Presenting company, TransUnion is a leading consumer information company, one of the big three global credit bureaus. With me on stage is CFO Todd Cello. Also with us at the conference are the IR team of Greg and Jason. Maybe to start out, it's been an interesting, I guess, five years. Just to help investors, give investors a framework of how they should think about what type of growth company TransUnion is, or what type of environment is required to generate high single-digit to low double-digit growth. Over a long period of time, you've grown really well. Two years ago, things were a little bit more challenged in 2022 and 2023, t he last two years have been really good. How much of that's the environment? How much of that is TransUnion-specific factors? Just kind of like frame up what kind of growth company TransUnion is.
OK, sounds good. Thank you for having us, Jeff. This has been a great conference. I think it's a great place to start our discussion just so investors can get an appreciation of where we drive growth. Clearly, 2022 and 2023 were unusual years in that the United States was impacted by significantly high inflation and a s a result of that, interest rates were on the rise. What happened during that period of time is it created a significant amount of uncertainty for our core group of customers focused on lending. Nobody really knew at that point in time when interest rates were going to stop rising. That uncertainty slowed our customers down in regards to acquiring new business. In both years, in 2022 and 2023, we grew 3%.
We clearly do not aspire for 3% growth but c onsidering what had happened during those years, also some banking failures during that time as well that had an impact not indicative of the company. Being able to grow 3% did show the overall resiliency of the portfolio and the design of it overall. I would characterize the growth that we have seen in 2024 and 2025 as more like what you should expect from TransUnion on a year-over-year basis, that high single-digit growth, perhaps even getting to double-digit growth. When I think about where the growth has come from in 2024 and 2025, I mean, relative stability in the U.S. and core financial services. We still see lending volumes up. We were calling it subdued in the middle of the year. I think now we are calling it more stable. We are seeing a good uptick in areas like consumer lending, where we have a terrific position with fintechs. We saw strong growth in the third quarter there.
We also saw good growth in our credit and credit card and banking customers, but a little bit more modest growth. They're starting to acquire customers and originate, but perhaps at a slower rate. Auto has had kind of fits and starts throughout the year because of tariff impact. There were some pull forwards a couple of times this year. Overall, relative stability. I would highlight auto as an area that we have had outsized growth, considering that the volumes have been somewhat tempered. What that is, is it's more of a testament to the diversification of the products that we're able to sell into auto. Products like our Trusted Call Solutions, as well as our marketing products, have really taken hold in that space. That's what you should expect from us as we go forward.
In particular, those products, they're really going to resonate more in our emerging verticals. We were pleased with the performance in the third quarter, where we grew 7.5%. In those businesses, it's outside of core lending in the U.S. We're focused on areas like technology, retail, e-commerce, media, and a whole host of other vertical markets. What we're driving into those businesses are our new products. The Trusted Call Solutions, the marketing, the fraud capabilities. When you think about the transformation that TransUnion has been under for the last several years, moving all of our data assets to what we call OneTrue, the results that we're seeing in the emerging verticals are indicative of what we're expecting on a go forward basis. Outside of the U.S., our international portfolio has had, it has a balance to it.
If I were to go back a couple of years, I'd say India. When we were growing 3%, India was growing really strong. This year, what we're experiencing is more the developed markets of Canada and the United Kingdom, where we're growing. That is all intentional, the design of the portfolio to be able to perform when one area is up and the other one's down. Think of this business more high single-digit grower on a go forward basis.
Is the consumer or your end markets, does it feel like they're improving? I think you said you were characterizing them as subdued. Now you're talking about being stable. Some of the labor market data has been weak, so that might be different than some investor perceptions.
We continue to see a relatively healthy consumer. That's the best way to characterize it. Clearly, we've seen news with layoff announcements that are now a little bit more prevalent in the marketplace. For our business, through what we've experienced, we do see a consumer that is living up to their financial obligations because they are employed and they have real wage growth. Those are key drivers for our business. When they're employed and they have the real wage growth, that enables them to pay their financial obligations. That feeds right into delinquencies. The delinquencies, needless to say, we have a great perspective on that because of the data that we maintain. What we've seen is a normal level of delinquencies.
I would characterize what happened again, going back to 2022 and 2023, it's kind of unusually low delinquency rates because consumers had forbearance programs. The delinquencies went down meaningfully. I would say where we're at right now is we're back at more of a normal level. If you look at the delinquencies across areas like consumer lending and auto and mortgage and credit card and compare it to pre-pandemic, we're about at those same levels. That's a good indicator for us about the overall health of the consumer. I would say, though, we are seeing a little bit of a bifurcation in consumers. What I mean by that is we're seeing more consumers that would be considered super prime. There's more of a percentage of those super prime consumers now in the latest quarter.
At the other end of the spectrum, the subprime consumers, there's more of those consumers. Just to give you the numbers, it's about 40% are in the super prime category and about 14% are in the subprime category. What's happening is the middle is compressing. The lower income consumer is under a little bit more pressure. The consumer in the super prime is performing well. You see that in how purchasing and retail sales have held on because those are the consumers that are pretty much driving that. TransUnion puts out a study called the Credit Industry Insights Report. We just put it out in our newsroom last week. All the details are in there. I'd recommend checking that out. Otherwise, in the market, we also look at our customer health as well, too.
With the recent earnings season wrapping up, a lot of the large banks, but also the medium and small-sized banks, had good earnings. Of course, when you put aside some of the businesses that we would not support, like investment banking, and you look at their lending operations, we were encouraged by what we considered to be strong results. What is indicative there is that we did not see an increase in loan loss reserves, anything that would be kind of a trouble spot for the customers. We look at it from a balanced perspective. Right now, it is stable. That is how we are planning the business right now, but cautiously watching.
Is it a fair characterization that you put up like 3% organic growth when you're facing macro headwinds in the 2022 and 2023 years? You put up high single-digit growth without a lot of macro tailwind. Is that how you see it?
I think what happened in 2022 and 2023 was such an outlier as far as how fast interest rates went up. The Federal Reserve's response was, it's something we hadn't seen in decades. I think that that was just such an anomaly. I think if you were to look at and think about the overall performance of the portfolio in a time when maybe there's not as much growth, as I've been saying, the design is intentional. Whether it's in the U.S. markets, core financial services is always going to be what it's going to be. We're intentional about the vertical, the emerging verticals that we operate in, to be able to have a countercyclical play. The same thing happens within our international business as well, too.
Do any markets feel like they're running hot for you or where you worry that there's what's been a growth driver that may not repeat? I don't know if you can hit on FICO pricing as part of this.
I would say right now, I don't feel like there is any one particular market that's running hot. I would say that where we do have outperformance in areas like in Canada and the U.K., where we've posted high single to double-digit growth, a lot of that has been on our team and their execution, being able to drive innovation, but also to take share with that innovation. So those areas have been performing pretty well. Otherwise, I wouldn't look at anything in the U.S. as I would say it's overheated or running too hot. Happy to go into the pricing, but how did you want me to handle that one?
Let's just, before we get there, you kind of gave a look in one of your slides, I think it was slide four of the most recent investor presentation, where you deconstructed your U.S. markets growth. There was 13% underlying growth, 4% volume or new wins. You just mentioned some of the new wins, 5% pricing. Before we get to there, you also get 4% from non-credit growth. Talk about what's driving the non-credit growth.
Yes, absolutely. When we look at , and that's intentional, too, as far as the diversification of our product offerings. You know us as a credit reporting agency, but we've invested in the concept of identity resolution and being able to take our data assets and resolve a consumer's identity so our customers and the consumer can transact with confidence in a digital world. Natural offshoots of that would be going into areas like marketing and fraud. When I look at the growth that we're experiencing outside of credit, in the most recent quarter, we're seeing good growth coming from our marketing suite of products. That's a couple of years' worth of effort in replatforming product, our True Audience product, also just changing our go-to-market strategy as well, too. It's starting to yield some very significant benefits for us.
Our Trusted Call Solutions is another area that I would highlight. This is a business that we expect to generate about $150 million in revenue in 2025. Just three years ago, this was a $50 million business for us. And what it in essence is doing is it's bringing the voice channel back into interactions with consumers. I don't answer my mobile if I don't recognize the number. We are bringing trust back into that area. Growing significantly, there's international applicability to it. We could take this outside the U.S. There is a lot of momentum going there. I'd highlight another area would be our Factor Trust database. It's not core credit. It's a short-term lending credit bureau that we have. We used that as a proof of concept for our transformation or tech modernization. In the most recent quarter, we saw 20% growth out of that. That area fuels a lot of the good growth that we see in financial services consumer lending. Just another good example of innovation. Yeah, leave it with those three.
For pricing, you get five points of growth from pricing in U.S. markets. How much of that is FICO and how much of that is other pricing initiatives?
Yeah, so as far as pricing initiatives that TransUnion undertakes, I mean, we have a regular process where on an annual basis, we look at our pricing and we pass regular increases on a CPI, CPI+ type of outlook. The vast majority of the price increase, though, is in mortgage just because of the magnitude of what the FICO price increase was. I do not want you to take away from this that we do not have pricing power because we do, just have not taken it to the extent that one of our partners did.
There is a change in the market where FICO is offering an option where resellers can buy directly from FICO instead of buying from the bureaus. How will that impact your business and your financials?
I think it provides us with a tremendous opportunity to put the value back on the data as opposed to on the score. If you think about any type of scoring algorithm, it does not work unless there is data behind it. Our approach towards this new price dynamic that has been introduced in the market is we are going to put all the value on the data where we feel that it rightfully belongs. That has been our primary focus with this. You also think about what TransUnion does with the data and what it enables. To expand on that, we are creating credit files on consumers. There is a lot of expertise linking and matching to pull disparate pieces together to create a comprehensive file on the consumer. We have cyber security issues that we have to make certain that we're safeguarding this data asset that we're entrusted with. We have regulatory obligations as well. Being a credit reporting agency, as an example, we have to handle consumer inbounds if they have a dispute on their credit report. All of those things are a critical part of being a credit reporting agency that any type of score is going to benefit from that infrastructure.
Before we get to the opportunity for VantageScore adoption within mortgage, I guess, do you make yourself whole on the bundled pricing because of the value of the data o r is there any impact on your 2026 or go forward financials from the changes that FICO has enacted?
Yeah, so the way that probably the best way to think about this would be just the pricing that we've put into the market. If I look at the pricing that we have in place in 2025, a credit report plus FICO in one bundle or a credit report plus VantageScore in another bundle, we have those priced exactly the same today. Now, clearly, there's not many people using VantageScore, but we do have them priced the same. When we go into 2026, that same bundle of the credit report and VantageScore will carry the same price. There is really no price increase going on there. Where the price increase is happening is TransUnion received a $10 royalty now or will receive in 2026 from FICO. Our approach is to pass that expense on to our customer and charge a processing fee.
The processing fee is really a reflection of all the things that I just talked about, about what a credit reporting agency does and the value that we have. What we've been solving for with all of this is to protect our profit dollars related to this change. What I would expect as we go forward, and VantageScore hasn't been adopted, the GSEs haven't set it up yet. What that will mean for us is the status quo as we go into 2026, we'll have higher revenue because we're going to pass through the FICO Score as well as the processing fee but o ur margin percentage will be a little bit lower. The margin dollars will be protected.
Now, what happens is if, as we move forward and if there is migration to the VantageScore, what we will see happen is we will generate less revenue because we are no longer going to pass through the $10 royalty to our end customer. We will have the VantageScore on there, so w e will have a higher profit margin in that scenario. These are going to be important dynamics as we get into 2026. When we have our earnings call, our next earnings call in February, we will clearly lay all of this out so you can understand.
What if a customer just goes to the TriMerge reseller, the bundler, and if they're buying the FICO score from FICO instead of you, is that a revenue headwind to you?
It would be a revenue headwind to us, but it would be accretive to our margin percentage in that scenario.
What are the most important steps to driving adoption of VantageScore or uptake of VantageScore for mortgage, where the market now for the first time is a choice in the conforming market?
Right. The first thing that has to happen is the GSEs, so Freddie Mac and Fannie Mae, need to change their systems. It is called the loan level price adjustment matrix that they need to change. They are working on that right now. Up until this point, that has only been set up to accept FICO. This is a big change. Once we are, hopefully sometime in early 2026, that will be in place. That will enable our customers to be able to use the VantageScore. While that is going on, our lenders, the lender customers also need to change their origination systems so they can work on accepting the VantageScore as well, too. I would say that those are the two biggest things that need to happen.
I would say from a Vantage adoption perspective, where we're proactively working with our customers is just to show the better predictive power of VantageScore. The VantageScore is based on trended data, not a point in time. If you followed TransUnion, we're the pioneers in trended credit data. That's a huge uptick because if you think about just using point-in-time data, it doesn't give you a full picture of how a consumer is performing. The VantageScore picks up that trended data. It also picks up alternative data as well, too. What alternative data simply means is non-credit data. Think about a good example of that would be rental data as a consumer paying their rent on time. What we see with VantageScore is we could score about 33 million more consumers than what we could see with the FICO score because of the dynamics that I just went through.
That's relative to classic FICO, not relative to FICO 20. How does Vantage perform relative to FICO 20?
Unfortunately, we haven't been able to do that test yet. From what we're hearing, it's forthcoming. Obviously, FICO is claiming that it's a stronger score. We just haven't been able to validate it to this point.
Are there other reasons, I guess, to use VantageScore o r we'll just have to wait and see the data once there's a bake-off relative to 20 price is the big one?
I don't know. I think it's a better score. Price will be a component of it. The way we're leading is just the better predictive power of the score is really what we want the differentiator to be.
Got it. 2025 margins based on guidance are around 2022 margins. And you've had two years now of high single-digit organic underlying growth. Normally, when you have that kind of growth, you see margin expansion. Is there something that's different about the incremental margin model today o r what are you incrementally investing in?
Yeah, sure. I'm going to take you back a couple of years ago to answer a question. Two years ago, we announced a transformation program to optimize our organizational model as well as to modernize our technology. We said it was a two-year program. We'd spend up to about $375 million. We're wrapping that up. As part of that transformation, part of that program, we enjoyed a 90 basis point increase in margin in 2024. We went from 35.1% to 36%. As part of the program, it was always our intention that 2025 was going to be limited. The reason for that is the first leg of the margin expansion really came from us working on our org design and leveraging our global capability centers to standardize and centralize processes. We did that work largely in 2024.
Our tech modernization needed all of 2025 to get that completed. There is another $35 million worth of cost savings that we will secure at the end of 2025 at the conclusion of the program as we complete it. Now, the tech transformation, we will stop the one-time spending, so n o more non-GAAP adjustments as we go into 2026. However, the piece that is remaining is our customer migration in the U.S. and we want to handle that with the utmost care. We have decided to push the timeline out to completion until Q2 of 2026. We are going to do that, delivering the same $35 million of cost savings as well as doing things like we also committed to lowering our capital expenditures from 8% of revenue down to 6% of revenue.
That is just what we are doing is we are going to run two operating environments to make certain that we get the customer migration right. We have been able to secure cost savings elsewhere in the business to be able to still live to the financial commitments that we gave two years ago. We are at 36 this year. We made a small acquisition. If you remember back in February, we actually guided at 36.2. When I look at this organically, excluding an acquisition, a small acquisition we made, we are putting up 20 basis points on an organic basis. As we go forward into 2026, the expectation is the cost saves from the program I just talked about, plus some other organic initiatives, will give us some margin expansion opportunities.
However, the dynamics that we just talked through with the mortgage pricing is an important one to think through as far as what maybe the margin percentage impact will be in 2026. Not the dollars, d ollars will be protected, but just the margin percentage. It is all going to pertain to adoption of either the VantageScore or, in the example, the question you asked, Jeff, about the reseller calculating the FICO score themselves. There will be some scenarios to walk through when we get to our February earnings call.
When you said solid margin expansion in 2026, is that on an organic basis before considering the accounting-driven margin headwind from the Mexico acquisition? Talk through the implications to margins from the Mexico acquisition.
Yeah, for sure. TransUnion today owns a little bit less than 26% of the largest credit bureau in Mexico. In January, we announced an acquisition of that business. We're currently going through the regulatory approval process. We're expecting the transaction either close here in the late fourth quarter, more than likely, though, in the first quarter. As part of owning a little bit less than 26% of the business, we have been accounting for that business under the equity method. What that means is we've been picking up minority interest and t hat's been benefiting our EBITDA. When you think about when we make the acquisition, we will be able to consolidate 100% of the revenue. When we get the entire EBITDA, there's already a piece that we have, so w e'll need to adjust for that. When we close, we will make certain that that's very clear and lay out all the moving pieces on that.
Are you going to be an AI winner o r is AI a risk factor for you?
We think that we are going to be an AI winner for sure. I mean, machine learning has been at the heart of what TransUnion's done for a long time. How we're able to leverage what we have to drive product innovation as well as operational efficiencies, we see just a tremendous amount of opportunities. On the revenue side of things, just some early wins we've seen have been in our fraud suite of products, helping to detect synthetic fraud or something called credit washing. In essence, where a consumer disputes a credit trade line on their file and it's pulled, and then they go apply for credit when they don't have that dispute on there. If you think about the unique position we're in, where we're able to see all of that, AI plays a pretty cool role in enabling us to detect those types of things.
That is just an example. There is a whole host of others that are on our OneTrue platform. From an operational perspective, just a tremendous amount of opportunity as far as how we make interactions with consumers easier by leveraging AI. We have a lot of touchpoints with consumers that maybe we can have them be a lot more self-service, which I think they would appreciate, a s well as in our OneTrue environment, we are using it today with something called OneTrue Assist, which in essence is enabling our developers to speak, to clean up code, or to modify code. Not enough time to go through, but there are other examples.
Any revenue or data sources that you have that are more reliant upon the aggregation of publicly available data that you're watching from a risk perspective?
I would say, for the most part, that our data assets are unique to us. The value really is being able to pull together that data around a common ID. When you think about the credit header, what sits on top of a credit report, the indicative information on a consumer, that in essence, we are able to leverage to be able to piece disparate pieces together. That is really what I think differentiates us.
Got it. Thank you. That's all the time that we have for questions in this room. Todd and the team will be available for a follow-up now in the Oak Room. Please join me in thanking the team.