Good day, and welcome to the TransUnion 2023 Fourth Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, today's event is being recorded. I would now like to turn the conference over to Aaron Hoffman, Senior Vice President of 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, and they can also be found in the current report on Form 8-K that we filed 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 call and 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. Also in early January, we filed an amendment to our third quarter 2023 Form 10-Q, correcting an overstatement to the noncash goodwill impairment of our UK reporting unit. In today's earnings release, we have included information on a revision, primarily related to our cost of services and SG&A expenses. We plan to file our 2023 10-K by the end of the month. So with that out of the way, let me turn the time over to Chris.

Thanks, Aaron, and let me add my welcome and share our agenda from the call this morning. First, I will provide the financial highlights for our fourth quarter 2023 results. Second, I will detail our 2024 strategic priorities to drive value across TU. And finally, Todd will detail our fourth quarter results along with our first quarter and full year 2024 guidance. In the fourth quarter, we exceeded our guidance across revenue, adjusted EBITDA and adjusted diluted EPS. Revenue grew 5% on an organic constant currency basis, with growth across all segments. U.S. markets grew 3% with Financial Services up 3% and Emerging Verticals at 2%. In Financial Services, lending and marketing activity remained consistent with the levels seen late in the third quarter with no further deterioration in volume. In Emerging Verticals, insurance improved to mid single-digit growth driven by new business wins. Services and Collections and Public Sector both grew double-digits. Neustar delivered 4% growth in the quarter, in line with our expectations and accretive to our U.S. markets growth. Communication remains a standout driven by trusted call solutions, which grew almost 50% in the quarter. In Marketing and Risk Solutions, our subscription base remains healthy and bookings in the second half of the year were strong, which offsets still soft transaction revenues. For the year, Neustar grew revenues by 5% and expanded adjusted EBITDA margin to 31%, up 1,000 basis points in our two years of ownership. Our International segment grew by 13% on a constant currency basis in the fourth quarter, the 11th consecutive quarter of double-digit growth. We continue to outperform our underlying markets because of innovation, share gains and expansion into new adjacencies. India led with 30% revenue growth, while Canada, Asia-Pacific and Africa grew double-digits as well. In November, we launched the next…

Thanks, Chris, and let me add my welcome to everyone. As Chris mentioned, in the fourth quarter, we exceeded our guidance on all key financial metrics. Fourth quarter consolidated revenue increased 6% on a reported basis and 5% on an organic constant currency basis. There was no impact from acquisitions and a less than 1% benefit from foreign currency. Our business grew 4% on an organic constant currency basis, excluding mortgage from both the fourth quarter of 2022 and 2023. Adjusted EBITDA increased 1% on a reported and constant currency basis. Our adjusted EBITDA margin was 34.2%, ahead of our expectations but down 140 basis points compared to the year ago fourth quarter due to lower U.S. financial services volumes, which have high margin flow through. Fourth quarter adjusted diluted EPS increased 2%, adjusted effective tax rate was 21.4% in the quarter and 22% for the full year, below our 23% guidance due to successful tax planning efforts. Finally, in the fourth quarter, we took $78 million in one-time charges related to the next phase of our transformation. The first expenses and what we expect to be a $355 million to $375 million program, inclusive of the final year of Project Rise. These fourth quarter charges were primarily related to employee separation with a modest amount related to office closures. I will provide more color on expectations for charges in 2024 during the guidance section. Before I get into U.S. markets, a reminder that we report Neustar revenue within our vertical market structure. As we’ve stated previously, starting in 2024, we will stop providing standalone Neustar quarterly revenue growth rates and adjusted EBITDA margins. We will, however, provide updates on how we are progressing to our full year targets to achieve mid-single-digit revenue growth in 2024. Looking at segment financial…

Thank you, Todd. To wrap up, we exceeded fourth quarter expectations, driven by stable lending and marketing conditions in the U.S. and robust growth from international. We expect a strong year in 2024 with mid-single-digit revenue growth and high single-digit adjusted diluted EPS growth. We're focused on three strategic priorities for the year to create value for TU accelerating revenue and earnings growth, leveraging Neustar's product and technology capabilities further and executing on our transformation initiatives. Finally, on a personal note, as many of you know, Aaron Hoffman has decided to retire from TransUnion in March. Aaron has been instrumental in building out the Investor Relations function at TU and has been a valuable resource to our management team and to investors alike. We've been lucky to have him over these last eight years, and we wish him a happy retirement. We're also excited to have Greg Bardi, who has been working with Aaron in these last three years and covered TransUnion on the sell-side before that. Leading our Investor Relations going forward. Now let me turn the time over to Aaron.

Thanks, Chris, and thanks for those kind words. I appreciate that very much. So that does conclude the prepared remarks today. And for the Q&A, as always, we ask that you ask only one question so that we can include more participants. And operator, we can begin the Q&A now.

Thank you. [Operator Instructions] And today's first question comes to Jeff Meuler with Baird. Please go ahead.

Yes, thank you. This is Steven Pawlak on for Jeff. I guess what do you need to see or what are your clients said if they need to see in order for Neustar transactional revenue to improve or bounce back?

Yes. Good morning, Jeff. I think I'll start answering that, Steven. Yes, so on the Neustar front, the headwind to hitting our growth targets there beyond mid-single digits has been the decline in the transactional components of the portfolio. In a more difficult economic environment, marketing and advertising activity has pulled back. In addition to the volume slowdown, we've seen with clients working to reduce data costs, right, and relying more on first-party data. So both of those have been headwinds to our sales. We've compensated a bit for the cutback on the data side by selling more first-party record hygiene and identity resolution services. So really, what we need is, I think, a stable floor in those areas and perhaps some rebound in activity. The guidance that we provide at Neustar is consistent with our overall guidance this period. It's intended to be conservative, yet constructive we're pushing to exceed that guidance and we hope we'll be able to do over the course of the year.

Thank you. And our next question today comes from Andrew Steinerman with JPMorgan. Please go ahead.

Hi Chris, could you jump into the Consumer Interactive guide for 2024? Just maybe expand on what your expectations are more than just the numbers. And then inside the numbers, what are you assuming in terms of indirect growth for Consumer Interactive and when do you expect direct to return to growth?

Yes. So obviously, Andrew, we have been navigating a pivot in the consumer business over the past 18 months or so. Part of that is the direct business, which has been in decline in part because of market demand shifting more towards premium, but also some adjustments in our marketing practices. That area has been the most pronounced decliner. Where we're at now is we can see it getting to kind of a neutral state over the course of the year, sometime probably mid-second quarter, a combination of reaching an equilibrium on our marketing practices and enjoying the benefits of the annual price increase and the like. We expect indirect to remain kind of a low single-digit grower over the course of the year. And of course, breach protection and identity protection through our Neustar acquisition – I'm sorry, through our Sontiq acquisition is doing particularly well. It grew over 20% last year, had a really strong fourth quarter. Again, think of the consumer guide in total in the context of an overall conservative corporate guide, right, where we're steering more towards the high end of things. And look, I think its important just to emphasize in the big with regard to TU in the consumer space is that, we believe we will return this business back to consistent positive organic growth. And we intend to compete across the full dimension of opportunities, whether that be identity protection, freemium offering, and the like.

Thank you. And our next question today comes from Faiza Alwy with Deutsche Bank. Please go ahead.

Yes, hi, good morning. Thank you. I wanted to ask about U.S. Financial Services and the growth that you were assuming there for 2024. Just give us some color around how we should think about auto card, consumer lending. And we didn’t touch on Argus. So curious what your expectations are there? Thanks.

Sure. So in U.S. Financial Services, I mean, look, as we know, there was a year of turmoil in 2023, not only were we dealing with the impact of inflation and much higher interest rate, which slowed demand. But we're also dealing with deposit outflows from certain segments in banking because of the instability that we experienced in the second quarter. That led to a material slowdown in September of last year. We modeled a continuation of that slowdown in the fourth quarter, in fact, a deterioration from that rate. It turned out that, that was a bit conservative, and we overperform that, as you can see. Turning to 2024, we think we're at or near a floor in most of these services, but we're not assuming any improvement, right. So we kind of budgeted for steady volume across the different subcategories of financial services in the U.S. over the course of the year. Now growth rates are going to improve in the second half because comparables are easier in the second half. And of course, by the second half, we're getting the full benefit of price actions of both our own and third parties. But it's kind of a steady sailing forecast, if you will. We're not building in any uplift from the potential for interest rate reductions by the Fed.

Thank you. And our next question today comes from Toni Kaplan with Morgan Stanley. Please go ahead.

Terrific. Thank you. I was hoping you could talk about your expectations for the fintech environment through 2024. I know you talked about some modest improvement in batch that you're seeing, but still challenges in the UK. So just hoping to get a little more color on where you see fintech in particular go from here? Thanks.

Yes. Well, last year was an especially difficult one for fintech, largely because of the increase in borrowing costs and the difficulty of getting funding. And I think also some concerns about the health of the consumer from the third quarter forward. We saw a pretty material reduction here in the U.S. That segment probably fell roughly 20% last year. Again, our assumptions for 2024 are more or less steady from the volumes that we experienced in the fourth quarter. we're encouraged by the stability that we're seeing. And we're encouraged by an uptick in some batch activity which suggests that there will be more marketing activity in this space, but we haven't modeled too much of that optimism into the guide.

And just to add on to that, Toni, just to provide some sizing for fintech. We talked about in 2022 that we did about $175 million last year in the U.S., we’re talking about and – we brought it – last year, we saw it come down to $140 million. So that’s the 20% that Chris is referring to. Reason for bringing that out is TransUnion has a very nice position with fintechs that we’ve spoken about, and our team’s done a great job building those relationships. And in the whole scheme of our revenue, it’s less than 4% of the overall company’s revenue. So just wanted to make certain that was appropriately sized in response to your question. We see tremendous opportunity though, for us, as we believe that those customers are on a path to growing again and we’re best positioned to take advantage of that.

Yes. And you also mentioned the UK, I mean, clearly it was even more difficult year. Today, you had a number of players that exited the market, that impacted our overall fed in the UK. We’re continuing to – high-single digit growth…

Thank you. And our next question today comes from Kelsey Zhu with Autonomous Company. Please go ahead.

Hi, good morning. Thanks for taking my question. One of your peers has highlighted headwinds to their mortgage prequalification revenues in 2024 because soft polls are getting really expensive. I was wondering if you’re expecting similar headwinds in that space in 2024 and how big prequalification revenues would be for mortgage for TransUnion?

Hey. So Kelsey, I think I followed the question. We had a little bit of a technical glitch here, but I think you’re talking about mortgage headwinds due to a rollout of the single bureau prequalification that the FHFA has sponsored. We have modeled that into our assumptions. So it is baked into the guide that we have provided. We expect that it will cause some volume deterioration, but again, that’s factored into. Well, that’s just one factor in our process of estimating where we think mortgage volumes will be. So we look at all of the publicly available information, we talk to our client advisory board. We’ve got the historical trajectory of this, and then we have made some adjustments for an industry-wide adoption of a single bureau pull at prequalification.

Thank you. And our next question comes from Ashish Sabadra with RBC Capital Markets. Please go ahead.

Thanks for taking my question. Just wanted to focus down or drilldown further on the emerging verticals. You mentioned the win in insurance and pretty good momentum there. But how should we think about the puts and takes? And for the rest of the emerging verticals, can you talk about some puts and takes in 2024. Thanks.

Sure. Todd?

Hey Ashish, I’ll take that one from you. So the – I think the heart of your question really comes down to the guidance that we provided for the emerging verticals and that we’re assuming to be low-single digits. And really the way to think about that, the way we look at it is we break the emerging verticals into different segments. And you alluded to already insurance. We're expecting insurance to have a good year in 2024. The team has signed many new clients, so there's significant new business wins that will come to fruition in the year. As we spoke about in our prepared remarks, marketing is improving slowly. So we're cautiously optimistic about that. And shopping activity remains strong. So all in all, insurance, we're expecting a good year, probably in the mid-single-digits of growth. Also in the emerging verticals, we're expecting good growth in services and collections as well as in our public sector verticals. And a lot of that growth is coming from trusted call solutions, where we've seen significant, meaningful growth. And obviously that's the capability that came with Neustar acquisition. So those three verticals of insurance, services and collections, and public sector represent about 40% of the emergency – revenue. So that means the other 60% to talk about expecting good growth out of those three. So in that other 60% [Audio Dip] business, here, as you're well aware to recalibrate due to a consent order that signed with the CFPB, [Audio Dip] opted our product to provide [Audio Dip] reports that we provide [Audio Dip] space. But it's going to take us a little bit of time in that, we probably more, maybe in the second half of the year [Audio Dip] get back to the growth expectations. Second thing that is [Audio Dip] communication. The communication vertical is where much of use are [Audio Dip] capabilities, for example. So think of caller ID TransUnion now provides [Audio Dip] That's kind of a flattish business. And it's also a bigger, so needless to say that [Audio Dip] to the growth rate then also the media vertical has tempered expectations for us in 2024 [Audio Dip] what Chris spoke about earlier with the generation [Audio Dip] volume dependent. So if there's a recovery coming on the market side, that would be something that would benefit. I highlight those three, because those are the three where our expectations are a little bit and consistent with the guidance that we've provided for the year. This is just where we're being prudent [Audio Dip] provide guide here that's overly take it one quarter at a time as we go forward.

A couple of call points on emerging tenant and employment where we signed this consent order saw revenue turn negative as we had to discontinue certain products. CFPB subsequently has issued guidance to the industry that confirms very tightly to the consent order that we sign. And we’re seeing other industry players adopt similar adjustments and curtailments to the type of information that they’re providing. And we think it’s the good news. We think CFPB levels the plane and once we lap these changes, we’re going to return to zero. The other thing I would mention, the communications vertical [Audio Dip] growth overall, those services that we provide, while they’re mature, they’re extremely profitable, most importantly, the feedstock for the new generation of trusted call solutions that’s driving [Audio Dip].

Thank you. And our next question today comes from Manav Patnaik with Barclays. Please go ahead.

Yes. Thank you. I just had a question on mortgage plus pricing. I guess the down 15% in the first half that just seems like kind of continuation of what you saw in the fourth quarter. Just wanted to confirm the plus 10% in the second half, was that purely comp? So is there some other assumption you’ve made in there? And then I think in your prepared remarks, you said pricing going up from your own and third-party. I think we know the third-party, but just wanted some more clarity on where your pricing is going up and how much.

Hey, Manav, this is Todd. Can you hear me okay?

I can hear you. Now it’s a little muffled while you’re talking, but right now I heard you fine.

Okay. Great. So I’m going to – I’ll speak louder. So as far as the assumptions that we have pertaining to our volumes, we are assuming that we’re going to grow – we’re going to be down 10% in the first half, but up 15% in the second half, I’m just reiterating, and then down 5% for the full year. The assumption is just purely on the comparisons in the second half of the year, there’s no – we’re not banking on any type of recovery in mortgage. It’s more kind of the same, right? And just to provide a little bit more context on that, when we build our assumptions for mortgage, we’re looking at this across multi-dimensions, the first being our own team and what they’re seeing in the market, the second being our mortgage advisory board. And this is where we’re hearing directly from our customers as it pertains to what their expectations are. And then the third area is where we look at outside data sources just like you do, so for example, the Mortgage Bankers Association. So you take those three elements and that’s how we come up with our guide. The second part was…

Yes, the second part was about the pricing. I’ll wait here, because I didn’t hear it. I mean, obviously, Manav, as you well know, third-party pricing is the biggest driver of price increases in mortgage and has been for the last couple of years. Our comment about our own pricing, you should think of it as more or less consistent with our annual pricing practices. And then again, as we all know, if the Fed were to lower rates mortgage volumes is probably the first area where we would see some uptick.

Thank you. And our next question today, excuse me, comes from Owen Lau with Oppenheimer. Please go ahead.

Hey, good morning. Thank you for taking my question. Can you please go back to your rate cut assumption? Are you assuming no rate cut currently? I mean, if there are three rate cuts as the Fed is projecting right now or even more than three, just like what the market is pricing in. How should we think about the incremental benefit in rent and also EPS in 2024? Thank you.

Yes. Owen, as it pertains to our interest rate assumption, we are not assuming that the business gives any benefit from interest rate cuts. So think of that as if the interest rates come and there is an uptick in lending, that would all be upside to the guidance that we provided this morning.

Yes. Look, this is an opportunity, I think, for us to just provide some context and clarification on the nature of the guidance 3% to 5% organic. Clearly, Todd and I feel the odds are more towards the high end of that range. And again, we wanted to be conservative given the environment in which we’re operating, we’re not modeling in volume increases due to rate cuts, that would all be upside. And we’re steering the business towards what we hope will be outperformance.

Thank you. And our next question today comes from Andrew Nicholas with William Blair. Please go ahead.

Hi good morning. Thank you for taking my question. I just wanted to ask on Neustar margins specifically, I think you guided to 32% this year, historically, or I guess previously, you talked about a 40% margin target. Just wondering kind of if that’s still within the realm of expectations over the medium term? What will it take to get up to that level, recognizing that you’ve already gotten the $80 million plus of cost savings in the run rate? Just an update there would be helpful. Thank you.

Yes, for sure. So the guide to Neustar margins getting to the level of the full enterprise, at least to peak margin performance was more in the context of a four- to five-year period, right? We’ve had two years of ownership. We’ve added 1,000 basis points. We’re headed toward 32% this year. And while we’ve achieved the $80 million in cost reductions, look, we think there’s more juice in the squeeze, so to speak. We’re not formalizing yet. We’re not guiding to it. The other factor that’s going to give us material margin upside is as the revenue growth rate increases in Neustar, assuming we start to enjoy flattish market conditions on the marketing side, and get some uplift on the risk side through all of the innovation that we’ve done with our fraud mitigation suite, we’re going to get higher flow-through that’s going to help drive margins up to that initial post-acquisition guide.

Great. And that brings us to the end of the call today as we’re bumping up towards the top of the hour now, a very busy day of earnings for everyone. So, I want to thank you for your time today and wish everybody a good rest of the day. Thank you very much.

Thank you. This concludes today’s conference call. We thank you all for attending today’s presentation. You may now disconnect your lines, and have a wonderful day.