Q3 2021 TransUnion Earnings Call
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 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 now turn the time over to Chris.
Thanks, Aaron Let me add my welcome and my Best wishes that you and your families are healthy.
Now I'd like to lay out the agenda for this morning's call first I'll discuss the resilience of our markets along with some of the broad macro trends that we experienced in the third quarter.
I'll also update you on our strong underlying business performance that reflects our ability to execute the growth playbook that I've outlined on previous calls.
Next I will discuss our strategic ambitions and how our recently announced acquisitions and divestiture support them.
We continue to build off a strong foundation and identity resolution, that's applied broadly across our various solutions into all of our end market.
This capitalizes on our strengths that's a critical euro as we extend and scale, our marketing risk authentication and fraud solutions to enable better consumer experiences in a digital environment.
As part of this discussion I will offer some additional comments about our recently announced acquisition of Neustar.
I'll also provide color on today's announced acquisition of Sonic.
Really complementary business that empowers consumers with identity protection solutions.
I'll also touch on two attractive equity investments, we made in financial technology firms in the U K and India.
Each furthers, our consumer identity focused strategy.
And at the same time, our decision to divest to your health care. Both helps to fund these attractive acquisitions and sharpen our focus on our core markets and capabilities.
Finally, I'll pass the baton to Todd to discuss our third quarter results in detail.
Long with fourth quarter and full year 2021 guidance.
Let me start with the third quarter.
We posted very strong results as most of our markets continue to rebound and our growth outpaced underlying market recovery on the strength of our growth playbook, namely new business wins, a steady stream of new product innovation and success in attractive adjacent markets.
In the U S. We've never seen a healthier consumer balance sheet, driving consumer spending above pre COVID-19 levels and spring more aggressive marketing by our customers.
We expect this to drive further upside in most of our U S businesses, particularly consumer lending credit cards and employment screening.
At the same time, we continue to see a phased recovery across our international markets.
And notably did not see any meaningful COVID-19 related setbacks in our major markets during the quarter. Despite another quarter of robust performance.
We expect to see significant further recovery over the next several quarters in emerging markets, such as India, The Philippines, South Africa and much of Latin America.
Importantly, beyond market based recovery, we continue to deliver.
Growth above our underlying markets, reflecting a combination of market recovery and organic growth.
Given our strong third quarter and increasingly positive macro environment, we've raised our full year 2021 guidance again.
We remain confident in our long term growth algorithm of high single digit revenue growth and an expanding attractive margin with double digit EPS growth.
We believe our strategic evolution to further support consumers and customers in an E. Commerce environment provides the next chapter of our growth story.
Does that point today I wanted to talk about our focus on improving identity verification and targeting precision to enable safe tailored consumer experiences as we feel attractive white spaces created by a more digitized economy and building off of our legacy capabilities as a credit Bureau.
For decades, the National credit bureaus have operated at the intersection of credit analysis marketing and fraud mitigation we.
We engage.
With the risk management arm of a consumer lender to help them understand the broader credit market.
We then help them develop the audience that they wanted to reach through our batch pre screen services.
Traditionally that offer would arrive via direct mail relying on our header information built on.
Built on broad and authoritative terrestrial data.
If the consumer response to the offer isn't contact our call center to activate it.
And during that process, they're authenticated using knowledge based.
Questions likely derived from our credit information or public records data.
<unk> sits at the center of all three dimensions of this activity credit analysis targeted marketing and fraud mitigation.
With the growth in e-commerce.
We began to evolve our.
Our strategy to incorporate digital identity.
Could we combine still valuable.
With new identifiers.
Such as email addresses cell numbers device Ids advertising Ids geolocation data Urls and cookies.
The acquisitions of TLO and Io of Asian with its comprehensive digital device data later valuable foundation that we augmented with the later purchases of true signal signal and true optic to build out our marketing capabilities.
Each of these investments furthered our ability to accurately Lincoln match data to consumers, what we would now call our identity graph, both offline and online data, helping our clients enrich their customer intelligence with the digital information necessary to target consumers across media channels.
Handles.
For marketers for instance, this solves a fundamental problem that outside of the walled gardens less than half of the time businesses don't know exactly who they are interacting with on the so called open web.
With our digital identifiers and modern technology stack, we can help answer the question, who am I dealing with in a digital environment.
And with that knowledge, our customers can ensure that the right customers are receiving the right offers with minimal friction or in the case of bad actors, putting up to necessary barriers to prevent fraud.
Now with that as a backdrop the pending acquisition of Neustar significantly enhances our identity resolution capabilities for a variety of online applications.
As a reminder, we expect this transaction to close in the fourth quarter of 2021 pending customary closing conditions and regulatory approval.
Neustar provides real time identity resolution through its one I'd platform powering solutions that serve three attractive markets marketing online fraud mitigation and communications.
Now we've talked about the power of bringing these capabilities together with Transunion bolstering our already strong identity resolution capabilities and accurate authoritative pi generating incremental scale and scope into three complementary markets that new star serves.
Sure.
As we expand in these high growth non credit markets, we further diversify our portfolio, which contributes to our ability to consistently outperform our underlying markets.
Additionally, the complementary capabilities and data enabled innovation and cross selling that further fuels, our ability to deliver above market growth.
Finally.
We're particularly excited about the influx of.
Strong and relevant talent, including in high impact areas like data science engineering and sales.
With considerable strength in developing solutions, we see a great fit with our highly evolved vertical market strategy.
And as a result of the substantial benefits.
We expect our long term growth rate will accelerate over time.
Now, let's step back for a moment and talk about the journey that Neustar hasnt been on <unk>.
In recent years.
They have evolved into a very different company today than the one that many people do before they were taken private in 2017 and frankly as we look at new store today, we believe that they've gone through a similar transformation as trans Union and today are at both a growth and financial inflection point.
New starts new leadership, and P/e owners made broad meaningful improvements in the business they implemented organizational leadership cultural strategic and operational changes to position the company for long term growth.
These include new leadership in key functions investment and sales account management and product development.
Along with data science, and marketing talent and processes.
Implementation of a cloud based and scalable product and technology stack and fully realizing the vision of the one I'd identity resolution platform.
Now, let me spend a minute on the power of <unk>.
Which is a modern cloud native AI enabled connected platform that solves the complex problem of resolving multi multiple identity.
Signals into single individuals.
Or households.
One I need a day uses proprietary data and analytic capabilities to deliver market, leading identity resolution accuracy across disparate online and offline signals.
With signal strength generating insight from.
From a high volume of observable events, and the breadth and depth of scale of the market requirements.
Requires rather.
As part of its one <unk> centric strategy Neustar made new product investments leveraging one IV and proprietary decision analytics to drive differentiated value propositions and marketing fraud and communications.
And the organic growth.
Initiatives have been complemented by tuck in acquisitions to broaden and strengthen.
Their solutions.
As Neustar sits at the inflection point between significant investment and growth acceleration.
We see a long half of opportunities to drive incremental revenues.
We think about this in three waves.
Italy Cross selling then innovating from the combined data and technology assets.
And longer term, taking the <unk> platform and related marketing fraud, and data management solutions across our global markets.
In the first phase that's an example.
New stores had success with very large financial services customers, but less so with midmarket lenders, where train junior has considerable sales coverage and strength.
Our teams will begin to sell a number of new store solutions to the mid market accounts quickly after we close the transaction.
And it's a similar story in the insurance and other verticals.
On the other hand.
<unk> has a well established a foothold in markets such as technology retail E Commerce, and telecommunications, where we've been growing and building our presence, but like the kind of scale and strong relationships with C. C. C suite decision makers that Neustar ads.
This opens the door to cross sell Transunion solutions to these customers.
In the second wave, we envision developing new solutions built.
On our combined data asset assets that leverage the strength of one I need to enhance our industry leading innovation.
That might include leveraging data and analytics from Neustar to better develop a household you for our insurance customers.
Sure.
Develop a closed loop marketing solution.
And then the third wave.
We will extend one IV to our international markets, but what are the platform has clear global applications that were part of the new stores long term strategy.
By combining their best in class technology, with our data assets and customer relationships around the globe.
We will position ourselves to deliver superior identity resolution in our local markets, allowing us to drive incremental growth.
I'd also like to spend a moment discussing marketing solutions.
You have heard us talk a lot about our opportunity in the fraud space in the past, but not as much about.
About what we can do in marketing by leveraging the same identity resolution capabilities that we do in fraud.
Neustar provides identity based solutions that enable marketers to better understand their consumers.
Message to them effectively and orchestrate personalized experiences across channels and optimize the effectiveness of their marketing investments.
We have no interest in becoming an AD tech company or a measurement currency, rather we aspire to deliver best in class data and analytics to help our customers make better decisions just as we do in other parts of our business.
Combining transunion and new store capabilities creates an identity precision targeting and marketing performance optimization suite required to operate in a world without cookies or device Ids.
With new Star, we have the opportunity to become the leading marketing centered identity solutions provider that enables personalized marketing.
And can measure its effectiveness.
As with the entirety of our business. This is a data centric solution, where we have broad authoritative data now combined with best in class technology and analytics to make that data actionable.
We have a great conviction that our proposed investment in new star will significantly advance our ambitions in this large and quickly evolving space.
Let me move to another transformational growth opportunity today, we also announced our intent to acquire <unk> for $638 million and.
And we expect the transaction to close in the fourth quarter subject to the satisfaction of customary.
Closing conditions and regulatory approvals.
Yeah.
Leveraging our cloud based technology infrastructure.
So I'll take provide solutions to help consumers and businesses protect against identity theft and cyber crime.
Including identity monitoring.
The restoration.
And breach response products and services.
The current owners executed a smart roll up strategy beginning in 2017 to bring together complementary assets to provide identity protection solutions.
Today, we serve a broad range of customers, primarily in employee benefits insurance financial services and the public sector.
The acquisition is attractive for three primary reasons first I.
I need protection is an attractive fast growing market driven by the rapid evolution of online commerce that I've already discussed.
In this environment consumers have a heightened awareness of and are concerned about the risks of identity theft.
However, many of them are reluctant to enroll in a service that is not supported by a trusted brand like Transunion we've.
We've seen the impact of this market demand in our consumer enacted business over the past several years.
<unk> allows us to access a considerably larger part of this market fueling stronger growth long term.
Second the acquisition fits nicely with our ongoing evolution to provide data driven identity solutions for consumers and customers as they more frequently interact and transact online.
For our consumer interactive business that entails empowering consumers by helping them understand their credit profile improve their access to goods and services advanced their financial standing and protect the financial profile that they built.
Content helps us transition from a credit data provider to a full solutions provider combining core credit monitoring with sophisticated identity protection.
Meeting, both our direct and indirect businesses.
It provides us access to new attractive end markets like employee benefits and expanding our position in current markets such as insurance.
And <unk> provides incremental capabilities, such as dark web monitoring transaction and child monitoring and proprietary capabilities for breach risk assessment.
Finally in addition to being a strong strategic fit that will enable growth the business already has an attractive financial profile.
With $85 million of estimated revenue in 2021 at a roughly 40% margin.
We expect the transaction to be neutral to adjusted EPS in 2022 and accretive after that.
We expect the business to grow in the low double digits in the future on the strength of the underlying digital identity protection market and the benefits of combining with Transunion.
So like New Star, we expect Sonic to accelerate our long term revenue growth.
Now, let me wrap up with a brief discussion of some attractive equity investments that we made recently.
First manigo extend.
Further our presence in the fast growing online lending market and again advances our ability to support customers and consumers in the rapid transition to e-commerce that I described earlier.
When Evo delivers prequalification services to lenders and price comparison websites, mainly in the U K and U S to support consumer access to finance.
This enables consumers to easily shop for credit products by obtaining multiple prequalified credit quotes that don't adversely affect their credit score.
We also made an investment in a <unk> established a commercial relationship with <unk> and many provider of video based IV verification authentication and Onboarding solutions.
This partnership will enable transunion to offer expanded digital onboarding and verification technologies to its global customer base, including enriched and video based know your customer identification.
This investment also supports our agenda to capitalize on key e-commerce trends globally.
And as we announced this morning, we've agreed to sell to your health care to and thrive backed by Clearlake capital Group for $1 73, 5 billion, which we believe will result in about $1 4 billion in after tax proceeds at the current tax rates.
These proceeds will help fund a significant portion of the cost to acquire new star and Sonic.
This portfolio transformation reflects our clear focus on the best long term growth opportunities for Transunion that I've just highlighted.
And for tier healthcare this outstanding business will benefit from being part of a pure play health care data and analytics business.
We're targeting a fourth quarter close pending regulatory reviews.
And for the T U health care employees I want to extend our gratitude for all of your contributions to transunion over the years as you built your find business, we believe that Youtube will benefit from this combination.
Now, let me turn the time over to Todd to walk you through our third quarter financial results and our fourth quarter and full year 2021 guidance.
Over to you Todd.
Thanks, Chris Let me take you through our performance starting with our consolidated results and for the sake of simplicity all the comparisons I discuss today will be against the third quarter of 2020 unless noted otherwise.
Third quarter consolidated revenue increased 14% on a reported basis and 13% in constant currency.
Signal and true uptick acquisitions had just under one point of impact, resulting in organic constant currency growth of 12%.
Excluding mortgage which represented about 12% of total revenue over the past 12 months.
From both the third quarter of 2020, and 2021, our business grew 17% on an organic constant currency basis.
Adjusted EBITDA increased 21% on a reported and 20% on a constant currency basis our.
Our adjusted EBITDA margin was 41, 3% up 250 basis points compared with the year ago quarter, driven primarily by the strong revenue performance.
Third quarter adjusted diluted EPS increased 24%. This was largely driven by strong adjusted EBIT growth and the benefit from reduced interest expense related to our debt refinancings prepayments and lower LIBOR.
Now looking at segment financial performance U S markets revenue was up 14% compared to the year ago quarter to.
The two media acquisition had about one point of impact on revenue.
Excluding mortgage organic revenue grew 21%.
Adjusted EBITDA for U S markets increased 19% on an as reported and on an organic basis.
Adjusted EBITDA margin improved by 175 basis points largely as a result of the strong revenue growth, partially offset by our continued strategic and operational investments and the cost to integrate and scale our recent acquisitions.
Diving into the results by vertical financial services revenue grew 11% and was up 31% excluding mortgage.
Looking at the individual end markets consumer lending continued its strong rebound throughout the third quarter as lenders across the space have aggressively stepped up their customer acquisition activity.
Capture share of wallet for the historically strong consumer that Chris described at.
At the same time investor funding is readily available and continues to be a strong driver.
Of growth in this business.
We also had a very strong quarter in our credit card business, reflecting similar dynamics to consumer lending as issuers proactively pursue incremental share of wallet.
Much of this activity has been driven by the largest issuers and we continue to see regional players ramp up their activity levels, which should further propel this market in the quarters to come.
Our auto business delivered solid growth in the quarter as new business wins helped to offset a challenging environment for new and to a certain extent used cars.
While new vehicle inventory issues are well chronicled.
They have a tag on effect with used cars as dealers see less trade in activity and shrinking supply that further exasperates the situation.
With that said consumer demand remains high giving us confidence that as inventory issues are resolved volumes will return.
And for mortgage for the full year, we now expect the market to be down slightly but still near historically high levels. We had previously expected a flattish market.
As we wrap up the year rates remain lower than many anticipated providing lift to the refi market and strength in the purchase market. Despite continued inventory issues and correspondingly higher prices.
Let me turn to our emerging verticals.
Which grew 17% on a reported basis and 14% excluding the revenue associated with the two media vertical acquisitions.
We saw strong double digit growth in almost all our major verticals.
Public sector delivered another very strong quarter, driven by ongoing new business wins and opportunities created by changing policies and new programs from the Biden administration.
Tenant and employment screening remained strong though it has stabilized at a very high level.
Tenant screening, we won meaningful new business and our smart move platform continues to deliver strong growth.
We expect employment screening to remain robust as the U S continues to move toward Fuller employment levels.
Yeah.
And our media vertical continues to deliver strong double digit organic growth as we signed new accounts and see expanded usage with existing customers.
Insurance also delivered another very good quarter on the strength of new business wins in 2020, and 2021, along with significant growth in our new products.
Additionally, we are seeing the return of segments of consumer shopping activity that slowed considerably during the pandemic.
Finally, our health care vertical revenue returned to solid growth due to our successful sale efforts augmented by improving front end volumes across all care settings.
Volumes have slowly approach more normal levels and are starting to flow through to the back end of the business with.
With the market recovering our new bookings converting to revenue and backend volumes picking up the vertical is well positioned for a strong 2022.
Consumer interactive revenue increased 3% as we grew in both the direct and indirect channels.
<unk> EBITDA was up 4%.
Our direct business continues to see a solid increase in our subscriber base with improving retention rates as consumers value, our credit health and identity protection services.
Growth moderated from recent quarters as we are now lapping very strong 2020 results.
Our indirect channel grew again as we continue to see strength with partners, who provide identity protection for consumers.
The acquisition of <unk> will better position us in this fast growing part of the market as Chris discussed.
For my comments about international all comparisons will be in constant currency.
For the total segment revenue grew 18% as we saw trends improved in most of our regions.
Adjusted EBITDA for international increased 31% as a result of the strong revenue growth and particularly easy comparisons to the year ago quarter, let.
Let me dig into the specifics for each region.
In the U K revenue increased 16% as lending markets largely returned to normal levels and we experienced continued strength in other markets like fraud, and online gaming and gambling loss.
Last quarter, we mentioned a meaningful government contract that will be one time and extend over a number of quarters, excluding that revenue our U K business still would have grown about 9% in the quarter.
Our Canadian business grew 4% in the third quarter as we saw growth across our portfolio moderated by a comparison to significant breach remediation business in the year ago quarter.
Overall lending margin softened in the quarter due to a slowing pace of mortgage origination and new vehicle supply challenges.
Excluding the nonrecurring breach business revenue would have grown about 6%.
As we've noted on previous calls our Canadian business has done an outstanding job securing a sizable amount of this type of business in recent years how.
However, as it is entirely unpredictable and can be very lumpy you can create year over year variances given.
Given the flow of breach wins in 2019, and 2020 I expect that we will see more of this negative comparison in the next two quarters barring new significant breach related business.
In India, we grew 44%, reflecting a sharp improvement in consumer and lender activity as Covid cases have plummeted and vaccination rates have increased significantly as.
This led to increasing increasingly strong performance during the quarter, culminating with all time high levels of inquiries batch activity and commercial revenue.
We also saw significant growth in fraud direct to consumer and marketing solutions, reflecting broad strength across our diversified portfolio.
Given the strength of the consumer and significant pent up demand for consumption.
We expect these trends to persist.
In Latin America revenue was up 22% as we grew in every market we serve and.
And importantly realized double digit growth in our largest markets, Colombia and Brazil.
This strong growth reflects broad based market recovery.
And the benefits of a steady stream of new customer wins.
In Asia Pacific, We grew 11% driven by positive momentum with our relaunched direct to consumer offering in Hong Kong and business wins with lending customers there.
This strength was offset by ongoing significant market challenges in the Philippines.
As the country has struggled to recover from the Covid related shutdowns.
Finally Africa increased 8%.
In our largest market South Africa, despite the challenges of third Covid wave and some civil unrest in July.
Economy has begun to stabilize.
And we continue to generate growth from credit vision commercial solutions and seamless onboarding for digital commerce.
Yeah.
With the pending acquisitions of new Star and <unk>, along with the proceeds generated by selling our health care business, we intend to reenter the debt markets to fund the purchases.
Based on our past experiences, we expect a robot a robust market for our paper.
The acquisitions of New Star and scientific are approximately $3 7 billion in total.
We intend to fund both acquisitions with incremental debt.
With the net proceeds from the health care business, our net debt to adjusted EBITDA leverage ratio will be about three eight times on December 31, 2021 pro forma basis.
And the $709 million of cash we built up on our balance sheet gives us additional opportunity for future capital deployment, including additional M&A and or debt prepayment.
As this chart shows we have a highly credible track record of rapidly delevering driven by our strong cash flows and our ability to significantly improve the adjusted EBITDA of the assets we acquire.
Given our cost savings and revenue growth expectations for new Star and <unk>, along with the health care proceeds we have confidence that we can reduce our leverage ratio to about three three times by the end of 2022.
That brings us to our outlook for the fourth quarter and the full year.
Other than the equity investments.
None of the transactions we've discussed today have closed so our guidance reflects the ongoing trans union without acquisitions or the divestiture of the healthcare business.
Starting with fourth quarter revenue, we expect minimal impact from foreign exchange and no impact from M&A.
Revenue is expected to come in between 764, and $774 million or a 9% to 11% increase on an as reported and organic constant currency basis.
Embedded in our revenue guidance is an approximate four point headwind from mortgage meaning that the business would grow 13% to 14% excluding mortgage on an organic constant currency basis.
Adjusted EBITDA is expected to be between 293 and $301 million, an increase of 9% to 12%.
Adjusted diluted.
EPS.
It is expected to be between 80 and 91.
An increase of 10% to 14%.
Yeah.
And for the full year, we expect one point of tailwind to both revenue and adjusted EBITDA from foreign exchange.
And we expect about one point of benefit from M&A.
Expected to be between 3.0, 75 to 3.085 billion up 13% to 14%.
Our guidance includes two points of headwind from mortgage for the full year.
So full year revenue, excluding mortgage on an organic constant currency basis is expected to increase 13% to 14%.
For our business segments, we expect U S markets financial services and emerging verticals to each be up low double digits.
Excluding the impact of mortgage U S markets would be up high teens in financial services would be up more than 20%.
We anticipate that international will grow approximately 20% on an as reported basis and we expect consumer interactive to be up mid single digits benefiting from some onetime breach related business in the fourth quarter.
Adjusted EBITDA is expected to be between one to three nine and $1 to $4 7 billion up 19%.
We expect our adjusted EBITDA margin to expand 180 to 190 basis points. This year, even as we continue to aggressively invest in the business.
Adjusted diluted earnings per share for the year is expected to be between $3 76 and.
And $3 79.
Up 25% to 26%.
At this time, we have no material updates to our other guidance items like tax rate DNA interest expense and capital expenditures.
They remain the same as what we provided on our year end earnings call in February.
I'll now turn the call back to Chris for some final comments.
Yeah.
Thanks Todd.
To conclude this morning, we took you through our strong third quarter that highlights the resilience of our markets and our ability to effectively execute our growth playbook.
And as our outlook for the year has further improved we raised our outlook for the full year for the third consecutive quarter.
We also highlighted our ongoing strategic pivot to deliver solutions for consumers and our customers in a rapidly evolving online environment.
The new Star and <unk> acquisitions will play a critical role in advancing this strategy and will deliver compelling financial performance.
And 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 Aaron.
Alright, Thanks, Chris that concludes our prepared remarks, and the Q&A as always we ask that you. Each ask only one question. So that we can include more participants and now we will be glad to take those questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
We're using a speakerphone please pick up your handset before pressing the keys.
With Joe Your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Yeah.
Yeah.
And the first question comes from Andrew Steinman of Jpmorgan. Please go ahead.
Hi, everybody I would like to know on <unk>, what's the mix of revenues.
<unk> corporate or institutional revenues versus direct competitors.
To consumers that I'd also want to know who the competitors upsides.
Okay I know it's bad.
Ask the second question, what where mortgages as a percentage of revenues.
Third quarter.
Yes, so good morning, Andrew.
This is Chris.
The audio faded a little bit, but I believe you asked two questions. The first is the revenue mix across Sonic.
Which were discussed and then also.
The performance of mortgage and the total of mortgage.
In the third quarter right, yes.
Yes.
Yes, let me jump into <unk>.
So the mix of revenues roughly maybe about 25% of their revenues are direct to consumer a little bit more than that.
Close to 20.
Direct sales to the insurance industry, where their solutions are bundled with personal and commercial policies.
Direct sale of employee.
Benefits, both to corporations directly and through brokers.
There's another 20% and then about 34% 35.
As in the financial services.
Alright, so its a fairly broad mix.
We like it because it gives us some additional channels for the combined suite of solutions with <unk>, bringing credit and credit monitoring and education and the like.
Okay.
The protection.
And then Tom why don't you handle the mortgage question, Yes, sure Chris Thanks, and good morning, Andrew as far as mortgages concerned on a trailing 12 month basis.
About 12% of our revenues coming from mortgage and is down a little bit from where we were at.
At the end of the second quarter, when we said it was about 13%.
Okay. Thank you al.
The next question comes from Jeff Mueller of Baird. Please go ahead.
Yes. Thank you on some tick I recognize that the Ci business and the.
Immediate opportunities kind of cross selling I guess, both ways between <unk> and <unk> capabilities and partners and direct to consumer under your brand.
Can you help us with the long term vision I don't know if this is a coincidence in terms of the buzzword of identity.
But as you think about bringing together new star capabilities Transunion.
Capabilities potentially into <unk> can you build some sort of super app or something that's really differentiated relative to what else is out there in the market. Thank you.
Yes. Thanks for the question Geoff So I mean, I think you've touched on a couple of important points.
At the core we are extending the value proposition of what we can do for consumers, whether we reach them directly through our own marketing efforts and our own website.
Or.
Through through indirectly through different platform providers.
And look we've had a relationship with other players where we could.
Provided us on a partnership basis.
We felt like we were missing an opportunity to develop this broader integrated suite and own it ourselves.
And that's really sought it comes it also saw deck has multiple channels as I just answered, but also direct to consumer presence when we can augment that with.
The full complement of our credit information and yeah look inside a complete coincidence that.
You've acquired.
New Star, which is the leading provider of I didn't any information and resolution capabilities.
To help businesses target their consumers and also to protect transactions.
And now we've got this broadened identity play with <unk>.
There is some opportunity for innovation between those two positions.
We also are the only bureau that owns.
A complete public records archive and an investigative solutions in the U S and again that also gives us compelling content to engage consumers and help them understand.
Other dimensions of their data identity.
And the ability to review and to correct an action that so.
I feel like what just just as not only audience, but a lot of capabilities for us to be creative.
Thanks, Chris.
The next question comes from Gary Bisbee of Bank of America Securities. Please go ahead.
Hey, guys good morning.
Yes.
You talked about each of the each of the transactions and the financial impact that they would have on 22 and the two acquisitions, each saying they'd be about neutral.
I think thats, obviously, not assuming benefits from the proceeds of sale and yet Theres also dilution from the sale. So I guess can you just give us at a high level. How are you thinking about the impact of the three portfolio moves on 2022 in total.
Yes, sure Hey, Gary This is Todd on good morning. Thanks for the thanks for the question is how we're thinking about.
Implications of new Star.
<unk> as well as health care.
In 2022, let me first let me remind you what we what we spoke about with new star back in the Middle of September So first with new Star.
Margin from a margin perspective.
Clearly a lower margin than trans Union today, but we spoke about the expense synergies that are there clearly not buying the business for expense synergies. We are really excited about.
Top line growth.
So if you take those two things kind of hand in hand, the business that today is kind of a 20% EBITDA margin.
Have aspirations that over the next four to five years, it's kind of scale to be something like trans unions margin. Today. However in 'twenty two it's a year of heavy lifting for us.
Pat.
Our on our margin from an earnings per share perspective, we.
Did you say that it would be slightly dilutive in 2020, twos, but then accretive.
We go forward.
Beyond.
He then turn to <unk>.
<unk> as we've covered this morning.
Expecting.
Look at the margin that's kind of implied in the numbers that we've put out there its already carrying a margin similar to trends unions margins, so that will not be.
Dilutive to the overall margin profile.
On an EPS perspective, we're expecting it to be roughly about neutral in 2022, and then with growth.
Thereafter.
And then finally health care.
As you can see that the numbers that we put out this morning for the size of the business.
Revenues about $190 million and then.
Mid 40% adjusted EBIT margins.
Clearly that margin is higher than trans unions overall margin. So if you think about 'twenty two.
<unk> will have a dilutive impact.
On the margin.
As well as on earnings per share.
I would characterize.
Two as a year, where we're going to integrate these acquisitions and I think the most important thing is these are investments for the future of Trans Union to sustain.
The topline growth that we've enjoyed since.
Since our IPO and Thats the spirit behind on everything that we're doing here to reposition the portfolio.
Towards attractive areas for growth.
And.
We'll have an investor and Investor day.
Likely in the first part of 'twenty two.
So we'll get into all the details.
At that event.
The next question comes from Andrew Nicholas of William Blair. Please go ahead.
Hi, good morning, Thanks for taking the question I just wanted to ask about capital allocation from here.
Obviously, it's been a pretty active last couple of months. So I'm just wondering if if there are any other portfolio moves to make or if you are open to M&A for.
If the right opportunity right now or are you planning on kind of taking a step back in the near term to to obviously handle what is a few different policy you're juggling right now thank you.
Yes, thanks for the question Andrew.
Two quarter mixed right.
Second quarter, we got a lot of questions about.
The degree to which we Deleveraged and tour.
Debt ratio of two times EBITDA by the end of the year and even some questions about whether we were going to increase the dividend.
A great thing to do.
But as we said then.
We were active in M&A discussions that advanced our strategy and broadened our value proposition to the markets that we serve we've now executed on a few of these.
Including the divestiture of our healthcare business, which was designed in part to <unk>.
To free capital to pay for these portfolio management moves that we've been making but also delivering the business and combine it with an asset.
That can help accelerate its growth right. So I think it's exciting on a couple of levels.
There's a lot going on in the M&A market. Obviously, we've made some big moves here and these are.
These are moves designed to drive.
<unk> ultimately growth and so we've got to digest them and apply our talent and our innovation capacity to getting the most out of these acquisitions because each one is very synergistic with our core position, we have and it's really.
Truly a bad debt. These moves one plus one can be more than two right and we believe that is the case.
That said, we don't like it's never say never.
We're open to.
Other moves that.
Would advance the strategy.
But we have to be mindful of course of our balance sheet and not taking on too much debt.
And also our ability to digest all of this so we execute effectively and then I think look I'll pass it over to Todd and I'll talk a bit more about R.
I'm taking on debt.
Thanks, Chris So as you know as I showed in the slides you can see.
The leverage ratio that we're anticipating so just to kind of go back and reiterate on that.
If you looked at all of 2021 and on a pro forma basis, you layer in new Star signed taken subtract out the health care business.
Leverage ratio would be at three eight times and we've publicly said for a number of years that our target leverage ratio is about three five times. So we're just slightly ahead of that but as we've also shown in our prepared materials.
And we're expecting that for full year 2022.
The leverage ratio will tick down to three three times so the characteristics.
Trans unions business model are on full on display.
With these acquisitions as well because of the.
The margins free cash flows on those businesses generate ultimately.
<unk> adjusted EBITDA as well too.
Gives us the confidence that we'll be able to delever, so with that being said the ability to delever.
Create capacity for us.
On an M&A perspective, so as Chris said, we're going to continue.
To look.
The market is attractive.
Right now and but there's clearly a lot ahead of us from an integration perspective that we want to make certain that we execute flawlessly.
Great. Thank you.
The next question comes from Manav Patnaik of Barclays. Please go ahead.
Thank you just two quick ones and that is what is the I guess, the current normalized health care growth tranches to trend.
And.
The impact to 22 numbers and I apologize if I missed it but for some peak like who is the competition there on the consumer side or just how do we look at it.
Yes, well, let me start with.
The competitive landscape for <unk>, and then I'll hand, it over to Todd to the financial question on healthcare.
Look it's many of the.
The players that you can.
No already I mean, we reconsider.
Certainly experienced in Equifax.
<unk> in this marketplace and bring a broad suite of solutions.
One of our large insurers Allstate has info armor.
Theres also identity guard.
Norton Lifelock.
Direct to consumer play.
Having a comparable suite of functionality.
With amalgam, we're going to bring.
I think we meet the mark of the market terms, the breath of dimension of the offering and we also have some.
Kind of some unique benefits, so obviously credit scores and reports and a simulator and then.
One and multi bureau monitoring as part of our package as well as monitoring the dark web.
Looking at transaction monitoring to bank relationships reputation and social monitoring in the knee.
Event of.
Negative.
A negative occurrence we can restore.
Consumer's identity as well as pursue reimbursement of stolen funds.
So we really.
Deepened our product offering here in the direct to consumer business and Thats going to benefit us both in the direct market in the indirect space.
Saddam healthcare, yes, as far as health Care's growth rate I think what's important to point out here is that vertical turned to growth.
In the third quarter.
Obviously impacted by the pandemic over the last several quarters.
Growth rates that we've experienced in the third important mid single digits.
The next question comes from Hamzah <unk> of Jefferies. Please go ahead.
Hi, This is Mario <unk> filling in for Hamzah.
Just wondering if you could just touch on the rationale for selling health care obviously.
I made the point that it's.
Much better off with a health care focused business and can benefit from that but where there are no synergies within trends union or are there any dis synergies from divesting.
And then.
You just touched on growth with Manav, but.
Just around the timing.
You said that volumes are approaching pre COVID-19 levels have returned to growth, but could you just update us on where the revenue and the margins are today versus pre COVID-19 levels.
Sure we'll unpack the question starting first with the strategic rationale for divesting healthcare look our position has been for a long time that healthcare are both accelerated our growth.
But also provided some portfolio diversification.
And so we like the business and reinvested.
And internal innovation and acquisition to grow it.
However, as we've looked at the overall macro dynamics in the healthcare market over these past several years.
There is a real push.
Towards consolidation and building scale, both on the provider side and the actual healthcare providers themselves the hospital systems and medical systems and the like and also on the health care provider space.
And so we felt like.
We needed to gain scale and breadth.
And our offering to the marketplace in order to fully compete.
But then we had a whole variety of other growth and innovation ideas.
And frankly, not the balance sheet to fund it all right nor the pure focus on the health care space that are dedicated player like and thrive backed by clear Lake can provide.
When the <unk> business was marketed a couple of years ago, we looked at it hard.
And ultimately we decided that given other growth ideas that we have we needed to pass on it.
But at that point, we realized that it was time to deliberate does health care asset that we bought and find a really good strategic partner to combine it with.
We think that the fit between.
<unk> and.
Yes health care business is extremely complementary of it.
It gives us a very nice and complete but not overlapping positions in the front and middle and back end revenue cycle management.
We're also excited that we're going to have a continuing business relationship with this new combined healthcare entity, where we can provide them with data and analytics services to help them completely serve there.
Their healthcare customers. So that was that was the rationale it's bittersweet because healthcare has been.
A terrific diversification investment for Transunion.
But we wanted to build scale and really focus our portfolio.
On a collection of assets that you have made a lot of sense together and we're very synergistic, but could also be taken across.
All of the markets in which we compete around the world.
Now as synergies, yes, absolutely there are some synergies.
We're going to have an ample.
Ample transition services agreement as the new acquirer integrates.
Our health care business onto their platform.
And look over time will unwind any dis synergies, which we think are fairly minor.
And I'll just add on to that from a financial point of view.
Obviously, we put the numbers out you'll see the revenue, we said 190 million approximately in 2021 with a mid 40%.
Adjusted EBITDA.
Margin I wouldn't say I would characterize the business.
One that persevered throughout the pandemic.
And it was more of an issue of an impact on patient volumes.
During that time and what we found is that there was absolutely nothing structural that changed and so now what we're experiencing in volumes now returning back to more normal levels of the business is now getting back.
To that mid single digit growth that we were expecting in the case in point is the performance that we just saw.
In the.
In the third quarter.
So Chris articulated.
The strategic.
<unk>.
Got it.
Thank you very much.
The next question comes from Andrew Jeffrey of Trust Securities. Please go ahead.
Hi, Good morning, guys appreciate taking the question.
Sometimes I feel like I've been doing this too long but.
I go back and I I think about.
The alliance data Conversant acquisition in 2014.
Some of the rationale they talked about seven years ago. It sounds like some of the rationale behind the new star deal I understand there's more fraud and I'd resolution.
You have proprietary data that didn't exist in that deal, but can you just talk a little bit about why from a media effectiveness standpoint. This is a different transaction a better transaction and maybe how the market has changed to accommodate that.
Yeah sure so listen focused on what we're doing with new star today, and the combination of our assets.
I guess at the most basic and strategic level.
The deal with New Star helps us fully translate our traditional business model into the digital world.
And I mean, if you look back at the time, even before the Internet.
The CRA has have always operated at the intersection of of.
Credit risk analysis.
Target marketing.
And the nation.
So we work with chief risk officers and the lending division to understand the marketplace and then to figure out who they wanted to make offers to and the nature of those offers we would then help them market. The offers based on our authoritative terrestrial data.
And those offers would show up.
And again pre internet they show up in the consumer's mailbox.
<unk> then if they want to accept the offer they initiated with a call to a call center.
And an authentication experience. If you will that back then was based on answering questions that came from knowledge of.
The consumers.
Wallet based on our credit information and then with the acquisition of TLO XP would be in adding public record information. So we've been at this intersection of these three domains.
For most of our existence.
Now with the advent of the Internet.
The light and it seemed to start reaching consumers on the web we recognize there was a problem where outside of the walled gardens a lot of transactions were anonymous. So we began aggregating digital identifiers and new Star was one of the leading players in both aggregating that data, but also developing at <unk>.
Allergy platform and a series of algorithms that help resolve identity on the fly that could enable really accurate targeting and fraud mitigation.
On the web and we think that with the completion of this transaction. We've now got our business model covered.
What is a hybrid era, where look while direct mail and the like and call centers that may be declining as a percentage of total transactions. They are still a growth full and vibrant marketplaces, because they still work there is still a return on those activities. So we've got to be able to serve that so it could be a bridge to the digital domain and b.
As effective there so that's the industrial logic behind the transaction I believe with this combination we're getting.
Probably the best platform of its kind in the new store, one I'd platform and the combination of data between the two enterprises is a really really strong and leading offering in the marketplace.
And then you are combining our marketing business and.
And their marketing business and they are sophisticated tool sets for generating audiences and for analyzing.
The mix of media to attain a certain marketing return and the effectiveness of those activities.
We've created a real scale critical mass player that cuts across both.
Terrestrial marketing and digital marketing and is positioned to really serve customers.
With a new level of effectiveness.
Thank you.
The next question comes from Toni Kaplan of Morgan Stanley. Please go ahead.
Thank you.
I wanted to ask about India. The growth there seems to be strong and recovering from some of the lockdowns that we've seen there can you just talk about the current state of India and if you think the growth trajectory is fully back on track for that business.
Yes, I'll start off and then Todd is the former international CFO has got some boots on the ground experience.
But look I think the India business is proving its resilience I mean, we've seen obviously.
Lending volumes and business robustness in general has been directly influenced by the intensity of the pandemic and India has gone through and is recovering from a really.
10 superior infection rate and we all know that.
What youre seeing in this recovery in the prior recoveries, just how growth full and resilient that market is and then we've got a great broad position, there where not only the leading provider of consumer credit information, but we're also unrelated to providers of commercial credit information and fraud mitigation and a whole range of services.
So India is exciting.
Don't think India or any market within our portfolio as yet firing on all cylinders right. We're still recovering there are still headwinds.
But look I think our positions overall and the 30 markets. We serve are heavily weighted toward <unk>.
Emerging and growth Paul.
Verticals and markets.
And Chris I'd, just add on to that.
Paul will be back to the minority investment that we made in IP side.
So for.
Paris Transunion has built out our business in India by exporting.
From other geographies that Transunion operates and we benefited from such capabilities.
Your credit vision broad decisioning and analytics, but now we're starting to see the opportunity to make investments in strategic partnerships in this space and so we're excited about and what we announced with <unk>, which is a provider of.
Video is the verification and authentication for Onboarding.
This is the type of capability that has the potential to have the IP go back the other way, which is something that.
Maybe it's in India today, but it's something that we could use in our other geographies and so we're really excited about the opportunities just to continue.
To bolster the capable.
The assets that we have.
Sure.
Thanks, so much.
The next question comes from Ashish <unk> of RBC capital markets. Please go ahead.
Thanks for taking my question.
My question was just the changes in Apple <unk> and how that's affecting all the social media companies. I was just wondering if you can talk about how the new star acquisition as well as the Irish and other strong identity products that you have how does that position transunion for this changing environment. Thanks.
Yes.
Hey, Ashish.
As you can you can you repeat that we add a little bit of a type of thing where we didn't hear you well well we were scrambling to try to figure out what the exact question was could you ask it again was we want to make sure we get your question answered properly.
Sorry about that yes. My question was the Apple idea fee changes that seems to be impacting the social media companies.
Because of how the identity gets resolved and my question was with the acquisition of Neustar as well as the <unk> and other identity solutions that you have can you help advertisers address those issues.
As <unk> shown in this changing environment. Thank you.
Yeah, No. It's a great question and it's one of the highest order questions of this industry and look this issue of identifying consumers on the web.
Initially it was solved by by companies that focus their identity grass around cookies.
And as you have pointed out whether it's apple or Google or other players with a push for consumer privacy.
The use of cookies.
Cookies by third parties on websites is diminishing right.
Making.
The deteriorating performance of of identity graph that are anchored around the cookie.
Companies like New Star and Transunion design their solutions from the beginning to operate in the post Cookie World.
The way we resolve identity is based on multiple factors.
Certainly we have.
A large data set of cookies that is part of the solution, but we also have terrestrial information cellphone information Urls device Ids mobile AD Ids behavioral.
A whole panoply of information and a lot of real deep and thoughtful intelligence around the algorithms that resolve that information frankly in milliseconds right to support personalized transactions in real time, so one of the reasons that we've done.
Down in this space is we felt like the market was moving.
Our broader identity resolution.
Resolution capabilities and that.
You'd be advantaged.
That's very helpful color. Thank you.
The next question comes from George Tong of Goldman Sachs. Please go ahead.
Hi, Thanks, good morning.
Turning to the base business you touched on relatively healthy consumer credit trends can you elaborate on bank card auto and mortgage volume trends, you're currently seeing in factoring into your outlook.
Yes.
Well, let's say year to date and third quarter. The performance of our financial services unit in the U S is really strong and it's substantially stronger if you.
Control for the decline in mortgage right, we've seen a surge in consumer lending activity.
Card active as well and even the auto business, even though there are some constraints on supply.
He is grateful and performing well now in terms of a look forward. We've given you our guidance for the fourth quarter.
And as you can see.
It is not simply an improvement based on the over performance in the third quarter. We're also assuming.
It's just a more robust environment at this point I don't think we're going we're guiding for 'twenty, two I think that will come.
In the early part of next year.
Got it thank you.
Great.
Brings us to the conclusion of the call today I know, it's a very busy earnings day, we had a lot of news today. So we appreciate everybody's patience and perseverance working through all of the news and exciting days.
You'll take the time to do that.
We thank you for spending the time with US. This morning wish you all a great day today Goodbye.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.