TransUnion Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 25, 2023

There are 15 speakers on the call.

Operator

Hello, and welcome to the TransUnion 2023 Second Quarter Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would like now to turn the conference over to Aaron Hoffman, Senior Vice President of Investor Relations.

Operator

Please go ahead.

Speaker 1

Good morning, everyone, and thank you for attending today. Joining me on the call are Chris Cartwright, President and Executive Officer and Todd Sellow, 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 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.

Speaker 1

These statements are based on current expectations and assumptions and are subject to risks 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 ks, Forms 10 Q and other reports and filings with the SEC, With that, let me turn the time over to Chris.

Speaker 2

Thanks, 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 strong Q2 financial performance. I'll also review the continued progress with NuStar to accelerate revenue growth and

Speaker 3

And I'll wrap up with

Speaker 2

a short discussion of our global capability center strategy, which enables us to scale Our global business efficiently and tap into diverse talent pools. And finally, Todd will detail our 2nd quarter results along With our Q3 and full year guidance. Through the Q2, macroeconomic conditions are unchanged to slightly improved With reduced expectations for recession in the U. S, in most of our markets globally, consumers continue to face higher interest rates levels and modest real wage gains have mitigated the impact of these pressures to date in most of our markets. Consumers remain resilient and we see positive continued demand from borrowing.

Speaker 2

In the U. S, we've seen increased caution and tighter lending standards from banks. However, the strong demand for credit continues to be met by a broad range of lenders. U. S.

Speaker 2

Consumers remain healthy and optimistic relative to Credit performance metrics have continued to normalize and remain within range of pre pandemic and historical levels. Although delinquencies have increased, they're still very comfortable by historic standards across mortgage, card, auto and unsecured personal loans. Across our international portfolio, conditions also remain largely unchanged. In Canada and the UK, Consumer health and credit demand continue to be similar to the U. S.

Speaker 2

With persistently high inflation and rising rates burdening consumers and slowing lending markets. However, lending volumes in our emerging markets of India, Asia Pacific, South Africa and LatAm remain strong. Like many of our customers, we remain cautious about the rest of 2023. Therefore, we will again maintain our full year guidance at this point to account for market uncertainties despite overachieving in the Q2. Todd will walk you through the details later of our Q3 and full year guidance and expectations for each of our markets and verticals.

Speaker 2

Now turning to Q2 highlights. We again beat our guidance for revenue, adjusted EBITDA and adjusted diluted earnings per share. Expectations, though mortgage was slightly below expectations, but offset by modestly better performance in consumer lending. U. S.

Speaker 2

Emerging Verticals was also in line with our expectations and improved sequentially from the Q1. Importantly, we have seen signs that the short term headwinds we faced in tenant and employment screening and insurance are moderating, which should position us for faster growth in the second half of the year in those verticals. Our international segment grew currency revenue by double digits for the 9th consecutive quarter, led by 35% revenue growth in India Industry Leading Innovation. Across all our markets, our broad solutions portfolio is resonating with our customers, Helping them navigate complex and hard to forecast economic conditions. And as I'll detail in a moment, we continue to make progress integrating NuStar and strong customer adoption of our platforms and solutions.

Speaker 2

Also in the quarter, we announced a commercial partnership Truework uses sophisticated orchestration software to support a multi pronged strategy to provide coverage of 90% of U. S. Employees. We We see an attractive opportunity to help bring TruWorks' unique solutions to our broad customer base in markets like financial services and rental screening among others. And finally, we continue to direct our free cash flow towards reducing our debt levels.

Speaker 2

And in the Q2, we prepaid another $75,000,000 in debt and intend to make additional prepayments in the second half of the year. We have now prepaid $150,000,000 of debt this year. Moving to NuStar. NuStar delivered 6% organic growth as a result of solid performance across marketing, fraud and communications. For the full year, We continue to expect high single digit revenue growth and a 32% margin fueled by profit flow through on accelerating revenues and attainment of our integration cost savings.

Speaker 2

We have line of sight to the revenue growth based on our strong bookings

Speaker 3

and

Speaker 2

the momentum achieved by joint sales teams aligned by vertical markets. In the first half of the year, we signed meaningful renewals with dozens of customers, including some of the largest companies in the world. We've also begun recognizing revenue on a number of new multimillion dollar contracts Now we believe will accelerate growth in the second half. At the same time, we have numerous late stage large contracts that should further enhance growth over the remainder of the year. Taken together, these wins give us Confidence in delivering high single digit growth for NuStar this year.

Speaker 2

During the quarter, we also announced a number of partnerships That further underpin our confidence in the short and long term prospects for Neustar. At Snowflake's Annual User Conference, We announced the launch of True Audience Marketing Solutions' Transferless Identity Resolution app. It's now in the Snowflake marketplace. This partnership brings our advanced identity resolution capabilities to shared customers wherever their data and marketing technology lives. Together, we are helping our customers improve their consumer data quality and collaborate with partners without sharing sensitive customer information.

Speaker 2

Marketers and publishers want to connect disparate offline and online data and enrich consumer profiles with demographics data from True Audience Identity The transferless quality of the native app helps to support security, privacy and data governance. We also partnered with VideoAmp to release a comprehensive analytics solution for cross platform media measurement and optimization. Marketers will now have more accurate visibility into the effectiveness of their linear television advertising by integrating VideoAmp's TV viewership dataset into the True Audience Marketing Analytics and Attribution Solution. This integration enables marketers to better measure the holistic impact of their campaigns across TV and digital channels and to enable data driven decisions. And we expanded our partnership with Magnite, the world's largest independent sell side advertising company, Increasing their true audience data marketplace usage beyond connected TV.

Speaker 2

Magnite can now help agencies, brand and publishers reach Audiences across digital media channels, including streaming video, audio, gaming and digital out of home. TransUnion's true audience data marketplace offers advertisers and brands audience solutions that cover over 80,000,000 U. S. Connected homes. And our communication solutions continue to grow on the strength of our suite of TrueContact Trusted Call Solutions or TCS, which grew about 75% in the Q2.

Speaker 2

Our teams continue to identify new applications that have resulted in rapid Let me detail some of the recent progress in 2 end markets. First, we've made inroads into the healthcare sector where TCS can enhance the effectiveness of necessary phone calls at many steps of care, including booking appointments, pre appointment insurance authorizations, appointment reminders, telehealth phone calls, test results, Prescription pickups and payment notices or reminders. 2nd, we see opportunities in the public sector. A few weeks ago, we launched TrueLookup Veteran Connect to help state departments of Veterans Affairs improve outreach and effectively deliver housing, healthcare, job training and other essential support to their members. In this case, TrueContact branded call display verifies that the inbound call is coming from the Department of Veterans Affairs and adds context to Mobile call display, including brand name, location, logo and reason for the call.

Speaker 2

Last quarter, I discussed our ongoing data and technology transformation, which has been supercharged by the NuStar acquisition. This quarter, I want to highlight our Global Capability Centers or GCCs and how they're enabling our transformation into a truly global organization. Investment in our GCCs in recent years has allowed us to centralize and standardize a variety of important work in high talent and lower cost locations. Today, our GCCs are delivering high quality solutions and services to customers Over the last 5 years, we've grown to more than 4,000 employees across India, South Africa and our newest location, Costa Rica. Local GCC Associates inject new ideas and energies into our solutions and our processes.

Speaker 2

Concentrating functions in software development, Data science and analytics, operations and business support functions creates scale efficiencies and consolidates knowledge and best practices. And as we grow our market share in the regions surrounding the GCCs, we believe their real time support, regional expertise And strong local language skills will be critical to supporting our customers. We've received numerous awards reflecting the outstanding work of our GCCs. These include certification as great places to work in India and a top employer in South Africa. And in the last 2 months, our India GCC was recognized by NASCOM, the Indian IT Business Process Management Association for its stellar distributed work model for the future and also named by Everest Group as a top global business services employer in India.

Speaker 2

This recognition reflects the strong leadership we've put in place and the high caliber diverse talent they've assembled. We see the growth of our GCC network as another attractive path to margin expansion and improved operational performance in the year to come. Now that wraps up my comments on our market conditions, 2nd quarter performance, progress, integrating Neustar and our successful GCC strategy. Now, Todd will provide you with further details on our Q2 financial results and our Q3 and full year 2023 outlook.

Speaker 3

Over to you, Todd.

Speaker 4

Thanks, Chris, and let me add my welcome to everyone. I'll start off with our consolidated financial results. 2nd quarter consolidated revenue increased 2% on a reported and 3% on an organic constant currency basis. There was no impact from acquisitions as we lapped the purchase of Argus last quarter. Foreign exchange was a 1% headwind.

Speaker 4

Our business grew 2% on an organic constant currency basis, excluding mortgage from both the Q2 of 20222023. Adjusted EBITDA declined 3% on a reported basis. Our adjusted EBITDA margin sequentially improved to 35 0.0%, down almost 200 basis points compared to the year ago second quarter, which had the most challenging comparison for 2023. 2nd quarter adjusted diluted earnings per share Declined 13% as a result of lower adjusted EBITDA and higher interest expense. Before I get into U.

Speaker 4

S. Markets results, a reminder that we are reporting NuStar revenue within our vertical market And we will discontinue providing standalone Neustar reporting at the end of 2023. Now looking at segment financial performance for the Q2, U. S. Markets revenue was up 1% compared to the year ago quarter.

Speaker 4

Adjusted EBITDA for U. S. Markets declined 5% and adjusted EBITDA margin was 34.6%. Financial Services revenue was flat. Turning to the individual end markets, consumer lending revenue to a potentially weakening consumer.

Speaker 4

Fintechs have stabilized and remain active market participants with reasonable access to funding. On mid single digits against a high teens growth rate in the prior year quarter. Issuers remain selective With larger firms that are aggressively utilizing digital marketing. Our auto business delivered low Single digit growth in the quarter on the strength of continued share gains, pricing, strong prequalification volumes, the impact of Cross selling NuStar Marketing and Call Center Solutions. We are seeing improving supply of new vehicles, somewhat offset by continued weakness in the used vehicle market.

Speaker 4

For mortgage, revenue was up 16% in the quarter Invari volumes falling about 29%. Absolute volumes remain weak, but year ago comparisons started to ease While the purchase market is stagnated as home prices remain high and existing homeowners are reluctant to leave low rate mortgages. On a trailing 12 month basis, mortgage represented about 6.5% of total TransUnion revenue. For 2023, we now expect the inquiry market to be down roughly 25% and our revenue to increase Roughly 20%. Let me now turn to our emerging verticals, which grew 3% in the quarter.

Speaker 4

Insurance delivered another good quarter. Importantly, we are seeing carriers receive approval for rate increases and beginning to pass those increased prices to Largely limited their marketing activity to brand oriented campaigns and have yet to substantially reactivate personalized marketing to drive new applications. We also continue to benefit from new business wins, adoption of our innovations like TruVizion driving history, Growth in newer markets like life and commercial auto and successful cross selling of Neustar and SonTek solutions. Tenant and Employment Screening was down against tough comps and a softening employment market. However, we continue to see signs of a recovery in the tenant market with month over month declines in rental rates, increases in move rates And an increasing supply of rental units as new construction comes online.

Speaker 4

Our media vertical grew in the quarter as a result of continued Business wins driven by the combination of TransUnion and NuStar Solutions, as Chris described. Finally, we continue to see good growth in Services and Collections and Tech, Retail and E Commerce, particularly on the strength of customer wins of our Trusted Call Solutions suite. Consumer Interactive revenue declined 2%. Adjusted EBITDA margins were 47.0%, up About 80 basis points as a result of more focused advertising spending. Our direct business continues to decline as we recalibrate our marketing approach to focus on higher value consumers.

Speaker 4

Thus far, we've seen good returns on the revamped tactics with better than expected customer acquisition stats at attractive cost to acquire. In our indirect business, We grew in the Q2 on the strength of new business wins, particularly with financial services accounts using True Empower, formerly known as our CreditView platform, as well as a modest improvement with some of our partners that offer paid monitoring. For my comments about international, all revenue growth comparisons will be in constant currency. For the total segment, revenue grew 13% with 4 of our 6 reported markets growing by double digits. Adjusted EBITDA margin was 42.3%, down about 100 basis points as a result of strategic investments across our regions.

Speaker 4

Now Now let's dig into the specifics for each region. In India, our largest international market, we grew 35%, reflecting strong market trends and generally healthy consumers. The diversity of our portfolio remains a real strength in India. We saw meaningful growth in both consumer and commercial credit markets as well as from fraud and direct to consumer offerings. We expect India to deliver another year of over 30% growth.

Speaker 4

And with the exception of COVID Impact 2020, we have grown this business over 30% every year since 2017. In the UK, revenue declined 1%. Excluding the revenue related to one time contracts, Including with the U. K. Government, we would have grown about 3% in the quarter despite a challenging macro environment.

Speaker 4

While lending markets have softened, we continue to see large banks staying active to satisfy demand even as the FinTech Market has struggled. At the same time, we have seen good performance for our affordability and trended credit solutions to help lenders assess portfolio risk. Our Canadian business grew 11% in the 2nd quarter. While the market remains relatively flat, we have generated strong growth through the execution of share shifts in Financial Services And FinTech as well as a recovery in property and casualty insurance underwriting activity. In Latin America, revenue is up 5% with broad based growth across the majority of our markets, including Another quarter of double digit growth for our largest market, Colombia.

Speaker 4

Brazil was down in the quarter as we've seen some weakness In the FinTech market, while macro conditions have softened across Latin America, our teams continue to win new business in Financial Services, particularly with FinTechs and neobanks, insurance, government and telcos. We also continue to see strong adoption of TrueVision trended credit and our fraud solutions. In Asia Pacific, we grew 20% from continued good performance in Hong Kong and the Philippines, where we continue to add new offerings and win new business. Finally, Africa increased 10% on broadly strong performance across the portfolio and the region, despite a challenging macroeconomic and social environment in several of our largest markets. In South Africa, core banking business growth was driven by solid market conditions and new business wins.

Speaker 4

This growth was augmented by continued strength in fast growing verticals like telco and gaming. Outside of South Africa, we continue to see very strong revenue growth in markets like Kenya, Zambia and Rwanda. We ended the quarter with roughly $5,500,000,000 of debt after prepaying another $75,000,000 in the quarter. That left us with $442,000,000 of cash on the balance sheet. We finished the quarter with a leverage ratio of 3.8 times.

Speaker 4

We have now prepaid $150,000,000 of debt in 2023. And at this point, we We continue to intend to prepay additional debt in the second half of the year. Looking back, since we announced the acquisition of NuStar in And to reiterate our previous comment, at this time, we have no intention to pursue any large scale acquisitions and even smaller bolt on acquisitions are not in our plans this year. We are focused on integrating and maximizing The growth potential of NuStar, Santec and Argus. That brings us to our outlook for the Q3.

Speaker 4

In the Q3, we expect FX to be insignificant to revenue and adjusted EBITDA. We expect revenue to come in between $973,000,000 $988,000,000 or up 4% to 5% on an as reported and organic constant currency basis. Our revenue guidance includes approximately 1.5 Points of tailwind from mortgage, meaning that we expect the remainder of our business will be up 2.5% to 3.5 percent on an organic constant currency basis. We expect adjusted EBITDA to be between $361,000,000 $370,000,000 an increase of 6% to 9%. We expect adjusted EBITDA margin to be up 80 basis points to 110 basis points.

Speaker 4

We also expect adjusted diluted earnings per share to be between $0.92 and $0.95 a range of down 1% to up 2%. Turning to the full year, most of our guidance remains largely unchanged. We expect about one point of headwind from FX on revenue and adjusted EBITDA, and we expect less than one point of impact from M and A. We expect revenue to come in between $3,825,000,000 $3,885,000,000 or up 3% to 5% on an as reported and organic constant currency basis and up 2% to 4% For our business segments, our organic revenue growth outlook also remains unchanged. We expect U.

Speaker 4

S. Markets to grow mid single digits, but low single digits without the impact of mortgage. We anticipate Financial Services to be up low single digits and down low single digits excluding mortgage. While the overall guidance for Financial Services is unchanged, we have modestly increased our expectations for consumer lending, but reduce them for mortgage. We expect emerging verticals to be up mid single digits.

Speaker 4

You can see the benefits of our diversified portfolio And we continue to expect Consumer Interactive to decline low single digits. Turning back to total company outlook, We expect adjusted EBITDA to be between $1,388,000,000 $1,421,000,000 Up 3% to 5%, also unchanged. That would result in adjusted EBITDA margin being flat to up 30 basis points With the significant benefits of the NuStar cost savings, partially offset by the inclusion of Argus' relatively lower margins in the first Quarter and some revenue mix considerations. We anticipate adjusted diluted earnings per share being flat to declining 4% with higher interest expense offsetting adjusted EBITDA growth. And we continue to expect our adjusted tax rate to be approximately 23%.

Speaker 4

Depreciation and amortization is expected to be approximately $525,000,000 And we expect the portion excluding step up amortization from our 2012 change in control and subsequent acquisitions to be about $225,000,000 We anticipate net interest expense will be about $275,000,000 for the full year as the benefits of debt prepayment are offset by an increase in the SOFR forward curve. And we expect capital expenditures to come in at about 8% of revenue. I'll now turn the call back to Chris for some final comments.

Speaker 2

Thank you, Todd. To wrap up, we had another good quarter beating our guidance for revenue, adjusted EBITDA and adjusted EPS. We're prudently holding our full year guidance given the level of uncertainty in the market. At the same time, we continue to make meaningful integrating NuStar and delivering business wins from the combination. With that, I'll turn it back to Aaron.

Speaker 1

Thanks, Chris. That concludes our prepared remarks. For the Q and A, as always, we ask that you each ask only one question, So that we can include more participants. And so now operator, we can begin the Q and A.

Operator

We will now begin the question and answer Our first question comes from Jeff Meuler with Baird. Go ahead.

Speaker 5

Yes. Thank you. Thank you. So, totally respect the prudence in maintaining the guidance. I guess just in terms of not flowing through the better Q2 and I know you said it's still an uncertain and tough macro, but you said that's unchanged to slightly improved.

Speaker 5

I see the offset in the lowered U. S. Mortgage revenue and inquiries guidance. Is there anything else that you're seeing in your business kind of later in the quarter, early in Q3 or any signals you're getting from your customers that is Showing a pullback in activity or is it just maybe extra conservatism

Speaker 3

or prudence? Thank you.

Speaker 6

Good morning, Jeff. This is Todd. I'll take that question and probably a very appropriate place for us to start this morning. So yes, in Q1 and Q2, we did beat expectations across revenue, Adjusted EBITDA and adjusted diluted EPS, and we did not raise, the guide. And the reason for that is we feel that the Economic conditions, particularly in the U.

Speaker 6

S. And in some of the developed markets that we operate in, continue to remain uncertain. And as a point to that and how we think about this, if you go back to our April call When we gave our Q1 results and the updated guide, at that time, we significantly increased Our mortgage assumption for the year because we saw a mix shift and more towards smaller players in the space, We reduced our consumer lending forecast for the year, close to similar amounts for all intents and purposes. And in the consumer lending space, what we were seeing at that time was a slowdown and it was primarily in response To the aftermath of the Silicon Valley Bank and Signature failures. We saw just a cautiousness In the late March, early April period.

Speaker 6

So what happened is in the second quarter, those dynamics I just articulated that we forecasted, in essence we saw almost reverse. We saw interest rates tick up in particular on the 10 year yield, which had a direct impact on mortgage rates, where we saw mortgage rates Close to 7%, not that long ago, still in the upper 6s. So as a result of that, in this guide, what we've done is we've taken down Our mortgage assumption and conversely consumer lending as the second quarter When on and our customers got more and more comfortable with the type of environment that they were operating in, we started to see The consumer lending volumes tick up. So again, kind of a similar offsetting case there. So I think that's just important because when you look at the full year guide and see that we maintain there are puts and takes that we're seeing In the business and that's probably the best example I can give you.

Speaker 6

I think I would say though is needless

Speaker 3

to say is we're We're

Speaker 6

really pleased to have been able to outperform in the first half of the year. And really what we're focused on is Derisking the second half of the year. With that being said, when you look at the growth rates and with the expectations for the second half of the year, We feel that the guide is strong. We feel like we're going to deliver a good second half And it really gets to your point of your question is, our customers, we are seeing a stability right now Again, in more of our developed markets, so think of U. S.

Speaker 6

Financial Services, as well as in markets like Canada, Even a little bit in the U. K, maybe that's a little bit more pressured. And the international business continues to grow strongly in the double digits. So that's what gives us the conviction in the second half.

Speaker 3

Got it. Thank you.

Operator

Our next question comes from Kelsey Xu of Autonomous. Go ahead.

Speaker 7

Good morning. Thanks for taking my question. I'm very excited about your strategic partnership with TrueWorks. Just trying to understand a little bit better about the size of TrueWorks database and revenue as well as your Strategy to expand there. I was also wondering if you can share with us a little bit more about what the downstream customer Breakdown looks like between kind of mortgage, background screening companies, Fertur and whether you're usually competing with Equifax and Are you in in this space or are you more competing with some of the in house manual verification processes at

Speaker 3

Okay, Kelsey. Thank you for the question. And again, we are excited about Our partnership with TruWorks, I think any discussion of verified employment and income space starts with the context The work number is setting the standard for product in this marketplace, But it's a big and attractive adjacent market for us. And I think the investment in TrueWorks just reflects our continued efforts To find our way into this market and scale our revenues, we think the market is Hungry for competitive alternatives, and we're one of a number of players that sees the opportunity, And we're going to continue to work to find the right solutions that Can satisfy client needs and scale revenues. What we like about Truework is they're a rapidly Emerging player in the space, and they're very kind of foot forward technologically.

Speaker 3

They have sophisticated Workflow and orchestration software that's very easy to access and has a very streamlined user interface That allows customers to fulfill the need through a variety of Approaches or mechanisms that could be tapping into their database of employment and income, which is well beyond critical mass and growing, from relationships with payroll processors, but also with Major corporations, but they can also support a consumer permissioned account access workflow, The traditional telephonic workflow, document upload embedded within the loan origination lifecycle. So the kind of umbrella functionality that they provide across a range of fulfillment methods is particularly attractive. We think we have certainly attractive data assets and very broad distribution, MSAs, relationships with the demand side that can help Scale this investment. And then to some of your kind of more detailed questions, those are probably better for the TruWorks CEO, but I think this just reinforces our strategic intent to compete in this space and our ongoing efforts to find The right solution to help us penetrate and scale.

Speaker 8

Thanks for that.

Operator

Our next question comes from Faiza Alwy of Deutsche Bank. Go ahead.

Speaker 9

Yes. Hi, good morning. I wanted to just go back to the credit market again And wanted to get your perspective on what you're seeing from FinTech customers. And it seems just from your Commentary that maybe marketing revenue seem to have accelerated on the credit side of the equation. So, we'd love to get some perspective on that, sort of the puts and takes around marketing versus portfolio monitoring, sort of what you're seeing from your Customers broadly and FinTech in particular.

Speaker 3

Okay. Yes, happy to focus on that. I'd say trading conditions for the FinTechs are largely unchanged between the quarters. We see certainly reduced activity from prior years where their growth had really accelerated, But a lot of stability and resilience in the sector. They are still Originating loans, albeit at a lower level and they're more selective than they were previously.

Speaker 3

I don't think we've seen a distinct shift Toward marketing and customer acquisition in either the Fintechs or frankly consumer lending In the broad, right, there is more caution and there's more sensitivity to risk, Which has reduced overall marketing and acquisition activity. That said, there's still a good level of lending activity. There are certainly ample consumer appetite for loans, because the consumer remains pretty healthy. And as long as that's the case, the market is going to find a way To fulfill that demand. And again, I think it's important, again, to provide some context, while In 'twenty two, in the first half of the year, the Fintechs and consumer lending in general was booming.

Speaker 3

We saw that Diminish in the second half of the year, and we still have kind of steady as she goes outlook for FinTechs For the remainder of this year, but with that said, the business is still up 75% over the last 3 years, And we view that as something to be excited about, not concerned about.

Speaker 9

Thank you.

Operator

Our next question comes from Andrew Steinerman with JPMorgan. Go ahead.

Speaker 10

Hi. Going back to Slide 6, NuStar, could you just be a little more specific and tell us what's driving the strong bookings, renewals and usage? And Is there a joint product roadmap yet between NuStar and TransUnion?

Speaker 3

Yes. Happy to elaborate on that. First of all, I would say across the 3 product areas of marketing, risk and communications, we've had strong growth In each of those areas, and we are looking to accelerate growth in the 3rd and the 4th quarter, to reach The full year high single digits guide. As I said in my commentary, we had strong renewals with big customers. We are ramping the revenues from big customer wins last year.

Speaker 3

We continue to sell well. And so there's a lot of positive indicators that give us confidence in that NuStar high single digit guide. And yes, we absolutely are executing on our cross sell and on our integrated product development And in a very meaningful ways. In prior calls, I've talked, I think extensively about the benefits of NuStar's technology, The OneID platform that they developed, which we have adopted and rebranded as OneTrue and is Becoming the integrated data acquisition, management and analytics platform for TransUnion across multiple geographies and multiple markets. We'll continue to roll that out.

Speaker 3

We've firmly proven the concept that we can do it. So, yes, the integration is going well on multiple levels. I think on Selling side, we integrated the sales forces in the 1st year and they're very comfortable and their knowledge of the broader product line is Increasing and their comfort cross selling is increasing and we are seeing improvement. Now clearly, Andrew, more work to do and a lot of upside there. So we're going to continue to But we do have integrated product development or multi generational product plans in each

Operator

Our next question comes from Toni Kaplan with Morgan Stanley. Go ahead.

Speaker 8

Thanks so much. Wanted to ask maybe one more question on the sort of TrueWork and Ultimately, where do you see this going for you? Is your strategy Really to try to compete head to head with Equifax now. I know historically, because of being sort of newer and smaller In that part of the business, like you had sort of had this niche strategy. So I guess what is the new strategy there?

Speaker 8

And Where are the real differentiators that you see for Truer and your combination? Thanks.

Speaker 3

Yes, sure. Again, look, I have to acknowledge that Equifax has a very strong business in the space. We all understand that. However, I think the market will support multiple competitors in the space In different niches. And so when you take on a strong and entrenched competitor like this, you're looking for an opportunity to penetrate the market.

Speaker 3

The market, I think, is hungry for alternatives, for a variety of competitive factors. I think it's healthy For the market, I think it's good for consumers. And I think TrueWork has demonstrated That they have a value proposition that can sell, that they are scaling the business and that the distribution partnership with us It's going to be significantly additive to that. So, we're working on growing this beachhead that they've established, And we can grow it in a variety of ways from adding records, to increasing the distribution, To deeper and more meaningful penetration into TransUnion products, so they can ride our rails into our clients, etcetera. And we're just going to continue to fight the fight and there's really not a strategic change.

Speaker 8

Thank

Operator

you. Our next question comes from Andrew Nicholas with William Blair. Please go ahead.

Speaker 11

Hi, good morning. Thank you for taking my question. I wanted to circle back to NuStar, maybe a multi part question here, if you will. The first is, is the 6% growth essentially what you were expecting for the 2nd quarter? And then the second part is just on kind of medium term growth outlook there.

Speaker 11

I know the target when you announced the deal was to eventually get to double digit I'm just wondering if that's still the target and to what extent do you need a supportive macro to get there? Thank you.

Speaker 3

Yes. Well, 6% growth in NuStar in the 2nd quarter is right on plan. And the plan for NuStar Over the course of 'twenty three, it was accelerating revenues based on the strength of the bookings and the implementations. The bookings from 2022 and the implementation is ramping over the course of 2023, and that is playing out as planned. We still expect to get to high single digits for NuStar in total by the end of the year.

Speaker 3

Now back to the guidance, the initial guide. Yes, indeed. We did expect for the business to be executing in the low double digit organic revenue range A couple of years after acquisition, that is still our expectation for the potential of this business over the longer term. But again, we are facing more challenging conditions overall economically, but certainly in terms of marketing and advertising spend Then when we first provided that guidance, so right now, we're really focused on achieving high single digit and sustaining that In the foreseeable future. And Chris, I would just

Speaker 6

add on to that, that just underscore the point that NuStar has performed To our expectations through the first half. And the second point that I think is important to understand is that this business It's expected to be the fastest grower in our U. S. Markets business in 2023. So it gets to the question on the growth rates.

Speaker 6

Chris just said, We fully expect to deliver on the high single digit. We put 3% growth up in Q1, 6% up in Q2. You can do the math as far as how high single digits gets there. We have good visibility in the Q3, Q4 And it should be at a higher rate than what you've seen.

Speaker 3

Yes. Those are good adds and too early to guide for 2024. We're still focused on Hitting 23. The other add, I guess, is that the integration savings program continues right on target. And as we grow revenue and we take cost out of the business, we're going to progress toward those long term margin objectives for NuStar as well.

Speaker 11

Great. Thank you both.

Operator

Our next question comes from Ashish Sabadra of RBC Capital Markets. Go ahead.

Speaker 12

Thanks for taking my question. I wanted to focus on the EBITDA margin. The 3Q This implies a significant improvement both sequentially and year on year EBITDA margin expansion, but the implied 4th quarter margins, which If my math is right, around 39% implies another sequential improvement. And I was wondering if you could talk about the drivers for that improvement. Are there one time things?

Speaker 12

Or is that how we should think about a jump off point as we get into 2024? Thanks.

Speaker 6

Ashish, thanks for the question. So as far as our outlook for adjusted EBITDA is concerned, needless to say, I think the Appropriate place to start is with our revenue guidance, right? And so if you look at the Guide that we put out there obviously maintaining. If you look at that from the high end of our guidance range, We are expecting incrementally more dollars to arrive from a revenue perspective In the second half. Seasonality is a big factor of that.

Speaker 6

So Q3 is typically one of TransUnion's highest Revenue quarters on a historical consistent and normal non pandemic times. So we You can see that in the guide that there's incremental dollars that are assumed from a revenue perspective and that's going to drive And we would say a nice amount of flow through into our adjusted EBITDA margin. The second thing that I would say is that the NuStar cost synergies that Chris just alluded to in the previous question, they can Question, they continue to build for us and provide a very meaningful benefit. So that will definitely be a driver for us as Well, and coming back to the first question that we got just about and talking about the uncertainty that we face In the business, in response to that, the organization over the last year plus has prudently managed Expenses, and we've been focused only on the most critical hires. We pulled back on our travel and entertainment and look for other one time spend to be able Pull out of our operating expense run rate.

Speaker 6

So all of those forces are also in effect And then the final point I would make is if you think about Chris' opening remarks and where we covered the global capability centers, It provides a very meaningful benefit to TransUnion. And that's why we felt it was appropriate to provide On that update in a little bit more detail this quarter. So that's definitely another driver for us as well too.

Speaker 3

Yes. And I think that's all spot on. And I think just to amplify that last point, centralizing operations And building out our global capability centers has been a big part of globalizing this company, But also making it structurally more profitable. And that's why we put a spotlight on the march that we've been on for the past 5 years now. And we think there's more opportunity.

Speaker 3

We're going to stay the course there and take full advantage of it. We also think there's opportunity in time to become structurally more efficient on the technology side. And as we continue our migration through Project RISE to the cloud With considerable standardization along the way, that will then create an opportunity for us to consolidate the Tech Stack further And produce some further efficiencies there as well. So we're on a multiyear path here To get our margins back to where they were before the acquisitions, that's our commitment to investors. And it's a combination of the near term things that Todd talked about, But also the strategic backdrop that we've been investing in for many years.

Speaker 12

That's great. Thanks. Thank you.

Operator

Our next question comes from Andrew Jeffrey of Truist Securities. Go ahead.

Speaker 5

Hi. Thanks for taking the question. I'm wondering Specifically, Chris, in the Trusted Call Solutions part of your business, can you talk about sort of where those wins are Are they coming from internal solutions? So from whom are you taking share? And what are the pricing characteristics of those contracts?

Speaker 3

Okay. Well, let me shed some more light on that. What I would say is that Trusted Call Solutions is a relatively new solution to the market. And I mean, NuStar over the past 4 or 5 years has taken it from 0 to where it is today. I think we've guided on the specific dollars, But it's already been a considerable success.

Speaker 3

So don't think of this as us taking share from established players. This is an innovation They brought to market that we're scaling. We're having success selling it across All of our vertical markets, frankly. And knock wood here, thus far, it's been the easiest cross sell That's come out of this TransUnion and NuStar combination. We view Trusted Call Solutions as it's a product That straddles both marketing effectiveness, which is a major strategic push for us, but also risk mitigation.

Speaker 3

And again, it's based on the broad and unique phone intelligence that Neustar has always had at its core that goes All the way back to Targa's info, and we think there's a lot of growth upside. So, it has been, from a revenue perspective, A nice positive to our M and A case since we bought the business and we are focused on investing and accelerating And further scaling it.

Speaker 5

Appreciate that. Thank you.

Operator

Our next question comes from Heather Balsky of Bank of America. Please go ahead.

Speaker 13

Hi. Thank you for taking my question. I was curious about the insurance business and the trends you saw in the quarter and how to think About the improvement for the rest of the year, shopping is improving, marketing hasn't started to ramp just yet. Kind of what are you hearing? What do you think happens with marketing as the year progresses?

Speaker 13

Thanks.

Speaker 3

Yes. I think those are some fair insights, Heather, and what I'll say about insurance is that we expect the growth rate in insurance to accelerate in the second half. We're happy that we've already seen some improvement in the Q2. I'll remind you that The Q3 of last year and even the Q4 to a lesser extent for insurance were quite muted because Marketing activity, client acquisition activity, just came to a grinding halt because of the mismatch between the pricing and Repair and replacement costs at P&C Carriers. As we updated you last call, the carriers are making good progress In getting price increases from the various states, I think and they say that there's still a bit more work to do, But we're approaching a point where they can initiate new business again with more confidence.

Speaker 3

And so with that, I'd expect Some improving trends on the marketing activities, whether it goes back to the same level of frothiness Or how long it takes to get to that point, it remains to be seen. But given the material price increases that they've had to put through on their customers, There's an acceleration in shopping behavior, which has helped our numbers as well. So, We've got some pretty reasonable confidence that we're going to accelerate in insurance over the second half of the year. And hopefully, that will set us up for

Speaker 1

Great. Thanks, Chris. And given that we're now

Speaker 14

at the bottom of the hour, we want to be Respectful of everyone's time on what we know is a busy day of earnings in this space. We're going to

Speaker 1

close down the call. But thank you everyone very much for joining us today and we

Speaker 6

look forward to speaking

Operator

The conference has now concluded. Thank you for attending today's presentation. You may

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Earnings Conference Call
TransUnion Q2 2023
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