Good day, and welcome to the TransUnion 2022 Third Quarter Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Aaron Hoffman, Senior Vice President, Investor Relations. Please go ahead.
Good morning, everyone, and thank you for attending today. Joining me on the call are Chris Cartwright, President and Chief Executive Officer, and Todd Cello, Executive Vice President and Chief Financial Officer. We posted our earnings release and slides to accompany this call on the TransUnion Investor Relations website this morning. Our earnings release and the accompanying slides include various schedules which contain more detailed information about revenue, operating expenses, and other items, as well as certain non-GAAP disclosures and financial measures, along with the corresponding reconciliations of these non-GAAP financial measures to their most directly comparable GAAP measures. Today's call will be recorded and a replay will be available on our website. We will also be making statements during this call that are forward-looking.
These statements are based on current expectations and assumptions and are subject to risks and uncertainties. Actual results could differ materially from those described in the forward-looking statements because of factors discussed in today's earnings release, in the comments made during this conference call and in our most recent Form 10-K, Forms 10-Q, and other reports and filings with the SEC. We do not undertake any duty to update any forward-looking statement. With that, let me turn the time over to Chris.
Thank you, Aaron, and let me add my welcome and share our agenda for the call this morning. I'll first discuss the economic conditions in TransUnion's markets around the world and then provide an overview of our solid in-range financial results for the third quarter. I'll also review the encouraging performance of our recent acquisitions and the strong progress we've made to deliver our targeted savings, revenue acceleration, and sharing of their market-leading technologies across the enterprise. Todd , will then take the reins and review in detail our third quarter results and our full year guidance. Thus far in 2022, consumer financial health has remained positive versus pre-pandemic conditions, supporting growth across TransUnion, especially in our emerging markets.
Consumer employment, incomes, spending, balance sheets, and credit performance have been strong year-to-date. However, the dramatic increase in inflation globally, especially in our developed markets of the U.S., the U.K. and Canada, have begun to pressure household finances, leading to a reduction in savings rates, increasing credit balances, and modestly higher credit delinquencies. As a result, businesses have adopted a more cautious outlook given rising market uncertainties. In the U.S., the U.K. and Canada year-to-date, soaring inflation and higher interest rates have primarily impacted below-prime consumers. Emerging markets such as India and South Africa have digested higher inflation and other challenges and still delivered strong growth. We expect this positive performance to continue in the foreseeable future.
In the U.S., higher inflation and interest rates have negatively impacted several of our businesses. Increased borrowing costs due to higher rates has decimated mortgage refinance volumes and slowed new purchases due to an imbalance between historically high home prices and dramatically decreased affordability. As we discussed last quarter, a shortage of multifamily housing, along with higher homeownership costs, has caused rental rates to skyrocket and move volumes to decline precipitously, negatively impacting our tenant screening business. Although performance in our credit card and consumer lending verticals remains strong, lenders have reduced new customer acquisition in response to growing pressure on household finances and prioritize customer retention and portfolio risk assessment.
Growth in the auto market also remains positive, albeit constrained by the well-publicized supply chain challenges. Our large bank customers during their recent earnings calls indicated that while the U.S. consumer remains strong, they are preparing their balance sheets for the material economic headwinds they anticipate in 2023. Higher inflation has similarly dampened marketing activity in the insurance industry, with carriers prioritizing rate increases over customer acquisition due to rising repair and replacement costs. Given the complexity insurers face obtaining rate increase approvals for the policies they offer in each state in which they operate, it will take some time before they secure the necessary price increases to resume their full marketing activity.
We believe that carriers will succeed in obtaining higher coverage rates and that once they do, our insurance vertical will return to its typical high single-digit to low double-digit growth rate as carriers resume marketing and consumers shop for the best coverage and price. Finally, activity remained brisk for our marketing services products in the quarter. Although we anticipate that as economic uncertainty grows, brand owners, media companies, and ad agencies will reduce volumes in certain end markets, with the greatest risk coming in 2023. Now turning to our third quarter performance. We posted solid results within our guidance range despite increasingly difficult conditions due to the economic pressures I previously discussed.
Our strength in the quarter came from several verticals in the U.S. and our international segment overall. U.S. Financial Services grew 9%, excluding mortgage, on top of healthy 31% growth in the year ago quarter. Our media vertical grew double digits, and insurance also posted mid-single-digit growth despite the carrier marketing slowdown. International grew by 16% on a constant currency basis, with five of our six regions growing double digits, led by 39% growth in India, 24% growth in Asia Pacific, and 18% growth in Africa. We also delivered adjusted EBITDA margins at the high end of our range, reflecting our high flow-through margins, cost savings from the Neustar acquisition, and prudent expense management overall.
As I will discuss in a moment, our acquisitions performed ahead of our expectations for the quarter as we continue to build revenue momentum and achieve our cost synergies. Given the increasingly challenging market conditions, we have reduced our fourth quarter and full year guidance to reflect the impact of higher inflation across the markets we serve. We've also broadened our guidance range given the economic uncertainties. First, FX headwinds worsened in the quarter, and we now estimate an incremental $12 million reduction in the fourth quarter as a result. We expect the unusually strong U.S. dollar to persist throughout 2023 and temper the impact of the strong performance of our international segment.
Second, for the fourth quarter, we reduced U.S. mortgage revenues by a further $7 million, still within our prior range of 30%-35% down, but now trending to the lower end of the range. Third, we reduced revenue expectations across the non-mortgage U.S. markets portfolio by $33 million across a base of approximately $2.1 billion due to softening market conditions. Finally, I want to emphasize that we did not reduce our outlook for international, given the strong performance year-to-date and continuing positive conditions in our emerging markets. We continue to monitor our performance closely in our 30+ non-U.S. markets, and our management teams continue to perform well despite higher inflation and interest rates and even rolling electrical blackouts in South Africa.
We also maintain our estimates in Consumer Interactive as it remains on track to achieve the targets we outlined last quarter. Now turning to our three acquisitions. We've made substantial progress integrating them into TransUnion this year. Each acquisition is on track against our business cases and the expectations we set on prior calls. Importantly, we believe our results thus far and the market feedback we've received proves the rationales for the deals and the power of combining them into TransUnion. Starting with Neustar, revenue grew mid-single digits in the quarter, in line with our full-year expectations across marketing, fraud, and communications.
Our increasingly integrated TransUnion and Neustar marketing solutions grew high single digits year-to-date. As we continue to execute against our growth pipeline, we announced meaningful new marketing sales during the quarter to iHeartRadio, Stirista, and InfoSum, as well as a partnership with Snowflake. Despite industry caution about future advertising levels, we see strong interest in the full family of Neustar marketing solutions, which provide benefits throughout market cycles. In a tighter advertising environment, marketers seek to optimize their spending and demonstrate the impact of their campaigns with reliable quantitative measures. With the decline in digital identifiers, marketing platform providers also need to prove the impact of advertising within their walls.
Neustar is well-positioned to provide these objective metrics on the marketing performance of these sites. In communications, we signed new business with LiveVox and Transaction Network Services during the quarter. We also continue to see meaningful growth from our innovative family of Trusted Call Solutions, which include TruContact Branded Call Display and TruContact Caller Name Optimization. Both help businesses authoritatively identify themselves and reestablish trust in phone-based outreach to consumers, as 88% of all business calls go unanswered due to the proliferation of robocalling, scam calls, and blocked or unknown numbers. Companies across a wide spectrum of markets, including financial services, insurance, collections, healthcare, and utilities, use Trusted Call Solutions to double or even triple call pickup rates, sales, and conversion rates.
We have almost 1,000 customers using this solution, and we're added to the T-Mobile network last year and the AT&T network this year. At this stage, we estimate that we've tapped under 10% of the potential U.S. market, setting us up for significant future growth. Going forward, we expect that our growth will accelerate through successful cross-selling between Neustar and TransUnion. We continue to sign new insurance, collections, and financial services accounts for Trusted Call Solutions and converted several material opportunities in-quarter and are building our sales pipeline for next year. We also continue to successfully integrate TransUnion's superior data assets into Neustar's state-of-the-art data management platform, OneID, and to realize cost savings and performance improvements.
Our combined data assets have increased our phone coverage by 15%, email coverage by 10%, and improved the robust linking and matching capabilities across our non-credit solutions. As part of our planned cost synergies, we expect to close seven data centers this year, reducing Neustar's physical footprint by over 90%. We've also migrated almost 90% of their products and data management services to a new lower cost public cloud provider. To wrap up, Neustar's adjusted EBITDA margin was about 29% in the third quarter, driven by revenue growth and our cost reduction initiatives. We expect the full year margin to also be 26%, up 500 basis points from 2021.
We also have line of sight to achieving our commitment of $70 million+ in cost savings through integrating Neustar, which we expect will provide a meaningful offset to potential margin compression during an economic slowdown or a full-blown recession. Now turning to Sontiq. Revenue grew in the mid-teens with a low 30s margin in line with our full year expectations. We continue to see strong traction with insurance customers both domestically and abroad, with more than 40% of newly identified opportunities coming internationally. We also have a growing pipeline of opportunities in financial services. As we mentioned last quarter, in consumer interactive, we can now win business we would not have been previously able to through TransUnion and Sontiq's combined strength.
This combination has resulted in an eight-figure win for our indirect business that we expect to monetize in 2023. Finally, Argus revenue grew 4% in the quarter at a margin of 19%. For the full year, we expect revenue growth in the low single digits with a 20% margin or 34% excluding integration costs. We've already seen strong levels of customer interest, both from consortium members and non-members interested in joining in finding new ways to use the Argus data and insights. Revitalizing the delivery of Argus data on TransUnion's digital platforms, as well as infusing our thought leadership, will be key to realizing higher sales levels.
That wraps up my update on our market backdrop, third quarter performance, and the integration of our three acquisitions. Now Todd will walk you through our third quarter and full year 2022 guidance. Todd?
Thanks, Chris, and let me add my welcome to everyone. I'll start off with our consolidated financial results. Third quarter consolidated revenue increased 26% on a reported and 29% on a constant currency basis. Neustar, Sontiq and Argus added about 27 points to revenue, and organic constant currency growth was 1%. Our business grew 5% on an organic constant currency basis, excluding mortgage from both the third quarter of 2021 and 2022. On a trailing 12-month basis, mortgage represented about 7.5% of our revenue, and we expect that to fall to below 7% for the full year. Adjusted EBITDA increased 13% on a reported and 15% on a constant currency basis.
Our adjusted EBITDA margin was 36.3%, down 430 basis points compared to the year ago quarter, driven primarily by Neustar's lower margin profile. Excluding the Neustar, Sontiq and Argus acquisitions, the margin would have been 38.6%, down about 200 basis points compared to the year ago third quarter. Third quarter adjusted diluted EPS increased 2%, driven by adjusted EBITDA growth, offset by higher interest expense. Now looking at segment financial performance for the third quarter, U.S. Markets revenue was up 38% compared to the year ago quarter. Organic revenue declined 2%, but was up 5% excluding mortgage. Adjusted EBITDA for U.S. Markets increased 18% on an as reported and declined 9% on an organic basis.
Adjusted EBITDA margin declined by 610 basis points, but would've been down 300 basis points excluding the Neustar and Argus acquisitions. Diving into the results by vertical, please note that to date, we have included Neustar's financial results within emerging verticals. As we evaluate our operating structure as a fully integrated business, we will provide you with any necessary updated financial information. Financial services revenue grew 5% as reported and was down 4% excluding Argus. Excluding mortgage, organic constant currency revenue growth was 9% despite 31% growth in the third quarter of 2021, implying a 20% two-year growth CAGR.
Looking at the individual end markets, consumer lending continues to be strong as high levels of activity persisted throughout the quarter, leading to 10% growth on top of almost 60% in the year ago quarter. While lower marketing activity reveals some softness emerging in below prime credit tiers, we are seeing fintech lenders recalibrate their activity from customer acquisition to retention. We are also seeing incremental activity around debt consolidation, which had slowed considerably in 2020 and 2021 when consumer balance sheets reached their peak. At the same time, we continue to see growth from our strong BNPL position. Similarly, our credit card business had another good quarter, growing 9% after growth of nearly 30% in the year ago quarter.
Issuers continued to fight for top-of-wallet position, driving all channel marketing spend as well as incremental use of alternative data and more sophisticated tools for pre-qualification and origination. While we haven't seen pullback in this activity yet, we are taking a cautious stance regarding fourth quarter activity. Our auto business delivered high single-digit growth in the quarter as new business wins and on-trend innovation, particularly related to digital retailing, helped offset lingering inventory issues for new and used vehicles. While demand remains relatively strong, we are beginning to see some softening caused by consumer affordability challenges driven by elevated vehicle prices and interest rates.
To this point, the average new vehicle price in the U.S. is expected to rise to about $45,000 this year, a staggering increase of $10,000 over the past two years. For mortgage, rates have continued to rise with the average 30-year fixed rate mortgage up more than a point from the end of the second quarter and more than double what it was a year ago. This has substantially affected the total inquiry market, especially refinances. For the full year, we continue to expect the inquiry market to be down 40%-45% and our revenue to fall 30%-35%. We designed our late July outlook to be conservative and to anticipate further headwinds, including higher rates and inflation, without much, if any, reduction in home prices.
Backdrop has largely played out as we expected, and therefore we are not altering our full-year outlook. As a reminder, we expect our business to perform better than the market as a result of volumetric pricing increases, increased demand for targeted marketing solutions as the market tightens, and increased interest in home equity lending products like HELOCs as a result of substantial home equity increases. Let me now turn to our emerging verticals, which grew 91% on a reported basis and 1% excluding the revenue associated with Neustar. Insurance delivered another good quarter with mid-single-digit growth despite the slowdown in marketing Chris described and building on a very strong year ago quarter when revenue was up more than 20%.
We continue to see strength from our innovative solutions in commercial and life applications, as well as driver risk in our traditional private auto market. As Chris mentioned, in addition to these organic opportunities, our recent acquisitions are driving significant incremental growth opportunities. Our public sector vertical declined in the quarter due to the timing of several deals. We remain confident that this business will return to growth in the fourth quarter. Tenant and employment screening grew slightly as a result of continued softness in the tenant market, driven by fewer renters moving as inventory levels have tightened and rental rates have risen sharply.
Employment screening, the smaller portion of this vertical, continues to deliver attractive growth, though we've seen signs of softness as employers take a more cautious approach to hiring. Our media vertical grew double digits again in the quarter, and we continue to sign or expand contracts with leading social platforms and media companies that serve a broad range of categories. Consumer interactive revenue, which includes Sontiq, increased 9% on a reported basis and declined 9% organically due to decreases in both the direct and indirect channels. Adjusted EBITDA was up 5%, but down 6% excluding Sontiq.
Similar to the second quarter, moderating consumer demand for paid credit-related solutions across both the indirect and direct channels and challenging multiyear comparisons to exceptionally strong performance in the direct channel in both 2020 and 2021 adversely impacted revenue. This is largely a result of a marketplace shift towards premium offerings for credit monitoring. Partially offsetting this is continued strength in identity protection, an area where our Sontiq acquisition enhances our capabilities. On the indirect side, the restructuring of one of our key partnerships last year and some non-recurring breach revenue have created an unfavorable year-over-year comparison. For my comments about international, all comparisons will be in constant currency.
For the total segment, revenue grew 16%, with five of our six reported markets growing by double digits. Adjusted EBITDA for international increased 18% as a result of our strong revenue growth. Now let's dig into the specifics for each region. In the U.K., revenue increased 4%. Excluding the revenue related to the one-time contracts including with the U.K. government, we would have grown about 9% in the quarter despite a challenging macro environment. Notably, higher inflation and political transition have weighed on customer activity and confidence. However, offsetting these forces, we are seeing an acceleration in TruVision, our trended credit offering in the U.K., along with strength in direct-to-consumer, as three of the four largest lenders now use our CreditView platform.
We're also seeing increased traction in our insurance vertical. Our Canadian business grew 10% in the third quarter, reflecting growth across the portfolio. While we see macro indicators softening a bit, our core business in the third quarter remains strong as we continue to garner new business ranging from large banks to one of the largest BNPL players. We expect these moves, once fully executed in 2023, will position us as the leader in the Canadian financial service market and the BNPL sector. Also driving growth, we continue to benefit from customers ordering incremental batch data and analytics to recalibrate their post-COVID models in order to be recession-ready.
In India, we grew 39%, reflecting strong market trends, successful innovation, and the benefits of our diversified portfolio. Despite rising inflation, the Indian consumer remains healthy and continues to spend aggressively. As a result, we benefit from a resurgence in consumer lending and credit card issuance, along with the continued rise of fintech and BNPL players, all markets where we hold very strong share positions. In Latin America, revenue was up 13%, with broad-based growth across our markets, including double-digit growth in many of our key markets. This strong growth reflects good macro and consumer fundamentals, ongoing new business wins, share shifts in financial services, particularly with fintechs and neobanks, and continued uptake of CreditVision and fraud solutions.
In Asia Pacific, we grew 24% from continued good performance in Hong Kong, driven by CreditVision's growth and new business with fintech players. We expect revenue from the Philippines to double for the full year and to exceed pre-COVID levels as the economy has now fully reemerged from COVID and resumed its strong growth trajectory. Finally, Africa increased 18% based on broadly strong performance across the portfolio and the region, despite a challenging environment that includes rolling electrical blackouts in consecutive quarters of contracting real GDP in our largest market, South Africa. Notably, we won meaningful new business and secured important contract renewals in South Africa.
Outside of South Africa, we have spent years establishing valuable footholds in emerging countries like Kenya and Zambia. We are now seeing the fruits of these investments with meaningful growth in these countries, particularly with micro and fintech lenders, further validating our global IP strategy. Now shifting to leverage and liquidity. We ended the quarter with roughly $5.9 billion of debt, $596 million of cash on the balance sheet, and pro forma leverage of 3.9x. We expect to delever to 3.8x by the end of 2022. We also intend to use a portion of our cash to prepaid debt in the fourth quarter.
That brings us to our outlook for the fourth quarter and the full year. All of the guidance provided reflects Neustar, Sontiq and Argus. Starting with the fourth quarter, we expect about three points of headwind from FX on revenue and four points of headwind from FX on adjusted EBITDA. For revenue, we anticipate about a 19-point benefit from the acquisitions of Neustar, Sontiq and Argus. We expect revenue to come in between $896 million and $916 million, or a 13%-16% increase on an as-reported basis and flat to down 3% on an organic constant currency basis. Our revenue guidance includes an approximate four-point headwind from mortgage, meaning that we expect the remainder of our business will grow 2%-4% on an organic constant currency basis.
We expect adjusted EBITDA to be between $318 million and $333 million, an increase of 13%-18%. We expect adjusted EBITDA margin to fall in a range of down 30 to up 50 basis points, primarily as a result of incorporating Neustar and Argus' relatively lower margins. On an organic basis, excluding the three acquisitions, we anticipate our margins to increase by more than 150 basis points. We also expect our adjusted diluted earnings per share to be between $0.80 and $0.86, a range of down 2% to up 6%, negatively impacted by the effect of rising rates on the approximately 30% of our debt that is floating.
For the full year, we expect FX to impact revenue by about two points. Based on this recent dollar strengthening, at current rates, we expect FX to have a negative impact on revenues for the next several quarters. We also anticipate about 24 points of benefit from M&A. We expect revenue to be between $3.704 billion-$3.724 billion, up 25%-26%. Our guidance includes approximately four points of headwind for mortgage for the full year. Excluding mortgage on an organic constant currency basis, we anticipate revenue will increase about 7%. For our business segments on an organic basis, we expect U.S. markets to grow low single digits, but up high single digits excluding mortgage.
We anticipate financial services to be down low single digits, but up low double digits excluding mortgage. We expect emerging verticals to be up mid-single digits. We anticipate that international will grow in the mid-teens in constant currency terms, and we expect consumer interactive to decline in the high single digits on an organic basis. Both international and consumer interactive are unchanged from our previous guidance. We expect adjusted EBITDA to be between $1.343 billion and $1.358 billion, up 16%-17%. We expect a two-point headwind from foreign exchange. Additionally, we expect our adjusted EBITDA margin to compress 280–260 basis points this year, driven by the lower margin acquisitions and acquisition integration costs for Sontiq and Argus.
Anticipate the margin will decline about 25 basis points on an organic basis. We expect adjusted diluted earnings per share for the year to be between $3.63 and $3.69, up 6%-7%. To help you complete your modeling of 2022, at this time, we expect our adjusted tax rate to be approximately 22%, slightly lower than our previous guidance. Depreciation and amortization will still be approximately $520 million, and we still expect the portion excluding step-up amortization from our 2012 change in control and subsequent acquisitions to be about $210 million. Continue to anticipate net interest expense will be about $225 million for the full year.
This implies our interest expense to be roughly $65 million in the fourth quarter. As you think about interest expense modeling, roughly 68% of our debt is currently swapped from floating to fixed. We have 1.4 billion notional of swaps that are expiring at the end of the year, which fixed the variable rate on that notional at 2.7%. We expect to renew that swap before the end of the year, but it is likely to come at a higher swap rate given higher and rising rates. As I noted, we will continue to focus on expected debt prepayment in the coming quarters, which will effectively reduce our floating rate exposure over time.
Finally, we still expect capital expenditures to come in at about 8% of revenue. Looking ahead to 2023, as usual, we'll provide you with guidance when we report our full year results next February. However, I think it's valuable to summarize some important considerations as we head into next year, assuming these macroeconomic challenges persist. First and most important, we expect to deliver organic constant currency revenue growth at an attractive margin. To that point, right now, we believe that mortgage inquiry volumes will decline again in 2023, with comparisons easing as we go through the year. The next two points relate back to Chris's commentary.
One, the consumer in the U.S. remains relatively healthy, and that bodes well for our financial services vertical, excluding mortgage, though we are diligently watching for any material changes. Two, some of the headwinds we're experiencing in our emerging verticals are temporal and should resolve themselves next year. We continue to expect strong performance in our international business, building on an impressive 2022. In consumer interactive, we believe that business performance will improve as we lap the contract renegotiations and some of the headwinds in direct, while also benefiting from the new business wins we've discussed. As Chris also mentioned, we're seeing a very nice new business pipeline develop across all three of our acquisitions.
Specific to Neustar, we have a very successful cost reduction program that is running ahead of our $70 million expectation at this point, and we expect we'll continue to deliver meaningful savings next year. Finally, my current expectation is that free cash flow will be directed to debt prepayment, helping reduce our exposure to interest rate increases. At the same time, assuming we deliver more adjusted EBITDA dollars, that will help further reduce our leverage ratio. Now pivoting to some thoughts about a more severe downturn. On our last earnings call, I spent time detailing some puts and takes relative to how our business might respond in a recession.
I won't comprehensively review that story today, as you can revisit the transcript at your convenience. However, I do wanna reiterate the conclusion of that discussion. First, in a somewhat normal recession, we still expect our business to deliver revenue growth, and we would prioritize protecting our margins without sacrificing important investments and our commitments to integrate our recent acquisitions. This is possible because of our expansive, diversified portfolio of relevant solutions and our deep partnerships built on thought leadership and innovation. In a downturn, we would keep our focus on integrating our recent strategic acquisitions to ensure they deliver against our long-term expectations, and we would manage our cost structure to ensure it aligns with the trajectory of revenue growth in order to deliver strong margin performance.
I wanna wrap up with a slide we showed you at our Investor Day in March of this year. Despite some of the market cyclicality we're seeing and anticipating, we still expect to deliver against these targets in 2025. Clearly, we don't expect the growth to be linear, but our attractive end markets and geographic footprint, differentiated and complementary solution offerings and innovation pipeline give us line of sight to fulfilling our long-term commitment. I'll turn the call back to Chris for some final comments.
Thanks, Todd. To conclude, TransUnion delivered another good quarter of growth at an attractive margin. We also continued to make meaningful progress integrating our recent acquisitions, and clear top and bottom line benefits are emerging. We have appropriately recalibrated our guidance to reflect current market conditions. While the broader environment remains uncertain, TransUnion continues to execute at a high level, giving us confidence that we can weather whatever economic uncertainty lies ahead, even as we continue to make growth-oriented investments. Before I conclude my remarks, I also wanted to take a moment to acknowledge yesterday's announcement by the Federal Housing Finance Agency Director, Sandra Thompson, concerning evolutions in the mortgage underwriting space.
We were pleased by Director Thompson's announcement to share the FHFA's perspective that safety and soundness and expanding homeownership are the twin objectives for any reform efforts. We're optimistic that the requirement of VantageScore's 4.0 score, used by mortgage lenders will responsibly and sustainably expand credit access for consumers, and also in time, increase competition and innovation in the space. We're also equally focused on the announcement that the FHFA and the GSEs will launch a multiyear program to adopt requirements that lenders use two rather than three credit reports for mortgage originations. We anticipate that we will play a leading role engaging with the stakeholders across the mortgage industry in the coming years, especially the FHFA, as we work on appropriate implementation timelines and details.
Taken together, the adoption of VantageScore 4.0, and then the migration over time from a tri-merge to a bi-merge requirement, will reshape the mortgage landscape and present new opportunities for TU to sell both existing solutions, but also encourage the development of new and novel customer data products. With that, I'm gonna turn it over to Aaron.
Thanks, Chris. That concludes our prepared remarks. For the Q&A, as always, we ask that you each ask only one question so that we can include more participants. Operator, we can begin the Q&A now.
We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Andrew Steinerman with JP Morgan. Please go ahead.
Hi. I understand your slide 17 is a no recession in view, you know, kind of assumption, and slide 18, you know, is what if a recession assumption. I wanna focus on slide 17. The TransUnion team is suggesting that 2023 will have solid organic revenue growth, but below the long-term 8%-10% targets. I just wanted to know, when you say solid organic revenue growth, does that mean mid-single digits organic revenue growth, and what's your macro assumption kind of underlying that?
Hey, good morning, Andrew, and thanks for the question. This is Todd. I'll take that. Yep, as far as slide 17 is concerned, really what we're trying to get across is that, you know, just our initial thinking as we're exiting 2022 and going into the new year, as you can probably fully appreciate, we are not in a position at this point in time to provide guidance. Clearly, we're gonna see how the macro environment plays out for the rest of the year and even into the new year before we provide any guidance. As far as, you know, to your question about, you know, are we gonna, you know, are we talking about a specific percentage of 7%-8%?
We didn't put that on the slide because, you know, we're not certain right now as far as how things are gonna play out. What we felt was important was to give the market and our investors a perspective on just, you know, what it is that, you know, we're feeling right now. You know, based on, you know, the current trajectory that we're experiencing in the economy, we feel that we are going to deliver organic growth. That growth rate still to be determined. Could potentially be, you know, in line with our long-term growth rate, but we don't know yet, as I'm sure many companies don't.
We provide the, you know, the color, you know, just to give a directional sense as to what we're seeing. Just to kind of go through that again, you know, in mortgage, we're expecting that, you know, to continue to decline next year. We just see, you know, inflation pressures, you know, continuing, you know, to be very elevated. As a result of that, interest rates will respond, you know, accordingly. You know, as it pertains to the rest of the U.S., you know, our financial services business, I'd say arguably, in the third quarter still had a strong performance.
The growth rates, you know, were still very good. They were lower than, you know, clearly, what we had outlined. Nevertheless, still strong performance, and especially when you compare that to the growth rates that we lapped last year. You know, I think it was a pretty strong quarter there. We're cautiously watching the U.S. consumer to see, you know, how they react, you know, to this. I'd say the emerging verticals, you know, the growth rate that we experienced, you know, in the quarter being at about 1%, there's a lot of kind of, you know, as we say on the slide, idiosyncratic issues that are impacting that, and we fully expect that to normalize, you know, when we get in 2023.
I would just say that, you know, our international business continues to be very strong and resilient at this point. Again, you know, we're watching more of the developed markets like Canada and the U.K. Then finally, you know, I think the big positive, and, you know, Chris highlighted this in his comments, is that the acquisitions performed very well for us in the third quarter. E r was on our revenue expectations, and the integration is well on track. You know, we've been able to secure the cost synergies that we committed to a year ago when we announced the deal. We're getting there.
We're confident to achieve at least the $70 million that we communicated. Sontiq, strong quarter. Integration going well. Argus as well. The business has, you know, rebounded nicely. We feel that the momentum, you know, even there on the M&A side, is definitely in our favor as well.
Okay, great. Thanks, Todd.
The next question comes from Surinder Thind with Jefferies. Please go ahead.
Thank you. In terms of the as a follow-up to the earlier question in terms of whether it's the 4Q outlook or 2023, can you just talk about the level of visibility or comfort that you have currently versus maybe under more normalized times? When I look back over the last two quarters, it seems it's been quite challenging to even predict the quarterly numbers, and so things seem to be changing faster than anticipated. Any color there?
Sure. Thanks for the question on that. I think it's more of a question pertaining, you know, to our guidance, you know, for the fourth quarter. You know, clearly we have revised down from where we were at just 90 days ago, roughly, in our July call. I think it's the read from our customers and , you know , what they're telling us you , know , right now. Just to get into a little bit of the detail. If you look at , you know , the bridge that we provided where we showed , you know , the reduction we're showing in the U.S. markets ex mortgage that we're gonna be down about $33 million.
Roughly half of that is coming from financial services including consumer lending , card , and auto. Even with us taking those numbers down, like I just said in my response to Andrew's question, we're still expecting, you know, good growth rates, you know, out of those lines of business. The remainder is just more about, you know, the other verticals in our emerging verticals like tenant screening, you know, which Chris talked about in his prepared remarks, to talk about the pressures that we're seeing there. But also just a little bit slowing in the media as well as in the insurance spaces, but still growing, you know, nevertheless.
What we've done, is, you know, we've taken our outlook, based on, you know, the activity we're seeing from our customers, but also just in regards to what they're telling us, as well too. That's the reason for, you know, the reduction that we took in our guide. Things are uncertain. We told you that, when we met with you in July. We have a wider than normal range for our guidance in the fourth quarter, similar to like what we had done in the third quarter. You can see that we delivered in range in the third quarter. We feel that, you know, we've captured market sentiment, as well as de-risked, you know, the guidance by having a wider range.
Yeah. I would just add one small thing to that, which is, you know, you started by saying it's a more difficult environment to forecast in, and we agree with that. Todd's taken you through the mechanics of how we've tried to be prudent in our fourth quarter guidance and anticipate some of those trends. In circumstances like these, it's easy to focus on the negatives, you know, the deceleration against prior year performance. Prior year performance that was absolute, you know, very high, by the way, worth reinforcing. There are also some positives as you look forward into next year.
One, mortgage will be less of a drag, if a drag at all, to be determined, than it was, this year. International will continue to be strong. We expect a material improvement in the performance of our direct consumer business. We think the tenant screening market will become unstuck. There are a variety of positives that will happen as the market works toward an equilibrium. Again, you know, as Todd said, we're laser focused on what's going on in the market. The fourth quarter will be instructional, and then we'll provide our guidance in the early part of next year in a more robust discussion around what we're anticipating.
Thank you. That's helpful.
The next question comes from Jeff Mueller with Baird. Please go ahead.
Yeah, thanks. Chris, would love your perspective, as competition could play out for share in a bi-merge world. What's the pitch for why TransUnion should be included as one of the two? I'd imagine the industry-leading trended product is a big part of it, but just what else? Is this also a catalyst for bringing additional alternative data products into the mortgage underwriting process from your perspective? Thanks.
Yeah. Well, look, it's kind of early days based on the announcement that we just received yesterday. I think the win for consumers and the win for the mortgage industry and the economy is that we'll now be using a score that we know scores more consumers in the U.S. and scores them more accurately. It is a win for financial inclusion and mortgage origination, you know, generally. We also like the emphasis on, you know, safety and soundness by the FHFA and the GSEs. The two factors that go into that is one, scoring accuracy, which I feel like they've addressed by requiring the VantageScore, but also just the volume and breadth of information.
Now, they've indicated that they're going to suggest or recommend a change in the mortgage credit report market. I think we need time to better understand what exactly that means. The agency hasn't released its details nor an implementation plan. In an environment where there is more competition, be it around score or credit, you know, we do have a great trended credit product. We are an industry neutral player, and we've got a wide range of data. You know, I think this will net-net just set off a period of innovation, that could be, you know, quite helpful to the space and the consumers and the bureaus alike.
I think it's a little early now, given some of these uncertainties and unknowns, to kind of declare what the future's gonna look like.
Fair enough. Appreciate your perspective. Thank you.
The next question comes from Kelsey Zhu with Autonomous Research. Please go ahead.
Hey, Chris and Todd. With India now 5% of total revenues and U.S. mortgages basically expected to be less than 7%, maybe we can switch gears a little bit and talk about what's happening in India. Obviously this quarter, you're seeing 39% constant currency growth. Could you just break that down a little bit in terms of how much of that is driven by market growth versus market share gains versus cross-selling of additional products and services?
Yeah. Well, look, we just got back from an extended trip in India, where we spent time not only in Mumbai with our, you know, leading credit franchise, but also in Chennai and other parts where we've got a lot of our employees, our development talent and BPO as well. You know, as always, it's a very invigorating experience to spend time in India, particularly with our business. India is very much emerging on the global stage economically for sure, and even politically. You sense a tremendous optimism when you're over there. We have certainly benefited from, you know, the positive growth drivers in that market. Hundreds of millions of Indian citizens have entered the middle class.
There's an equal tranches along the way. The government there is committed to aggressive economic growth by taking advantage of kind of the era of intellectual product, and India's very kind of progressive approach to digitizing their economy. We're benefiting from market trends. We also think we have reinforced or gained share along the way, and we're also diversifying our product line. I mean, we of course are bringing in the full complement of products around consumer credit and analytics, and we expect considerable growth through the broadening of the product line there. We're making a similar play in commercial, where we really improve the competitiveness of our commercial credit bureau. We continue to innovate.
We've launched a score that will help commercial lenders evaluate small to medium businesses, a very fast-growing and dynamic segment of the Indian economy, and also a suite of products for agricultural lending, which again is an under-penetrated part of the Indian market. The combination of, you know, natural market growth plus broadening our product line across segments and adjacencies, I think really positions us for strong growth for years ahead in India.
Thanks, really appreciate that.
The next question comes from Faiza Alwy with Deutsche Bank. Please go ahead.
Yes. Hi, good morning. I wanted to talk a little bit more about the credit card and consumer lending piece of the business, 'cause it feels like there can be quite a lot of volatility there. Maybe help us think through, you know, as we look ahead to 2023, a potential recession, sort of what are the range of outcomes there and, you know, what type of metrics should we be watching?
Sure. Well, our financial services businesses breaks down into the four sub-segments, cards, consumer loans, auto, and of course, mortgage. Mortgage is far and away the most volatile component of that. Mortgage was a great counterbalance, you know, during the downturn related to COVID, and it more than doubled in a couple of years because of the lower interest rates. Now that rates have reversed themselves, you know, it's being halved again. That's where the real volatility is. Auto ’s growth currently is constrained. You know, demand far exceeds supply currently. We would expect supply conditions to improve over time, and so we're expecting relative stability on the auto side.
Look, credit cards and consumer loans, while the growth rate has declined, it's still growing nicely. You know, card originations are healthy, although card marketing activity has tapered somewhat. The same is true on consumer loans. The fintechs, you know, remain strong and fast-growing, and we expect them to grow throughout the cycle because, you know, they are disrupting the space. They are in aggressive growth mode. You know, they continue to market. They continue to have secure funding sources. You know, while I think we're entering a period of likely slower growth, at least until we find an equilibrium with inflation and interest rates, we do expect the space, financial services that is, to remain a positive grower.
Thank you.
The next question comes from Manav Patnaik with Barclays. Please go ahead.
Thank you. Chris, maybe just to follow up on that. Let's just say the macro is more than just soft. Historically, how has, you know, credit card performed or held up? Maybe if you could just give us something similarly around Neustar as well in that scenario.
Well, let me handle Neustar and then, you know, Todd, the question was, there's a slowdown scenario and then perhaps a scenario of deep recession, if you will. We're not making a guess as to which one it is at this point, but Manav's trying to understand how far credit card can drop in a recession scenario. Just given your experience, you know, helping to manage the business through 2008, any perspective you want to share?
Yeah, sure. As far as, you know, I think what's important when you think about TransUnion is to think about the breadth of offerings, you know, that we have for our customers. Where credit card marketing could potentially slow down in a recessionary environment, and that clearly would have an impact on our pre-screen, you know, marketing jobs that we produce. We do have a whole host of services on a portfolio review basis. Meaning , how do we help our clients manage their existing book of business? We find that incredibly beneficial during a downturn, maybe not completely countercyclical, but it , definitely, is an offsetting element of it because our customers first they'll look at their existing book just to understand the risk that they potentially have.
They'll also look at it and how to manage, you know, lines of credit. They'll also look at it as a way to cross-sell. So if they have, you know, a certain, you know, certain subset of their portfolio that's performing well, they'll look for opportunities within their own portfolio to widen their services. The most recent example of that is in the early days of the pandemic and all of our customers, you know, shifted like almost overnight from an acquisition perspective to more of a portfolio review. Our sales team was extremely proactive in, you know, bringing those offerings , you know, to the market. That's an important point.
I know you're asking about credit card, but I wanna go back to the, you know, the question just in regards to the, you know, consumer lending in the fintech space. Chris already said we are continuing to see very healthy amounts of marketing for the same reason that I just talked about in card. Don't forget that, you know, TransUnion has relationships with 24 of the top 25 fintechs, and we have deep partnerships with them. So when they're marketing, if it does slow down, we have that same set of portfolio products that we're gonna offer to them.
We're gonna, you know, the relationships that we have with those clients are outstanding, so we fully believe that we'll be able to help them better manage their business in any type of downturn.
Yeah. Just on the card side, Manav, I would say that while we're definitely in a slowdown period, we are selling very effectively. 2021 was a record level of sales for us, and we're poised to exceed it materially in 2022 on the financial services side. What we're doing in the market is resonating and getting new customers and the like, and expanding share within customers is somewhat of an offset as it pans to the downturn. You also asked about Neustar. I'd break that down a couple of different ways. If you look back to the pandemic year of 2020, Neustar declined by 1% across its three lines of business. Marketing was flat.
You know, we remember the second quarter was quite a shock to the system, and then we had a slow rebound in the third quarter, and then we started to approach something like normalcy in the fourth quarter. I think that's a good test case for how the business would perform if it's really bad as it was in 2020. The other thing I'd just mention is that, you know, Neustar marketing solutions have value across the business cycle. The vast majority of it is subscription or subscription-like. The components are, you know, cleansing data hygiene so that you're only mailing, you know, one time or targeting, you know, digitally, one time per consumer, right? You eliminate waste.
It's extremely important in a downturn, as is the media mix that you're planning and the measurement of the effectiveness of your marketing efforts. If anything, those things become more important in a more constrained environment, right? Now, 20% of the marketing portfolio is more volume influenced. That's the audience generation and utilization. We've already seen that a bit on the Neustar side, and we've talked about that over the course of the year.
On the TransUnion side of the house, where we also have similar data but some unique things, we're growing pretty rapidly. If you look at marketing together, and increasingly we have to as we integrate, the marketing part of TransUnion is growing double digits, right? That is encouraging. Anyway, that's what I can offer you on those two topics.
Thank you.
The next question comes from Heather Balsky with Bank of America. Please go ahead.
Hi. Thank you for taking my question. You know, you talked about some of the idiosyncratic, I guess, challenges or headwinds you're facing right now in your emerging vertical segment. You helped us understand kind of what's driving those. I guess , I'd love to kinda hear more about what gives you confidence in the improvement into next year. A little bit more, you know, when should those things start to inflect and kind of how long it takes to work themselves out? That'd be really helpful. Thanks.
Hey, Heather. I'll start off, and I'll focus on the first part of your question because you know, the timing of these things, that may be a degree of precision that's just tough at this point. Look, the largest component of emerging verticals is the insurance business. It grew mid-single digits. That's off of a comp from a year ago period of 20% growth, right? The main reason why it slowed from its typical high single, low double-digit pace is because of inflation impacting or increasing the cost of repairing and replacing damages, right? Claims expenses on policies are up, and carriers need to charge more for those policies.
The mechanisms by which they can raise prices are complicated in the U.S. Insurance is a regulated product in all 50 jurisdictions, product by product. They are currently implementing the rate increase filings, you know, across their competitive landscape. It'll take some time for those increases to be ratified. Once they are, they will resume, you know, new policy origination in full force. We expect that to recover, and we have seen this period in the insurance, you know, kind of business cycle, you know, multiple times before. The other unusual element is the degree of slowdown around tenant screening.
Frankly, there's just kind of a boycott in the market, and you're starting to read about it in the mainstream press. You know, price increases on apartment rentals in the multifamily space in particular have been really considerable and compounding, and now tenants are just not able to or not willing to move. You know, whenever there's a supply-demand imbalance, it takes a little bit of time to work it out where we start transacting again. I'm confident we are gonna find that equilibrium. We are gonna start transacting again. You know, the one bright spot in new home construction, if you will, is multifamily rental units.
It'll take some time for that supply to come online, but that's gonna be helpful, you know, in the intermediate term to increasing the transactional volume. Public sector is truly an anomaly. We had some big one-time work in the third quarter of last year, and we also had a new sale that pushed to the fourth quarter. Those two things led to a down quarter. We don't expect the down quarter in the fourth quarter, and we expect this area to continue to grow nicely for us. In communications, you know, look, we had two major communications clients with big fraud client users merge.
As they digested the merger, they've recalibrated, you know, their need for the product at a lower level. We maintain the exclusive, you know, supply relationship, but we've had to reduce our transaction volume. That happens with M&A. The good news is they're still our client, but their dollar volume fell a bit. The last component is collections. You know, collections has been a very difficult area for many years here. I'm more encouraged about our ability to grow in collections because, you know, the amount of stimulus or support being provided by the government is kind of running its course.
Deferrals and moratoriums and the like on debt collection or evictions are ending. In 2023, I think we're turning a page and entering a more normal environment where we're gonna get some growth in the collections area. That's the various puts and takes that made, I think, Q3 anomalous in our emerging markets. Hopefully that helps you understand it better.
Hey, Chris. I would just add on to it. Hard to believe it's gonna be a year in 2023. Our Neustar business will be considered organic.
Oh, yeah.
At that point in time. You know, for the reasons Chris gave, pertaining to marketing, I think it's also important to highlight, you know, the risk in the fraud business, that we have now in conjunction with Neustar and bringing that together with the capabilities that TransUnion already had, but also the communications business as well, too.
True.
Those are two businesses that, you know, should perform relatively okay, in a down environment, and that also should be a contributing factor to the growth rate.
Yeah, that's a good add. My commentary was focused really on heritage TransUnion, and the Neustar stuff has been inorganic. Those are solid growers. As you saw in the third quarter, we had solid performance across the Neustar portfolio. We add that in next year, that's gonna average up performance overall.
Great. Thank you.
Next question comes from Toni Kaplan with Morgan Stanley. Please go ahead.
Perfect. Thanks. Historically, Todd, you've had really a beat and raise strategy when providing guidance, and this quarter it seemed like it's, you know, driven by a reduction in organic growth as opposed to FX and mortgage like last quarter. I know at the beginning of the year, you talked about incorporating less conservatism into the guide, but just trying to get sort of an update on where we are now. Is this a conservative guide, a realistic guide? Is it? You know, there's so much uncertainty in the macro right now, so I know you mentioned it's wider because of that, so just wanted to get an update on that.
Sure, Toni. Be happy to. I think it's a fair question, you know, to get into. So as I said earlier, you know, the reduction that we took in the fourth quarter is really just the combination of what we're seeing on a daily basis with the work that our clients are giving us, but also more instructively what our clients are telling us. Our U.S. business does a great job networking through our various advisory boards. So they hear directly from the buyers as to you know what they're expecting and what their sentiments are. So we take those two factors together, and that's in essence how you know the forecast comes together for us.
I think that , I'd say that all of our guidance has always been rooted in reality. That goes back to when we were in the beat and raise, you know, days. Just the macro has changed, you know, so significantly, you know, on us. If I were to think about two, three years ago when we were beating and raising, we were in a very different macro environment. Whereas, you know, today obviously, you know, we're dealing with high inflation rising rates. We're all trying to gauge consumer sentiments and watching their savings rates and their spending patterns. We're trying to figure out all of that.
You know, so where we ended up with is you know, with the guide that we did based on all of those inputs, I'd love to tell you that it's conservative and that we got another beat and raise, but I don't have that assurance. I think that's again like I said earlier.
Yeah
Why we widened the range, as well, too. Which was something that, you know, we did in the third quarter, as I said earlier, that enabled us to deliver revenue in the range. I think, you know, think about the third quarter, FX became a significant headwind, sum of about $4 million of an impact on us. Just widening the range accounted for that. You know, would we have all thought that the dollar would have been strengthened as much as it did, in the third quarter? I think a lot of companies are talking about that.
Yes. Net-net realistic guidance, perhaps a little additional downside sentiment in quarter for the guidance, but we're dealing with a sea change in macroeconomic conditions, and so less certain.
Super. Thank you.
The next question comes from Andrew Nicholas with William Blair. Please go ahead.
Hi, good morning. Thanks for taking my question. I wanted to ask a question on the international outlook, specifically as it relates to your considerations for 2023. Obviously, you expect another strong year that seems to be a bit more optimistic than maybe the financial services business ex-mortgage. Can you just dive into that a little bit more? What gives you confidence in maybe the disparate growth assumptions for next year? Is it more about the economic backdrop in those regions? Is it new product development?
Is it maybe some lag there in terms of how those economies are progressing relative to the U.S.? Any additional color on why it seems like international is gonna be a bit more resilient or at least stronger next year than what you're expecting in the U.S. ex-mortgage? Thank you.
Yeah, we think about our international division in terms of emerging markets and developed markets as well. Starting with the emerging, you know, India, Latin America, South Africa, and even across the Asia-Pacific portfolio. First of all, the level of inflation increase is lower in those markets, and particularly India, in part because there wasn't the amount of stimulus injected into those economies, right? So they're not suffering from higher inflation as a result of those actions. As a result, GDP growth and just, you know, vibrancy is higher there. India is fueled by all of the things I talked about.
Favorable demographics, you know, great, business and digitally friendly government posture. Then we're diversifying our product lines, and so we're enjoying rapid growth in new areas, and there's more to come. Latin America is a very similar story to India, but on a smaller scale, population-wise. You know, South Africa, we've invested a lot in improving our effectiveness in that market, and I think it's starting to bear fruit. We're growing, well in South Africa and very rapidly in the countries across the continent that we compete in. We've been winning new business nicely. In Asia-Pacific, it's a similar story as well. Hong Kong is performing exceptionally well. The Philippines are back.
There's also some element in our emerging markets of, you know, the rebound from the COVID chapter, right? These economies, these countries emerged a little later from the pandemic than did the U.S. Overall, I just think it's a more favorable mix of growth drivers. Now, in Canada and the U.K., in both of these markets, you know, underlying is high, high single-digit organic growth. It's tempered somewhat in each market. You know, Canada had some one-time revenue that it had to lap. In Canada, we continue to win new customers, and that's positioning us well for next year.
In the U.K., you know, the growth, the headline growth number is lowered by the very large contract we had with the government during the COVID era. We maintained that contract, but as the pandemic has eased, so have the revenues associated with that contract. Next year, we would expect, given all of this, continued strong growth in international. You know, that's an important element of our diversification, the fact that those revenues are increasingly material to TransUnion overall.
Great. We will wrap it up there. I think that's a great question to end on, actually. A very exciting story in international. I know it's a very busy earnings day as we're in the midst of the earnings season, so we're gonna give you guys a little bit of time, give ourselves a little bit of time here before the top of the hour. Thank you all for joining us today, and we hope you have a good day. Thank you.
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