TransUnion (TRU) Earnings Call Transcript & Summary

Andrew Steinerman, your business information services analyst. Alex Hess, my Vice President of my team. Also on your way out, grab an information services data book. We just published it yesterday, which means we worked on it all weekend. This is the TransUnion session. I'm with Chris Cartrich, CEO, IR, Greg Bardy. This is the [ Info Services ] track. The business services track is there. The payment services track is here. Welcome to the Ultimate Services Investor Conference. Chris, welcome back. Thanks for joining us.

Thank you, Andrew. Always a pleasure.

So most recently, I've been hearing you talk about high single-digit organic revenue growth. My question to you is pairing that up with double-digit EPS growth and the term you used, that's indicative of TransUnion's earnings power. My question is, what gives you confidence? It seems like you're kind of rolling out that message more recently. So it's truly on your mind. And what needs to happen to achieve those medium-term targets?

Yes, good question. So we're going to be hosting an Investor Day next year in March, I believe it's March 10. And obviously, then we will officially roll out our growth guidance. And -- but I thought it was important to start sharing with the market our views as to how fast we can grow and the type of EPS that we can deliver in normalized market conditions. I guess the first kind of proof point is just the inherent growthfulness of our portfolio as we've demonstrated since our IPO in the middle of 2015. We have consistently grown in the high single-digit range with the exception of the turmoil of COVID and also the lending recession that happened in the '22, '23 time period, largely because of a huge spike in inflation and a corresponding spike in rates and loan prices. As the markets return to first, a subdued, but at least a stable market, which is how I would describe the '23, '24 period. And then now in '25, we have stability, but we actually have some volume improvements, you're starting again to see how growthful our market positions are, particularly in U.S. financial services, positions that we've built through a combination of having the leading trended data and analytic attributes in the industry and the leading kind of down market small dollar unsecured credit information, right? And that, plus the combination of our go-to-market and our vertical specialization allows us to really benefit from market growth in this kind of high single-digit level. Now in addition to that, we have been investing heavily in the business for the past 3 to 4 years. A number of product rejuvenation or platform innovation initiatives and even internally, things to position us for structural cost savings over time. I would point to the development and the launch of our OneTru platform, which is a next-generation global configurable platform upon which we run our credit marketing, fraud and investigative solution businesses as well as having an analytics sandbox that cuts across the top of them, all based on a unified pool of identity data that is common across all of those various interrelated applications. That was a heavy lift technologically. We have completed the majority of the investments and launched the platform and are now running parts of our credit marketing and fraud portfolio in the U.S. on that platform. '26 is a big year of migration. But already, we're seeing the benefits of that innovation in terms of higher growth rates in revenue than we have seen previously. And so all of that product development on top of the next-generation platform is additive to the inherent growthfulness of the market positions that we've built over time. As we move our revenue to the new platform, we're going to be able to save by demising all of the infrastructure and people costs associated with the old. So we're going to be transitioning over the course of '26. Currently, the P&L reflects that we're maintaining 2 environments, right? At the end of '26, we will be demising in the old environment, which will give us a structural improvement to our costs. Now as we roll into '27, we'll take a portion of that and flow it to margin, but we'll also retain a portion so we can continue to expand our go-to-market resources, right, sellers and fuel continued innovation and product development to keep the top line revenue growing, which has really good profit fall-through. But we also need to preserve some of that so we can go to the next country and the next country and maintain duplicative costs while we move from the old to the new. And when we do that, the next country, say, the U.K. or Canada or the Philippines, as is the case, we'll get the benefit of our best-in-class products, right, that are represented on the new platform on a more modern technology and then we'll demise all of the related old costs of the infrastructure, a lot of the development resources, even some of the product management resources as the org shifts to a common configurable global platform that creates both growth and scale in the business. We've been also doing similar investments on our internal technology, right? We call that true ops. So we're going to a standard set of processes and technologies and even people through our offshore capability centers for actually running the business and supporting our customers and managing all of our consumer disputes. Again, as we move from the legacy old, which is fragmented to the consolidated new, there's going to be ongoing cost efficiencies that will fuel revenue growth and profit expansion. And then finally, having a lot of this investment behind us, we're generating more cash, more free cash flow. We will have 90% plus free cash flow conversion next year. And we've been buying back shares at an accelerated rate because we don't like our current valuation, and we want to take advantage of that. So you can expect us to be more aggressive on the capital allocation front in terms of share buyback, debt retirement and if rates do drop, refinancing the entire debt stack, all of which is going to further drive EPS.

Okay. So in that answer, I heard your view on U.S. consumer credit activity as with some volume improvement. I hear any caveats. So if you wanted to make any caveats to that language about the consumer credit backdrop, it would be good to do it inside this question. I'm looking at U.S. Financial Services, and the company has seen double-digit non-mortgage revenue growth over the last couple of years. So obviously, that's more than just volume recovery in the market. So if you could pull apart for us, again, non-mortgage revenue growth within U.S. Financial Services, how much of that is volume improvement in the marketplace versus just TransUnion winning more cross-selling, et cetera?

Yes. So I guess, first, some comments on the health of the market and what we're seeing in real time. In the Q3 earnings, and we've done this for, I think, the past couple of quarterly earnings presentations, we have said that if the market conditions that we were experiencing at the time persisted, we expect it to be at the high end or above of our guidance. And we said it again in Q3. And again, we're seeing that the market conditions are persist. October is in the books. It was good. We're in November now, and I look at the volume reports daily. I'm not seeing any declines in any lending categories thus far. And I hope that continues over into '26.

And you say you don't see declines is volumes continuing to improve?

I guess what I'm saying is I'm seeing a continuation of the strong volume trends across all consumer lending categories that we experienced in the third quarter. And so we would -- we're very comfortable and confident with how we have guided at this point. And look, I've had a couple of meetings this morning. There's been a series of questions about are you seeing deterioration in Subprime and are you seeing deterioration in lower income consumers. And we're not, which is why I'm sharing the loan volume perspective that we are currently experiencing. And look, as we all know, there have been a lot of really negative forecasts about the implications of trade or economic policies that have not come to pass yet. The consumer has proven to be pretty resilient. The consumer is still employed with some real wage gains and a reasonable level of debt of leverage and supporting the debt volumes that they've got with low and manageable delinquencies. So, so far, so good.

Right. I just want to say, like I heard you said no deterioration in Subprime, but is it also the case that super prime is doing better than Subprime in terms of volume improvement? Or are they both constructive?

They're both constructive. They're both constructive. And look, one of the reasons why we're seeing such good growth in consumer lending, and I think pivoting to the other part of your question is, certainly, there's some overall market growth in the U.S., which is great, and I think things can remain healthy. We are also enjoying some share gains because we're competing really effectively. For example, we replatformed our payday lending credit solution, which is called FactorTrust before onto OneTru. In the process, we reengineered the data. We built on a lot more of the analytic attributes that are necessary to create more predictive models. So the data and the models are producing better predictions than ever. That's allowing us to take share and to win at a higher rate. Our growth rate from that area alone is going to be 20% plus this year and the pipeline that we've built is considerable. So innovation through this OneTru platform and the rejuvenation of the various products that rest on the platform is increasing our growth period. And then on top of it, we have added a lot of relevant growthful products to core credit, marketing services, call authentication services, fraud mitigation and a new analytic platform, TruIQ. All of that is driving our dollar growth beyond what you would get if it was simply explained by volume growth or volume growth in any one lending category.

Okay. So let's talk about the mortgage market. I know it's been very hard for anyone to predict the mortgage market in terms of volumes, but I'm going to ask you to do this kind of looking at 2026. I want you to talk about what you sense will be driving your business in 2026. I'm going to mention 3 things: lower mortgage rates, the commercialization of Vantage 4.0 with GSEs? And then also any moves around or really towards [ prequal ] and pre-approvals?

Yes. So in terms of the rate and the volume environment, I'm not going to prognosticate at this point. We're planning for a steady volume environment. If rates do dip, I mean, currently, the 10-year is floating between 4 and 4.1%, something like that. If it drops into the high 3s, if we get [ 3.7, 3.6, ] it will lead to more refinance activity. We saw that in mid- to late '24 when the 10-year [indiscernible] like 3.6, 3.7 levels. We saw an uptick. It only lasted for a few weeks and then the market began to worry about inflation again. and the rates went back up. So look, in a steady-state environment, I expect that we will continue to grow our mortgage revenues and drive profits independent of changes in the relationship with FICO or the cost of the FICO score in mortgage. And I know we can talk about that in a bit more detail. The new pricing that we've put out in the market preserves and grows our '25 level of profitability from the mortgage segment. It also gives us more degrees of freedom in how we manage it. And then as the market gets comfortable with 2 scores and begins to choose between FICO and Vantage, every VantageScore sold in the market is a new revenue opportunity with a very high profit fall-through for the bureaus, right? We've never been able to enjoy any profits on the mortgage score before. But the mortgage score has been a rapidly increasing cost that's driving up the top line, but not producing any profit. And so it's been a consistent pressure on our margins, right? Now with a different relationship with FICO, we can separate that out, and we'll be able to show the core of the business independent of the FICO score, the growth rate, the profit pool and the considerable margin health of that part of the business. And then we can focus on the impact that the score has on the profitability of the enterprise and the like.

You think we'll learn a lot in '26? Like is there enough interest in Vantage that you'll actually see [indiscernible] adoption [indiscernible] '26.

The starting point that I would say is -- all the lenders are familiar with the VantageScore. All the lenders use the VantageScore today. They use it for portfolio management. They use it to value their collections before they sell it to third parties. They give it away to consumers. They use it for internal analytic purposes because they want to manage their costs, right? They haven't been able to use it in mortgage origination because of a regulatory hurdle. That's been lifted.

And the securitization markets, right?

And yes, for 30 years, there was only one score permitted. And all of the elements within mortgage origination through securitization and purchase are kind of calibrated around FICO, right? But it's not like the banks are starting from -- it's not a standing start and familiarity with the Vantage. It's also important to point out that there are large players like Synchrony and card that only use Vantage and securitize with. right? And that there are players in the auto market that also use Vantage. And there are plenty of lenders that originate mortgages that they hold on their own books that use Vantage because they wanted to have a more predictive score at a lower price point. So there's a lot of familiarity. That said, there's also a lot of learning and experimenting and just gaining of comfort in a year of transition. So I think '26 is going to be about allowing free access to the VantageScore for all of the lenders so they can do the analytic work and the calibration to understand what, if any, impact Vantage would have and then grease the skids for greater adoption and share transfer in '26 and '27 and I think increasingly thereafter. And again, it's important to point out that we have retained and will grow our pool of profits on mortgage in '26 with the pricing that we put in place. And there's a lot of upside as market share shifts to Vantage, which it inevitably will, we're going to have something new to sell that has a very high flow-through to profit. It's going to drive EPS. It will be helpful to margin, et cetera.

I didn't quite hear if you had said anything about [ prequal ] and pre-approval. So...

Thanks for the reminder.

In originations, you have to go by what the GSEs want or let's say, to what securitization markets want and you're going to have a tri-merge. But in [ prequal ] and pre-approval, when lenders are looking for consumers to lend to in mortgage, they could use 1B. And somehow, there really has been a trend. I can't exactly say when it started, but it was somewhere about 1.5 years ago, where in prequal and preapproval, and I assume it's just because of cost because they don't know if that's going to originate or not, that there's more use of 1B and 2B. Just tell us where we're at. Like do you feel like that has stabilized? And then, of course, I'm going to ask you, how does TransUnion position itself to be that in that 1B or 2B?

Yes, for sure. So the early assessment program, which now allows a lender to pull credit score and submit it to the GSEs and get an indication of whether the GSEs would ultimately purchase that loan has been in place for a while. And so I think initially, there was thinking that we would go from 3 to 1, but that hasn't happened. And part of it, of course, is transitions take time. But the more important factor is just understanding the revenue dynamics of lenders and brokers. And when they are working with a prospect and it's a revenue opportunity, right, and they're competing for that business, if they pull only one, right, there's a chance that they may not get approval for that client because the bureau score may not be high enough or it may not be optimized to get that client the lowest price. And without the lowest price, the client may shop more. And so they're incented to pull more than 1, which is why today, they're pulling 2-plus bureau files per origination. But then on top of it, the compensating positive is that with the early assessment program, you can pull a credit report and not have a hard inquiry show up on the credit file and hard inquiries degrade your credit score, right? Now it's a soft pull. So now the consumers know that, they can shop more. And so you're seeing shopping activity compensating for some of the pull savings that the prequal program was intended to produce, right? So the net of it is not that great a diminishment in the upfront credit diligence that we're seeing.

Okay. So you're saying it's sort of a wash at this point, close to a wash.

Yes, it's close to a wash or certainly not concerning diminishment, right, for the industry. The other thing I would say is, look, we have been well positioned and I think performed well from a share perspective in that part of the mortgage chain because there's a lot of respect for our trended data. There's a lot of respect for the innovation that we've produced in alternative data, whether it's going down market and having the Subprime and the unsecured type of data as well as a leading share of rental payments that are contributed that can now be used. And so I'm -- I think you've seen us gaining share in that segment since this has been announced a couple of years ago. And I don't see anything that's going to disrupt that.

Okay. Great. Turning to Emerging Verticals. In the third quarter, you achieved 7.5% organic revenue growth, which is really the fastest organic revenue growth that we've seen in years. My questions are sort of multifold. Like one, what sort of made that happen? And is it sustainable? And particularly, would you be pointing to fraud prevention and marketing solutions?

Yes, and I would, yes, kind of across the board. I do think a higher growth rate is sustainable. And maybe the first thing is just to orient roughly 78% of our revenue, which is $4.5 billion plus in '25. comes out of the U.S. So it's 80% in the U.S. And of that 80%, it's a 50-50 split between the traditional credit information and then things like consumer, fraud, marketing, analytics, communication solutions, investigative solutions, the related products. I would say that part of what gives me confidence in high single-digit revenue growth go forward is that all of those products have been substantially retooled and improved and are starting to grow at faster rates. And that's certainly true of marketing and it's very true of the communication solutions, which has been compounding low double digits since we acquired the business. It's been amazing, and it's a huge market. And the type of authentication that we're providing to inbound and outbound phone calls, we will also expand and begin providing to text messages, which are another vector of fraud. And then in this era of AI, bots can make phone calls and impersonate people, but we have technology that can listen to the content of that call and identify whether it's a bot or a human, right? So there's a lot of vectors for growth around communications authentication, which is part of fraud mitigation or marketing effectiveness and then core to our strategy. So all of the products that are overweighted relative to credit in the emerging sector are better and starting to grow faster and thus lifting the growth rate in the sector. If we can continue to execute and grow those things more rapidly, and it's a combination of having built better products, but also adding sales resources, which we are doing substantially in the second half of this year, we're going to permanently get higher growth rates out of that part of the portfolio.

Okay. That makes sense to me. When you're talking about OneTru, one of the biggest things is an enhanced identity graph. I would say core to a credit bureau is identity graph. How do you know that OneTru is a leading identity graph? And do you feel like you're winning some of those solutions in marketing and fraud preventing the course of OneTru's identity graph compared to other choices?

Sure. Well, look, identity data in the identity graph underpins every information product. It just happens that credit reporting agencies have particularly broad and accurate and current identity because consumers maintain the quality of that information because they don't want to get evicted from their homes or have their cars repossessed or their credit cards cut off. So it's kind of the gold standard for identity. So having that as a foundation is helpful. But we're also the only bureau that also has a public records business in the U.S. And so -- and I always hate to say this, but we're kind of -- we're #2 behind LexisNexis in public records. We hoover in publicly available information at the federal, at the state, at the municipal level, all of that produces tremendous identity signal. And that is core in our data foundation and part of our identity graph. We're also a leading provider of marketing information. Marketing information helps us substantially enrich the identities in the underlying graph. And then finally, because we are one of the leaders in online fraud mitigation and phone-based fraud, right, we're getting a ton of device-based identity signal that we're able to then associate back to individuals and individual addresses and then the entire range of information that we have. So in short, we have the best identity in the market because we have the most expansive collection of relevant data. And we've been able to all associate this around that core object. That core identity object, again, is common across our whole suite of solutions. So if you're doing credit analysis and you develop the prioritized list of consumers that you want to market to, when you then pivot to enriching those with marketing information and developing audiences to then market to, there's no degradation. There's no identity signal loss as you move between credit, marketing and fraud. It's all common and it persists across the process. And that is unique in a structural industry change that we have created with these investments in the OneTru platform. And so I don't know if you said this or others have said this before, they've said, look, everybody's got identity. Everybody talks about identity. Every restaurant has food, too. It doesn't mean it's the same, right? You can go to McDonald's or you can eat a multi-michelin star. We're more of the latter.

But are you -- like have you ever had any third-party benchmarking of your identity graphs. Like to me, it seems...

No, but I'll tell you what, because there is no third party, but I'll tell you what. Identity is growing in the high teens since we have innovated in the way that I just described. And the clients bake it off every day in the course of their decision-making around credit marketing and fraud. We know it performs extremely well. And not only is it a great repository of data, around which we -- that we have appended to these customer identities. But we can take identity as a service and push it out into the data ecosystem where our clients' data lives. So they don't have to ship the data back and forth, which they very much don't want to do, right? So I can push my identity graph and my identity resolution capabilities into some big banks data center where they've got conflicting and unreconciled consumer information coming in, and I can bring that together in a golden copy that they can use for all of their internal sources. If those banks have pushed into a public cloud provider or into the Snowflake stack, again, we're there as a consumable service. So it's not just our identity that we can do that with, we can do that with all of our data and all of our data enrichment capabilities. We can push that widget out. We can connect it to our clients' data sources, and we can provide ongoing enrichment and rationalization of their underlying data.

Okay. Something that stood out to me in the conference call was you said that you've been tracking your AI-enabled customers and that they consume more data than, let's just say, a benchmark traditional cohort. I was hoping you could just talk more about that, like what are these AI-enabled customers doing differently with TransUnion? And then, of course, how is that going to lead to more revenue growth?

Well, I think AI in general, performs better, the more high-quality content you can put into it, right? And so clients that are increasingly relying on AI for parts of their analytic and either underwriting or fraud mitigation or marketing processes want the greatest volume of high-quality data input. And so if you are a data provider and you've got really good stuff, you're well positioned because they want to buy it and use it because it produces a better outcome for them. And we see that across the piece with clients that are kind of leading in AI adoption.

Okay. Question from the audience? Go ahead, [ Raj ].

What sort of customers -- so in terms of new customers, are you getting fraud first customers? Or are you getting credit first customers and cross-selling into one another? And then maybe a follow-up on that would be, by 2030, would you be known as a credit bureau? Or would you want to be known as a fraud data solutions provider company?

Sure. I would say from 2025 and even earlier, we are a global information and analytics company around consumer insights, anchored by credit certainly, which is a great data set and super predictive. But the information that we bring to bear for clients is far broader simply than credit as you look around our portfolio globally and as represented by 50-50 mix that we talked. In terms of the synergy, the process complement between credit and marketing, you're going to see more cross-sell and more interplay there, right? Because -- I mean, look, think of it. If you're a risk officer and you want to originate more loans, you may look to the credit file first, and you may look to the credit file combined with other internal experience your bank has or your insurance company has with the market and figure out what segment of the market is most desirable for you. But then you have to go actually get those customers. You have to plan the marketing in an intelligent and cost-effective way and then measure the success. And so you bridge over into marketing. So on the platform, we have built integration between the credit origination process as it goes from credit data analytics to marketing effectiveness and measurement. And that loop, that circle is going on every day, every month within our big clients. So I expect more cross-sell there going back.

Okay. I think we have to end. Chris and Greg, thank you very much. So next up is NIQ. If you want to grab an information service data book, they're up here. Thanks, everybody.