TransUnion

Good morning and welcome to TransUnion's 2023 Third Quarter Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal an operator by pressing star followed by zero. After today's presentation, there will be an opportunity to ask a question. You may ask a question by pressing star then 1 on your telephone keypad. Please note this event is being recorded. I would now like to turn the conference over To Aaron Hoffman, Senior Vice President, 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, 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 earnings 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 statements. With all that, let me turn it over to Chris.

Thanks, Erin. Let me add my welcome and share our agenda for the call this morning. First, I'll discuss the macroeconomic conditions we're facing and the impact that they had on our business in the third quarter. Then I'll provide an overview of our third quarter financial performance. I'll also review the continued progress we're making with NuSTAR, accelerating revenue growth and achieving savings targets. I'll wrap up with a short discussion about our approach to managing through a more challenging and uncertain macro environment. Finally, Todd will detail our third quarter results along with our fourth quarter and full-year guidance. Economic conditions softened across several TransUnion markets in the third quarter, most notably in the US and the UK. While US consumers continue to benefit from low unemployment and modest real wage growth, lingering inflation and rising borrowing costs have taken a toll on household finances. Spending has slowed and consumers have largely spent through the excess savings accumulated during COVID. Although demand for credit remains strong despite elevated costs, banks have tightened lending standards due to weakening consumer finances and increasing capital constraints. Recent commentary from lenders supports these observations, noting that cracks have appeared across consumer lending, especially in the lower credit tiers. Now, TransUnion entered the third quarter cautiously optimistic after exceeding guidance in the first two quarters while maintaining our full year guidance as a cushion against ongoing economic uncertainty. However, lending volumes in the U.S. and U.K. softened progressively over the third quarter, causing our revenues to come in slightly under the low end of our guidance. In U.S. financial services, year-over-year revenue grew 3% in July and 1% in August, but declined 5% in September. Rising rates in the quarter had a negative impact as the 10-year Treasury rate spiked 50 basis points after only increasing 20 basis points in the first half of the year. The decrease in loan demand combined with tighter credit standards also fueled a pullback in marketing activity, which negatively affected our consumer audience and campaign management volumes. We experienced a similar slowdown in our insurance vertical, where carriers remained primarily focused on increasing profitability and have reduced marketing to acquire new customers. Insurance revenue grew 5% in July, 4% in August, but declined 4% in September. Increasing policy renewal rates and carriers exiting unprofitable geographies is fueling increased consumer shopping, which only partially offsets the decline in marketing volumes. And while policy attrition from large carriers is often acquired by smaller and non-standard carriers, TU typically realizes less revenue per transaction as smaller carriers usually do not utilize our full product suite. Financial services and insurance volumes have a high flow through to profits, and their softening has weighed on our adjusted EBITDA dollars and margins. Our international segment continues to benefit from healthy economic conditions in India and Asia Pacific and strong market outperformance in Canada. Other parts of the portfolio, such as the UK, Latin America, and Africa, slowed over the quarter, although segment revenues in total were up low double digits. In the third quarter, TransUnion grew revenues 3% organically, driven by strength in International, New Star, and several verticals within U.S. emerging markets. U.S. markets grew 2% with financial services flat and emerging verticals up 4% in total due to high single-digit revenue growth in NuStar. Our bookings remain strong overall, including within financial services, insurance, and media, and we continue to benefit from our portfolio diversification as we grew double digits in public sector and media and high single digits in tech, retail, and e-commerce. All areas of recent organic and inorganic investment. Revenue in our international segment grew by 11% in constant currency in September for the 10th consecutive quarter of double digit growth. India led with 31% revenue growth, while Canada and APAC also grew revenues double digits. We continue to outperform our underlying markets because of solution innovation, share gains, and expansion into new adjacencies. We prepaid another $75 million of debt during the quarter, bringing our total for the first nine months to $225 million. And we expect to make further prepayments in the fourth quarter. We also settled two legal matters with the CFPB and the FTC with no admission of wrongdoing. We're pleased to have resolved these matters and to proceed with our work of providing important business services to help consumers reach their goals. New Star delivered 7% revenue growth in the quarter despite increased macroeconomic headwinds and is proving to be nicely accretive to our growth rates in our core U.S. verticals, even in these challenging market conditions. While bookings and subscriptions continue their strong growth, New Star's transactional revenues in marketing and risk solutions softened in the quarter. As a result, we're reducing our fourth quarter growth assumptions in line with volumes in September and lowering our full-year guide to mid-single digits growth instead of high single digits. We also expect a 31% EBITDA margin, up around 450 basis points over 2022, as we complete integration and achieve our target cost synergies. Now, in the quarter, we announced a number of new partnerships that further support our confidence in NewStars growth prospects. and marketing, we signed a substantial multi-year identity deal with a large CPG company as well as new business with a large apparel company and a major personal care brand. We also announced that our marketing solutions business, True Audience, will integrate its identity product line with AWS Entity Resolution from Amazon Web Services. True Audience brings advanced identity resolution capabilities to AWS customers to improve their data hygiene and customer insights from within AWS's secure cloud environment. Communication solutions continue to grow in the strength of our suite of True Contact Trusted Call Solutions, or TCS, which grew about 70% in the third quarter across a range of verticals. We recently expanded our relationship with one of the three major wireless carriers in the US, to become their exclusive provider for branded calling, part of our TCS solution suite. Branded calling allows users to place their brand and call purpose on outbound calls to cut through the fog of anonymous robocalls and securely engage with clients and prospects. We also want a multi-year, multi-million dollar with a large federal government agency to provide branded call display. We're enjoying strong growth in our TCS solutions and broad interest across our verticals as clients value improved answer rates and reduced costs. Now I want to wrap up my part of the call by reinforcing our long-term approach to creating shareholder value, even as macroeconomic and lending market conditions may cycle. We're focused on helping our customers address their current market challenges by applying our complimentary credit, marketing, and fraud solutions, through our insight-led, consultative approach. With tightening lending standards, declining loan volumes, and rising delinquencies, our rich, trended, and alternative credit data and powerful analytic and modeling tools will help lenders maximize their portfolios and find attractive segments for growth. Our marketing solutions enable customers to optimize their spending and ensure positive outcomes, which is even more important in challenging conditions. Our identity resolution, audience segmentation, and predictive analytics help clients understand which customers to contact, how best to reach them, and what messages will most likely resonate. Planning and measuring the effectiveness of marketing spending by utilizing our rich history of pipeline conversion data ensures that the best results are achieved with the least possible investment. And our trusted call and fraud mitigation solutions also help clients reach consumers more efficiently, and minimize their fraud losses. We continue to invest in the strategic initiatives that will position us for our next chapter of growth and profitability. These include innovations from combining the best of NuSTAR and TransUnion, launching our next generation fraud mitigation platform, and scaling our new products across our thriving international footprint, and reducing our cost structurally by scaling our global capability centers refining our organization structure, and standardizing and modernizing our core technologies and operations remains key objectives for TransUnion. Through the series of initiatives, many of which have been in progress for some time now, we believe we can further reduce operating costs materially. Given the more challenging growth environment in which we find ourselves, we are accelerating these efforts and will share additional details when appropriate. We also remain laser focused on achieving the cost savings from our acquisition integrations and reducing our interest expense through prepayment of our debt. That concludes my comments this morning on our marketing conditions, our third quarter performance, and our approach to managing through these softer market conditions. Todd will now provide further details on our third quarter financial results and our fourth quarter in our full year 2023 outlook. Over to you, Todd.