TransUnion 2026 Q3 Earnings Call

Please go ahead. Good morning, 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, 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 reconciliation 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.

These statements are based on current expectations and assumptions and are subject to risk 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 it over to Chris.

Thank you, Greg, and let me welcome everybody to the call this morning and outline our agenda. First, I am going to review our third quarter performance and our progress against our strategic priorities. We are then going to have a deep dive into our insurance business. It is a case study that demonstrates how our strategy is driving innovation-led and scalable growth. Then I will hand it over to Todd, who will provide the details on the third quarter results, our fourth quarter guidance, and the guidance for the full year. In the third quarter, we delivered broad-based growth and exceeded the high end of guidance for revenue, adjusted EBITDA, and adjusted diluted earnings per share. Organic constant currency revenue growth was 8% or approximately 5.5%, excluding FICO mortgage royalties. That performance translated into 14% growth in adjusted diluted earnings per share. U.S. markets revenue increased 7%.

Within that, financial services grew 11% or 5%, excluding our mortgage revenues, with double-digit growth in auto. Emerging verticals grew 6%, led by another quarter of double-digit growth in insurance and strength in public sector. International had an excellent quarter and returned to double-digit organic constant currency revenue growth. India and Latin America led the quarter, each up 18%. In India, consumer and commercial credit volumes continued to improve, and new wins began to convert to revenue. In Latin America, Colombia and Brazil both delivered strong growth. Our Mexico acquisition continued to track well ahead of our acquisition case for both revenue and adjusted EBITDA. Following the Mexico acquisition, India and Latin America are now two of our largest international regions. Both regions offer attractive economic and demographic characteristics, and we believe we have a proven playbook to continue outgrowing them.

We also repurchased 126 million shares in the third quarter, bringing our year-to-date total to 243 million. Our board recently increased our repurchase authorization by $1 billion, bringing the total to $2 billion. We expect to accelerate repurchases in the fourth quarter and plan to bring our full-year total to about 500 million. We also reached key balance sheet milestone, reducing our leverage ratio to 2.5 times within our long-term target range. Our results reflect consistent execution despite the ongoing economic and geopolitical uncertainties. Conditions in U.S. consumer credit are largely unchanged from prior quarters. Consumers remain resilient in a labor market with high employment but moderating real wage growth. Credit demand remains healthy, supported by strong spending. Credit performance is stable, though pressures persist in lower income and subprime segments.

Lenders continue to expand their portfolios, supported by strong balance sheets and margins, and delinquency rates remain within historical ranges and are broadly consistent across risk tiers. The most significant change has been the rise in inflation and interest rates. The 10-year Treasury rate is now roughly 5%, up over 30 basis points since our July earnings call and roughly 80 basis points year-to-date. The 30-year mortgage rate is above 7%, weighing on borrowing costs and home affordability in an already soft housing market. As a result, mortgage volumes have slowed incrementally in recent months. That said, with industry volumes over the last several years already near multi-decade lows, we believe additional downside is limited. Other consumer lending categories are less sensitive to higher interest rates, and trends remain broadly consistent. We expect higher rates to moderately reduce auto affordability and lending activity.

Consumer loans are less sensitive because of their shorter duration. Fintechs and other consumer lenders have adequate diversified funding sources, though higher rates increase funding cost and could temper borrower demand. Credit cards are the least rate-sensitive lending product, given already high APRs and the product's revolving nature. We delivered another strong sales quarter in financial services, reflecting sustained demand and commercial momentum for solutions such as TruIQ, Trusted Call Solutions, and identity-based marketing. More broadly, our portfolio outside U.S. financial services offers multiple growth drivers that are less sensitive to the credit cycle. With that context, we are raising the low end and maintaining the high end of our full-year guidance for revenue and adjusted EBITDA. We expect to deliver 8%-9% organic constant currency revenue growth and 10%-11% adjusted EBITDA growth.

We expect portfolio diversification benefits, including stronger international growth in the second half of the year to help offset the impact of higher rates and softer mortgage activity in the U.S. We are raising our adjusted diluted earnings per share guidance by one percentage point to 12%-13% growth, driven by lower net interest expense and the benefit of our share repurchases to date. This would mark our third consecutive year of high single-digit revenue growth and double-digit earnings growth. We believe our guidance appropriately balances our current momentum with ongoing market uncertainty. If current trends continue, we expect performance at the high end of our guidance range. Our range is also designed to provide flexibility to absorb a reasonable degree of further market softening. Todd will provide full details on our guidance assumptions later in the call.

Beyond the near-term outlook, we continue to make significant progress on the strategic priorities that underpin our long-term growth. As U.S. credit migration nears completion and our pace of innovation accelerates, we believe we're in position for stronger and more diversified growth. In the quarter, we significantly accelerated U.S. credit customer migrations. The majority of U.S. credit online and batch activities now run on OneTru. We expect to substantially complete the migration by year-end with a small tail extending into 2027. We have meaningfully reduced legacy system capacity and met our cost savings commitments. In 2027, we plan to focus on expanding OneTru into Canada, India, and the U.K. OneTru is helping our teams develop and launch and scale products faster than ever. Across the enterprise, we've launched more than 40 new products and AI-powered enhancements year to date, expanding our pipeline and strengthening sales momentum.

Recent highlights include TruIQ real-time offers for pre-screen campaigns, curated audiences by TU marketing segments, and the expansion of branded call display into India. We believe these recent launches represent approximately $350 million in revenue potential over the next three years. These efforts support growth across our solutions, verticals, and geographies, with some of our strongest momentum coming from differentiated capabilities beyond traditional credit volumes. Insurance is one of the clearest examples of this growth playbook in action. It was one of the first verticals we entered beyond traditional consumer lending. We built the business by combining deep industry expertise with our credit data and analytics to support personal auto underwriting. Since then, we've substantially expanded our customer base and the breadth of our solutions. Today, we are the market-leading credit bureau serving the insurance life cycle with a comprehensive solution suite.

Insurance is expected to generate more than $430 million revenue in 2026, making it comparable in size to our mortgage business, excluding FICO royalties. We support more than 80% of insurance carriers, including all of the top 20 personal lines insurers, and we also serve most of the leading life and commercial insurers. Our growth in insurance has materially outpaced underlying market trends. Over more than a decade, we've achieved a double-digit compound annual growth rate. Three durable growth drivers support this performance: recurring policy renewals, wallet share gains, and broader adoption of our solutions. Our diversified solutions enable us to grow across varying market conditions. When insurers prioritize growth, higher marketing activity drives volume and new wins across our marketing solutions. In more challenging environments, increased consumer shopping supports credit demand even as marketing spend and new policy originations slow.

These counterbalancing demand drivers today, together with a highly recurring revenue base, have supported growth across multiple environments. Revenue grew in 2020 despite COVID-impacted conditions, and we grew 5% in 2023 despite inflation-driven profitability pressures across the insurance industry. We expect insurance to achieve a third consecutive year of double-digit growth. Today, more than half of our insurance revenues are outside of core credit. This broader portfolio expands our addressable market, creates new vectors of growth, and reduces the vertical's reliance on any single demand driver. Core credit laid the foundation for our business in many of our most important customer relationships. Our credit-based solutions support customer acquisition, underwriting, and portfolio review, helping personal auto insurers more accurately assess risk and set premiums. We have continued to gain market share. Building on those capabilities and customer relationships, we developed a broader suite of insurance-specific solutions.