TransUnion

Good day and welcome to the TransUnion 2022 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 touchtone phone. 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 Aaron Hoffman, Senior Vice President, Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us today. Joining me on the call are Chris Cartwright, President and Chief Executive Officer, and Todd Sello, Executive Vice President and Chief Financial Officer. We posted earnings release and slides to accompany this call on the TransUnion Investor Relations website this morning. 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. 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, 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 done, let me turn the time over to Chris.

Thank you, Aaron, and let me add my welcome. To start, let me outline the agenda for this morning's call. First, I'll discuss the mostly positive macro conditions that support our attractive full-year guidance despite inflationary headwinds. Then I'll review our strong first quarter performance, which has been driven by favorable macro conditions, and the resurgence of our growth-oriented portfolio post-pandemic the cumulative benefit of the strong sales performance over the pandemic and our successful innovations over time. I'm pleased to report that our outperformance year-to-date and confidence in the remainder of the year allow us to raise revenue and EBITDA guidance for the full year. And I'll provide an update on the impactful acquisitions that we've closed over the past four months. For NuStar and Sontag in particular, we've experienced early successes in going to market together with really encouraging interest from customers across a wide variety of end markets. And then I'll pass the baton to Todd to discuss our first quarter results in detail, along with second quarter and full year guidance for 2022. Now, as I mentioned previously, we expect market conditions in 2022 to support our strong organic revenue guidance, along with the post-pandemic resurgence in our growth-oriented portfolio, especially in consumer lending, U.S. emerging verticals, and the international markets. While a lot of the focus today is justifiably on rising inflation and the long-term impacts of this, I want to remind you that the U.S. consumer remains in strong position with respect to credit markets. Household debt levels relative to income remain low by historical standards. Average credit card balances are well below pre-pandemic levels and delinquency rates for most loans are near record low levels. Additionally, the unemployment rate in March fell to 3.6% and wages grew by 5.6%. So despite increasing inflation, consumers remain well positioned to drive the economy. We heard as much from many large financial institutions this quarter, who provided positive and pragmatic guidance during their recent earnings, noting the current strength in loan growth, spending activity, and credit performance, but also acknowledging the potential uncertainty ahead. We continue to diligently monitor consumer health, particularly lower-income households that have less ability to absorb rising costs. As the Fed seeks to curb inflation, rising interest rates have become an important corollary discussion. As such, I'll end this section by addressing the impact that interest rates have on our various lines of business. While rates certainly have an impact on the lending market, the overall health of the consumer, which I've just described, has greater influence on borrowing behavior than rates in most cases. Mortgage refinance represents the one part of the lending market almost entirely driven by interest rates. The simple math dictates whether or not it makes sense for a consumer to refinance a mortgage. And unsurprisingly, rates have some impact on purchase originations, though consumers don't shop based solely on rates. They shop based on a monthly payment where rates are one part of the calculation, along with the purchase price, the down payment, and the loan terms. For auto and card lending, rates have a very modest impact, given the balances the average American carries. For instance, for every quarter point increase in rates, that translates into an increase in the monthly payment on the average card balance by only $1. So we tend to see far less impact from rising rates for these loan products. Now shifting to our first quarter, We posted strong results that exceeded our guidance with broad-based growth across our businesses as our regions and verticals benefited from positive momentum buoyed by the healthy consumer, as well as business wins and ongoing innovations. As Todd will discuss in detail, our first quarter outperformance and an improved view of our non-mortgage business for the remainder of the year has allowed us to raise our full-year guidance. We did that while also embedding a more aggressive assumption around mortgage declines, implying broad and significant acceleration in our non-mortgage business. 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. Our extension into high growth and complementary credit fraud and marketing solutions continues to resonate with customers across our business while providing valuable diversification in our portfolio. In U.S. markets, we delivered another quarter of double-digit organic growth, excluding mortgage, with strong performance in financial services, insurance, and media. This highlights our very strong position in FinTech and other fast-growing market segments. Internationally, we experienced robust growth in India, Latin America, and Asia Pacific, where we have leadership positions in these markets, and they have strong underlying growth trends. Todd will provide more details about the performance of each of these businesses shortly. And let me wrap up with a short summary on our ESG efforts. We recently published our 2021 Diversity Report, which highlights steady improvement in the diversification of our workforce across underrepresented groups. And last week, we published our 2021 sustainability report, which provides a broad picture of the progress we made last year, including issuing baseline carbon emissions data, setting a net zero emissions goal, improving workforce diversity, further enhancing our cybersecurity and data privacy oversight, along with many other achievements. I hope you'll all take time to read these meaningful updates. Now, I want to use the remainder of my time to share with you the performance of the three acquisitions that we've closed over the past four months. But before I do that, I want to highlight that the current market backdrop that I described a few minutes ago really accentuates the value of our recent acquisitions, particularly with NuStar and Verisk Financial Services. Now, both of these can help lenders find attractive segments within the market and drive timely insights amid a changing landscape. Now, starting with NuStar, the acquisition substantially strengthens our identity resolution capability for a variety of online applications. NuStar provides real-time identity resolution through its OneID platform, powering solutions that currently serve three attractive markets. marketing, fraud mitigation, and communications. In the first quarter, NuSTAR generated $150 million of revenue, up 9% in total, with another quarter of double-digit growth in marketing and at a margin of nearly 25%. During the quarter, we made meaningful progress integrating NuSTAR and have received some really encouraging feedback from the market and gained valuable learnings from customers that support the long-term growth thesis. Internally, we've completed our organizational design efforts quickly in order to provide clarity and to ensure retention of critical employees. This has helped us retain nearly 100% of the top talent that we've identified thus far. I want to note the very high-caliber workforce that we've acquired with NuSTAR. And we benefit from quickly and efficiently expanding our talent in critical areas like technology, data science, product development, and many others. In the current competitive environment, adding so many high-quality employees would have been extremely difficult. We've also brought together critical functions to fully benefit from our increased scale and capabilities. For instance, by standing up data and analytics as its own organization under the leadership of Venkat Ashanta, we brought further clarity and purpose to a critical area of our business. Now Venkat has extensive experience in data analytics and most notably drove the development of NuSTAR's impressive OneID platform. Our internal teams have already benefited from collaborating with each other as part of one newly formed org and setting the stage to better leverage the powerful assets and capabilities of both companies. Now speaking of OneID, Through the integration process, we've learned that the platform performs even better than we understood during our diligence. Particularly, the system's ability to rapidly ingest, index, and tag data to prepare it for analytic and solution development and deployment is more advanced than we understood. This increases our ability to utilize data assets and put them into production rapidly. From a commercial standpoint, we've begun to integrate our sales teams including extensive training to drive cross-selling activities across customers and solution types. Now let me share some of the early views and successes from the field. The more substantial and differentiated marketing solutions from NuStar combined with our true audience offerings have already opened the door to opportunities in our fast-growing media vertical. Our teams have taken a coordinated approach to actively pursuing these opportunities and have early traction with key clients. In financial services, we secured our first cross-sell contract of NuStar Solutions to a mid-tier lender, and we've had extremely high interest levels as we continue to meet with other customers. In the insurance markets, NuStar currently provides its sophisticated solutions to three of the top underwriters in the U.S., Our combined teams recently met with one of the largest insurers and heard how impactful Newstar's marketing solutions have been for that customer. As they spend billions of dollars in marketing each year, they indicated that their return on their marketing investment has improved significantly as a result of the Newstar optimization solution. And given that TransUnion currently has relationships with 19 of the top 20 largest insurers in the U.S., and an array of other players, we think there's a sizable opportunity to bring the same type of marketing capabilities to the rest of our client base, who also spend considerably on marketing and are consistently looking for ways to drive better returns. And in third-party collections, we signed our first cross-sell contract with an existing TransUnion customer, who will now use NuStar's phone-based intelligence to identify the best time to call individuals to improve their hit rate on outbound collections calls. The now integrated sales team has attended major trade collection shows recently and discussed similar solutions with the almost 50 existing TransUnion clients. And let me end by reminding you about the financial expectations for this business. In 2022, we expect Newstart to deliver another year of high single-digit organic revenue growth driven by strong performance in marketing and fraud. We expect the business to deliver low double-digit revenue growth beginning in 2023 and beyond. And we're expecting roughly $160 million of adjusted EBITDA in 2022, which would imply a 25% margin. Now, supporting the improvement in 2022 and our path to deliver 40% margins by 2025 is We have a clear line of sight to at least $70 million in cost synergies and have become increasingly confident as we've progressed through the integration process. In part, NuSTAR has begun its cost reduction program before we acquired them, and that included activities like consolidating eight dentist centers and two co-location sites. At the same time, we are benefiting from working together. we're leveraging data sets across organizations to reduce costs related to the name, address, phone, and email data that we collect by millions of dollars. And we've also begun to consolidate office locations in Chicago and London, which will both happen this year. I'm turning to Sontic, which provides an entry point into the fast-growing ID protection market that's been driven by rapid e-commerce evolution In this environment, consumers have heightened awareness of and a concern about the risks of identity theft. Santec allows us to access a considerably larger part of this market, fueling strong long-term growth. In the first quarter, Santec generated roughly $23 million in revenue, up approximately 13% at a margin of roughly 33%, which was slightly depressed by integration costs. Also during the quarter, We began our integration activities and have seen meaningful opportunities materialize. Our teams are fully leveraging our global capabilities in areas such as operations and solutions and expanding their go-to-market collaboration between our consumer interactive teams and their U.S. market counterparts, especially in financial services and insurance, but also across our international teams as well. For instance, we've positioned ourselves to bid on a sizable non-financial services contract in the identity protection space based on the addition of Sontics expansive solution suite, which we believe will be the first of many such opportunities. We're also off to an encouraging start selling Sontics solutions to our network of insurance underwriters. Insurance represents about a quarter of Sontics revenues today, and we see a clear path to expand that position on the strength of our relationships in the space. We've identified similar opportunities across our U.S. markets portfolio, notably in financial services where customers are showing a strong interest in Sontag's capabilities. And based on the existing momentum in the business and the ongoing integration, Sontag is currently trending ahead of the plan and we expect mid-teens revenue growth for 2022, excluding integration costs, at a nearly 40% margin. Now let me wrap up with the acquisition of Verisk Financial Services. We completed the transaction on April 8th and have decided to retain Argus and Commerce Signals, a marketing business, and to classify the remainder of the portfolio as discontinued operations with an intention to sell these assets. As a reminder, the business in total generated 143 million of revenue in 2021, with about 95 million coming from Argus and Commerce Signals. The decision to divest the non-core assets will focus our energy on enhancing the core Argus assets while also allowing the other business to benefit from new ownership. Argus brings differentiated card and deposit transaction data, as well as the IP to link depersonalized transaction data across sources to create a consumer-level full wallet view. With this, we'll be able to deliver enhanced insights into action to measurable outcomes for Argus' consortium members. Argus increases TransUnion's thought leadership and insights, helping our customers develop more refined strategies to target profitable consumers or to identify sophisticated patterns of card fraud. We can help our customers take action on those insights with TransUnion solutions, whether they are traditional credit-based or non-credit-based through our NuStart capability. And we'll be able to do this through a unified platform powered by Prama and OneID. And we're happy to report that we're getting very positive feedback from the existing consortium members about our ownership and their desire for enhanced insights delivered using a modern technology-enabled platform. We've also heard from lenders who've not participated in the consortium, and many have expressed interest in joining in order to benefit from Argus's powerful data and insights. As we integrate Argus in 2022, we anticipate growth in the low single digits. though at a temporarily depressed margin as we absorb the necessary integration cost. In 2023, we expect growth to improve to high single digits and then reach low double digits in 2024, with the margins expanding over this period as we trend toward our goal of 40% margins in 2026. Now that wraps up my update on our market backdrop, the first quarter performance, and the integration of these three key acquisitions. Now I'll turn the time over to Todd to walk you through our first quarter financial results, our second quarter guidance, and the full year guide as well. Todd?