TransUnion

Good morning, and welcome to the TransUnion 4th Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Erin Hoffman, Senior Vice President of President of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us today. I hope that all of you remain safe and healthy. On the call today, we have Chris Cartwright, President and Chief Executive Officer, and Todd Sello, 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 the corresponding conciliations 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 uncertainty. Actual results could differ materially from those described in the forward-looking statements because of factors discussed in today's earnings release, in the comments made during this conference call, and in our most recent Form 10-K, Forms 10-Q, and other reports and filings with the SEC. We do not undertake any duty to update any forward-looking statement. With that out of the way, let me now turn the time over to Chris.

Thank you, Aaron. And let me add my welcome and best wishes that you and your families are healthy and doing well in the new year. To start, I'd like to lay out the agenda for this morning's call. First, I'll highlight our ongoing commitment to critical sustainability issues. Then I'll review our strong fourth quarter performance and the underlying market trends that position us for continued attractive growth in 2022. I'll also provide an update on the very positive performance of our Sontic and NuStar acquisitions of late last year, as well as details on the exciting deal for Verisk's financial services division, which we announced this morning. And then I'll cover our progress in executing on our global technology platform initiative. Finally, I'll pass the baton to Todd to discuss our fourth quarter results in detail, along with the first quarter, and full year guidance for 2022. So across StrangeUnion in 2021, it was a productive year as we focused on delivering to our customers while also making bold and impactful strategic moves. Across the company, we adjusted to a new normal as the pandemic persisted and we felt the effects of the Omicron surge. Despite this challenge, TU associates have remained completely engaged and connected across the enterprise. I want to thank them for their perseverance and commitment. Now, during the year, we also continue to make important progress around diversity, equity, and inclusion, as well as on our environmental impact. Our DE&I journey, we continue to strengthen our company culture, evolving intentionally so all our associates feel informed and empowered to succeed. our Racial Equity Task Force, and CEO Action for Racial Equity Fellow, advanced equity interests in company policies, and our recruiting, hiring, and development protocols. Our associates engaged in learning and dialogue on inclusion and understanding, and we supported numerous racial justice organizations in an innovative way. We also strengthened our commitment to financial inclusion with an explicit emphasis in our corporate strategy and goals. And we recently earned a perfect score from the Human Rights Campaign Foundation's 2022 Corporate Equality Index, a leading national benchmarking tool on corporate policies, practices, and benefits pertaining to LGBTQ employees. I'm proud that our inclusive and welcoming culture has been recognized by such a prestigious organization. We've driven all this change, and yet our journey is not complete. We continue to push to reach our gender parity goals globally and our representation goals, and to foster even greater equity and inclusion from our associates. Finally, on our environmental stewardship, we publicly announced our commitment to achieve net zero Scope 1 and 2 emissions by 2025 and a 30% reduction in Scope 3 emissions related to leased facilities by 2030. You can read about these topics and many others in detail in our next sustainability and diversity report, which we expect to publish this spring. So let me start with the fourth quarter. We posted very strong results with broad-based growth across our businesses as our regions and end-user markets benefited from continued positive momentum as well as new wins and successful innovation. We continue to drive above-market performance by executing our growth playbook that focuses on repeatable, differentiated go-to-market approaches, industry-leading innovation, and complementary expansion into adjacent markets. In U.S. markets, we delivered another quarter of double-digit organic growth, with strong performance in financial services, insurance, media, and tenant and employment screening. Internationally, we saw very strong results in India and Latin America, where we hold leadership positions in markets with strong growth trends. Todd will provide more details about the performance of our businesses shortly. Now, I want to spend a minute on the market backdrop that has fueled 2021 results and sets the stage for our strong growth in 2022 and organic revenue guidance. On an organic basis, we expect to grow 5.5% to 7.5% in total. Those growth rates increase to 9% to 11%. excluding the declining mortgage segment. Although the mortgage market began to decline last year from its record levels, most of our other markets have bounced back strongly from the depth of the COVID crisis in 2020. Overall, our markets have proven resilient and continued their return to more typical levels. And while the surge in COVID infections temporarily inhibited a full recovery, Our markets and our customers have become effective at operating under pandemic conditions, enabled in part by their ongoing digital transformation. In most markets, we saw and continue to see robust consumer spending. In the U.S., consumer balance sheets have strengthened during the pandemic due to government benefits, repayment moratoriums, and restricted consumer mobility. Internationally, we see similar trends along with meaningful pent-up consumer demand. Our markets also benefited from renewed marketing activity as clients resume their efforts to grow their businesses. We've seen historically strong customer acquisition programs from consumer lenders and credit card issuers in the U.S., Canada, and the U.K., and we expect this broad strength to continue into 2022. Also, and importantly, consumers remain well positioned to fully re-engage economically. In recent earnings commentary, some of the largest U.S. financial institutions have referenced the health of U.S. consumers and forecast robust lending growth in 2022. Now, as we consider our long-term growth prospects, we believe that the increasing digitization of economic activity provides opportunities to serve customer needs in marketing and fraud mitigation. This premise motivated our acquisitions of NuStar and Sontic, and our investments in Minivo and iDefi. Most recently, we've invested in India-based online PFB Loans, an online lending platform that enables borrowers, primarily micro, small, and medium enterprises and individuals, to apply for loans online and receive in-principle approval in under one hour. So these strategic moves, in particular NuSTAR and SONTIC, bolster our portfolio of solutions to improve identity verification and targeting precision to enable safe, tailored online consumer experiences. Now I'd like to discuss our intent to acquire Verisk Financial Services Division from Verisk. This is a well-known collection of assets which can enhance our positions in financial services, analytics, fraud, and marketing. The division generated $143 million in revenue in 2021, and 65% of which came from Argus, the primary business in the portfolio, with which we've enjoyed a longstanding strategic partnership. Argus provides unique and authoritative data on credit and debit card spending behavior, as well as for demand deposit accounts, or DDAs. This data complements our credit card vertical and analytics capabilities generally. In the US, Argus covers 90% of all credit cards and 45% of all DDAs through contributions from a broad consortium of banks and card issuers. It also has coverage of large portions of card activity in the UK, Canada, and Australia. Argus offers solutions to help these consortium members increase financial inclusion, acquire new accounts, make risk decisions, mitigate fraud, and deliver relevant consumer experiences by leveraging their unique data and the associated behavioral insights. Argus is a powerful data asset that fits with TransUnion's expansive set of alternative data and serves our core financial services customers. We will also take the necessary time to fully understand each of the businesses within this portfolio and their potential fit with existing trade union assets. With that said, we see a clear path to deliver an enhanced value proposition to our customers, resulting in improved revenue growth and margin performance, which I'll detail in a minute. We intend to pursue four primary growth opportunities that will benefit consortium members. We will better utilize the full wallet view of the consumer that Argus currently offers by leveraging the analytics derived from the Argus data and combining that with our robust market insights. The full wallet view provides insight into consumer behavior from an initial transaction or deposit through card usage and loan payment. This is critical for financial services customers to make better risk, fraud, and marketing decisions. Second, We will modernize the delivery of Argus' data and insights by leveraging our technology capability. Currently, customers receive static reports from Argus that don't allow them to visualize, augment, model, or manage the data. We plan to deliver a highly interactive product using the Prama platform, which is already used by many lenders as a visualization and analytics tool. Third, we see the opportunity to expand Argus' data coverage and addressable market. We can leverage our relationships with banks in the US to grow the deposit database well beyond the current 45% penetration and increase benchmarking value for consortium participants. And although Argus data is anonymized, we believe we can derive valuable signal to identify lending fraud to make superior risk decisions and to better target consumers for consortium participants. These behavioral insights will improve the predictive power of solutions such as our credit vision and credit vision link products, which in turn will create more value and stickiness for those solutions with our banking customers. Now let me wrap up with the deal terms in a discussion of the financial impact of executing these growth strategies. The purchase price for the division is $515 million, which is a 12.5 times adjusted EBITDA, an attractive price for such a unique data asset. We expect the transaction to close in the second quarter of this year. Now, as I noted, the business had revenue of $143 million in 21, and while revenues have declined in recent years, We believe that TransUnion brings the financial market focus, the data and analytic capabilities, the sales resources, and a host of complimentary assets to reverse this decline and resume growth. And as we integrate Argus in 2022, we anticipate growth in the low single digits. In 2023, we expect growth to improve to the high single digits and then reach the low double-digit range by 2024. In 2021, the business delivered roughly 41 million of adjusted EBITDA, or about a 29% margin. Now, for those of you who follow Verisk, you'll notice that the adjusted EBITDA figure is higher than in Verisk's previous public disclosures. This is because Verisk allocates certain corporate costs to the financial services division that TransUnion will not require. Therefore, the portfolio will generate more profit than previously disclosed. And even as we increase investment in these businesses, we'll improve the margin over the next four years through revenue growth and cost savings actions. We expect to achieve 40% margins by 2026, further reducing our acquisition multiple. And finally, as we're able to fund this transaction with cash, it will be immediately accretive in 2022 after we close. Data assets of the quality of Argus are rare, and so we're pleased to add it to our portfolio and to strengthen our core business for the long run. Now let me turn to our Sontic acquisition, which leverages a cloud-based technology infrastructure to provide solutions to help consumers and businesses protect against identity theft and cybercrime, including identity monitoring, restoration, and breach response solutions. The acquisition creates an entry point into the fast-growing ID protection market that has been driven by rapid digitization and the evolution of online commerce. In this environment, consumers have a heightened awareness and concern over the risks of identity theft. Santec allows us to access a considerably larger part of this market, fueling long-term growth. Santec also helps us transition from a credit education and monitoring provider to a fuller provider of sophisticated identity protection, augmenting both our direct and indirect-to-consumer businesses. It provides us access to new attractive end markets, like employee benefits, while expanding our position in current markets, such as insurance. And Sontic provides incremental capabilities, including dark web monitoring, transaction and child monitoring, and proprietary capabilities for breach risk assessment. Now we closed this acquisition on December 1st, and our team has begun a smooth integration. We have transitioned key Sontic employees into senior leadership positions to ensure the continuity and retention of their valuable market and product knowledge. This has also allowed us to quickly bring together both sales and product development teams. We believe this influx of talent and innovation capabilities will accelerate the long-term revenue growth of our consumer interactive business. And finally, on a pro forma basis in 2021, Sontag revenue was approximately 87 million, an increase of 18% compared to 2020. with an adjusted EBITDA margin of 35%, but it would have been about 40% absent one-time deal-related expenses. And going forward, we expect the business to grow low double digits at an approximately 40% margin in 2022 on the strength of the underlying digital protection market and the benefits of the combination with TransUnion Solutions. Now turning to NuSTAR, this acquisition substantially strengthens our identity resolution capabilities for a variety of online applications. NuSTAR provides real-time identity resolution through its state-of-the-art OneID platform, powering solutions that currently serve three attractive markets, marketing, fraud mitigation, and communications. As we bring these capabilities together within TransUnion, We bolster our already strong identity resolution capabilities with accurate and authoritative PII, generating incremental scale and scope in the three complementary markets that NuSTAR serves. As we expand in these high-growth non-credit markets, we further diversify our portfolio, which contributes to our ability to consistently outperform our underlying markets. We close the acquisition on December 1st, and began the integration immediately while also giving the NuSTAR team space to conclude a very strong year, which they did. For 2021, the pro forma organic revenue was 585 million, which is up 8% and with double digit growth in the marketing business. This coincides with about 40% organic growth for TU's marketing solutions in 2021. Now, New Star's adjusted EBITDA margin was 21%, which is better than our expectations. In 2022, we expect the business to deliver another year of high single-digit organic revenue growth driven by strong performance in marketing and fraud. Approximately 90% of the New Star business is based on previous year bookings, which lends further confidence to our growth expectations. And along with the strong results, we have pulled forward some cost synergies. We now anticipate generating roughly 160 million in adjusted EBITDA in 2022, which would produce a 25% margin. Now, all of these financial metrics have come in stronger than our initial expectations when we announced the transaction in September, and it reinforces our confidence that the business can deliver low double-digit revenue growth beginning in 2023 and that margins can progress adjusted EBITDA margins to approximately 40% by 2026. In the short time we've owned the business, we found Neustar employees to be very engaged and enthusiastic about joining TransUnion. They too can see the opportunities created by the combination. We've also identified roles for the senior executives from NuSTAR, bringing clarity to both organizations and ensuring consistency as we go forward. Notably, we created a new functional area within TU, global data and analytics, that will be headed by Venkat Achanta, the former chief data and chief technology officer of NuSTAR. Now, Venkat was the principal executive driving the development of NuSTAR's OneID platform. And this new organization will bring further focus to the data and analytics growth enabling TransUnion. And finally, NuSTAR's CEO, Charlie Gattiner, joined our board in January. Charlie has decade-long experience in leading information services and technology companies, driving innovation and scaling operations. And together with his experience at NuSTAR, this makes him a tremendous addition to our board. Now, all of that presents a good segue to an update on the development of our global technology platform, or Project Rise. Project Rise is a cloud-based global engineering effort that makes Transgenium's technology more efficient, scalable, secure, and effective by streamlining processes and increasing automation. Our ongoing investment enables us to further streamline our application ecosystem and transition to a more modern API-based and services-oriented software architecture. As part of this investment, we've assessed and rationalized our applications globally to reduce sprawl with a plan to ultimately shift over 50% of these applications to the public cloud. We recently received approval to operate a credit bureau in Brazil and have deployed on our AWS technology a new cloud-based credit bureau platform to establish our position in that attractive market. Now, this platform will enable us to deploy existing and enhanced bureau services, including real-time streaming data ingestion and delivery in a flexible, scalable infrastructure. Additionally, we are layering policy as code. which is built into the provisioning of our AWS capacity. So as it comes online, it is fully loaded with the necessary compliance, model governance, and security, as well as our operational and development standards. And we're delivering these benefits through our continuous improvement and deployment pipeline. To date, 90% of our applications that are targeted for migration to the cloud are utilizing these infrastructure and policy code pipelines. These shifts allow us to reduce our data center footprint by as much as 60%, creating tremendous efficiencies. Now all of this work is being completed largely by our internal talent and our expertise, including the almost 1,500 associates globally that are now certified in cloud technologies. Building this internal capability will benefit us in the long run as we are creating a cloud-native workforce with an efficient way to build IP in a sustained manner. Which brings us to NuStar. NuStar has been on a similar path with Google Cloud for a consistent architecture, security, and governance, and improved operational efficiency. With the acquisition, we have a unique opportunity to enhance and to complement our technology by leveraging NuStar's OneID platform and their established cloud competence to support all of our non-credit-based solutions. Now, this will result in a scalable and a secure and an effective environment while being a cloud provider agnostic with an upskilled technology workforce. Given the expanded vision and the integration activities of the multiple acquisitions, along with the divestiture of our healthcare business, we're extending the timeline for this technology work through 2024. And to support our aspirations to become a best in class technology organization, we're increasing our planned investment to 215 million to 240 versus the original range of 150 to 175 million. Now since the start of our technology transformation, we have realized savings that we anticipated and we've opportunistically reinvested them in technology, in solutions, and expanded operations. As we continue to deliver on our technology transformation and to generate future savings, we'll either continue to reinvest them or we'll let them fall through to the bottom line. Now with that, let me turn the time over to Todd to walk you through our fourth quarter financial results in detail. and our first quarter and full year 22 guidance. Over to you, Todd.