TransUnion

Okay, and welcome to the TransUnion 2022 Second Quarter 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 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 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 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 our 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. 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, 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, let me now turn the call over to Chris.

Thank you, Aaron, and let me add my welcome and share our agenda for the call this morning. I'll begin with an overview of our financial results along with commentary on the economic conditions in our markets around the globe. I also would like to share highlights on the performance of our acquisitions and the progress we've made to integrate them and realize their full potential. Todd will then review and detail our second quarter results, our revised four-year guidance, and the changes to our business over recent years that should improve its performance during economic downturns. Now, throughout the first half of this year, economic conditions have been positive across our portfolio. Consumer employment, incomes, balance sheets, spending, savings rates, and credit performance have been strong in most of the markets that we serve globally. We expect this favorable environment to continue over the balance of the year. That said, there are macroeconomic concerns emerging globally that could pressure consumer spending and growth over the intermediate term. Materially higher interest rates and inflation, worsened by supply chain constraints and geopolitical uncertainties, could negatively affect economic conditions in 2023. These factors are more visible today in our developed markets such as the US, Canada, and the UK. We will continue to watch the economic factors and overall consumer health across our global portfolio and react appropriately to changing conditions. Now, we also believe that we're well positioned to withstand an economic downturn due to our increased diversification across geographies, vertical markets, and solutions. Demand should remain strong during a slowdown across our emerging markets where economic growth is inherently higher and credit utilization is expanding in the developing middle classes. Also, verticals such as insurance, telecom, collections, and professional services, legal and law enforcement, and the public sector run either neutral to or counter to economic cycles. And many of our solutions should perform well during slowdowns including credit portfolio management, fraud mitigation, investigative solutions, performance analytics, and others. Tom will supply further perspective on our portfolio resiliency later in this call. Now, as you can see from our earnings release, we posted strong results for the second quarter and reissued solid guidance for the full year based on the strength of our core business and the positive contributions of our recent acquisitions. In the second quarter, TransUnion's organic constant currency revenue growth was 5% overall and 9% excluding U.S. mortgage revenues. U.S. markets grew 13% excluding mortgage, international grew 15%, and consumer interactive declined 9% due to a series of market and TransUnion specific challenges, which I will discuss below. All results, again, are on an organic constant currency basis. In U.S. markets in the second quarter, financial services, excluding mortgage, grew a robust 18% on the strength of consumer lending, which grew 29%, card and banking, which grew 17%, and auto, which managed to grow 5% despite inventory shortages. Also, our insurance, media, and public sector verticals grew by double digits organically. Our international segment grew 15% on an organic constant currency basis behind surging growth in our emerging markets of India, LATAM, APAC, and Africa, and attractive growth in Canada and the UK after adjusting for non-recurring revenues from the prior year. Also, sales momentum is accelerating across our international markets as shown by increased pipelines and win rates that should propel growth throughout the second half of the year and beyond. Now, our consumer segment declined 9% in the quarter due to a confluence of factors. The direct business declined materially in the quarter against the challenging comparisons of low double-digit growth in the prior year. Also, we observed a slowdown in demand for paid credit services across the industry in the first half. especially compared to the higher growth of freemium offerings. TransUnion today has a small freemium service, and this represents an opportunity for our future growth. Our indirect business also slowed, although not as much as direct, due to the industry-wide slowdown we observed. Indirect results also were affected by several contract restructurings last year as we secured longer-term commitments for increased volumes. we expect to grow through this revenue compression over the course of this year. Encouragingly, sales of identity protection and breach services are exceeding expectations. We secured multiple new material deals in the quarter, which would not have been possible prior to the acquisition of Sondic. We have therefore shifted more of our consumer advertising spend to identity protection services given their strong performance. We expect that it will take several quarters to work through the current challenges in our consumer business related to contract restructurings and optimal product and marketing strategies. And now turning to our revised full-year guidance for 2022, we have reduced enterprise organic growth expectations, excluding U.S. mortgage, from 11% to 9.5% at the guidance midpoints. As the growth As the organic growth bridge shows, our revised guidance reflects adjustments in several factors, including the shortfall in second quarter results, a lower mortgage forecast given the rapid increase in rates and falling volumes, modestly lower growth in U.S. markets, excluding mortgage, as we reduce our forecast in financial services to the mid-teens versus our earlier guide of approximately 20%. the near-term retrenchment in consumer interactive as we adjust our marketing strategies, absorb compression from restructurings, and accelerate our sales of identity and breach services, and finally, foreign exchange headwinds from the strong U.S. dollar. Now, overall, our revenue guidance for 2022 is still very compelling on the strength of rebounding economic activity from pandemic reopenings, positive consumer financial health, TransUnion's attractive market positions, and our strong execution of our growth playbook. And in addition to strong organic revenue growth, we expect to deliver an organic adjusted EBITDA margin of about 40%. Now, turning to our three acquisitions, we made substantial progress integrating them into TransUnion over the first half of this year. Each of the acquisitions is performing in line with our acquisition cases and the expectations we communicated previously. Importantly, the feedback and results in our early days of owning these assets are proving the rationales for their acquisition and the power of combining them into TransUnion. In the quarter, New Star revenues grew mid-single digits, as we expected, against a difficult comparison to Q2 of 2021. where growth surged over the pandemic lockdown in 2020. We now expect revenue growth for the full year in the mid-single digits based on the implementation of record sales wins from last year, which included a Fortune 10 enterprise, and accelerating adoption of branded and trusted call solutions in the communications vertical. Now, this is tempered somewhat by market volume uncertainty and the timing of new customer onboarding. The business delivered 24% adjusted EBITDA margin due to the revenue fall through and ahead of target execution of our cost reduction programs. We are confident that we will migrate NuSTAR's technology assets to a new cloud provider with more favorable rates by the end of this year and close eight data centers as well. Additionally, we are realizing the cost synergies that we expected through combining our general and administrative functions. Given our progress achieving our cost reduction goals, we expect to reach a 26% adjusted EBITDA margin by year-end. And importantly, we will keep or accelerate our investment in areas that drive revenue growth and product innovation, which are proving to be considerable. Now market feedback has been positive on the benefits of combining TransUnion and NuSTAR's credit marketing and fraud prevention capabilities. Therefore, we have accelerated the integration of our marketing and fraud solutions and key functions such as analytics, technology, and sales. A top priority is to incorporate TransUnion's troves of data into NuSTAR's OneID platform to enhance its effectiveness. The bulk of this program will be completed by the end of this year. We also are integrating our joint audience data and functionality, including commerce signals data from Argus, into a single platform, and creating common identity capabilities to support TransUnion solutions enterprise-wide. In this quarter, we launched an innovative marketing cleanroom that integrates client and TU data in a single, compliant and privacy-enabled environment to enhance audience building, performance analytics and collaboration generally. This cleanroom solution will be offered directly to customers and through most of the major marketing technology platform providers. Within our newly integrated fraud business, we are executing a unified product strategy that integrates our various knowledge-based device, behavioral and telephonic solutions into a common interface with a single orchestration layer on a common analytic platform. We expect a beta version of this next generation solution to be available early next year. Finally, our efforts to cross-sell this expanded suite of solutions are building momentum as we experience growing pipelines with a strong level of conversion. Across all solutions cross-selling, we have more than 150 deals in various stages of our sales pipeline, including about half in the later stages. And in the first half of 2022, our increasingly integrated marketing solutions grew double-digit. Now, turning to Santec, it generated almost $24 million in revenue in the second quarter, down slightly versus expectations as it compared to a quarter last year with revenues from a large breach. We have fully integrated the sale of credit access and monitoring with identity protection and breach remediation and built a robust pipeline with significant new sales, including a major competitive takeaway that would not have been possible without Sontics solutions. We expect that our increased level of new sales will result in accelerated growth starting in 2023. Overall, Sontics revenues for the full year are trending slightly ahead of planned, and our cost integration efforts are continuing to pace. We expect mid-teens revenue growth this year and almost a 40% margin, excluding integration costs. And I'll conclude my deal updates with the acquisition of the businesses that were previously part of the Verisk Financial Services Group. As a reminder, there are six businesses in this portfolio, and we've decided to keep Argus Insights and Commerce Signals. and to divest the remaining companies due to a lack of strategic fit with TransUnion. The retained businesses generated revenue of about $95 million in 2021. We have moved the other companies to discontinued operations and are currently marketing them to prospective buyers. Thus far, we have received robust interest and will keep you apprised as the sale process develops. Now, in the quarter, we realized revenue from Argus and Commerce Signals of $22 million, up 4% and at a margin of 20% or 25% excluding the integration costs. We've already seen strong levels of customer interest in finding new ways to use the Argus data and insights, which have led to many requests for joint discovery engagements. As we integrate Argus over the year, we expect revenue growth in the low single digits with a 31% margin excluding integration costs. Next year, our plan is for growth to increase to the high single digits and then reach low double digits in 2024, with the margin expanding in these years as we trend toward our enterprise goal of a 40% margin in 2026. Now revitalizing the delivery of Argus data on TransUnion's digital platforms, as well as infusing our thought leadership, will be key to realizing these higher sales levels. And before I turn the time over to Todd, I want to take a moment to welcome two new board members to TransUnion, Hamidou Dia and Robby Kumar. Hamidou is the Vice President and Global Head of Solutions Engineering at Google Cloud, where he leads the Global Solution Engineering organization. His expertise in both cloud architecture and digital transformation will guide us as we continue to build out our state-of-the-art technology infrastructure. Ravi is the president of Infosys, a global IT consulting and services company where he leads the Infosys global services organization across all industry segments. He brings extensive experience in reimagining and reinventing technology services that will help shape the solutions and products we develop. Now that wraps my update on our market backdrop, second quarter performance, and the integration of our recent acquisitions. I'll now turn the time over to Todd to walk you through our second quarter financial results and our third quarter in full-year guidance. So, Todd, over to you.