-single-digit rate. When you exclude mortgage from our U.S. markets business, that growth rate was higher than the rest of the U.S. market. So it was accretive when you look at it on that basis. But we didn't buy Neustar to grow mid-single digits, right? Our expectation is that the business should be growing high single to low double digits. So we bought the company at a time when there was some uncertainty. We talked about with interest rates and inflation, and it still performed well. So we've taken the last 3 years to really get the products aligned. And I already talked about what we've done with the fraud and the marketing products. So we feel that we've set up the Neustar business quite well across our portfolio. In fact, it's even funny for me to talk about the Neustar business because we've integrated it into what we do at TransUnion. It's actually really hard for us to pull it apart. And I know you like to ask as many of our investors do, right? But -- and that's a good thing. You want us to have integrated this business. And that's really where we're at. So when you think about the opportunity within the Emerging Verticals, the TruAudience platform clearly plays into our media vertical. So we're going to expect the marketing business to drive some growth there. We've had some new wins. We'll expect to see the benefit of that more in the second half of 2025. The fraud products cut across all of the other Emerging Verticals, whether that's our tech, retail or e-commerce customers, fraud is a problem with our lives, so digital. Our products are enabling our customers to transact with confidence knowing who they're interacting with on the other side. And then Trusted Call Solutions. And this is a business that in -- a business -- a product line that in 2022 did $50 million of revenue. And in 2025, we're expecting that to be $150 million. So we've seen a significant amount of growth in Trusted Call Solutions. And what Trusted Call is, in essence doing, is it's bringing certainty to consumers that it's actually someone that they do business with, whether it's their bank or their mortgage provider, how often do you get a call on your mobile device? And if you don't recognize the number from your contacts, you don't pick it up. So what this is doing is it's putting a branded -- it's putting a logo and potentially even a reason for the call on the screen. So we've seen a lot of receptivity. So this is something when you think about Trusted Call, it cuts across all of the vertical markets. And that -- and by design, that is why the vertical -- the Emerging Verticals are set up, right? Years ago, it was intentional for us to go into these adjacencies to be able to take the core of what we have in credit and be able to exploit that into other areas. But what we're able to do then is augment that with newer solutions like fraud and marketing and the communications. Now we've been talking about Emerging Verticals. That doesn't mean that the products that I've just been talking about, they don't have applicability for Financial Services. They do, right? We saw a significant amount of Trusted Call as well as marketing and fraud into Financial Services. But what's probably even more exciting about the opportunity here is its global applicability on these products as well, too. So when we look -- and we did the Neustar acquisition. This wasn't just to solve problems for our U.S. customers, it was also a focus on could we export the IP to our international markets. So I know your question is about Emerging Verticals, but there's applicability to the international areas as well, too, for those solutions.

Yes. Before we move on to International, I do want to discuss the recent partnership with Credit Sesame. What was the rationale behind it? How should we think about the evolution of your direct-to-consumer product going forward with that partnership?

So TransUnion has always had a particularly strong consumer business. But over the last couple of years, there was a capability that was missing in our overall portfolio and that pertained to freemium. So TransUnion historically has sold products that are premium, meaning credit monitoring or 3-bureau monitoring and scores. And consumers coming out of the pandemic really embraced the freemium players. They were okay with seeing their credit and an offer alongside of it. TransUnion, because of the power of the brand, we generate so much web traffic. And there were consumers that just come to the website that maybe they didn't want a premium offering, and we didn't have that freemium capability to engage with them and keep them in our ecosystem. So we decided to partner with a really good customer of ours, Credit Sesame, where they helped us with the technology but also provided the offer inventory as well, too, for us. So we're really excited about the opportunity here. I mean we used to report the Consumer Interactive business as a separate segment. So those of you who are familiar with us know that this is a very profitable business for us. It had adjusted EBITDA margins in the mid-40s to 50%. So we felt that it was important for us to be able to have a more comprehensive offering. And that was on the heels of the acquisition that we made of Sontiq in late 2021, which also filled a gap in our portfolio at that time as it pertained to identity protection and also breach services. And that's a business that went from $95 million in '22 to $165 million last year. So we've seen some good growth there. So we feel that we've filled all the gaps, and we now have a really good solid offering in the Consumer Interactive space.

That's great. Switching gears, talking about International business. Can you just talk about what's going on with India? What's going on, on the regulatory side? What's driving some of the softness that you have mentioned on fiscal year '25? And how should we think about the longer-term growth trajectory there?

Yes, absolutely. So in India, late 2023, the Reserve Bank of India was assessing, as they do, the loan-to-deposit ratio in the market. And it got to an uncomfortably high level for the regulators. So they decided to impose some restrictions on the lending of the banks. At the end of the day, I mean, it really was about making certain that consumers didn't get overstretched. So probably a prudent action that they took at that time frame. It took throughout 2024 for that really to ripple through our business. And in the fourth quarter, we did see the consumer online volumes actually declined, but we grew 18% in the fourth quarter. And the reason we were able to do that, again, like the conversation we were just having with Emerging Verticals, we've designed the portfolio for our India business intentionally to not just be embedded within core credit. There's -- that 60% of our revenue. The other 40% comes from areas like our commercial database, our fraud products. We have an insurance vertical and direct-to-consumer capabilities. So while that part of the business -- while the consumer part of the business was slowing, our team in India did an outstanding job being able to leverage the full breadth of our portfolio to continue to drive growth. And that's how we were able to perform the way that we did. However, we flip to 2025, we do expect modest growth in Q1. But as 2025 moves on, we are expecting the trends to get better. The last meeting of the Reserve Bank of India, they cut interest rates by 25 basis points and also signaled that they felt like they have accomplished what they wanted to as it pertained to slowing the lending and making certain that the delinquencies didn't get too far ahead of themselves. And now indicating that, okay, maybe we're going to perhaps loosen that a little bit. So we're starting to see activity incrementally get better. So Q1 will be modest. Q2 will probably be a little bit better. And in the second half of the year, we think we'll have a better trajectory. So the 10% guidance that we put out for India, again, like I talked about at the beginning, I think we're being conservative but prudent to make certain that we achieve what we put out into the market.

Again, you have not given necessarily a guidance for the midterm to long term, but as you mentioned, as you exit the year, you expect the growth to reaccelerate. So that should -- that momentum should continue as we think about the next 3 to 5 years.

Based on what we're seeing as we sit here today, I think that would be true, right? But we need to see how just macro events play out throughout the rest of 2025.

Makes sense. Makes sense. Maybe just a quick minute on Canada. You've been growing faster than the market in Canada as well, and we have to talk about Canada, RBC conference. But just maybe a question on tariff there as well. Any impact there you see just with some of the tariff announcements this morning?

No, we haven't seen any impact yet. We have a terrific business in Canada, and that's been intentional over the last 10 years. I mean we were a very distant player in that market, and we put a concerted effort into customer relationships, perhaps maybe with even the sponsor of this conference, but driving innovation through those customer relationships. So our trend in credit, we've won a lot of market share. So if you look at the Canadian economy overall last year, it was challenged. And our business grew in the high single digits throughout the year. And that's really a testament, again, to the portfolio diversification that we have. So we're not just entrenched in banks and financial institutions, we've also gotten into other verticals like insurance and direct-to-consumer that have -- in fintechs, that have performed relatively well. So we're proud of what the team has been able to deliver in what we'd argue to be a challenging environment. But they have the tools as we go forward. Similar to how I talked about India, Canada is set up the same way to be able to persevere in a downturn.

That's great. Just shifting to the bottom line margins. Can you talk about some of the puts and takes for margins in '25? You're seeing some headwinds in '25, or not as much of a tailwind as we saw last year. How do we think about those cost takeout initiatives going into '26, but some of the other growth investments? So a broader question on margins.

Yes. So we announced the transformation program in November of 2023, and the intention always was that 2024 was going to have a significant increase in margin, and that happened. We increased our adjusted EBITDA margin by 90 basis points to 36.0%. We're not done with the transformation program. We're still -- we've still got the tech component that needs to be completed as we're moving U.S. core credit to the OneTru platform. So there's still some onetime spend that has to take place there. And then when we're done, we'll get some savings going into 2026. So it was never our intention for 2025 to have another big step-up like we did in '24. So that's why we made that clear in the market. But assuming we deliver the tech transformation on time, which all indications are that we'll be within that spend, there should be a meaningful amount of cost savings that we'll be able to realize in 2026 and thus, the margin should go up.

That's great. We'll keep it there. Thanks, again. Thank you, Todd.

All right. Thank you, Ashish. I appreciate it.