Q3 2020 TransUnion Earnings Call
[music].
Good morning, and welcome to Transunions, 2023rd quarter earnings Conference call.
All participants will be in listen only mode.
Assistance. Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation or wait opportunity to ask questions.
Please note that this event is being recorded.
I'd now like to turn the conference over to Mr., Aaron Hoffman, Vice President Investor Relations. Please go ahead.
Good morning, everyone and thank you for joining us today I hope that all of you our safe and healthy.
On the call today, we have Chris Cartwright, President and Chief Executive Officer, and Todd Fellow Executive Vice President and Chief Financial Officer.
We posted our earnings release and slides to accompany this call and the Trans Union Investor Relations website.
Our earnings release and the accompanying slides include various schedules, which contain more detailed information about revenue operating expenses and other items as well as certain non-GAAP disclosures and financial measures along with their corresponding reconciliations of these non-GAAP financial measures to their most directly comparable GAAP measures.
Today's call will be recorded and a replay will be available on our website.
He 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 and the comments made during this conference call and in our most recent form 10-K form 10-Q, and other reports and filings with the FCC we.
We do not undertake any duty to update any forward looking statement.
Now with that let me turn the time over to Chris.
Thanks, Aaron I want to welcome all of you to our call and extend or most sincere hope that you and your loved ones are healthy as they occur.
Grand Union, we continue to prioritize the health and safety of our associates, our customers and the wider communities in which we operate.
Globally, almost every one of our 8000 employees continued to work from home.
Select number of associates have continued to work on site to ensure our technology infrastructure upgrades uninterrupted.
I want to thank all of them for their dedication and commitment.
Other than these critical employees.
We see no need to rush back into our offices as our associates have demonstrated the flexibility to work remotely and run our business with virtually no interruption.
In fact during the third quarter, we conducted a company wide survey of our associates and confirmed that they largely prefer to remain remote at this time. It can work at very high levels, while doing so.
Now on our last call I talked about my personal commitment to making trans Union, a more diverse and inclusive company I want to give you an update on our progress.
First we've appointed tea grew up in our <unk> as our first ever head of talent and diversity.
Industrial heaters responsibilities include talent acquisition employment branding onboarding associated to manager training leadership development career development employee engagement and employee relations.
But I want to bring all of these functions under teachers leadership will ensure a diversity and inclusion lives is brought to all of our human capital management decisions.
Secondly, we launched a task force, which we called total impact.
Which combines all our efforts to support racial equity and social justice and to connect these efforts through and for our associates, our culture and our operating model.
This task force will amplify our consumer advocacy in outreach our offerings tools and support aimed at increasing access to economic opportunity.
It will examine the role our data in products played in the financial ecosystem in order to promote greater financial inclusion.
The task force has already made progress there.
To ensure that customers use our data responsibly and in line with our mission to promote equal access to economic and other opportunities.
And related to this work we continue to engage with us regulators about how we can promote greater financial inclusion and participation.
Finally, we remain committed to training or top leaders to increase their understanding and awareness of racial an equity deal.
During the quarter they participated in a session on getting comfortable talking about rates and equity.
We didn't have all managers across the globe to attend a three part series to learn more about race.
Bias.
And how they build more inclusive team.
Nearly 2000 managers have participated in these important session.
It's important to note that these actions represent only a starting point and we remain committed to making meaningful long term changes a trade union.
And we've also given our associates to November 3rd off to help them exercise their right to vote, regardless of party affiliation and political views, we encourage our associates to get out.
Now I'd like to lay out the agenda for this morning's call first I'll provide you with a detailed about our performance in the third quarter and the trends and dynamics that underpin our ability to achieve our upside case outlook.
I'll also discuss the current volume trends across our primary verticals end markets and how we continue to support our customers and consumers during this crisis.
You will hear a consistent story of adapting our go to market approach, our product offerings and solutions to address the current market conditions.
Then I'll provide an update on the progress we've made with our global solutions Global operations and project drive.
I'll also discuss our recent media acquisitions and how together they form the foundation of another attractive vertical final.
Finally, I will turn the time over to Todd to discuss our third quarter financial results in more detail.
We've decided to reinstate formal guidance for the fourth quarter and the full year, albeit with a wider than normal range of expectations and he'll provide those details as well.
Despite our restored comfort in providing guidance I want to stress that we continue to monitor the state of the pandemic and the macro environment across the U.S. and around the world in the markets in which we compete.
We recognize that there is ongoing risk to the economic reopening based on the severity of the pandemic and also the degree of stimulus being provided to consumers in each of those markets.
So shifting to financial services, let's look at the key trends in that market I want to start by reviewing the online transaction volumes for financial services in the U.S., which is our largest vertical market.
Volumes improved during the quarter with ongoing strength in mortgage and auto with improvement in consumer lending, but offset by a very challenging comparisons in our card business.
I'll talk a little bit more about each of these on the next slide.
Before I do.
I want to emphasize that the impact of our sales effectiveness programs and innovation.
Using our U.S financial services vertical and sample our new sales pipeline has improved this year by 8%.
Reflecting robust sales activity in engaged customer base.
Our win rate has increased by five percentage points year over year.
And this has led to an impressive 43% gain in wind dollars compared to the same period in 2019.
Now taken together this reflects greater sales efficiency a.
A focused strategy.
A larger average.
Women sizes and of course strong execution across the board.
We transitioned our teams to virtual selling supported by investments in a seller training program new collaboration technologies.
An increase improvement in our digital content.
And the deployment of internal experts to operate more effectively in the current environment.
And throughout my remarks, you'll hear about products across verticals and geographies that are meeting the needs of our customers in these current market conditions.
Let's spend some time on the key lending markets that comprises the vertical.
So continue with Fs I want to start by talking with the health of the U.S. consumer overall over the past six months consumer balance sheets improved and that should support the long term health of the economy and our business.
In fact since the onset of Cobot bank deposits reached record levels and the personal savings rate doubled at the same time delinquencies generally remain flat or even down for some lending products.
A number of factors contributed to this the.
The significant government stimulus provided additional liquidity consumers at the same time lender forbearance programs alleviated the needs for many consumers to pay their mortgages, allowing them to stay current on other debts to pay down existing debt or simply save more money and finally.
The mortgage refinancing boom allows consumers to save hundreds of dollars each month each month.
Which again, they can save or used to stay current on their obligations. This demonstrates the importance of government support and the potential impact on consumers as the debate.
So with that as a backdrop, let's turn to mortgage both.
Both refinancing and home purchase activity remained very strong throughout the third quarter on the strength of our historically low interest rates.
Cyclical strength in mortgage certainly helped our results, but we remain cognizant of the cycle will run its course in 2021 and create some challenging comparisons.
The current.
The current MBK outlook calls for mortgage volumes declined 23% next year, while Fannie Mae forecast, a 38% decline.
In either case.
I would expect the preponderance of the impact to occur later in the year.
Now auto financing held up well in the quarter as low rates and attractive financing offers stimulated shopping activity in both the new and the used car market.
As our customer shifted to more digital acquisition channels, we won new business for our pre pump prequalification tools.
Looking ahead tight inventory levels of both new and used cars resulted in constrained industry volumes.
Additional market growth well why crude you acquire increases in production.
As well as used vehicle supply from crate and auctions to meet the current heightened demand.
And the credit card market improved slowly from the dramatic declines we fall between late March through July, notably insurance began to test marketing campaigns to determine how best to reach and market to consumers in the current environment.
While marketing volumes remain down year over year, they have shown positive trends and we believe they will continue to improve.
For our business as noted on this chart, we're comparing against our participation in a highly successful launch of the new credit card in the third quarter of last year.
Excluding that impact our results would better reflect the underlying market.
Finally, consumer lending can continued to recover during the quarter as larger fintech lenders slowly return to customer acquisition fueled by solid levels of investor commitment to funding loans.
In particular, we continue to see significant growth with point of sale lenders both from their own success as well as share gains.
We expect this subset of the Fintex space to benefit from a very strong holiday season, with a likely dramatic increase in online shopping.
Across our end markets.
We've seen two themes emerge with lenders.
First relates to their ability to adapt their models to understand the impact of the pandemic on consumers leading to new sales of credit vision acute really attribute to help them better assess their current portfolios and we're seeing meaningful traction in acquiring new users of both credit vision and credit vision.
Enlink as a means to improve their models for future customer acquisition.
The second trend builds upon the accelerated transition to digital commerce, resulting in a heightened interest in online fraud mitigation solutions like I elevation.
And assertive very substantial conversations.
Around digital marketing the topic I'm going to discuss a bit more later.
Now onto our emerging verticals.
Across most of our emerging verticals, we saw trends improved during the third quarter, beginning with health care are.
Our business continues to face headwinds as the pandemic has an idiosyncratic effects on our health care system.
Performance played out largely as we expected during the quarter from inpatient volumes recovered.
As the provider saw increases that continue to improve the trend towards pre covert level. However, ongoing declines for inpatient care, particularly for elective procedures as patients remain cautious about returning to health care facilities, partially offset the improvement in outpatient volumes.
Similarly emergency department visits remain depressed.
The impact of reduced volumes negatively impact the backend of the business, resulting in a reduced number of potential coverage discovery opportunities.
This all comes against the backdrop of increased financial pressure on those health care systems.
As our business helps providers recover cash.
We remain somewhat insulated from the full impact of weaker volumes in the health care system.
And as we look forward, we see no structural change to this market such that we were well return to a more steady growth profile post pandemic.
Now shifting to insurance this vertical return to modest growth in the third quarter.
As the industry volumes stabilize we continued to realize its successes with innovative products like our national and driving record solution.
Which combines drivers risk has a pre screen for the presence of a motor vehicle violation with our ability to resell state issued motor vehicle reports this creates efficiencies for auto insurers.
We also continue to benefit from diversification into commercial auto life and other aspects of property and casualty insurance.
And our public sector market grew again as most government agencies continue to operate business as usual providing necessary support for their constituents.
Additionally, we gained some business related to the Cobi pandemic in fraud mitigation and identification for individuals requesting support from government.
We also delivered growth in our screening business, which includes both dependent in employment screening.
So solid performance in tenant screening as leasing companies remain active and our smartmove screening product made additionally in the marketplace.
Employment screening remains depressed as the mirrors employment trends we.
We also had some of the negative impact with a successful campaign focused on small business acquisitions, which we provided our shareable for hires tool free for an introductory period, we're now seeing pay off as many new users have converted to the pay product.
And the telco market continues to improve with the reopening of retail stores and as consumers resumed a more and more normal purchasing cadence.
Finally, while we believe collections is a counter cyclical and will be over time, we don't expect to see any significant uptick until at least the beginning of 2021 as forbearance programs and stayed in Whos moratoriums on collections continue to delay activity.
As I mentioned earlier government subsidies delay some collections activities as they enable consumers to pay off debts or stay current leading to lower delinquencies and default.
Now turning to consumer interactive.
We delivered solid revenue growth in this segment as consumers and customers continue to recognize the value of credit and identity protection.
Credit monitoring and related financial education tools like those that we offer both directly and indirectly through our partners in.
In the quarter, we saw direct channel revenue accelerate behind continued successful marketing to consumers focused on their credit help.
On the other hand, some of our indirect partners have curtailed their marketing programs, resulting in a decline in subscribers.
This caused a slightly larger decline in this portion of our business compared to the second quarter, and we expected to persist in future quarters.
At the same time, though.
We continue to engage.
With potential indirect partners about new long term opportunities.
Now moving on to our international segment, let's look at revenue trends, which illustrate the ongoing recovery a call across all reported regions and countries.
Generally successful reopenings have allowed economies restart leading to increased overall economic activity.
I would note that the degree of reopening varies greatly across our markets.
For example, Brazil has never shut down while the Philippines recently started to emerge from a second complete closure.
[noise], India took a more phased approach an approach and the entire country only recently fully reopened and in the UK, we see the potential for isolating closures as Coca cases have spiked in certain areas and.
Of course, we continue to monitor all of these situations closely.
Now, let's spend a few minutes on each region, where you'll see a common theme of partnering with our customers to help them navigate the pandemic often by leveraging our innovation in Creditvision credit view I'd vision and other of our solutions.
In the UK, that's farm government stimulus help consumers manage through the crisis. However, the salary protection provided by the government will diminish from 80% coverage to about 67% coverage and only for areas with local locked down at the end of October shifting the burden to.
Employers, who may reduce their workforces.
And during the fourth quarter, the payment holidays for mortgage and other loans will wind down these actions may impact the already soft lending market.
For our business, we continue to see an exaggerated weakness in the alternative lending market, where we hold sizable market share.
We also divested a small business earlier in the year, which negatively impacted our growth rate Todd will provide more information about this later.
Successful cobot mitigation business helped offset some of the weakness in the market that.
That included the business with the UK government the rollout of a true vision transitional risk index to help lenders identify consumers, who pose a risk of default in the future as well as a number of wins for credit view, including with Nat West one of the largest lenders in the UK.
Our fraud mitigation business continues to deliver solid results and we've seen a recovery in our online gaming in gambling vertical as sports resumed around the world.
Our Canadian business grew in the third quarter, despite generally weak lending markets at this time various aspects of government stimulus are expected to continue.
Our good performance profile reflects the meaningful portfolio diversification that weve intentionally developed.
We saw double digit growth in insurance and direct to consumer as well as a strong performance in the nascent fintech markets.
At the same time, we successfully introduced the Canadian version of Creditvision acute relief and a vulnerability index both to assist lenders in better understanding the state of their consumers.
In India, the country slowly reopened and our volumes have mirrored that.
We continue to benefit from our diverse product portfolio as well as specific programs to address critical pandemic driven issues.
For instance, we supported the Union government efforts to provide stimulus to small businesses by sizing the market and helping them identify who should receive the support.
The Indian government also turned to us to help understand how individual lenders handled forbearance arrangements.
We successfully launched a simplified version of our scores and algorithms using creditvision for Fintech lenders, who in India tend to provide small ticket very short duration loans.
And we continued to deliver valuable insights to our customers.
We recently began a weekly thought leadership session called TGF or Transunions, great insights Friday, where we can bring our customers together virtually and help them work through the impacts of the pandemic.
Now in Latin America, we serve a variety of markets.
And most improved from the second quarter.
She lay performed relatively well on the strength of its modern highly digitized economy.
Colombia also delivered improved performance as our customers increase their digital product.
Assumption to meet consumer needs during the shutdown.
Other markets saw more modest improvement, reflecting the limited level of government stimulus in some markets.
And in Hong Kong the market is stabilized recently, we won new business for our fraud mitigation tools related digital onboarding.
We saw improvement in our re launch direct to consumer portal as well as some new opportunities for our credit few platform rounding out APAC, the Philippines continue to face significant headwinds as the country. Just recently began to reopen from the second complete shutdown, we expect a slow recovery there.
In the South African economy remains challenged with GDP expected declined 9% and consumers and small businesses stream. Despite the influx of nearly $3 billion of government stimulus.
We generated momentum in our business behind Creditvision tools for portfolio review as well as I'd vision and seamless on boarding to support our customers transition to more digital consumption.
Even as our businesses maintained a sharp focus on serving our customers and delivering good results in the quarter. We also continue to invest for our future with differentiated programs and approaches to stick to sustain our industry leadership.
On our last earnings call I detailed our global operations and global solutions organizations as well as our investment in project drives ill.
Ill update each of those areas today and I'll also highlight our investments to build out our media vertical.
Now moving to global operations.
This area allows us to expand our core capabilities through centralization.
Optimizing processes.
And automating them, leading to a better customer experience as well as cost savings that we will reinvest in new growth projects I.
I wanted to highlight our progress in this area over the past three months.
First in global procurement, we've renegotiated a number of our largest supplier agreements to better focus our spend and leverage.
And leverage that to achieve more favorable terms.
We've already realized some initial savings and cost avoidance and I expect that to increase over time.
Our negotiations also included adding new features or services to facilitate growth across the enterprise.
Second we intend to replicate the success of our global capability Center in Chennai, India.
Which was recently named one of the 50 best workplaces for women in India by the Great place to work Institute.
While we continue to add seats in Tonight.
At the end of this year, we will open the second location in India in pruning.
This location will focus primarily on project drives and other significant technology initiatives.
Finally, we continue to make progress on reengineering the customer experience through.
We are implementing new tools that allow us to better understand our customers and to make trade union easier to do business with.
We remain confident that global operations will deliver significant efficiency and cost benefits that we will both reinvest and return to shareholders. While also furthering our market leadership through improved customer engagement.
Now, let me update you on the progress and global solutions, which allows us to strategically develop in diffuse innovative products across the more than 30 geographies in which we compete.
In recent months, we made significant progress on two partnerships to develop a more comprehensive view of consumers that we can leverage to help our customers make smarter decisions about customer acquisition and risk management.
First we partnered with Amex, Let me say it again is and like Mike and act like Xerox to afford to avoid any confusion with the large large card issuer.
Partnered with Nx to incorporate consumer contributed data into our solutions.
MX aggregate financial information through customer permission connectivity with banks and credit unions in Fintech innovators on more than 30 million consumers through.
Through this partnership in both the U.S and Canada, Cringing, and we'll be able to we will enable consumers to enrich the credit profile help lenders make better more informed decisions.
And ultimately consumers will benefit from access to better products and services.
Lenders the near term use cases, we.
We will explore include income verification and the creation of new account derived attributes.
That will offer visibility in a into a consumer's ability to pay.
In the spirit of leveraging our global capabilities. The solutions team already began coordinating with our UK business, where we provide the industry, leading affordability suite of solutions and a best in class open banking platform both.
Both of these capabilities lend themselves to the work with MX.
And our entrance into consumer permission data into the identified similar solutions in other international markets, allowing us to coalesce around this opportunity on a global basis.
And we've made a minor equity investment and formed a commercial partnership agreement within locker, which allows consumers to collect and permission their financial information needed to secure mortgage among other loan types.
Tumors may maintain control of their information throughout the process and can utilize educational resources to help prepare them for the mortgage application process as well, let's take advantage of a personalized financial health dashboard, something that first time homebuyers and find appealing importantly fin locker utilizes banking industry.
Sri Multilayer security by eight encryption and application protections to safeguard consumer information.
Then locker also helps lenders and better service their existing customers by finding the right products to offer based on the individuals unique needs while supporting their financial journey.
Helped drive a stronger relationship and reduced the lenders costs.
Lenders can also leverage Sim locker for lead nurturing and conversions are getting deeper insights into consumers' actions and behaviors, making smarter risk decisions and uncovering new opportunities to drive growth.
Through this partnership we will offer our marketing and portfolio review solutions to mortgage originators and servicers, providing them with an end to end offering.
We will also have distribution rights to soften locker and we'll explore expanding beyond the merger mortgage vertical.
Now both of these partnerships provide.
Provides valuable new avenues for growth.
And by thoughtfully, putting together these pieces, we position ourselves to begin to offer a broader view of consumers, helping our customers make better decisions through superior insights.
At the same time, we can help consumers experience more seamless credit journey.
We're still in the early stages of this strategy you can see it clearly attractive path in front of us as we fully anticipate identifying additional opportunities for these technologies and data in the future.
Now did the media vertical.
As we've explained in the past our vertical strategy provides us with valuable source of sustained differentiated growth.
In recent years, we've built out our capabilities organically and through acquisitions.
The fuel public sector telecommunications and our screening verticals for example overall.
Over a longer term horizon, we did the same thing to build our nearly 200 million dollar health care vertical and are similarly sized insurance vertical well.
Most recently, we've applied the playbook to build a media vertical focus primarily on digital marketing related solutions.
We recognize that we had foundational pieces necessary to complete compete successfully in audience segmentation and identity resolution.
Two growing categories within the larger digital marketing ecosystem.
Lets notably we possess large ramp data and world class data linking than matching logic asset.
As such we identified the intersection of the media industry and digital marketing as a market for our expansion.
He moved purposely to acquire the capabilities needed to offer a robust portfolio solutions over these past 18 month that can enable people based in identity enabled marketing.
The first acquisition crews signal brought a modern cloud based platform that marketers and media companies use to build and distribute precisely define audience segments.
Users can access this platform directly or through an integrated apiay within other technology platforms. The.
The second acquisition signal, which we completed earlier this summer added two key offerings first get brought products that allow us to work with our clients to structure and activate their own audience intelligence second it providing a platform for real time data collection and distribution to connected.
And complimentary advertising and marketing technologies.
And earlier this month, we acquired true optic to round out our market position.
The optic deepens, our understanding of connecting consumers via what they call a household identity graph essentially a virtual map of the streaming video and audio devices within the home.
This understanding of the connected home adds yet another dimension to our ability to match an individual to a broad array of data as well as persistent digital identifiers.
Tropic with their focus on understanding the connected home and providing solutions for connected TV as well as streaming audio has gotten ahead of the curve related to the adoption of streaming media services and the future TV advertising investments.
Marketers turned to dropping to select a home they want to target for either streaming video or streaming audio campaign.
The streaming media providers leverage tropic to enable the precision targeting that markers expect during all of the capabilities from these three acquisitions gives us.
An industry, leading position within a clearly defined part of the media market.
And we believe we can now deliver meaningful sustained growth.
Additionally to fully leverage this opportunity.
We will court these digitally focused marketing capabilities across the U.S. markets and vertical portfolio. In fact in just a few weeks since we announced the acquisition we've already engaged with a number of large financial institutions about using tropic and overtime. We will also identify how best to extend these capabilities outside.
Side of the U.S.
And finally I'd like to provide an update on project drives I'll start with a broad point, namely that effectively all roads and Trans Union lead back to technology as a core enabler.
A lot of the work that we're doing in operations relies on technology in the fourth quarter, we will migrate our consumer call center to the cloud, resulting in a better consumer experience and greater efficiencies.
The partnership I described in solutions benefit.
Benefit from the modern technology stack and data architecture that we've nurtured over the past five years.
In future progress relies on the evolve technology Foundation.
That project rise will deliver.
And the media vertical and digital solutions build out depends on the cloud capabilities were developing.
Beyond that we remain on track with our timeline, our anticipated investment in effectiveness targets.
In fact.
In the fourth quarter, our first proof proof of concept applications go live.
Using the first set of rise capabilities, we developed as planned.
We continue to see clear operational benefits and security reliability performance and efficiency as we progress.
Through this transition to the cloud.
As I wrap up my review of the business I will reiterate the solid improvements we've seen in trends across our markets aided by outstanding sales and product development efforts.
And at the same time, we continue to aggressively invest to maintain our industry leadership and our attractive growth profile.
With that I'll pass it over to our CFO Todd.
Thanks, Chris.
As highlighted we achieved our upside case scenario for the third quarter as we benefited from gradual improvement across almost all of our markets as well as the strength and diversity of our portfolio.
I'll start with our consolidated results and for the sake of simplicity.
All of the comparisons I discussed today will be against the third quarter of 2019 unless noted otherwise.
Starting with the income statement third quarter consolidated revenue increased 1% on a reported basis and 2% in constant currency.
Acquisition, which we completed during the quarter had an immaterial impact on the growth rate.
Adjusted EBITDA decreased 4% on a reported basis and 3% in constant currency.
Our adjusted EBITDA margin was 38.8% down about 190 basis points compared with the original corner.
Fight the decline we still see this as a very good result, given the significant challenges in the market.
Third quarter adjusted diluted EPS increased 7%.
We benefited from reduced interest expense related to our debt refinancings, and lower LIBOR rates as well as a lower adjusted tax rate of 21.3%, which reflects our tax planning initiatives and a reduction in the Indian statutory rate.
Now looking at the second financial performance U.S. markets revenue was up 4% compared to the year ago quarter. Thanks.
Taking all had an immaterial impact on the results.
Our financial services vertical revenue grew 11%.
As Chris discussed we saw improvement in our lending end markets with considerable strength in mortgage and solid recovery in auto and consumer lending.
Our card business faced challenging comps from our participation at significant credit card launch in the year ago quarter.
And to address the significant impact of mortgage in the quarter, excluding the cyclical grow the vertical would have declined low single digits and acceleration in non mortgage performance compared to the second quarter.
I will reiterate my caution about the comparisons we may face in margins next year as they are unlikely to be a challenge and it's worth noting that our mortgage business carries a particularly high margin, which will exasperate the impact of the tough comparisons whenever.
Whenever they come.
Emerging verticals combined declined 3% on a reported basis and 4% organically growth in public sector media tenant and employment screening and insurance help moderate declines in the other verticals.
Adjusted EBITDA for U.S. market decreased 2% I'm also reported and organic basis.
Adjusted EBITDA margin declined about 260 basis points, largely as a result of reserves for legal and regulatory matters that we took during the quarter.
For my comments about international all comparisons will be in constant currency.
Total segment revenue fell 7% as we saw trends improved in all of our regions as Chris discussed in detail.
As we mentioned on our February call, we divested a small business in the UK reciprocal excluding that divestiture international would have been about one point better and our UK business.
Then three points better.
Adjusted EBITDA for international declined 8% in constant currency.
Consumer interactive revenue increased 3% driven by growth in the direct channel adjust.
Adjusted EBITDA for consumer interactive was up 1% as we continue to increase marketing behind the direct channels during the quarter and see solid returns on that investment.
As I stressed over the past two quarters, we have a strong balance sheet and the ability to rapidly build cash.
As a result of our attractive cash conversion and prudent steps to appropriately retained cash we finished the quarter with $554 million of cash on the balance sheet and have not drawn down our $300 million revolving credit facility.
The net of all of this was that our leverage actually fell slightly from 3.0 times at the end of the second quarter to 2.9 times at the end of September.
We will continue to take a prudent approach to reduce cash retention, but clearly have sufficient comfort that we were able to fund two acquisitions recently and continue to be proactive.
In pursuit of additional attractive investments.
As Chris previewed, we are reinstating formal guidance, replacing the scenario based outlooks, we provided for the past two quarters during what we hope will be the worst of the pandemic impact.
As we have seen markets generally stabilize we have sufficient visibility to take a more typical approach to guidance I'll.
However, recognizing the potential unknown is of the upcoming election, and the recent increases and called the 19 cases.
We have provided a wider range between the low and high end of guidance for revenue.
Adjusted EBITDA and adjusted diluted EPS compared to what we have done previously.
For the fourth quarter revenue, we expect about one point of M&A contribution from signal antibiotic dairies.
There is also about one point of headwind to revenue and adjusted EBITDA from FX.
Revenue should come in between $678 million and $698 million or a 1% decline to a 2% increase.
Adjusted EBITDA is expected to be between $255 million and $271 million a decrease of 2.27%.
Adjusted diluted earnings per share are expected to be between 74 cents and 80 cents each.
Decrease of 1% to an increase.
7%.
And finally for the full year, we expect an immaterial impact from M&A and one point of headwind to adjusted revenue and adjusted EBITDA from FX.
Adjusted revenue is expected to be between $2.696 billion to $2.715 billion.
1% to 2%.
Adjusted EBITDA is expected to be between $1.031 billion and $1.047 billion down 1% to 3%.
Adjusted diluted earnings per share for the year are expected to be between $2.94 and $3 in one time.
5% to 8%.
I want to wrap up with some updated thoughts about some of our other annual guidance Islands first.
First we expect our tax rate to be about 23%.
Which is slightly higher than the third quarter and as a result of the timing of the impact of some of our tax planning initiatives.
Second total depreciation and amortization is expected to be about $365 million.
Excluding the step up from our 2012 change in control and subsequent acquisitions depreciation and amortization should be approximately $170 million.
Sorry, net interest expense should be about $120 million largely as a result of a lower forward LIBOR curve and a reduction in the margins on our term loans as a result of deleveraging and the late 2019 refinancing we ask.
Good.
Finally.
Capital expenditures will be around 7.5% of our revenue in 2020, which will be lower in absolute dollars than we had originally planned of course.
I'll now turn the call back to Kris for some final comments.
Thanks Todd.
And now to conclude this morning, you've heard how we continue to effectively manage the global stresses created by the covert pandemic.
At the same time, we continue to invest for the long term strength of our business with meaningful progress in global operations and project rise a very exciting set of strategic partnerships to enhance our data and capabilities around consumers crafted bar global solutions team and a well planned out build of our media vertical.
While we maintain a clear plan for long term growth in the near term, we will continue to prioritize the well being of our associates customers consumers and our communities. It will end by reiterating my hope that all of you and your families remain safe and healthy and with that I will turn the time back to Eric.
That concludes our prepared remarks today. So the queuing day, we ask that you each ask only one question. So that we can include more participants.
And now lets go to those questions.
Now begin the question answer session ask a question you May press star one on your Touchtone phone.
Asking if you use the speakerphone, please pick up your handset before pressing the keys for.
I would draw your question. Please press Star then two just.
This time, we'll pause momentarily to assemble the roster.
First question comes from Andrew Steinerman of JP Morgan. Please go ahead.
Make revenue guide I for down at 1% to up 2% year over yeah. Obviously, that's very similar to the plus 1% organic outperformance that we just had in the third quarter and so my question is how does that frame what they the comments that were seeing consumer credit.
Our recovering.
You're Lucky your October trends are you extrapolate in conservatism from there what frames that fourth quarter organic revenue guide range.
Andrew.
Well good morning, this is Chris and I'm. The first part of your question got cut off so.
Kratzke to repeat it and then I think Todd will best answer that.
Thanks, No problem, so I'm thinking about the fourth quarter organic revenue guide to down 1% to up 2% in the fourth quarter and that sounds very similar to me to the third quarter performance that you just did a plus 1% organic revenue growth and so my question is what's being and assume.
In the fourth quarter guide in terms of the consumer credit activity across you highlighted that consumer credit activity.
On your slide is recovering so why is it organic revenue growth, let's say better in the guide that it is in the third quarter performance.
Okay. Good morning, Andrew and thank you for the question on as Chris indicated I'll I'll take that one so why don't I walk you through some details as to how we are looking at the anticipated performance of our three segments in the in the fourth quarter. So first.
Starting with the U.S. markets, we are anticipating that U.S. markets will grow in a mid single digit range more.
Mortgage will continue to be strong for us and as you alluded to recovery will continue in our other and lending markets that we went through detail on of auto and consumer lending and cards banking [noise]. However.
However, the one area to call out is within emerging verticals, we do expect that our health care business will be down as we've signaled throughout our.
Our earnings calls in Q2, and Q3 because of the impact of the the front end has on the backend and just elaborate on that for a minute. The front end is where we're doing insurance eligibility checks and patient estimation at the onset of the pandemic or we saw a significant decline.
Klein's on in those volumes as.
Either hospitals cut back on elective procedures are you know patients just didn't simply want to be in the facility. So that has had that has an impact on the insurance.
Coverage discovery part of our business in the backend on so you know everything that weve laid out before but the impacts on music is playing out pretty much as we've been talking about over the last.
Several of the last couple of quarters I move over to international we are expecting international business to be down mid single digits on a constant currency basis.
In the fourth quarter.
We are anticipating that recoveries I will continue but as Chris said in his remarks, the recovery has been uneven across all of our all of our geographies that we operate in so that just continues to be an.
An area of focus for Us and then finally.
Our consumer interactive business, we are expecting it to grow low single digits and we are in the direct channel side of that business. We continue to see strong interest in our credit products again, three Bureau monitoring however.
As again, we've talked about over the last couple of quarters, we do see on the impact of our indirect channel partners are curtailing or marketing program still happening on the impact in the fourth quarter. So when you take all that together Andrew I mean, that's that's how we're getting.
To the guide that we put out for the fourth corner by anchor I just get a clarification are you assuming in any U.S. markets additional recovery from October or just you know kind of consistent with October levels.
I think you're seeing.
Depends on the market again, no Andrew right and that's you know the context that we provided on the on the volume charts. The presentation. So I would say we continue to expect mortgage.
To be particularly strong into the fourth quarter, we expect to see a continued recovery in consumer lending. The one word of caution that I would give you in consumer lending and when you look at those charts and dispose charts in general just looking at our online transactions.
Transactions and not looking at the full picture of our revenues. So I think thats just a question for everybody on the solid please take right context, Matt. So there is a.
A meaningful part of our business is batch and that's a good indicator of our consumers our customers' willingness to be more aggressive on with marketing. So that you know, we're starting to see our customers come back and be more aggressive, but not necessarily at the same level on that where we're seeing.
On the online volumes and then kind of round that out auto. We continue we expect to kind of continue on the trend that it's on as well as banking and credit card perfect. Thank you.
[noise] next question is from the off Patrick of Barclays. Please go ahead.
Just to follow up on our common Sunday, Yeah additions. There you know can you give us like a fine example, maybe a real World example, how youre datasets combined with these acquisitions and the value that I guess I'm trying to understand.
You know what the show is is it more about just the I decided to say there's a measurement that maybe it's more I was just hoping you could have killed off.
So hey minor things. Thanks for the question I know you kind of broke up at the beginning as well I just want to make certainly we got this right to your question about our media vertical and the acquisitions that we made.
Yeah, correct, just I just wanted to get some kind of a real World example of how your capabilities in these acquisitions actually work and what still Nishu Kids go back to.
Kris Kris will take that one.
Yeah, Great Manav and.
And operator I'm not sure. If this is a technical issue, but the first two questioners, we we missed the beginning of their questions.
So we're going to we're going to struggle unless we can correct.
Correct that.
Okay, Yeah Manav so.
We believed for some time that there's an opportunity for us to expand into.
Data and the consumer matching and activation services.
And into digital marketing market.
And we had some obviously some intrinsic capabilities as a a sophisticated data management company that also.
Possesses a lot of valuable data or marketing enhancement and segmentation and we've also got a very rigorous matching logic as you would expect as a as a leading bureau.
Well, we didnt have necessarily where some of the complimentary capabilities needed to commercialize that so.
So one of those capabilities and came in the form of the acquisition of crew signal where.
We gained a an online platform and a direct to the end user interface that allows marketers to come in and use a user friendly you lie to explore all of our data and the incremental data that a true signal possessed and slice and dice and create very.
Custom and precise audiences, that's a big part of what marketers do as they pursue ever more specific segmentation and eventually you know pursue this segment of one.
Approach.
Then when we.
Next acquired signal, we gotten there was begin the beginnings of an identity graph, which is really a.
The vehicle for organizing all of the various data elements, including digital identifiers around our traditional consumer records, which as you know our comprehensive and accurate.
In addition, we gained [noise].
Connections to a variety of publishers in the digital marketing ecosystem, where.
Our clients on the marketing side after they created an audience and they you know.
And the digital identifiers to those audience to.
We have been connected publishers in pursuit of targeting those specific consumers.
And then the final piece in terms of M&A was with.
True optic and true optic is one of the early leaders in the over the top streaming media.
Marketing.
Marketing services business and what they have is relationships with various streaming providers where.
They can identify.
The the digital identifiers, you are old et cetera.
For the households that subscribed to various screening services now what's interesting about this is that.
You know trustful TV is obviously been in decline for many years cable TV it stagnant and many consumers are cutting the cord, but as I'm sure. We all know if my own experience streaming services are growing rapidly and.
And so there is an increasing audience there.
Where streaming services are going into individual households, but there is not a lot of visibility as to who are the individuals in that household and and how and what identifies them and how can they be segmented.
And then targeted and so the combination of would signal Marines, which his knowledge of the various screening services that are connected into a household and then combining that with the data that trans Union has and our advanced matching capabilities allows us to deliver to marketers the.
Segmented audiences that they need to determine whether they want to deliver advertising content to particular households.
On the cover scanning services. In addition to that we got very sophisticated identity.
Identity graph and capabilities.
But we're also going to be integrated so you know at this point, we feel that.
The combination of these various acquisitions plus.
DNA capabilities, we had at that as a bureau, and marketing data company, you know traditionally plus some organic investment and and.
Ongoing integration efforts gives us.
A very nice complement of services team to grow our revenues and.
This.
Audience creation in segmentation and targeting portion of the very large overall digital advertising ecosystem.
So I hope that helps.
Yep. Thank you.
Next question is Geoff Miller with Baird. Please go ahead.
Yes, Thank you and good morning, I want to ask about the new sales metric that you gave us both given that it's a new external metric and that a 43% growth. There is a lot higher than I would have ever expected in this environment. So I guess two questions first can you just be more specific of what the metric is.
Especially given that many of your revenue streams are transactional. So there is just an estimate or is this based on minimums and then second is there any rule of thumb or way that you can help us translate that into revenue so picking something like if.
You'd normally get I'm, making up a number about four points of growth from new sales if you have 40%.
Plus growth that that's 5.6 or so points of of rubber contribution just any way you can help us with what it is and how that trend play deferred revenue. Thank you.
Yeah. So let me handle the first part of the question, but just as to the second part you know Jeff you sounded like me on a business review look.
Looking for the rule of thumb translation and I think the first thing I mean, I haven't got company.
[laughter] exactly you know the.
First thing I want to emphasize is that you know these are non-GAAP accounting numbers. These are numbers based on our internal sales pipelines, which we manage with some rigor, but they obviously don't meet the standard direct revenue reporting and financial results, but they are indicative of.
You know the success, we're having in the marketplace. Both because we have adapted to what we're selling and the services that we're providing to consumers.
But to our customers during the pandemic.
With improved.
Sales practices that we should come from a variety of effectiveness measures.
So as you can see in 2020, you know the year of the pandemic [noise].
Our overall sales pipeline as we measure it.
Is up 8%.
And then our rate of bookings or sales closes has improved by 5%.
However, the dollar value of all those bookings year to date has improved 43% and the way you bridge that math is.
Simply or the average deal size has increased by about a third roughly right.
And.
Again, I just think it speaks and the recently shared his it speaks to both the ongoing good health of the financial institutions that we serve and the broader marketplaces that we serve and also that you know what we're offering is attractive and that we are delivering it successfully to the market.
Bill.
So that's really the answer to the first part of the question as to the second one.
Frankly, I just don't have a good rule of thumb.
We're relying on the sales executives estimates of the deal size.
Sometimes I tried sometimes it's not.
There's also uncertainties around how long it can take two.
Integrate two particular client for a variety of reasons client motivation.
Backlogs et cetera et cetera. So.
Take it as a number a directional number of its kind of the health of the business.
Got it I Trust.
Oh.
Thank you and next question is Toni Kaplan Morgan Stanley. Please go ahead.
Thanks very much.
Chris You mentioned in your initial comments that you're working with regulators to try to help promote greater financial inclusion and from my reading financed proposal to create a new government sponsored fear out I guess the objective seems to be just that and so would you expect that if.
Are you in other areas are able to show progress on this front that perhaps maybe there wouldn't be a need for the government to set up a new era and maybe you could just address that and any thoughts on that topic in general just get any election coming up next week.
Yeah, absolutely happy to discuss and obviously this is a very important industry or other issue.
Not only for our industry, but for the American economy, and consumers and look I think the bureaus collectively do a very good job of providing comprehensive and accurate and objective information to serve as a basis for extending credit now we're not the only information to you.
And as you guys know TV to recent years each of the Bureau's has been.
Extending the range of data available.
To identify consumers and evaluate their.
Their eligibility for loans.
You know I think one thing that everybody can agree on is that.
Increasing.
The visibility of all consumers so that they can participate in the lending market.
Is a good thing you know that.
Financial inclusion and I think both sides of the aisle are aligned around that.
Often the debate comes down to a question of how do you achieve that and do you achieve it by.
The government, providing information and you know likely restricting certain negative aspects like how long a a delinquent credit remains on a credit report or do you provide even more information on the consumer.
So that the consumer gets full credit for other financial behaviors that demonstrate the wherewithal.
To manage credit you know we believe in the latter I mean, we think that.
And we know that when we moved the trended data we were suddenly able to score a tens of millions of more consumers. When we began adding alternative data like you.
Utility payments and a negative activity on checking accounts and a whole variety of things that weve.
We've discussed previously again, we could score millions of more American to in scores and accurately.
What we would advocate for is that if the government assist and broadening our access to data types like telecommunications payments utilities are consistent rent payments et cetera, et cetera, and then really round out individual consumers financial profiles and help lenders evaluate them and extend.
In credit and price credit accurately for a much larger swath of the population.
So.
You know if the Democratic candidate, if I'm going to win the presidency.
And there is I imagine you will find is you know period of intensive dialogue, where we really trying to identify what is the problem. We're trying to solve what's the best way to solve it and I think the bureaus have an important role in whatever solutions our proposed.
Thank you.
You next question, it's Gary Bisbee of Bank of America. Please go ahead.
Hi, guys. Good morning, just one quick follow.
Following up on another one and then a question to my own just done on Monovisc.
Tumors are buying this.
Marketing agency.
They're doing the marketing and then another question.
I'd like to ask is really on the cost front in the margins.
I wondered if you could just say is it right to think that the majority of the project rise and the other investments, you're making whether that product development and others are falling within U.S. markets because.
Sure thing.
Costs there in dollar terms.
Accelerate the pace of growth re accelerate quite a bit this quarter [noise].
On the margin down more than.
International we are still seeing costs.
Quite a bit.
Just any color on how we should think about levels of investment within the sector. Thank you.
Okay I'll handle the first question and I'll pass it to Todd for the second question, but [noise].
In terms of the the digital marketing services that we're providing you know it could either be a marketing agency or marketing advisor or intermediary that was assisting a a corporation and.
It's a client acquisition you know through advertising efforts or could be corporation directly we have booked right now.
But what we're able to do now is his help.
Marketers broadly understand.
Who they're targeting and ensure that that is indeed, the audience they want to target.
And then we're able to array digital identifiers around those individuals.
And then help publishers, who can help activate those marketing campaigns.
To publishers.
Yes.
Okay. Thanks, Chris and good morning, Gary Thanks for the question. So specifically on the margin you know just kind of you know starting high level.
Margin came in at 38.8% and that said the onset of the call close to 39%.
What we would consider to be a very strong.
Corridor, especially when we were comping against what was probably the highest adjusted EBITDA margin on the companies in the company's history.
When you drill down into the margins that we are seeing at the segment level in particular in the U.S. markets I, we still came in with what we would consider to be a very strong 40.4% on the adjusted EBITDA margin.
And to your point, we have continued to invest.
In particularly in areas such as solutions operations on as we as Chris highlighted earlier in the call but.
But also in technology with with project rise only caveat with that is with project rise to do handle that as an add back for our non-GAAP metrics.
So you're really not seeing that impact when you look at the margins on this way.
The other thing I'd highlight on that I mentioned this in my remarks is within the U.S. within the U.S. markets.
We accrued for some legal and regulatory matters for losses that we considered more probable and our best estimate for.
For obvious reasons I cant get into much more detail on that but consider that to be a kind of a one timer.
Within the U.S. markets number on this phone too on that I think you know, which see if you'll be kind of look at the other segments will see international's margins on coming in at 39.2%, which was down by 80 basis points I think you're seeing.
As the business comes back you know kind of two things the resiliency of the business itself and the flow through of profit. You are also seeing those investments on these solutions and operations.
In that business as well too.
Thank you. The next question is from Andrew Jeffrey Truest Securities. Please go ahead.
Thank you good morning appreciate taking the question.
I guess I just have a couple of questions around those to U.S. business.
Surely the Sci Fi business.
Chris you called out a strength in consumer which is largely intact I wonder if you could drill down a little bit into your point of sale lending commentary and whether that includes buy now pay later, if that's a driver and just juxtapose that with.
Some of the weakness in not the indirect consumer segment, which I assume is in some cases.
Similar to our customers. So if you if you could just kind of parse out that relationship a little bit to that be helpful. [noise].
Oh, okay. Okay.
Look I think you've identified an interesting mix issue that you.
Peter you see in the consumer sub segment of our financial results I mean, if this thing I'd say about the fintech and in the consumer online consumer lenders in general is that stability has returned to that space.
And we are seeing improved.
All our volume as well as.
He has a strong recurring and online volume, although the mix is really different and [noise].
I know you followed us Andrew but yes, there's consistent funding flowing into the fintech lenders and they're beginning to deploy it through.
No more aggressive, albeit still depressed levels of of direct marketing relative to pre coke right.
But we've got a large swath of this market as you know.
And we have a particularly large chunk of the point of sale lenders right.
And those lenders are doing okay.
Absolutely well in this environment, because ecommerce purchases have increased a lot and that's why you see you know from the charts that are online transaction volume in the consumer segment.
Has increased pretty much back to pre build at levels now as Tom pointed out earlier online transactions are a good portion of our revenues in the space, but they don't account for all of that right. There is still a batch analytics portfolio management marketing prescreened et cetera.
<unk> point of sale lenders don't rely on us to prescreen and acquire customers and they ride on the marketing of their channel partners right and.
And so while that second is booming and thats driving the higher origination volumes you see it's it's not leading to the batch marketing work.
That we were enjoying both for co that when the mix was different and then ask your comments.
You know a sub segment within the point of sale lenders I really I, just don't have visibility at that level. So I'll leave it there and then perhaps you guys can follow up after the call.
All right. Thank you.
Thank you next question storage Milos Cohen. Please go ahead.
Hey, good morning, guys and thanks for taking my my question I guess I just wanted to follow up on the the question Andrew asked and maybe ask it a little bit differently, you're talking in the U.S. about momentum on the online side with.
With consumer lending in and fin techs, and again, particularly called out the.
A point of sale finance guys. I think you also made a point Chris. So when you were talking about is the UK, which is a big big Fintech market, a big Neal bank market in itself that in that area alternative lending is under is under some pressure I was hoping maybe you can kind of juxtapose that to kind of why you think you're seeing sort of strength in the U.S.
Yes versus K is it more nascency of the U.S. more mix of the U.S., just any or any sort of color you might be able to provide there.
Yeah, I think wood.
What's happening in the UK is that their regulators have been examining lending.
Lending practices, you know across the space and in particular, the online lending segment.
Where.
The players in question, it's a combination of both online lenders, but also we call alternative lenders that are originating.
Unsecured in very short term loans.
And the regulators have concluded that some of these players there.
Their practices be at interest rates or.
A variety of practices, they actually don't like right now.
And so they put pressure on those lenders that pressure has led to.
A.
A flood of you know complaints and.
And recovery efforts by consumer advocacy firms in the UK that has pressured a variety of these players to leave the market.
And that's really because of the low cost of managing.
The complaints that they're receiving or the recovery request.
You're not seeing that in the U.S. and I think it's a function of different lending practices and perhaps just a function of.
The stages of evolution of the two different marketplaces, but I think that's why you know we're seeing a net decrease in the lenders in the UK in the in the UK markets.
Or there isn't that dynamic going on in the U.S. markets.
Great. Thank you very helpful.
Thank you next question alone Rosenbaum of Stifel. Please go ahead.
Hi, Thank you Hey, Chris just a quick question on the <unk> de commentary that the deals and the deal pipeline or go up a lot what which area because her is driving them up so much why are they going up so much what what's going on is there some kind of mix thing going on right now or what do you attribute that to.
Okay, Yeah, you're talking about our sales pipeline right, Yeah, I talked about earlier in the metrics and why have the skills, but larger well look I like to think it's because.
[laughter] look I can't exactly speak for what's happening in the market across our customer base I do know that you know clients are up.
Upgrading their credit credit origination and their portfolio management.
Data models and practices to use the latest and greatest data and attributes that are available to pre engineered and those tend to be fairly chunky sales.
So we're seeing you know creditvision Creditvision link and of course, the COVID-19 attributes driving a lot of that sales success.
And then as we've spoken in previous quarters.
You know with the surge of activity online online fraud mitigation leveraging services like I ovation in our overall.
Frog suite, which we call I'd vision, that's been an attractive area for customers as well. So I think those are the two principal components that are driving the surge in sales and bookings revenue and the increase in average deal size.
Okay and do you think that that's unique for where we are right now like within the cycle in the downturn or is that something that you think is like a trend that you.
You envision going forward.
Yeah I I.
I don't by any stretch believes that.
The demand for.
The two sets of products credit and try to mitigate litigation. It is played out by any way.
I think it's probably.
Accelerating on the credit side, and and religious began well I can't say, beginning but accelerating on the fraud side too.
You know whenever the bureau's materially innovate on the data analytic side in a way that.
That can really.
Help lenders better understand their risk around origination and portfolio management, it's going to lead to increase sales and an upgrade cycle. If you will and I think that.
You know.
Materials segments of.
The marketplace as consumers have lost employment or entering into forbearance relationships are experiencing distress and lenders need to understand that in order to understand it they need to subscribe to our more advanced data set and.
And I think that's what's happening and I think you'll see that upgrades continuing.
In the intermediate term.
Okay. Thank you so much.
Great and that.
Brings us to the end of the call I know, it's an extremely busy day with a a state of earnings throughout the space. So we want to be respectful of your time and I.
I give you guys the opportunity to deal with all those so thank you everyone for joining us on the call today, and we look forward to talking to you down the road and we hope you're all safe and well.
Have a great day.
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