TransUnion

Good morning and welcome to the TransUnion fourth quarter 2022 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 touchtone phone. To withdraw from the question queue, 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 attending 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 the 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. So with that, let me turn the time over to Chris.

Thank you, Erin, and let me add my welcome and share our agenda for the call this morning. First, I'll discuss the macroeconomic conditions in TransUnion's markets around the world. Then, I'll provide an overview of our solid, in-range, fourth-quarter revenue and adjusted EBITDA. I'll also review the promising progress with our recent acquisitions to accelerate revenue growth, achieve targeted savings, and leverage their technologies across the enterprise. Finally, Todd will detail our fourth quarter results along with our first quarter and full year guidance. Beginning with slide four, inflation in our developed markets around the world remained elevated throughout the year, and central banks raised interest rates to slow consumer demand and return to long-term inflation targets. Economic growth flowed as a result. However, thus far, developing economies have been less impacted by these factors. activity in our international emerging markets of India, Asia Pacific, South Africa, and LATAM have remained strong. Over the course of 2022, in the U.S., the U.K., and Canada, higher inflation and interest rates have pressured consumers and sapped economic growth. In each succeeding quarter in these markets, growth slowed and consumers became more cautious given the impact of inflation on their spending power. In the U.S., Consumers are still healthy overall due to high employment and low debt-to-income levels compared to before the pandemic. However, consumer savings have declined, delinquencies have risen, and spending has fallen, especially for lower-income and subprime consumers. Many of our large lending customers have confirmed this perspective. And while their financials are still strong and consumer demand for credit is healthy, they too are cautious that their markets might slow further, and as a result, have tightened lending standards, reduced originations, and increased loss reserves. Despite these headwinds, TransUnion grew revenue at high single digits organically in 22, excluding the impact of mortgage in the U.S., and improved its margins because of revenue fall-through and prudent cost management, while also maintaining our transformational investments. Our forecast for 2023 assumes a continuation of the challenging market conditions from the second half of 2022 and little recovery over the year, although our growth rates will improve in the latter half due to easier comparisons. Despite these more difficult conditions, we expect to grow revenue in the low to mid-single digits in organic constant currency terms and expand adjusted EBITDA margins. Our investments in recent years have diversified our business along geographic, vertical, and product dimensions, and this expansion is enabling our ongoing growth even as U.S. lending markets slow. Attractive growth continues across our international markets, U.S. emerging verticals, and our three recent acquisitions, New Star Sontag and Argus. Our solutions enable growth and effectiveness in all market conditions, and we believe we'll be able to grow organically in 23, even should the U.S. economy dip into recession. Todd will walk you through the details later of our full-year guidance and expectations for each of our markets and verticals. Now in the fourth quarter, Our business delivered good results despite challenging macro conditions and softening lending volumes in some markets. Our financial services vertical grew in the U.S., excluding the impact of mortgage. Auto lending increased due to easing of supply chain constraints, and credit cards continued the strong originations seen for over a year. And although consumer lending did decline slightly, it faced very challenging comparisons over breakout growth from a year ago. U.S. emerging verticals resumed attractive growth after an unusually slow third quarter due to anomalous and non-recurring factors. Tenant employment screening volumes improved after stalling last quarter, and media revenues resumed growth after implementing systems improvements. Also, insurance carriers increased marketing as they began to receive rate-increased approvals from state commissioners. Our international division, again, grew revenue by double digits organically in constant currency, led by 33% revenue growth in India, 26% growth in Asia Pacific, 16% growth in Africa, and 12% growth in Latin America. Canada grew 8%, and the UK was up 3%, excluding one-time business from the year-ago quarter. And our international sales teams continue to attain record bookings through thematic selling, leveraging innovation, and expanding into attractive adjacencies. Importantly, we expanded our adjusted EBITDA margin by about 110 basis points organically while maintaining our heightened investment levels in transformational programs. And the growth and momentum from our acquisitions also increased in the fourth quarter, especially at NuStar, where we made meaningful progress integrating our acquisitions and further developing our global enablement platforms. I'll provide further details on this in a moment. And finally, we successfully completed the divestment of several non-core assets acquired as part of the Argus transaction, further lowering the purchase multiple and enabling strong returns. Our progress in the fourth quarter across these many areas illustrates the overall strength of our execution last year. We delivered organic constant currency revenue growth of 7%, excluding mortgage, highlighted by the strength of our internationally emerging markets and strong growth in financial services and key emerging verticals. We also delivered attractive adjusted EBITDA margins due to revenue flow-through, effective cost management, which we began late in the second quarter when we recognized slowing conditions, and acquisition profitability improvements from growth and cost synergies. As a result, our cash flow remained strong, and we prepaid roughly $600 million in debt throughout the year. Now on to slide seven. 2022 was a strong year for the growth and integration of our recent acquisition. These businesses are delivering financially and strategically, and their strong results, along with positive customer feedback, confirm the rationale for each deal and the benefits of combining them with TransUnion's capabilities. NuStar led the way by posting 8% organic growth in the quarter over difficult comparisons from the last year, with 9% growth in marketing, For the full year, NewSTAR revenue grew 6% at the high end of our revised guide. Adjusted EBITDA margin was 28% in the quarter and 26.5% for the full year, 150 basis points ahead of our guidance at the beginning of 2022. The strong fourth quarter for NewSTAR sets the stage for another significant step up in performance in 2023, which I'll discuss in a moment. TransUnion and NewStar Marketing Solutions together produced roughly $300 million in revenue last year, growing double digits organically despite softer advertising market conditions and a step back in e-commerce activity. Marketing interest remains strong for these targeting and effectiveness solutions, as shown by our strong bookings last year and the growing pipeline of opportunities. Significant wins in 2022 include an eight-figure multi-year agreement with a performance-based marketing firm to become the primary provider of credit-informed marketing, a deal with the card division of a large consumer bank for multi-touch attribution to help them optimize their spend across all addressable channels, and a partnership with a major online streaming platform to optimize the monetization of their inventory using NuStar and TransUnion solutions. We also completed the onboarding of the Fortune 10 company we announced last year and are benefiting from the ramp in its revenues. The fourth quarter also concluded a strong year of product integration as we continue to combine our data, products, and infrastructure to create market-leading capabilities. Key accomplishments include integrating TransUnion's relevant data into NuSTAR's OneID platform to enhance identity resolution, including our header file, phone and email addresses, device IDs, and audience targeting data, among others. Commencing the replacement of all identity graphs across our non-FCRA products with our new enterprise graphs on OneID. And beginning the consolidation of multiple audience targeting products on our True Audience platform. We also closed eight data centers and completed the migration of OneID to the Google Cloud. saving almost $20 million a year in recurring costs. And finally, we've integrated our identity resolution services into Snowflake's Media Data Cloud to enable their customers to enrich their information using our services, which utilize privacy-protected resolution capabilities fueled by offline and online identity intelligence from within Snowflake's environment. This partnership continues our success in penetrating cloud-based data management environments using our identity services through partnerships including Amazon, Google, and many other clean room and customer data platform providers. Now on to communications. Our innovative family of trusted call solutions, which includes branded call display and caller name optimization, continues to provide differentiated growth. During 2022, we strengthened our position through several new partnerships that now provide TransUnion with the largest footprint of wireless and wireline devices in the U.S. Since its inception four years ago, Trusted Call Solutions has grown to more than $50 million of revenue. and we estimate that we've tapped less than 5% of the U.S. market. This enormous potential, combined with our sales reach into large enterprises and our international footprint, positions us for significant growth. Our sales forces are now fully integrated and able to cross-sell trusted call solutions across our many verticals, which has led to wins in insurance, collections, and financial services, and a strong pipeline entering the year. Now, given New Star's revenue momentum, we have confidence in a high single-digit organic revenue for 2023 based on strong prior year sales and the 80% plus recurring nature of New Star's revenue. We also expect adjusted EBITDA margin to expand from 26.5% to 32% in year, positioning us to reach roughly 40% margins by 2025 and as we fully realize cost synergies of at least $80 million now increased from our prior guidance of $70 million. Now, SONTIC revenue again grew in high single digits in the fourth quarter and for the full year on the strength of new subscription sales of integrated offerings with TU's consumer direct business. Now, this combination led to an eight-figure competitive win that should fully monetize in 2023. Also, adjusted EBITDA margins in 22 were 32% or 38% excluding integration costs. We also have a growing pipeline of opportunities for identity protection services across our financial verticals, which should ensure that we reach our targets for SONTIC. And in the quarter, Argus' revenues declined 3% as we lapped strong comparisons for spend-informed analytics and portfolio management services resulting from a surge in credit card marketing beginning in late 2021. Now, for the full year of 22, Argus grew revenues in the low single digits, and adjusted EBITDA margin was 21%, or 29%, excluding integration costs. We also divested G2, LCI, and Fintelix. non-core businesses bought last year as part of the Verisk Financial Services acquisition for $176 million in consideration. Divestitures of the non-core assets from this transaction, along with expected cost and revenue synergies, should comfortably lower the EBITDA multiple of this deal to high single digits. And we continue to see renewed interest in the market for innovations using Argus data and insights. Revitalizing the delivery of Argus data on TU's analytic platforms and infusing our market insights will be the key to increasing revenue growth in the future. On our March 2022 Investor Day, we introduced our global operating model and our four enablement platforms, technology, data analytics, solutions, and operations. And during the year, we made considerable progress developing each. Our technology evolution will increase our development capacity and our innovation speed. With Project Rise, we're migrating to a hybrid, multi-cloud environment on a common set of enterprise software services and eliminating redundant applications. In 2022, we moved 30 applications to our secure cloud environment and eliminated eight data centers. This year, we will scale our migrations and move over 100 applications to our two clouds, and shutter portions of our legacy infrastructure. By the project end, two-thirds of our applications will run in the public cloud. With the acquisition of NuSTAR and its OneID platform, we formed a data and analytics function to create a common foundation for our data management, governance, decisioning, and analytics tools globally. This team set up a security, privacy, and compliance guardrails around the world for all data assets and has developed a central identity resolution capability. The DNA team has also enhanced our innovation lab model development capability using the OneID platform and extended the service from the US into the UK to help lenders of all types enhance underwriting and compliance. We held a record number of innovation labs in 22, and we expect to increase this number in 23 as we roll this capacity out globally. And in solutions, we're integrating NuSTAR's fraud capabilities into our next-generation modular and flexible platform. We also rolled out U.S. products like Shareable into international markets. In India, we've launched a new solution to support agricultural lending. which accounts for roughly 18% of lending in that market. released a credit and farm report in October, which digitizes a traditional lending process by combining credit data with satellite imagery, land records, and crop intelligence. This powerful tool enables better decisions on agricultural loans and faster disbursements of funds to farmers, supporting our goal of using information for good and also promoting financial inclusion. And finally, our operations team implemented a common sales, service, and order management system globally based on standardized and automated processes. In 2023, we'll continue to refine the user experience, workflow automation, and analytics and reporting in the system to drive efficiency. We also more than doubled the employees in our global capability centers from about 1,800 to roughly 4,000 through acquisitions and also internal hiring. including opening a new center in Costa Rica. We've set up our GCCs in multiple locations around the globe to prevent a single point of failure, to minimize country risk, and to provide services around the clock. These centers offer broad capabilities and access to immense pools of talent, along with proximity to markets with rapid growth potential. Now that wraps up my comments on our market conditions, fourth quarter performance, and the meaningful accomplishments in 2022. Now, Todd will provide you with further details on our fourth quarter financial results, our first quarter in full year 23 outlook. Over to Todd.