Good day, and welcome to the TransUnion 2023 First Quarter Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] 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 Cello, 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. With that, let me turn the time over to Chris.

Thanks, Aaron, 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 first quarter financial performance. I'll also review the continued progress with Neustar to accelerate revenue growth, achieve targeted savings, and leverage its technologies across the enterprise. Finally, Todd will detail our first quarter results, along with our second quarter and full year guidance. Inflation in our developed markets around the world remains elevated although its signs of subsiding as central banks have raised interest rates to slow consumer demand and return to long-term inflation targets. Higher prices and higher rates have pressured consumer finances and economic growth has slowed as a result. However, thus far, developing economies have been less impacted by these factors. Lending volumes in our emerging markets as India, Asia Pacific, South Africa and LATAM have remained strong. In the U.S., consumers remain healthy relative to historical norms with modest spending growth, high employment levels and some real wage increases. Credit performance metrics have continued to normalize and remain within the range of pre-pandemic and historical levels. Against this backdrop, we’ve seen increased caution from banks. While their financials are still strong and consumer demand for credit is healthy, banks are concerned that their markets might slow further and as a result have tightened lending standards, reduced marketing and originations and increased loss reserves. Thus far, we've seen some limited impact on our business from these changing conditions. However, like our customers, we remain cautious about the rest of 2023. And I note that the recent failure of a few lenders should not cause the lending system to contract materially. We are confident that even if certain institutions slow their…

Thanks, Chris, and let me add my welcome to everyone. I'll start off with our consolidated financial results. First quarter consolidated revenue increased 2% on both a reported and organic constant currency basis. Argus added about two points to inorganic revenue, while foreign exchange was a two point headwind. Our business grew 2% on an organic constant currency basis, excluding mortgage from both the first quarter of 2022 and 2023. Adjusted EBITDA declined 4% on a reported basis and was flat on an organic constant currency basis. Our adjusted EBITDA margin was 34.3%, down 200 basis points compared to the year-ago quarter, as we had expected. Excluding the impact of Argus, our organic constant currency, adjusted EBITDA margin was 35.4% or down about 90 basis points year-over-year. First quarter adjusted, diluted EPS declined 13% as a result of lower adjusted EBITDA, and higher interest expense. Before I get into US markets’ results, a reminder that we are now reporting Neustar within our vertical market structure to drive accountability and internal reporting clarity. And we will discontinue providing standalone Neustar reporting at the end of 2023. Now looking at segment financial performance for the first quarter, US market’s revenue was up 3% compared to the year-ago quarter. Organic revenue was flat in the quarter and was up 1%, excluding mortgage. Adjusted EBITDA for US markets declined 8% on an as reported basis and declined 6% on an organic basis. Our adjusted EBITDA margin was 32.2% for 33.9% on an organic basis. Financial Services, revenue grew 5% as reported and was down 1% organically, excluding Argus. Excluding mortgage, organic revenue growth was flat despite comparing to a 21% growth rate in the first quarter of 2022 implying a 10% two year growth CAGR. Looking at the individual end-markets, consumer lending revenue declined…

Thank you, Todd. To wrap up, we had a good first quarter and we're holding our full year guidance out of an abundance of caution given the level of uncertainty in the market. At the same time, we continue to make meaningful progress integrating Neustar and delivering business wins from the combination. Now, let me turn it over to Aaron.

Thanks, Chris. And that of course concludes our prepared remarks today. For the Q&A, as always, we ask that you each ask only one question. So that we can include more participants. Operator, we can begin the Q&A now.

[Operator Instructions] The first question today comes from Andrew Steinerman with JP Morgan. Please go ahead.

Could you speak about the three sub-segments of Neustar in terms of Neustar revenue growth both in the first quarter actual and in the 2023 goals of high-single-digits? And also, if there's anything else to talk about with Neustar in the first quarter in terms of the revenue growth deceleration besides for the year-over-year comparison, could just give us a little more color on that?

Sure. Good morning, Andrew. Yeah, I guess, let me address the full year first. And I'll start by just reaffirming that we hit our plan for the first quarter for Neustar 3% above prior year comp in the quarter of 9% which is the high watermark for Neustar’s growth in 20202. We feel like, we've got good confidence and good line of sight in the high-single-digit organic growth for the full year for Neustar in large part, because, it is largely 80% plus a subscription business retention rates that have been strong. Plus we're layering in, we're ramping up on a very good year of sales and the good news is that, the bookings are continuing to be strong this year. So we're going to get some additional in year kind of revenue momentum. And then look, all three lines of business grew nicely in the first quarter and I expect them to grow well for the full year, marketing continues to do well, despite having a cyclical component, which is the audience generation piece of it. But marketing continue to looks good. The Communication’s data assets, all around trusted call or Branded Call display. As you can see from our commentary, they're doing really well. And I expect that to continue for the foreseeable future, and of course, fraud is doing well, as you would expect. So, I'd say, strength across the board and Todd's going to elaborate that.

Yes Andrew, just more specifically on the numbers themselves. As Chris already said, Neustar met our expectations in the first quarter, what I would say is across Communications, Marketing and Risk, we saw all three product lines grow in the quarter. But when we flip back to the to the full year, as we have said on the – in our prepared remarks, we are expecting high-single-digit growth and what we're seeing in Communications, Marketing and Resolutions is, that all three of those grow high single. For the full year it's our expectation.

Yes.

The next question comes from Kelsey Zhu with Autonomous. Please go ahead.

Thanks for taking my question. So for Mortgage, there's quite a bit of outperformance compared to your peers, and you talked about pricing and strong performance in share and additional marketing products, can you just give us little bit more colors on what's going on there?

Yeah, sure. Well, I mean, you're right to cite a number of variables that contribute to overall revenue growth in a vertical, right? So the Mortgage vertical for us, it could be pricing, it could be share, it could be volume and it could be just the broader basket of services that we're now marketing. But, the net-net while the magnitude of decline in the quarter was less than we expected most of the outperformance you're seeing is coming from the pricing impact that we're seeing roll through, a combination of third-party pricing and some pricing from TransUnion, as well. And it’s really the mix implication, right? The assumed mix versus the actual mix is a little bit different in the first quarter. It was more skewed towards smaller lenders, who typically pay higher unit prices that may be because the composition of mortgage volume, it was more toward purchases, which tend to be broadly distributed or representative across the market as opposed to refi, which gets more weighed at the higher end of the market. But I would say, it's really a story of outperformance on the pricing dimension.

The next question comes from Jeff Meuler with Baird. Please go ahead.

Yeah. Thank you. Good morning. So, I can certainly respect the prudence of not flowing Q1 upside into full year guidance raise in this macro. But as it relates to, I guess US financial markets and I think your language was an abundance of caution of what could come. Just, how much of this is about what's possible versus what you’ve seen already. So have you seen much client response yet in marketing spends origination criteria, I guess and/or bookings and pipeline progression or conversion? Thank you.

Yeah, it's a good question. Todd and I’ll weigh in on this together. But let me start. Yeah, look, it's one of those situations I guess, where, we’ve outperformed if we were to, beat and raise the guidance for the year and then half the market would say, oh, well, that's risky. If we take a more prudent approach, like I think we have then some might argue it's too conservative. But look, it's an uncertain market as we can all agree. And in terms of the impact, particularly from the banking stability that we had about a month ago, while we may have had some wobble in the daily volumes and in our conversations with clients we know that they're going to continue to be cautious about new originations and they are more cautious in terms of marketing and origination activity. There's still pretty good volume and pretty good demand. Now, as we forecast it across the remainder of the year, in keeping with the methodology that we talked about in the last call, we didn't try and declare when a recession might happen or the depth of the duration of the recession. We just forecasted from the current subdued market characteristics and applied a bit of caution on top of that based on what we've seen in the first quarter. But at this point, I can't say that the market has become materially more cautious in its marketing or origination posture than it already was.

The next question comes from Manav Patnaik with Barclays. Please go ahead.

Thank you. Chris, I was hoping, maybe along the same lines, talk a little bit about your fintech customer base. There's a lot of chat, of course, given the specific banks that failed and whether that's, a great exposure for those customer base that you have and the unique insight into them. So, can you just share some, whether - whether they're struggling or some of them have to shut down? Or just, what's going on there and how that impacts your business with them?

Hey, good morning. Manav, this is Todd. I'm going to take that question. So, first of all is, as it pertains to the Silicon Valley Bank and Signature Bank failures, I would say that TransUnion had virtually no revenue exposure to either bank. I think what's important to remember as well too is that, TransUnion’s customer base in our core Financial Services. And this is excluding Neustar and Argus, about a third of our revenues come from our top 20 customers, another third come from our 21st to 100 customers. And then another third of those come from thousands of other customers. So the point there is, we have a very nice diversified base of customers. We’re not necessarily upheld in a kind of situation with one particular customer. As it pertains to the, failures of themselves, I would say that TransUnion saw no direct impact of it. However, we did see an indirect effect and that's just the tightening, the tighter of lending that what Chris has already articulated and we talked about it in our prepared remarks this morning. In particular, just again as a reminder, just to caution that we're taking with Card, Consumer Lending and which we've reflected in our updated guidance. When we look specifically, at our Consumer Lending LLB with in Financial Services, Consumer Lending, it’s where our fintechs residers is probably most held. And I think what's important to remember here is that the growth rectory of the - of this Consumer Lending business has been particularly strong in 2021. We saw really strong growth in ‘22 that growth continued in the mid-teens. And, right now, we're calling for a high-single-digit decline with that customer base. So what does all that mean? What it means is, on a compounded annual growth rate basis, we're talking about a mid-teen performance for this customer base for the last three years, which is pretty exceptional. And I think what's important also to remember with the fintechs is that this isn't a linear business. But what they will do is, they will outperform overall lending market over time. A couple other things I think are important to call out with this customer base is, there still demand, both on the customer side as well as on the consumer side and capital is available. Just what we're living through right now is that, our customers are just being more selective as well as their investors are. And what's encouraging to us is, we've embraced the fintechs since the very beginning and the customers here in this space have gotten more sophisticated and they want to buy our broad based solution suite, which we've only done nothing, but enhance due to our recent acquisitions of Neustar and Argus. And the last point here is, the BNPL part of this area is still growing nicely.

The next question comes from Faiza Alwy with Deutsche Bank. Please go ahead.

Yes, hi. Good morning. Todd, I wanted to ask about the margins in the back half of the year. Your 2Q guide is indicating that we're going to see huge margin expansion and the back half. And I think you've talked about Neustar and others synergies coming through in the back half and maybe give us a bit more color around what are some of the puts and takes to think about?

I'd be happy to, Faiza. Thank you for the question. So, just kind of grown is in the numbers, our margin in the first quarter was 34.3% and the guidance that we just provided for Q2 is contemplating 34.8% to 35% on the margin. And in the full year it’s 36.3% to 36.6%. So, if you take the, kind of the high, of that and figure out what the second half would be for roughly estimating, we need about a 38% adjusted EBITDA margin in the second half. So it's about 300 basis points higher than the high end of our 2Q guide. Okay, so how are we going to do that? Well, first is just our revenue expectations I think I can’t stop without saying. But the second part of that is the synergies pertaining to Neustar only. We spoke about that during our February call. We - of the number, we initially said that the overall synergies and when we announced the acquisition back September 2021 that’s going to be $70 million. Back in February, we increased the number to $80 million just based on what we have accomplished in the pretty good line of sight that we have in achieving that. In addition, to the revenue and the synergies, we're also being very proactive on the cost management side, as we're navigating a very uncertain market. So first we are focused only on making critical hires in areas of strategic importance to us. We've tightened our travel and entertainment and we've eliminated significant one-time spend in our specific consulting engagements. In addition to all of that what also gives us the conviction in the margin that we're also seeing the early benefits of our global approach towards operating TransUnion through our global capability centers, as well as the early benefits that we're continuing to enjoy for our technology transformation which we refer to as Project Rise.

The next question comes from Toni Kaplan with Morgan Stanley. Please go ahead.

Thanks so much. I was just hoping you could put a finer point on the trajectory of the market trends. What are you seeing in terms of consumer demand and lender tightening credit so far in April versus January or February? And also just to get a directional sense April versus second half of March? Thanks.

Well, Toni, we’ll try and offer you a little bit of color on that. I mean, going back to the period of bank instability that we experienced about a month back, I think, while certainly the bank failure – the failures we experienced and then some of the incremental pressure, it's unfortunate. That was really - it was really more fear-driven I think and amplified across our many media touchpoints. From what I've read, since then, and from what we've seen, while there could be some implications on liquidity and just available capital to loan from the conventional banking segment, that's likely to be just kind of small. And I think as I mentioned earlier, in and around the crisis, we saw some wobble in daily volume figures. But I wouldn't say it was material and or that it's been particularly material since. But I think it's also important understand that demand for credit for consumers remains strong and to the degree that it can't be satisfied from conventional bank lenders, alternative funding sources are going to come into the market. They may replenish available funding in the fintech space. We have seen this. We've experienced it several times, particularly with the fintech lenders where whatever there's market uncertainty, fintech pulls back very quickly. It takes a period of time from the, - from the supply side to decide which lenders they want to back and what degree and what price, right? But I would expect that to be a kind of quarterly disruption in supply meeting demand and that that's going to correct itself. And you're going to continue to see at consistent level of lending activity over the course of this year, despite the turmoil on the Bank segment and just the general uncertainty in the environment.

The next question comes from Ashish Sabadra with RBC Capital Markets. Please go ahead.

Well, thanks for taking my question. I just wanted to focus on the emerging vertical and the acceleration that we are expecting. I was wondering if you could provide some color on the cadence and in terms of driver is it right for us to think about a lot of the growth is really coming from Neustar accelerating through the rest of the year. But also some other puts and takes around employment screening, tenant, screening and insurance will be helpful? Thanks.

Yeah, well, thanks for that question. So, emerging did grow in the first quarter about a point and a half. The starting point in the story for the year though, is to point out that it was growing over almost 10% organic comps in the same quarter prior year. And that was again the high watermark. The expectation is over the course of the year, one comps are going to ease as we've said and that kind of underpins our forecast, its entirety, to also turn the emerging segment. So easier comps and accelerating growth in a few areas where for idiosyncratic reasons and some market reasons, I think growth fell below where we would typically expect it. That's certainly true in tenant, screening. We talked a lot about the dynamics there of reduced move volumes because of high prices. That has eased quite a bit in the recent quarter or so. And then there's also an expectation of a million additional housing units, rental housing users to come on the market and that should get us back more toward normal volumes, normal revenues. We're also seeing a recovery in our insurance business. It's probably the largest single segment it is within the emerging verticals and it was subdued because insurers needed higher prices to compensate for increased repair and replacement costs. That's largely work itself through the system. We are seeing volumes there improve, as well. Retail and e-commerce are showing some nice strength. A lot of that has to do with the sales of Trusted Call solutions and Branded Call display. And in public sector, there were just some - public sector is kind of a big deal-driven and so it can be lumpy. And of course, we had to comp some – a contract where there was diminished volume for, some, again maybe idiosyncratic reasons, but we expect public sector to come back, as well. So, we've got pretty good confidence in the forecast of revenue acceleration over the remainder the year.

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

Hi, good morning. Thank you for taking my question. I was hoping to touch on Consumer Interactive. And it sounds like you're pulling back on some of your products and just cleaning up the mix there. Can you talk about what's happening in that segment?

Yeah. Well, I would say that Consumer Interactive, as you know it's been challenged for about the past 18 to 24 months. The market dynamics are such where the productivity of our direct-to-consumer marketing efforts declined. We think some of that has to do with structural shift toward freemium. Some of it may have to do with just the economic environment and consumers pairing subscriptions. But that was - it remains the drag in our overall, direct-to-consumer business. Last year, we were in the indirect side of the business, lapping some contract restructuring. That's fully in the rearview mirror now and the indirect piece, which is materially larger is kind of return to the expected growth levels, which is great. Sontiq has given us new and exciting capabilities that continues to grow kind of low-double-digits. We're feeling good about that. And in total, over the course of this year, you're going to see the rate of organic decline lessen. That's mainly going to be because Sontiq and Indirect are going to perform well in line with expectations. And the Indirect piece is going to become less and less negative as we get to kind of a equilibrium with our new level of marketing spend.

The next question comes from Seth Weber with Wells Fargo. Please go ahead.

Hey, good morning. Just wondering if your guidance, your full year outlook kind of contemplates any changes in the student loan forgiveness landscape. There's some discussion that that could really cause some pickup in delinquencies, just how you're thinking about that? Thanks.

Well, what I would say generally is, the former lenders who run our financial services business do a granular build up of trajectory and pipeline from every type of lender. And they would have included any potential impact from the student lending space. At this point, that doesn't figure prominently on my risk radar. So I feel like, we're in pretty good shape with the guidance that we've reiterated today.

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

Hi, good morning. Thanks for taking my question. Given the increased traction and headlines around Artificial Intelligence and maybe Generative AI, more specifically, I was hoping you could spend some time talking about how you're leveraging AI at Trans Union today? And maybe what some incremental opportunities might be to leverage it further going forward? And maybe how that could impact growth, your margins in the medium term? Thank you.

Great question, Andrew. Actually, Todd and I are on vacation today and you're interfacing with an internal AI bot. Kidding, aside, from course. Look, we have been in the credit reporting agency and business in TransUnion in particular, we've been using machine learning and some AI capabilities for some time. And we're excited about the potential for improving the efficiency that this technology step forward represents. I think there are various internal processes, a dispute resolution comes to mind where we could see some really material impacts over time as we apply this to service consumers more effectively. In terms of actual credit modeling and alike, it no doubt has a role, but I think we have to remember that our data and the needs that we serve are highly regulated and in privacy, in information security, really comes out a premium. So we're not going to, for example, send credit information over to the public web to interface with Chat GPT, or anything like that. We will continue to invest in kind of AI large language models that are tuned to credit needs that meet privacy and security requirements. And that's something that's going to evolve over time. But, we will be investing in this area as appropriate and I think it's going to be an enhancement generally to our ability to provide services

Great. And now we're going to wrap up the call here at the bottom of the hour. I know is a very busy earnings day and asking this in spite of the quarter. So we want to be respectful of everybody's time on the call and we'll draw it to a close there. Thanks everyone for your time today. And we look forward to speaking with you soon. All the best.

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