TransUnion

Good day and welcome to the TransUnion 2021 first quarter earnings conference call. All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch tone phone. To withdraw your question, press star then two. Please note this event is being recorded. I would now like to turn the conference over to Aaron Hoffman, Senior Vice President of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us today. I hope all of you remain safe and healthy. On the call today, we have Chris Cartwright, President and Chief Executive Officer, and Todd Cello, Executive Vice President and Chief Financial Officer. We've posted our earnings release and slides to accompany this call on the TransUnion Investor Relations website. Our earnings release and the accompanying slides include various schedules which contain more detailed information about revenue, operating expenses, and other items, as well as certain non-GAAP disclosures and financial measures, along with their corresponding reconciliations of these non-GAAP financial measures to their most directly comparable GAAP measures. Today's call will be recorded and a replay will be available on our website. We will also be making statements during this call that are forward-looking. These statements are based on current expectations and assumptions and are subject to risks and uncertainties. Actual results could differ materially from those described in the forward-looking statements because of factors discussed in today's earnings release and the comments made during the conference call and in our most recent Form 10-K and Forms 10-Q and other reports and filings with the SEC. We do not undertake any duty to update any forward-looking statements. With that said, let me turn the time over to Chris.

Thanks, Erin. Let me have my welcome and my best wishes that you and your families are healthy. At TransUnion, our associates continue to largely work from home and continue to demonstrate their ability to support the needs of our customers and consumers. I remain grateful for their efforts and commitment. Now I'd like to lay out the agenda for this morning's call. First, I will discuss some of the broad macro and TransUnion-specific trends that we experienced in the first quarter. and how they set the stage for a much stronger year than we previously anticipated. Next, I will discuss our portfolio and strategies, which position us for high single-digit revenue growth at an attractive growing margin over the long term. Finally, I'll pass the time to Todd to discuss our first quarter results in detail, along with second quarter and full year 2021 guidance. Let me start with our strong performance in the quarter. We significantly outperformed our guidance as we experienced a rapid recovery in many markets throughout February and March. Todd will discuss some of the specific revenue trends later as part of his remarks, but the takeaway is that we broadly saw trends improve across our business, consistent with the many improving macro indicators. Notably, according to a JP Morgan report, U.S. consumer spending accelerated during the first quarter, outpacing 2019 levels. And according to the Labor Department, unemployment fell to 6%, a pandemic low. In March, small business owners felt the most optimistic since the onset of the coronavirus pandemic, according to the National Federation of Independent Business. Taken together, these and many other salient points from the first quarter indicate the start of what we hope will be a long, sustained economic recovery in the U.S. as Americans return to more normal work and social behavior. We've seen similar trends in our key international markets. In the U.K., consumer confidence reached its highest level in a year, while income is expected to grow along with consumer spending in the coming quarters. In Canada, unemployment reached its lowest levels since March 2020, and consumer confidence hit pandemic era highs. And in India, reported unemployment dropped below pre-pandemic levels, while consumer confidence and spending continued to recover. Like these metrics, our business improved as uncertainties resolved themselves positively, business prospects improved, and health concerns moderated. In short, The consumer has strengthened and businesses have regained confidence. For our business, that led to a resurgence in demand for lending and new customer acquisition, resulting in improved non-mortgage performance in our financial services vertical, even as the rate of mortgage growth slowed. Similarly, results accelerated as demand strengthened across our emerging verticals, highlighted by double-digit growth in public sector, tenant and employment screening and media. In our consumer interactive segment, we saw better than expected performance as our direct business remained strong and declines in indirect channels moderated. We saw similar results in our international markets with trends improving quarter over quarter in all our regions except the UK. I would note that we continue to see the fragility of reopenings around the world as evidenced by recent targeted lockdowns in Canada, lockdowns in almost all major cities in India, including Mumbai, and in parts of Colombia and elsewhere. This illustrates that recovery from the pandemic will be volatile and nonlinear, which we've attempted to accommodate in our financial outlook. Nonetheless, given our strong first quarter and the more positive macro environment, We have substantially raised our full year 2021 guidance. Todd will provide you with the details later. Importantly, we remain confident in our long-term growth algorithm of high single-digit revenue growth at expanding attractive margins with double-digit EPS growth. Now I want to spend a few minutes on TransUnion's differentiated market position and approach, which fuels this long-term growth algorithm. I've discussed these points on past earnings calls, but want to review them again as we continue to progress in each area. First, we have a track record of delivering outsized growth across the markets we serve through innovation and disruption leading to share gains. For example, in the U.S., we've grown rapidly in financial services due to our first mover advantage in trended and alternative data, which provides better credit insights for lenders and are deep understanding of their needs. This innovation in customer intimacy has helped us to grow much faster than the market as a whole. We also have developed deep partnerships with leading FinTech lenders, positioning ourselves uniquely to grow as e-commerce continues to disrupt traditional delivery of financial services. We've attacked in the insurance market by expanding from a credit and scores only position in personal auto underwriting and many more. We established a media vertical and have won meaningful new relationships with partners such as Comscore, MediaMath, and BlockGraph, which is owned by Comcast, Charter, and ViacomCBS. And earlier this month, we signed an agreement with OpenAP, a consortium of Fox, NBC Universal, and ViacomCBS. We also announced earlier this month that we will extend our presence in the fast-growing online gaming and gambling markets in the U.S., building on our success in the U.K. In both cases, we provide valuable digital identity and fraud solutions to site operators to ensure they comply with local regulation and thwart the efforts of fraudsters. Importantly, we will not offer solutions designed to extend credit to gamblers. In our consumer interactive segment, We engage consumers directly and indirectly through channel partnerships across industries with solutions for personal financial management, identity protection, and targeted credit offers. We established this attractive combined approach more than a decade ago by partnering with market leaders and benefiting from their growth. Recently, we've moved our direct-to-consumer business under our U.S. markets leader, Steve Chalky. These two businesses can now combine the best of their offerings and pursue opportunities primarily in the indirect channel where we help our customers serve consumers with engagement solutions such as the credit view dashboard. By closely aligning US markets and consumer interactive, we can better leverage our combined capabilities. I will continue to share our progress as we develop this new strategy in our new organization. In addition to our attractive market positions, We have a proven and scalable enterprise playbook. Based on a foundation of customer and consumer insights, we've developed a repeatable approach to client engagement, product innovation, and adjacency expansion. This approach fuels our ability to grow in excess, often by multiples, of a given underlying vertical or geographic market. And our recently established global solutions and global operations organizations will enhance and accelerate the use of our playbook across TransUnion. As an example of how this approach has produced meaningful results, I'll highlight the development of our insurance vertical in the U.S., which has substantially outgrown its underlying market. Historically, we focused on providing credit solutions to personal auto underwriters. Over time, we expanded systematically across the insurance value chain. Today our offerings include fraud mitigation, customer acquisition, data pre-fill, underwriting assessment, policy renewal, analytics, collections, and claims investigation. We've built a broad and differentiated position that has fueled many years of strong organic growth in the vertical. At the same time, we've entered adjacent insurance verticals using these solutions. From personal auto, we expanded into commercial auto, bringing powerful driver insights. We also launched a data-driven life insurance underwriting score, which we later extended to group life customers. And we also provide impactful solutions to assess the risk of apartment and condo buildings for commercial habitational insurers. Altogether, these innovations have enabled us to generate superior growth in our insurance vertical. In international, we've consistently utilized our growth playbook to outperform underlying markets regardless of their inherent growth rate. I want to use two examples of dramatically different markets, India and Canada, to illustrate the point. In India, we delivered a 32% revenue CAGR from 2016 to 2019. Now clearly, the underlying market grew rapidly during that time, perhaps low double digits. suggesting that we outperform by a factor of two to three times. We did that through thought leadership and by becoming a valued partner to the commercial banks, fintechs, and government agencies that support lenders and consumers alike. We delivered a steady stream of innovation including credit vision, credit view, a powerful commercial credit score, TrueValidate, and many other solutions. And we moved into adjacent markets including commercial credit, Direct to Consumer, and Insurance. In Canada, where we grew at a 12% CAGR from 16 through 19, our approach was much the same, but in a much more mature market. The underlying market likely grew in the low single digits, and we outperformed by multiples. We did this again through thought leadership and close partnerships with our customers. Our growth benefited from numerous centrally developed solutions that we leveraged in Canada. including Credit Vision, Credit View, Fraud Mitigation, and Prama. We also extended into adjacent markets including insurance, public sector, and direct-to-consumer. This story repeats itself across verticals in geographic markets around the world. This approach allowed us to successfully enter new markets like the UK, Colombia, and the Philippines where our growth playbook enabled us to quickly deliver above-market growth. We complement the growth playbook with powerful proprietary and third-party data assets. In addition to our traditional attractive positions in consumer credit data, we've developed an array of alternative data assets to serve core and high-growth use cases. I'll provide you with some significant examples, but not a comprehensive list. For lenders, we have trended credit, payday, and online short-term loans data, consumer contributed data, through our MX partnership, and income and employment verification from the largest U.S. payroll processor. For fraud mitigation, we have a massive repository of device-based fraudulent behavior that spans more than 15 years and 8 billion devices from virtually every country in the world. We have access to public records from thousands of sources delivered through TLOXP that powers investigative solutions used in virtually every one of our verticals. From our recent acquisition of TruOptic, we have data on streaming devices and activity from more than 80 million US households. In our insurance vertical, we offer comprehensive driving violation data and state-issued motor vehicle reports. And in our international markets, we have a similarly broad array of information including commercial credit data, public record data, and other alternative data, as well as differentiated data used by insurers in a number of countries. While we internally developed much of our data and analytics capabilities over these last eight years, we've also executed 20 acquisitions and a host of strategic partnerships that have meaningfully augmented our data assets and created value for our shareholders. And we continue to aggressively pursue new differentiated data assets. We also differentiate ourselves by how we manage the data entrusted to us. To that end, last week we announced a preferred equity investment in and strategic cooperation with Spring Labs, a leading financial technology firm transforming the exchange of sensitive data. Their advanced cryptography allows strict control of information visibility, and their permissioned blockchain provides a timestamped immutable record and Audit Trail. Together, we can increase access to Spring Labs' data exchange network and products while enabling us to expand protection of sensitive consumer data initially for fraud and identity verification. Our industry-leading technology remains a competitive advantage. I have regularly discussed our track record of delivering on large-scale, complex technology initiatives as well as Project RISE, Our current program to make Clean Genes technology more scalable, secure, efficient, and effective. So I won't recount them here. Project RISE keeps us on the cutting edge of cloud computing and information security and remains on plan to deliver considerable operational and financial benefits. As we achieve key milestones in the program, we'll continue to provide you with updates. Our culture is rooted in customer focus and partnership. We've built a company that understands the needs of the customers it serves and can deliver best-in-class solutions to meet those needs. We also balance a sense of humility with a deep inner drive to be successful and accountable, while also taking a collaborative approach both internally and externally. As a result, we have built a track record of winning in the marketplace and delivering superior results. and our success in growth has allowed us to hire extremely high caliber talent across the organization. At the same time, our culture has always embraced diversity, equity and inclusion. Over the past year, that has taken increased importance as we've witnessed an unprecedented wave of social activism aimed at remediating the historical injustices inflicted on minority populations. I've spoken before about our Task Force for Racial Equity, which continues to make progress. Most recently, we hired an experienced executive to lead our supplier diversity efforts and joined three nonprofit organizations which serve as chambers of commerce for diverse-owned businesses.