TransUnion ($TRU)

All right. I'm Jeff Moerberear's Information Solutions analyst. Pleased to introduce TransUnion, which is one of the big 3 global consumer credit bureaus and a broader information solution company anchored by a proprietary consumer identity graph that powers credit, ID and fraud, marketing and consumer solutions. I'm joined on stage by TransUnion's CFO, Todd Cello. Also at the conference, the IR team, Greg and Jason in the audience.

Maybe to start, Todd, you had an Investor Day this March. I want to unpack some of the messages. From a company description perspective, I just gave a bit of it, but there's a concept of a 360-degree view of a consumer with multiple different use cases and a common identity graph. I think there's still some investors that think of you as credit bureau first. So just help us understand like how broad the data that you know about a consumer is and how you tie it all together? What's hard about that so investors can start to think through implications in an AI world.

Sounds good. I think it's an appropriate place to start. Thank you for having us. This is always a great conference to be at. So for TransUnion, data is the differentiator for us. And those are the competitive advantages that, in essence, we have to enable our customers to what Jeff just said, to assess credit, but also to tailor marketing campaigns and to help mitigate fraud. So it all starts with our heritage of being a credit reporting agency. And if you think about the data that TransUnion is entrusted with, in essence, on the credit report, you have indicative information about the consumer, such as name, address, social security number, data birth, e-mail. And in essence, what that data does is it provides a spine for our identity graph. And if you think of the sourcing of that data, right, it's difficult to get to we're only 1 of 3 companies in the United States that gets this data. And the expertise we have is we link and match and we're able to put a consumer profile together. With that identity spine then what we're able to do is append our other data assets that we have. . So good examples of that would be data that we have on short-term lending is one example. We made an acquisition of a business called FactorTrust several years ago that gives us those short-term lender trade lines. Another area is ARGUS. Again, another acquisition we made many -- several years ago, where we have transaction level data on credit and deposit information on the consumer. We also have data pertaining to device-based fraud that we're able to append on this identity graph. And then on top of that, we manage Caller ID for the U.S. So all that phone signal information we have. So the expertise then is how do you pull all that together, put it on an identity graph. And it's not that this is necessarily something that's easy to do as well, right? Because if you just -- yes, those are proprietary assets that we have, but it's the linking and matching that we do to know that it's Jeff Meuler to put that identity graph together. So that's an area where we differentiate ourselves. Then what we do is we also have relationships with thousands of other data providers that we augment our proprietary data with. So lots of different relationships where, again, we're taking fragmented and maybe not consistent data pulling it together. We like to say we have this insatiable appetite for data. The more and more information that we can have on a consumer the better we're going to be able to represent that consumer in the marketplace and the better that our customers are going to be able to transact with confidence with those consumers. So that's something, too, when you think about just years of us with those third-party relationships like the, call it, think of that as like the network effect, right? So now you've built from our proprietary to the third parties. And then when our products and services are actually used, we get signal from that. So for an example, for -- in fraud mitigation, we're helping our customers mitigate but if we come across something that's fraud, we're able to capture that. So now you've got this flywheel effect that's happening. Marketing is another good example of that. When we are helping our customers build their audiences and there's corroboration with the consumer, we're able to know that information, and we're able to append that to the identity graph. But the identity graph is only as good as being as fresh as possible. So we're constantly updating the graph itself.

Got it. And I think a lot of investors have gotten more comfortable with AI risks on the credit bureau maybe anything else that you can say about the fraud and identity or marketing businesses in terms of why they're AI resilient. And I thought there was an interesting announcement from you, a partnership with Google for YouTube, a multitouch attribution. A lot of investors probably say, doesn't Google have a lot of data natively that AI can make sense of. So maybe that would be a good illustrative example of something that you do that investors may not inherently think of. .

Okay. So let's start with marketing and fraud. So First of all, the markets themselves, there's not necessarily a clear leader in the space, highly fragmented competition. But we are a scaled provider and how go about doing that is through identity talked through our -- how we manage identity and are able to represent the consumer in the marketplace. So as a result of that, what we're able to do is help our customers better tailor their marketing campaigns, build their audiences, know the performance. So in marketing, what we're doing is it's doing identity, we're building audiences. And then we are measuring. So to the second part of your question, we're really excited to announce the partnership recently with YouTube where, in essence, they are using our multi-touch attribution capabilities for measurement purposes. In essence, what they're doing is they've come to TransUnion to say, help us understand how advertisers are performing on our platform. And that's powerful for them because they want to know if you've seen a video YouTube and you saw an advertise what did you do with that advertisement? Did you convert? Did you go and buy something there? So the position that TransUnion in is very unique, because we represent the top -- think of the Fortune 100 in brands. So we have those relationships, and that's where the value we add to Google or YouTube is we bring those relationships. And we're also a neutral party as well. We're not placing ads. We're just helping to measure. So a good example -- another good example of that is we have a similar relationship with Meta. So the walled garden see value in using these capabilities. And these can be contracts that are 7 digits for TransUnion.

I think a lot of investors broadly in the market have placed information solutions companies in the AI loser or AI at risk buckets. And I think a lot of the management teams are sitting there seeing a lot of opportunity from AI. One of the anecdotes that you've given is the most AI-enabled or most AI resource customers consume more TransUnion data. Can you provide more detail on that? And is it frequency of data? Just is it additional use cases help us understand what that means? .

Yes. No, it's a great question. So the more sophisticated customers that we have, they want more and more of our data. So probably the best example is just models themselves, the risk models. Historically, lenders would update their risk models maybe on an annual basis, maybe every 2 or 3 years, what we're seeing is customers that have adopted AI into their workflows, they've been able to refresh those models a lot more frequently. We've seen examples of monthly now. So in essence, we're -- because they can take our data they're refreshing. So what's that to fresher data, kind of like how I was talking about the [indiscernible] graph, right? You have to keep it fresh. Fresher data helps them mitigate risk. So they're constantly updating terrorists that specific to credit that I'm talking about, but these models are also being updated in fraud and marketing as well, too. There's models that are built there. So over overall, that's one big way that we're seeing a benefit. We highlighted some of this in our first quarter earnings materials as well. The second important area is AI-enabled customers they're going to be more receptive to taking one of our product innovation. So whether that's scores or attributes or products like I talked about already in marketing with our audience generation, our fraud mitigation, our trusted call solutions as another example, they're going to be able to take more and more of that data. And what's kind of interesting there is the biggest bottleneck actually is more on the customer side, not on our side because before they'll take all this data they need to pause to test it and make certain that it's working appropriately.

So Is that because of regulatory reasons or what is the reason for that? .

Yes. So that's one of the main reasons that we differentiate -- one of the main areas that we would differentiate ourselves in is just the rigor that TransUnion operates in as far as being a regulated entity under the Fair Credit Reporting Act, it's in our DNA. We take being in compliance very seriously, and we've rolled that out to all the other products. When I talk about marketing and fraud, we bring that same posture. So from a customer's perspective, they value that deeply because they see how we treat the data and how we're able to then use it appropriately in the marketplace.

And you're on the tail end of your tech transformation and you have a modern data management platform, OneTru. It seems like that should align well for the AI era, but how is 1 true impacting your go-to-market or partnerships or monetization potential? I know you've given anecdotes on Snowflake and like seeing increased utilization lately. .

Yes. So I'll start -- let me start the answer to that more on the partnership because you alluded to Snowflake. Snowflake and Databricks are 2 larger relationships that we have. And what's off about those partnerships is that we are able to meet our customer where they're at. So if their data is in Snowflake or if it's in data bricks, we're able to use -- bring our identity product to that environment to help them be able to, in essence, resolve identities and to better market or mitigate fraud. So that's a really powerful capabilities that we have. In addition, OneTru has brought us pretty significant cost savings. We -- you had a transformation program that we announced back in 2023, we generated $130 million of cost savings as well as on an ongoing basis, we're bringing our capital expenditures as a percentage of revenue down from 8% to 6%. And the OneTru platform enabled all of that because in essence, what we're doing as opposed to managing disparate data centers all across the world, what OneTru is enabling us to do is to put all of those products and services on a common platform, and we're able to leverage that across the world. So needless to say that then drives product innovation. So at our Investor Day, in March of this year, we highlighted that in 2026, we're introducing 30 new products, 40 product enhancements that are going to generate $500 million of revenue over the next 3 years. So that speaks to the monetization part of your question in that we're able to see some pretty significant growth from [indiscernible]

So your financials have been good, good compounding growth, no evidence. I think from the outside of AI disruption, lots of good anecdotes, you kind of just gave us some revenue that could accrue over the next 3 years. Just I know this is a guess, but how do you think from the outside in your financials, we're going to -- like when do you think we're going to start to see some of the benefits from AI more tangibly from the outside to your business? .

I think as I've already walked through, right, the 1 true platform is AI-enabled. So I'd make the argument that we are starting to see that, right? And our expectation as far as the growth algorithm that we put out again back in our Investor Day in March is for high single-digit growth over that period of time. But what's important is that guide does not include any upside from AI capabilities. So I give you -- we talked already about the identity graph and products and marketing and fraud that we feel very confident that we're going to benefit from. We look at that as all upside to the medium-term guide that we provided. So we've been performing, I think, pretty well over the last couple of years with high single-digit growth. underlying margins growing at least 50 basis points. And that's kind of an okay type of macro environment that we've been able to post those results. So we've been busy innovating and driving AI into our products and services. So the expectation is that if the market holds the way that it is and we continue to execute the AI product and service is going to be upside to that number.

If the market holds, I'm not going to lie when I saw TransUnion announcement Investor Day, I got a little cautious. Correlation doesn't mean causation, but 2019 yet at Investor Day within a year, we had Code in 2022. The next day, the Fed is raising rates. Right on Q for March. We have an Iranian conflict. You said that Q1 results were good. You said volumes are holding up into mid-April. Can you just give us any update on gas prices where they are with any other macro factors are things still holding up in your business? .

Well, thank you for the sobering update. And our timing on Investor Day, for sure, it's been challenging in that regard. What I would say is we talked about in our April earnings call, really strong order but with the conflict in Iran, we felt it was the prudent thing to do was to not raise for a pretty meaningful beat that we had in the quarter, just as we navigated a lot of uncertainty in the marketplace. So what I can tell you is through the middle of May right now, the volumes that we talked about on the earnings call at the end of April, have continued at that same level. So consistent with what we said on the earnings call, the expectation would be if that continues for the rest of the quarter that we should be at the high end of our guidance or above. So that's where we're at right now.

And then you talked about 50 basis points of underlying margin expansion, which is good, but you're using the phrase underlying, and I think investors are kind of pushing back on your margin trajectory for a couple of years, and it felt like you were approaching an inflection with tech transformation and other things. So just help us understand what you mean by underlying and maybe talk through what type of margin trajectory you're on? .

Yes. That's an important point to clarify for those of you who aren't familiar with TransUnion, the way that you probably are aware that FICO, a partner of TransUnion and with scoring, increased pricing for mortgage quite significantly at the end of 2025 for pricing in effect in 2026. We treat that product from FICO as a pass-through. So what they charge, we pass that through to our customers. So if you think about it from a margin perspective, there's revenue and then there's an equal amount of cost. And FICO over the last several years has been more aggressive with their pricing. So what's happened then is our margins, if you look at them in aggregate, because of the dynamic I just talked about, the margins were kind of flattish. And what in essence that was doing is it was masking a lot of the really good work that we've done from an operational perspective, and I talked about this already with the transformation program and the cost savings that we've been able to achieve. So we are now -- we report our adjusted EBITDA margin as reported with FICO royalty in there, but we are also showing that, so excluding it from the revenue and excluding it from the expense so investors can see the underlying margin of the business on the things that are more controllable. And just to expand a little bit more in FICO, it's predominantly in mortgage, right, that they have -- that there is pricing power that they're able to leverage. So that's what we're adjusting for as FICO mortgage.

So your mortgage revenue grew 24%, excluding FICO royalties in Q1 with inquiries plus 7%. What all goes into that delta? And then maybe more importantly, what do you expect for go-forward mortgage pricing on the credit file post 2026? .

Yes. So we -- obviously, a tremendous amount of value on data. And when I talked about the identity graph earlier, hopefully, you got an appreciation for the power of the data. And I talked about scores as well, too. Scores don't work without the data, right? So we maintain the data. So we have an appropriate price to reflect the value that bring to our customers for the data. And then specific to mortgage on an ongoing basis going forward, I would expect us to have a CPI-like price increase for mortgage.

And how do you think about the pricing on Vantage score and mortgage? You came out with an intended price, you cut the price earlier this year around Investor Day. What's the go-forward opportunity, including if FICO continues to take aggressive mortgage pricing? And anything you want to say about what you're seeing on the initial rollout of Vantage score in terms of uptake or what the market's doing or how it's using [indiscernible]

Yes. So the FHFA who regulates Fannie Mae and Freddie Mac, in essence, have enabled Vantage score to be used, where over -- in the underwriting of a mortgage. So I think over the last 30-plus years Fannie and Freddie were only buying mortgages in the secondary market if a FICO classic score was part of the transaction. So in essence, there was almost -- there was a monopoly situation there. So the FHFA acknowledge that and have enabled competition in the space. Vantage score has existed, I think, since 2006. It's a collaborative effort between TransUnion, Equifax and Experian. It's used quite extensively in other areas of the market outside of mortgage. You'll see it as an example on our direct-to-consumer platform. That's the score that we leverage and some leading credit card issuers also use it as well, too. So we're looking at the opportunity now that there's competition in the market. So what we did on -- right before our Investor Day, is we lowered the price for Vantage score to $0.99, and that compares to $10.95 for the FICO scar. And what we're trying to do is to just drive awareness and ultimately, adoption of the score. And to this point, we've seen a lot of receptivity from lenders. Just in the last couple of weeks, Rocket Mortgage said that they'll be using Vantage score United Wholesale Mortgage also has indicated that they'll be using it. So there seems to be some good movement. But with that being said, this is going to take some time. to do. It's not something that's going to just simply flip over because as I already said, we're looking at like 3 decades of a process being a certain way. So our expectation is that the market is going to take some time to assess. And as a result of that, we didn't put in our guidance this year any type of Vantage score adoption for that reason.

Got it. Maybe just to move on to markets I think investors sometimes have a perception about TransUnion being more cyclical than it is or the stock trades higher beta. In your consumer lending business or you're very strong in fintech it's in growth 20% range recently. Just how cyclical do you think it is and maybe go into some of the structural growth factors that are contributing to that growth? .

Yes. So in consumer lending, I mean, primarily, it's relationships that we have with fintechs. And just personal lending itself has become more of a mainstream product, what started off initially as a subprime targeted type product, now you're seeing that mainstream. I get offers for it all the time when I sign into my credit card issuers, unsecured personal loans, it's very prevalent in the marketplace. So with it being more mainstream. In essence, what we're then able to do now is we're able to sell more products and services to the consumer lenders. So as opposed to just selling credit and scores, we're also bringing a lot of our product innovation. So marketing, trusted call solutions, a couple of good examples that we're able to sell in there. So we're there could be some cyclicality in the business. We look to offset that by selling those products and services. But overall, it's a strong grower in our portfolio. It grew over 20% in the fourth quarter, it grew 13%. in the first quarter. We have a unique position, but we're not overexposed to it either, right? It's like -- it's about $145 million worth of revenue for us on a $5 billion plus Peak was about $175 million back in 2022. So we still see some good upward trajectory in this space.

And then outside of financial markets in the U.S., you have an emerging vertical segment that does about $1.3 billion of revenue. It was growing 3% to 4% in '23 and '24. It accelerated in '25. What are the biggest factors going into its acceleration? Or how sustainable is the recently faster growth?

Yes. So one of the bigger drivers within the emerging verticals is our insurance vertical, and this is where we're servicing property and casualty insurers, but a whole host of other insurers as well. In 2022 and '23 with high inflation, many of these insurers pulled back in underwriting. And as a result of that, their marketing activity also pulled back. What we've seen over the last couple of years is the insurance business snapped back quite nicely as the insurers have gotten rate adequacy. They've come back to market and marketing is almost fully recovered in the insurance space. So that's a big driver. That's about 30% of the overall revenues within the emerging verticals of about $1.3 billion. Once you get out of insurance, the remaining verticals, we call them that diversified market. So we serve just that, right, diversified. So think of like retail, e-commerce, media as an example. And where we're seeing the growth rates there tick up especially is the fraud and the marketing products that I spoke about earlier. That's where the growth has been coming from. In the first quarter, we saw about 6% growth in the emerging verticals. What I would tell you is that the bookings and the retention that we've seen with those customers in the diversified markets, it's actually been very strong. So we expect that those growth rates are going to accelerate as the year goes on.

We only have a minute International is a big part of your business that's not growing at its typical growth rates. There's lots of things going on there, India, Mexico. I guess what are you most excited for in international over the next several years? Or what are the key pieces to getting it back to its typical growth rate contribution to TransUnion?

I think we're -- the portfolio in international is amazing. I mean we're -- we continue to be super excited about the potential in India. took a step back, regulator cooled the market down. I could tell you there is in May, volumes that we've seen in India would suggest that we are on that path to mid-single-digit revenue as we've guided. So we're really excited about that. And there's just huge runway. We made an acquisition of credit bureau in Mexico that we were an initial shareholder on going back 30 years ago. We were the technology partner. We finished that acquisition in March. similar type of dynamics in India as well where we can bring our growth playbook and drive some meaningful shareholder returns.

Excellent. And we will wrap there since we're out of time. So thank you for your insights on TransUnion.