Ashish Sabadra, and I cover information services companies at RBC Capital Markets. We are really excited to host Chris, CEO of TransUnion, and Todd, CFO of TransUnion. Thanks again for giving us this opportunity.
Our pleasure. Thank you.
What a great presentation yesterday at the Investor Day. Before we go on to the Investor Day and talk about your midterm targets, I wanted to first level set on the state of consumer. Like, the number one question that we get from investors is around the state of consumer credit, state of consumer lending. You obviously have a unique lens into it. With everything that's going on, higher oil prices, how do you think about what's going on with consumer credit and consumer lending? Thanks.
Well, yeah, great place to start, right? In the foundation of current market dynamics. Let's separate out the oil price portion of that question, 'cause, clearly that's developing news, if you will. Look, the state of the consumer has been consistent and strong for a couple of years now. We've had stable lending volumes that have resulted from that. If you look to the bank stocks, so many of our clients, they've had stable delinquencies in their portfolios and improving origination volumes in almost every lending class.
In particular, consumer lending has been resurgent over the past couple of years, as fintech companies have gotten consistent access to the capital markets and have kind of emerged from that deep freeze state that they were in in 2022 and 2023 after the spike in inflation and in interest rates. Now there's a lot of talk about a K-shaped recovery. I believe that's correct. There's continued pressure for lower income and higher risk consumers. But again, it hasn't translated into a deterioration in loan book performance or a loss of appetite for borrowing among those consumers, right? That's part of what I think has helped support loan volumes in the lending system. W e've had two good years of reasonable volume growth and really good financial performance as a result of it.
We outlined our guide just a few weeks back now, although things have been moving pretty quickly. You know, the volume conditions and overall market dynamics we've experienced thus far in the first quarter have been very consistent to delivering against those. Now we have a war in the Middle East and potentially constrained oil supply, and with a whole series of knock-on economic effects, depending on the scenario you believe. I think it's very fluid. We don't have any particular special insight into what may happen, of course. I would just say that our economy has shown a tremendous resilience. The tenure rates are holding up nicely. Volume is good, and we're just gonna have to see what develops.
I'd also separate the question about how current geopolitical events are translating into, you know, macro changes versus just the intrinsic value of the business that we have created with four years of transformational investments at TransUnion. You saw at Investor Day, you know, yesterday we talked about how we can now compete across more product categories and more geographies than we have ever been able to do before. We have continued to invest heavily in vertical domain expertise to tailor our solutions. We have built several global platforms to underpin our business, our expanded scope that it's gonna help us more rapidly diffuse our products across markets around the world and scale our growth with higher profit flow through than ever before.
Like you and I were talking before we started this conversation, the last five years have been pretty bumpy. Lots of bumps in the road. That's the only kind of consistent factor that we're experiencing. I think what we're showing is that we have real revenue durability and margin and overall financial durability because of the diversification that we've built, product, geographic, vertical, et cetera. I would expect that to continue to perform well.
That's great. That's very helpful color, and that's a great segue into the next question around your midterm guidance. Again, as you said, very strong delivery over the last two years, and your midterm guidance of high single-digit revenue growth seems very consistent with what you have delivered over the last two years. I was just wondering if you think about what are your upside and downside risk to that high single-digit revenue growth. If you can talk about the key themes, but also then drill down into each of the solutions like credit, marketing, and fraud, as well as consumer solution.
Why don't we have Todd ground us into what is the guide, what's the thinking that went in the guide, and I'll provide some color commentary on the back end. .
That sounds great. Thank you for the question. Our medium-term guide is assuming a continuation of the current trends that we're seeing in the market today. Relative stability in core U.S. lending markets would be the best example of that. Consistent with how we provide guidance during the beginning of the year. The medium-term guide is the same type of thought process goes into that. Meaning that what we believe that we have a high conviction of being able to deliver on is incorporated into that guide. If you think about how we guided 2026, we're. That's the beginning of the year.
As the year goes, we want to orient our investors towards the high end of that guide, and if we beat, we'll obviously then continue to, you know, raise the growth expectation. Similar thinking went into this medium-term framework as well too. In the framework also has got stability in volumes. Another important part is it's not a bet on any new innovation. It's what we've already got in market or about to come into market. There's no bet on an upside on something, you know, to come.
As far as additional, you know, upside, would be in our materials yesterday, in particular, there's a bridge that we had out there on our EPS upside, and the right-hand side of that slide walks through, what that upside would look like. You know, a good example of one would be mortgage. We actually put a bar, you know, on that slide, right? Just simply assuming mortgage goes back to 2019 levels. Not 2020 and 2021 when everybody was moving and buying houses and refinancing, but a more normalized period of time. That would mean $1 of EPS, if that happens.
You know, recently what we saw happen a couple of weeks ago before the geopolitical and war issues, we saw the 30-year go below 6%.
That's a big deal.
That was a really big deal, right? We saw volumes start to tick up. Home sales were announced yesterday. I'm sure all of you saw that. I mean, there was an uptick in February. The mortgage rate, you know, was cited as one of the reasons. Unfortunately, it's back above 6%, but that threshold is important, you know, for consumers. So if we get back there, that'll be an upside. But the other upside is just other lending volumes within the U.S. I mean, when you look at auto, kind of flattish right now. Choppy last year with tariffs. A lot of pull forward. There was electric vehicle credit that went away. There was pull forward there. So we're seeing kind of flattish volumes there.
Card and banking, low single-digit, you know, type of growth. A gain, kind of subdued would be the best way, you know, we would say that. In the medium-term guide, that's another source of potential upside if there's a normalization, in those particular line of businesses, you know, within financial services.
That's very helpful color. Maybe just a quick follow-up on that would be, can you just remind us how much is your exposure to Fintech, and what you're seeing on the Fintech side as well, and, in general, from a lending perspective?
Fintech's at about $140 million of revenue. If you think about that in the context of, TransUnion's $4.5 billion last year, and, you know, we're guiding, obviously a lot higher, it's relatively small, but it's a strong position though that we have, and that is the line of business. It's performing really well. It exited last year with a double-digit, almost 20% growth rate. So that's a source of strength.
That's great.
Yeah. Really, yeah, very strong. Like, you know, Todd said, and I'll echo this, the medium-term guidance is top of market. It's high single-digit revenue growth with low to mid double-digit conversion into EPS. We view that as an achievable baseline of growth, but lots of ways to win beyond that. Again, remember, Todd talked about it in mortgage, but it's true. Every lending line of business in the U.S. is still below the long-term trend lines. Even going back to a reasonable point like 2019, it's just mortgage is far and away furthest off of that long-term trend line. These are just like okay market conditions, and in these conditions, we have still been able to grow at exactly the same level that we're now forecasting as our baseline for the next three years.
Again, importantly, the forecast and the guidance floor that we set for the next three year reflects the business as it is today. As you know from Investor Day, we've invested to transform the business. We've got a next generation platform that delivers all of our products, and we're converting customers to that platform very rapidly. We hope and believe that that's gonna be a lever for outperformance.
That's great.
Part of the conversation.
No, this is definitely a good segue into my next question. I was gonna ask you about the $500 million of innovation-led revenues over the next three-year period. If you can talk about, obviously, there was a lot of conversation about the OneTru platform, some of your solutions, including TruAudience, TruIQ, and TruValidate. How do I think about these solutions helping drive that $500 million in revenue? If you can provide color on what's going to drive that. Is that increased wallet share versus new logo win? Any incremental color on those fronts.
Yeah, good question. Let's frame it up. I mean, if we were at a bank, you know, supporting one of our customers. Let's say we run a monthly marketing campaign to acquire new customers. That's a vintage of growth, right? You get out there, you acquire those customers, you have certain expectations for what they're gonna deliver for you economically. What you saw yesterday is we said, based on the innovation that we're delivering on the OneTru platform, we are expecting $500 million based on new product growth. That's encompassed in the guide, of course, but that's just that vintage, right?
Now that we're on a platform, and we're no longer investing to build that platform, and we've unified all of our data across our four key product categories, credit, marketing, fraud, and consumer enablement around our industry-leading identity, I would expect that the rate of innovation in NPI will continue or grow, right? That's how you should think about that $500 million. It's not a one-time event.
Yeah.
It's reflective of transitioning from a period where we were investing really heavily to transform the business and integrate all the acquisitions we made to restructure the portfolio to one where we're leveraging what we've built to innovate faster and to grow faster.
Yeah. Yeah. That came through very clearly at the investors' end. Thanks for those presentation. Maybe switching gears a bit and just talking about VantageScore and FHFA. Yesterday you made a comment around one of the GSEs doing a pilot and securitizing the portfolio using VantageScore. I was wondering if you could unpack that a little bit. One of the questions that we've gotten from investor was this an exclusive VantageScore? Was it both VantageScore and FICO? Anything you can share on the pricing of that securitized portfolio or any kind of feedback that you received that they might have received for that securitization? Any color that you can provide on that front.
Yeah. Unfortunately, the color I can provide is fairly limited.
Okay.
This was something done internally b y one of the GSEs that we learned about fairly recently. We look at this as. I think it was a very modest.
Yeah
pilot. I mean, I think that obviously introducing choice in scores and competition in a market as large and dynamic as U.S. mortgage is, it's a considerable thing, and we look at it as, you know, essentially the GSEs running water through the pipes before more volume were to come. Nonetheless, an encouraging step forward in the adoption and the implementation of a competing score, which, you know, we firmly believe the market needs. There's been an inadvertent lack of choice in this market for 30 years. There is a more modern score available, VantageScore 4.0.
It is more effective because it leverages trended credit data going back, in our case, two and a half years, and that's the longest look back in the industry. You can also include rental trades, utility trades, other datasets that have been proven to be additive to the predictiveness of the performance of borrowing, right? We want to get that out in the market. It will make the U.S. credit market or mortgage market larger. It grows the addressable market. It will be more precise in terms of understanding and pricing risk. It'll contribute overall to the safety and soundness of the market. Look, we're excited.
That was part of our thinking behind lowering the price of Vantage from, in our case, $4 to $0.99, is simply this is a great opportunity to make an important structural change in the lending market. Again, ushering in choice, ushering in price competition. It's also a chance for us to kind of reset the economics around the market to what we see in markets around the world, which is data is at the core of value, and you have scores that provide some insights, some summary-level insights of the underlying data. The value is driven by data not scores. If you look around this planet, in every market that this exists, it's data that gets the premium price, not the score. Now, again, we have an anomaly in the U.S. mortgage market. It's time to correct the anomaly, and we're trying to eliminate obstacles to adoption. As you saw, our competitors fast-followed on that. Again, we price Vantage, we market Vantage entirely independently, even though we are co-owners of the business that produces the Vantage score. Look, there's a lot of enthusiasm to get going with Vantage implementation in the U.S. mortgage market.
That's a very helpful color. Talking about obstacle, one of the things that also we need, that investors are focused on is the LLPA matrix.
Sure
from FHFA. I was just wondering if there is any visibility on the timeline or any tentative timeline for that matrix?
We don't have any special visibility on when, you know, all the work that has been undergoing, and I think lots of good work. But I think the FHFA has lots of good work, you know, to grease the skids and enable competition. When exactly they're gonna complete it, I don't know. I hope it's relatively soon. I do know that TransUnion and frankly, each of the bureaus, have been working with lots of lenders in the market to understand how they can use Vantage. Now Vantage, which is a more modern and predictive score, as per GSE studies, don't just take my word for it, right? It's a more modern and a more predictive score than the incumbent classic score.
Lots of clients are interested in using it, and it's now one-tenth of the price. I feel like the stars are aligned.
Yeah
for shared option, we're ready to go.
That's very helpful color. One last final question on FHFA would be just any thoughts around tri-merge to bi-merge? Is that even something that FHFA is considering?
Look, I cannot speak for the FHFA. I have periodic interactions. What I do know is this. From the first time I met the current director, Director Pulte, he was laser-focused on the cost of originating mortgages as a prime area for improving affordability in housing for U.S. consumers. You've heard the president talk about it. Affordability is all over Washington, right?
Yeah.
This is an important initiative, and I think that type of passion for the topic is why, you know, he has created this opportunity for SCORE competition. Now, pulling back from the FHFA and their particular views at this point, 'cause again, I can't speak for them.
Yeah.
What I can speak for is what the data tells us.
Yeah.
The first thing the data tells us is that in at least 25% of the cases, if you only pull one credit report, you will miss a trade line that exists for that consumer that would influence the score materially, right? Whether it's one or it's two, if you don't pull three, you're diminishing signal and predictiveness and ultimately the safety and soundness of mortgage origination and securitization. As we've seen through different chapters in history, most recently the great financial crisis, it's a bad idea to scrimp on due diligence.
Mm-hmm.
Right? Pulling three bureau reports is the most comprehensive form of diligence. I think there's a tremendous amount of support for the tri-merge on Capitol Hill, in the Treasury, throughout the administration. Lots of voices get it, right?
Yeah.
Now, other voices were like, "Let's save some money because we're in a very low origination period in mortgage, and people are hurting." I say that we save some money with some SCORE competition.
Yeah.
Let's get some adoption there. I think that is a much safer and sounder approach to it.
That's very helpful. Just switching gears on GenAI, which has been a key topic for the space. Obviously, the presentation yesterday, you really highlighted the proprietariness of the data, but I just wanted to see if you wanted to drill down further, talk about why, how proprietary the credit and the alternative data is. One of the questions that we get is, can the cash flow financing or consumer permission data, could that disrupt any of the credit data? Or even on the marketing side, if you could also help address what makes this data so proprietary and
Sure
the comprehensiveness of the data. Thanks.
Okay. There's a couple of dimensions to this question.
Sure.
I wanna be clear. The first would be, you know, well, one, how proprietary is the information that underpins marketing, credit, and fraud, and what's the risk of AI disruption?
Yeah.
Focusing on credit first, you know, you said, "What about cash flow? What about consumer contributed? Can that disrupt the dynamics?" Okay, here's the core dynamic and the foundation of the market. Credit information is large, proven, at scale, and relatively low price point.
Yeah
for all of the predicted insight you get. Most loans in the U.S. are underwritten with that alone.
Yeah.
Y ou don't need to go to income, you don't need to go to cash flow, whatever. Now, that said, if cash flow were available at scale and not episodically per consumer permission, it would be an attractive additive data asset. The reason that credit is still growing as fast as it is after 50 years is because lenders are constantly looking for new data assets to add to the core of credit and other information that they use in their secret sauce IP to find an origination advantage. They're out there looking for data that helps them spot opportunity in the marketplace, price it correctly, and acquire it. We view alternative data innovation broadly, and cash flow would be a subset of that.
It's a great positive for our business, which is why we and all the bureaus have been pursuing, you know, alternative data. I think it's very exciting. The second thing I would talk about is marketing and fraud. Before I do, just the defensibility of credit, as I've said many times at this point, you gotta go to thousands and thousands of different institutions and negotiate contributory relationships in order to get access to credit.
Not to mention that's also PII.
There's lots of PII with credit too, and that is, like, difficult to handle. You have to be very careful. There's a ton of regulation around who can acquire that information and for what purposes, but also which customers can actually use the information. We're the intermediary responsible for validating that every client has a legitimate credentialed commercial use case and monitoring their utilization, which we do in a whole variety of ways, and consistently re-credentialing thousands and tens of thousands of customers in the US. It takes a lot of work and a lot of investment, and if you mess up, well, regulators and trial lawyers have a lot to say about that, right?
Yeah.
There's a lot of reasons why credit data is not gonna get loaded into ChatGPT, so we can all find out our neighbor's credit score. Right. 100 and other privacy related reasons. The question turns to marketing. Well, as you saw yesterday, unbundling what is marketing?
Yes.
In our case, it's proprietary data and analytics that we're bringing to bear t o make every marketing campaign more efficient. We're not in creatives. We don't buy and sell media. We don't do that. We're like the old BASF commercial. You know, we don't produce the thing, we make the thing better.
Yeah.
That's what we're doing with data and analytics underpinning marketing. What are those data and analytics? Well, first, we're leveraging our PII. All of the identifying information that we have about consumers, whether it be terrestrial or digital. As we outlined at Investor Day, and any of you can go look at the slides, you know, it's very powerful and it's industry leading. It's not only.
The credit information, it's all the public records in the U.S. It's one of the world's largest device reputational networks, and it is the single largest, most authoritative phone record in existence.
It's unique to us. Then we layer on lots and lots of other identity. The first step in a marketing campaign is, well, who are all these people? How can I identify them from all of the different fragments of information? How can I make sure that their name, address, phone number, email, IP, device, et cetera, is as enriched and current as it can possibly be? That's derived from a highly proprietary data source. That's one. You pivot into audiences.
Yeah.
Now, there are many different audience providers. It is much less proprietary. because of AI, we're starting to manufacture AI-driven new audiences that. The audience is created, it's derived from this range of proprietary information that we have, and it's more tailored and specific and performant than a lot of what's out there.
Yeah.
If you come to TransUnion, we have a capability that is essentially a retail application where every audience provider parks their data and we have an analytic layer that helps clients decide which one to use. We're kind of agnostic on the audience. We're gonna make retailer margins on that part of our business. We then have broad digital connections to every publisher, walled garden, et cetera, in the digital advertising ecosystem that is hard and expensive to create. Those are one-on-one deals and one-on-one systems integrations, and they have to be maintained. There's a final level of proprietary data, which is how do we measure the effectiveness of these marketing campaigns? How do we know did the consumer see my ad? Did they interact with it? What did they do next?
Well, because we represent so many companies, so many brands, which collectively represent so many billions of dollars of marketing spend, we've been able to negotiate with hundreds and hundreds of players across the advertising ecosystem to share marketing performance information with us.
This entire fabric of marketing performance information that flows to us is the result of those relationships, of all that brand spend that we have, and it's a network effect. If you know, look, can somebody go out and build another consortium? Sure. It is theoretically possible, but there's only a handful of these things because it's not really economically feasible.
AI doesn't make it any easier to accomplish that. Again, it's a highly defensible series of products. Now, on the fraud side, so many different types of fraud signals are pouring in from our different point solutions. We aggregate them all in a common data and analytic layer. That layer is OneTru. Again, hundreds of customers around the planet are sharing what they're experiencing with various devices interacting with them from an e-commerce side, and now also what are they experiencing over the phone in their call centers. Again, a very broad consortium of data being contributed uniquely to us creates the value in the asset. AI doesn't help you create those relationships. Remember, TransUnion is not standing still with regard to the application of AI, and none of the players are in info services, right?
We wanna harness the potential to better activate this information in ways that help us, well, one, serve our clients better than we've ever been able to service them before, but also leverage the data to generate insights and then program agents that do the work that is currently done either by our clients or by software suppliers upstream from the markets that we currently compete in.
True.
I, you know, I think the market reaction to AI has been AI scary, as opposed to AI exciting. It is exciting for us. I mean, today, the typical lender refreshes their lending model every 2-3 years. Why? It's hard. It's hard to pull all that data together. It's hard to have all the smart people to do the analytics. Well, with AI, we can refresh those models continuously. If you're a lender and you're only refreshing your lending model every 2 years, how well will you compete in a future where your competitors are doing it on a weekly basis? We can enable that, and we can do it across credit, fraud, marketing, et cetera.
That was very helpful, Chris. We are at the top of 30 minutes.
Oh my God.
We really appreciate that.
I just started. Very good.
Thank you. Thanks a lot.
Thank you.
Thanks a lot, Chris. This was very helpful, very insightful.