2026 Third Quarter Earnings Conference Call - TRANSUNION

Financial Performance:

• Third-quarter reported revenue grew 12% YoY to a record high, with organic constant currency revenue up 8% (approx. 5.5% excluding FICO mortgage royalties).
• Adjusted EBITDA increased 9% YoY to $465 million, achieving a 35.4% adjusted EBT margin (90 bps YoY decline, driven by a 60 bps drag from FICO royalties).
• Underlying margins contracted 40 bps YoY due to technology investments and higher legal/regulatory expenses, offset by strong Mexico acquisition performance.
• Adjusted diluted EPS was $1.25, up 14% YoY, beating guidance by $0.04.
• U.S. Financial Services revenue grew 11% (5% ex-mortgage), led by 13% growth in auto and 21% in mortgage (5% ex-royalties despite 16% inquiry decline).
• Insurance delivered its 9th consecutive quarter of double-digit growth, projected to exceed $430 million in revenue for 2026.
• International revenue grew 10% organically, with India up 18% and Latin America up 18%.
• Balance sheet leverage ratio reduced to 2.5x, within long-term targets, with $5.5 billion in debt and $883 million in cash.
• Year-to-date free cash flow was $687 million, representing ~97% conversion to adjusted net income.

Guidance and Future Outlook:

• Q4 2026: Revenue guided $1.264B–$1.294B (8–10% growth); Adjusted EBITDA $450M–$468M (8–12% growth); Adjusted EPS $1.15–$1.22 (7–14% growth).
• Full Year 2026: Revenue raised to $5.131B–$5.162B (12–13% growth, 8–9% organic); Adjusted EBITDA $1.808B–$1.827B (10–11% growth); Adjusted EPS $4.81–$4.88 (12–13% growth).
• 2027 Outlook: Net interest expense expected to rise ~$60M due to higher SOFR and swap replacements; International expected to remain a ~10%+ organic compounder.
• Management expects Q4 performance to reach the high end of guidance if current trends hold, with ranges designed to absorb market softening.
• Full-year mortgage inquiries expected to decline ~10%, with Q4 inquiries down >20%.

Business Segments and Product Lines:

• Insurance: Market-leading credit bureau serving 80%+ of carriers; growth driven by recurring renewals, wallet share gains, and non-core credit solutions (driver history, marketing, fraud).
• U.S. Financial Services: Auto lending outpaced declining industry volumes (13% growth) via pricing and new wins; credit card/banking up 3% driven by Trusted Call solutions.
• International: India and Latin America are now primary growth engines; Mexico acquisition tracking ahead of case expectations.
• Product Innovation: Launched 40+ new products/AI enhancements YTD, including TrueIQ real-time offers and expanded branded call display in India.
• OneTru Platform: U.K. and U.S. migrations substantially complete; targeting global rollout to UK, Canada, India, and Philippines by 2027 to run 94% of revenue on the common platform.
• Mexico Acquisition: Performing ahead of revenue and EBITDA targets; included in inorganic growth.

Market and Competitive Landscape:

• Mortgage Market: Inquiries slowed due to 30-year rates >7%; industry volumes at multi-decade lows with limited downside expected.
• Competition: TransUnion maintains/increased market share in mortgage despite GSE early assessment programs; neutral positioning as a data provider for resellers.
• Regulatory Trends: Strong support for "Tri-merge" standards; argues buy-merge would harm underwriting quality and financial inclusion.
• VantageScore Adoption: Rapidly gaining traction; pricing extended to 99 cents through 2028 to drive adoption at 90% below legacy scores.
• Insurance Sector: Outpacing market trends with double-digit CAGR; counterbalancing drivers exist between marketing spend (growth) and consumer shopping (credit demand).

Risks and Challenges:

• Interest Rates: Rising rates (10-year Treasury ~5%) pressure mortgage and auto affordability; expected to moderately reduce lending activity.
• Regulatory Change: Potential FHFA shift to buy-merge standard; direct revenue exposure estimated at $33M annually (~1% revenue, ~$0.15 EPS).
• Legal/Regulatory: Elevated litigation expenses related to FCRA individual consumer cases (industry-wide issue).
• Macroeconomic: Pressures persist in lower-income/subprime credit segments; moderating real wage growth noted.
• Product Transition: Temporary usage volume reduction in marketing audiences due to migration from legacy platforms to True Audience on OneTru.
• Geopolitical/Economic: Volatility in Brazil and oil price impacts in Philippines affecting international growth trajectories.

Management Commentary and Tone:

• Tone: Confident and optimistic despite headwinds; emphasizes "broad-based growth," "execution," and "innovation-led" strategy.
• Strategic Shift: Highlights diversification beyond traditional credit volumes as a key defense against credit cycle sensitivity.
• Capital Allocation: Accelerating share repurchases (expecting $500M full-year total); Board increased authorization to $2B; dividend increased to $0.135/share.
• Leadership Transition: CFO Todd Sello announced his final earnings call; plans to remain as advisor through March 2027.
• Confidence: Management expressed belief that the insurance playbook and international diversification will outpace underlying market trends.

Analyst Questions and Answers:

• Market Share/Products: Chris Cartwright confirmed TransUnion is holding/increasing market share in mortgage due to superior trended data (2.5 years) and neutrality in the tri-bureau model.
• Financial Services Deceleration: Management attributed Q3 deceleration in card/consumer lending to higher base comps from 2025 recovery rather than fundamental deterioration; auto outperformance noted despite rate sensitivity.
• India Growth: Q3 acceleration (18%) driven by improved bank volumes, RBI comfort with lending, better credit scores, and momentum in TrueIQ and fraud solutions.
• Reinvestment: Q4 guidance includes opportunistic spending on OneTru acceleration to compress global migration timelines and accelerate innovation.
• Emerging Verticals: Public sector growth expected to improve post-FedRAMP certification; media/tenant employment softened due to housing market velocity issues and marketing platform migration.
• International Risks: Optimistic despite volatility; Brazil seeding Trusted Call solutions, India back on double-digit track, and Asia-Pacific pivoting to growth.
• FICO Preferred/Vantage: VantageScore adoption expected to continue despite FICO's new "Preferred" program; TransUnion decoupled revenue from FICO pricing, charging for data regardless of score monetization.

Other Key Points:

• Share repurchases totaled $243M YTD (126M in Q3) with remaining authorization of ~$1.5B.
• Mexico acquisition included in inorganic growth contributions.
• "First Look" mortgage product allows lenders to review credit insights before purchasing additional scores.
• Net interest expense for 2026 expected to decrease to $235M from $245M due to term loan repayment and higher interest income.
• Management reiterated that mortgage inquiries are a key volatility factor, but underlying portfolio diversification supports resilience.