Good morning, and welcome to the TransUnion 2026 third quarter earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions.
To ask a question, you may press star then one on your telephone keypad. 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 Greg Bardi, senior vice president of Investor Relations. Please go ahead.
Good morning, 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, and they can also be found in the current report on Form 8-K that we filed this morning.
Our earnings release and the accompanying slides include various schedules, 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 reconciliation 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.
These statements are based on current expectations and assumptions and are subject to risk 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 it over to Chris.
Thank you, Greg, and let me welcome everybody to the call this morning and outline our agenda. First, I am going to review our third quarter performance and our progress against our strategic priorities. We are then going to have a deep dive into our insurance business. It is a case study that demonstrates how our strategy is driving innovation-led and scalable growth.
Then I will hand it over to Todd, who will provide the details on the third quarter results, our fourth quarter guidance, and the guidance for the full year. In the third quarter, we delivered broad-based growth and exceeded the high end of guidance for revenue, adjusted EBITDA, and adjusted diluted earnings per share. Organic constant currency revenue growth was 8% or approximately 5.5%, excluding FICO mortgage royalties. That performance translated into 14% growth in adjusted diluted earnings per share. U.S. markets revenue increased 7%.
Within that, financial services grew 11% or 5%, excluding our mortgage revenues, with double-digit growth in auto. Emerging verticals grew 6%, led by another quarter of double-digit growth in insurance and strength in public sector. International had an excellent quarter and returned to double-digit organic constant currency revenue growth. India and Latin America led the quarter, each up 18%. In India, consumer and commercial credit volumes continued to improve, and new wins began to convert to revenue.
In Latin America, Colombia and Brazil both delivered strong growth. Our Mexico acquisition continued to track well ahead of our acquisition case for both revenue and adjusted EBITDA. Following the Mexico acquisition, India and Latin America are now two of our largest international regions. Both regions offer attractive economic and demographic characteristics, and we believe we have a proven playbook to continue outgrowing them.
We also repurchased 126 million shares in the third quarter, bringing our year-to-date total to 243 million. Our board recently increased our repurchase authorization by $1 billion, bringing the total to $2 billion. We expect to accelerate repurchases in the fourth quarter and plan to bring our full-year total to about 500 million. We also reached key balance sheet milestone, reducing our leverage ratio to 2.5 times within our long-term target range.
Our results reflect consistent execution despite the ongoing economic and geopolitical uncertainties. Conditions in U.S. consumer credit are largely unchanged from prior quarters. Consumers remain resilient in a labor market with high employment but moderating real wage growth. Credit demand remains healthy, supported by strong spending. Credit performance is stable, though pressures persist in lower income and subprime segments.
Lenders continue to expand their portfolios, supported by strong balance sheets and margins, and delinquency rates remain within historical ranges and are broadly consistent across risk tiers. The most significant change has been the rise in inflation and interest rates. The 10-year Treasury rate is now roughly 5%, up over 30 basis points since our July earnings call and roughly 80 basis points year-to-date.
The 30-year mortgage rate is above 7%, weighing on borrowing costs and home affordability in an already soft housing market. As a result, mortgage volumes have slowed incrementally in recent months. That said, with industry volumes over the last several years already near multi-decade lows, we believe additional downside is limited. Other consumer lending categories are less sensitive to higher interest rates, and trends remain broadly consistent. We expect higher rates to moderately reduce auto affordability and lending activity.
Consumer loans are less sensitive because of their shorter duration. Fintechs and other consumer lenders have adequate diversified funding sources, though higher rates increase funding cost and could temper borrower demand. Credit cards are the least rate-sensitive lending product, given already high APRs and the product's revolving nature.
We delivered another strong sales quarter in financial services, reflecting sustained demand and commercial momentum for solutions such as TruIQ, Trusted Call Solutions, and identity-based marketing. More broadly, our portfolio outside U.S. financial services offers multiple growth drivers that are less sensitive to the credit cycle. With that context, we are raising the low end and maintaining the high end of our full-year guidance for revenue and adjusted EBITDA. We expect to deliver 8%-9% organic constant currency revenue growth and 10%-11% adjusted EBITDA growth.
We expect portfolio diversification benefits, including stronger international growth in the second half of the year to help offset the impact of higher rates and softer mortgage activity in the U.S. We are raising our adjusted diluted earnings per share guidance by one percentage point to 12%-13% growth, driven by lower net interest expense and the benefit of our share repurchases to date.
This would mark our third consecutive year of high single-digit revenue growth and double-digit earnings growth. We believe our guidance appropriately balances our current momentum with ongoing market uncertainty. If current trends continue, we expect performance at the high end of our guidance range. Our range is also designed to provide flexibility to absorb a reasonable degree of further market softening. Todd will provide full details on our guidance assumptions later in the call.
Beyond the near-term outlook, we continue to make significant progress on the strategic priorities that underpin our long-term growth. As U.S. credit migration nears completion and our pace of innovation accelerates, we believe we're in position for stronger and more diversified growth. In the quarter, we significantly accelerated U.S. credit customer migrations. The majority of U.S. credit online and batch activities now run on OneTru.
We expect to substantially complete the migration by year-end with a small tail extending into 2027. We have meaningfully reduced legacy system capacity and met our cost savings commitments. In 2027, we plan to focus on expanding OneTru into Canada, India, and the U.K. OneTru is helping our teams develop and launch and scale products faster than ever. Across the enterprise, we've launched more than 40 new products and AI-powered enhancements year to date, expanding our pipeline and strengthening sales momentum.
Recent highlights include TruIQ real-time offers for pre-screen campaigns, curated audiences by TU marketing segments, and the expansion of branded call display into India. We believe these recent launches represent approximately $350 million in revenue potential over the next three years. These efforts support growth across our solutions, verticals, and geographies, with some of our strongest momentum coming from differentiated capabilities beyond traditional credit volumes. Insurance is one of the clearest examples of this growth playbook in action.
It was one of the first verticals we entered beyond traditional consumer lending. We built the business by combining deep industry expertise with our credit data and analytics to support personal auto underwriting. Since then, we've substantially expanded our customer base and the breadth of our solutions. Today, we are the market-leading credit bureau serving the insurance life cycle with a comprehensive solution suite.
Insurance is expected to generate more than $430 million revenue in 2026, making it comparable in size to our mortgage business, excluding FICO royalties. We support more than 80% of insurance carriers, including all of the top 20 personal lines insurers, and we also serve most of the leading life and commercial insurers. Our growth in insurance has materially outpaced underlying market trends. Over more than a decade, we've achieved a double-digit compound annual growth rate.
Three durable growth drivers support this performance: recurring policy renewals, wallet share gains, and broader adoption of our solutions. Our diversified solutions enable us to grow across varying market conditions. When insurers prioritize growth, higher marketing activity drives volume and new wins across our marketing solutions. In more challenging environments, increased consumer shopping supports credit demand even as marketing spend and new policy originations slow.
These counterbalancing demand drivers today, together with a highly recurring revenue base, have supported growth across multiple environments. Revenue grew in 2020 despite COVID-impacted conditions, and we grew 5% in 2023 despite inflation-driven profitability pressures across the insurance industry. We expect insurance to achieve a third consecutive year of double-digit growth. Today, more than half of our insurance revenues are outside of core credit.
This broader portfolio expands our addressable market, creates new vectors of growth, and reduces the vertical's reliance on any single demand driver. Core credit laid the foundation for our business in many of our most important customer relationships. Our credit-based solutions support customer acquisition, underwriting, and portfolio review, helping personal auto insurers more accurately assess risk and set premiums. We have continued to gain market share. Building on those capabilities and customer relationships, we developed a broader suite of insurance-specific solutions.
Through our acquisitions of Drivers History and Datalink, we developed our driver history solutions, which offer insurers a cost-effective alternative to traditional state motor vehicle reports. We have scaled these solutions from 13 million in 2015 to 125 million today. Most recently, we expanded our offering to include marketing and fraud solutions. Since 2022, marketing and fraud solutions have grown at a combined double-digit compound annual rate, with Trusted Call Solutions as a key contributor.
A large addressable market and durable competitive advantages support continued momentum in insurance. We expect at least high single-digit growth over the medium term, driven by several initiatives. First, we have a significant base of contract wins that is not yet fully ramped. Many large insurer contracts roll out state by state, creating a multi-year ramp from signed wins to fully realized revenue.
In core credit, we estimate approximately $225 million in annualized wins from new contracts, compared to roughly $190 million in the 2026 revenue base. The $35 million difference is expected to ramp up over the next couple of years. In driving history, we estimate approximately $150 million in annualized revenue from contract wins, compared with roughly $125 million in the 2026 revenue base. Second, we see substantial runway to expand in life insurance and commercial auto and to further cross-sell our marketing and fraud solutions to existing customers.
Third, we are expanding our telematics capabilities with the industry's first consumer-owned driving score, developed in partnership with Cambridge Mobile Telematics. We see strong interest among our largest customers and believe this can become another meaningful insurance-specific growth driver. Beyond these medium-term drivers, we are well-positioned to benefit from longer-term industry trends.
Demand for differentiated data to improve insurers' acquisition, underwriting, segmentation, and retention is accelerating. Over time, agent-enabled shopping could make insurance comparison and switching easier, increasing consumer shopping activity and the associated demand for our data and solutions.
Taken together, insurance demonstrates our growth playbook in action. We have built a scaled market leader with recurring demand, strong sales momentum, a meaningful wallet share opportunity, and a growing innovation pipeline. That combination gives us confidence that insurance can continue to outpace the underlying market. With that, let me turn it over to Todd to review third quarter results and provide guidance. Todd?
Thank you, Chris, and let me add my welcome to everyone. Starting with the quarter, revenue and adjusted EBITDA exceeded the high end of guidance by $3 million and $2 million, respectively. Results reflected broad-based growth in U.S. financial services and emerging verticals, along with better-than-anticipated performance in international. Total revenue increased 12% as reported and 8% on an organic constant currency basis. Excluding FICO mortgage royalties, organic growth was approximately 5.5%. Adjusted EBITDA increased 9%.
Adjusted EBITDA margin was 35.4% at the high end of guidance and down 90 basis points from the prior year. Underlying margins contracted 40 basis points as revenue flow-through was offset by technology and solutions investments and higher legal and regulatory expenses. FICO mortgage royalties were a 60 basis points drag to consolidated margins. Acquisitions had an immaterial impact, reflecting strong adjusted EBITDA from Mexico.
Adjusted diluted earnings per share was $1.25, up 14% year-over-year, and $0.04 ahead of the high end of our guidance, driven by adjusted EBITDA growth and the benefit of recent share repurchases. In the third quarter, U.S. markets revenue grew 7% on an organic constant currency basis, led by 11% growth in financial services and continued double-digit growth in insurance. In non-mortgage financial services, revenue grew 5%.
Growth reflected positive, though moderated, online and batch volumes in credit card and consumer lending, along with strong performance in auto. Credit card and banking grew 3%, supported by recent wins from Trusted Call Solutions. Consumer lending grew 5% with continued fintech growth and sustained consumer demand. Auto grew 13%, driven by pricing and new wins across our solutions, significantly outpacing declining industry volumes. In mortgage, revenue grew 21%.
Excluding FICO royalties, mortgage growth was 5%, despite a 16% decline in inquiries outperformance due to pricing actions and revenue beyond traditional tri-merge reports. The sequential slowdown in growth reflected the impact of rising interest rates on mortgage inquiries. Turning to emerging verticals, revenue grew 6%. Insurance led the way with its ninth straight quarter of double-digit growth. Within insurance, demand remained strong across our solution suites.
Credit-based marketing continued to strengthen while elevated consumer shopping supported credit volumes. We also benefited from new wins across core credit, Drivers History, and Trusted Call Solutions. Across our other emerging verticals, we grew modestly. Public sector returned to strong growth, while tenant, employment, and media volumes were softer than anticipated. Consumer interactive declined 3%, in line with expectations, with flattish growth in indirect and a decline in the direct channel.
In international, all revenue growth comparisons are on an organic constant currency basis. International continued to re-accelerate with 10% growth in the third quarter. Overall results reflected high teens growth in India and Latin America, together with continued healthy performance across our developed markets. Starting with India, revenue accelerated to 18% growth.
Volumes continued to improve during the quarter across both consumer and commercial lending. We also benefited from new wins converting into revenue. We expect similar growth in the fourth quarter as India is expected to return to a strong double-digit growth trajectory. Latin America growth increased from 5% to 18% in the third quarter, including double-digit growth in Brazil and Colombia. While some of the third quarter growth was the result of one-time revenue in Brazil, we expect healthy double-digit growth from Latin America in the fourth quarter.
Additionally, our acquisition of Mexico, which is included in our inorganic growth, continues to perform ahead of our acquisition case. Canada and the U.K. grew 7% and 5%, respectively. Both markets outpaced muted market volumes through wins across financial services, fintech, and insurance. Africa grew 6%, while Asia Pacific returned to growth with a 3% increase. Turning back to the enterprise, we ended the third quarter with $5.5 billion of debt and $883 million of cash.
Our leverage ratio decreased to 2.5 times, now within our long-term target of 2.5 times or less. Also, through the first three quarters, total free cash flow was $687 million, or an approximately 97% conversion as a percentage of adjusted net income. Our operating performance and strong balance sheet position us for continued accretive capital deployment. During the third quarter, we repurchased $126 million in shares.
Year to date, we have repurchased 3.3 million shares at an average share price of about $74 for a total of $243 million. We expect to accelerate repurchases in the fourth quarter, bringing our expected full-year total to roughly $500 million. We view share repurchases as an attractive use of capital at current valuation levels. Our board recently increased our repurchase authorization by $1 billion to a total of $2 billion.
With repurchases made to date, we still have remaining authorization of roughly $1.5 billion. We also today announced an increase in our quarterly dividend to 13.5 cents, up from 12.5 cents, effective in the third quarter and payable in November. The increase is consistent with our commitment to grow the dividend in line with earnings growth while maintaining a 10%-15% payout ratio.
During the quarter, we also prepaid the remaining $104 million of our Term Loan B-5. We expect adjusted EBITDA growth to support further natural deleveraging. Finally, we are currently replacing an expiring $1.5 billion notional swap at an interest rate of 1.4% with a new swap of a similar notional amount.
We have executed more than half of the replacement swap at an average rate in the mid 4% range and expect to execute the remainder during the fourth quarter. The appendix includes additional details on our debt profile and a bridge to expected 2026 interest expense. Turning to fourth quarter guidance, our ranges reflect a similar level of prudence to the third quarter. If current business trends continue, we expect performance at the high end while the range retains flexibility to manage ongoing market uncertainty.
In the fourth quarter, we are guiding revenue of $1.264 billion-$1.294 billion, up 8%-10%. Growth includes 3%-6% organic constant currency growth, a five percentage point contribution from acquisitions, and a half percentage point headwind from foreign exchange. Excluding FICO mortgage royalties, we expect organic constant currency growth of 3%-5%. The sequential deceleration from the third quarter reflects declining mortgage inquiry volumes.
Excluding mortgage, we expect revenue growth to remain similar to the approximately 5.5% that we delivered in the third quarter. We are guiding adjusted EBITDA of $450 million-$468 million, up 8%-12%, implying a margin of 35.6%-36.2%. Underlying margins are expected to expand by 40 to 120 basis points, partially offset by a 30 basis point drag from FICO royalties and a 20 basis point impact from acquisitions.
The fourth quarter margin expansion is primarily driven by positive revenue mix, including strong growth from international. We expect adjusted diluted earnings per share of $1.15-$1.22, up 7%-14%. For full year guidance, we modestly raised the low end of our guidance and now expect revenue of $5.131 billion-$5.162 billion, up 12%-13%. Acquisitions contribute 4 percentage points and foreign exchange has an immaterial impact on our guidance.
We expect organic constant currency revenue growth of 8%-9%, or 5%-6% excluding FICO mortgage royalties. Our segment-level assumptions are broadly unchanged. Our full year mortgage revenue growth guidance is 28%, or 9% excluding FICO royalties. Our conservative mortgage assumptions have provided flexibility to achieve our guidance despite higher interest rates. We now expect mortgage inquiries to decline roughly 10% for the full year and more than 20% in the fourth quarter.
Pricing actions and revenue beyond traditional tri-merge reports continue to support growth above mortgage market volumes. We expect adjusted EBITDA to be $1.808 billion-$1.827 billion in 2026, up 10%-11%. That results in a margin of 35.2%-35.4%, down 60-80 basis points, unchanged from prior guidance. Underlying margins are now expected to be flat to up 20 basis points compared with our prior expectation of 50-70 basis points of expansion.
Revenue growth and transformation savings continue to drive strong flow-through. However, we are intentionally reinvesting a portion of those benefits into technology and solution initiatives to continue accelerating innovation. Additionally, we have experienced higher legal and regulatory expenses, primarily related to individual consumer cases. Our Mexico acquisition continues to outperform our revenue, adjusted EBITDA, and margin expectations.
As a result, acquisitions are now expected to have an immaterial impact on consolidated margin compared with the 40 basis point pressure assumed previously. No margin FICO royalties remain an 80 basis point margin drag. We are raising our adjusted diluted earnings per share guidance due to lower net interest expense and the benefit of share repurchases.
We now expect $4.81-$4.88, up 12%-13%. We now expect 2026 net interest expense of $235 million, down from $245 million, reflecting higher interest income and the repayment of our Term Loan B-5. For 2027, a higher SOFR forecast and the replacement of our expiring interest rate swap are expected to increase net interest expense by roughly $60 million.
All other guidance items, including depreciation and amortization, adjusted tax rate, and capital expenditures as a percent of revenue, are unchanged. We continue to expect free cash flow conversion above 90% of adjusted net income. With that context, I'll now turn the call back to Chris for closing remarks.
Thanks, Todd. Before we close, I wanted to weigh in on the ongoing discussion about the mortgage tri-merge standard. TransUnion firmly believes that comprehensive data allows the responsible expansion of access to credit. It strengthens underwriting. It delivers substantial benefits to consumers, lenders, taxpayers, and MBS investors alike. The data and analysis that has been done on this topic show that it is clearly the right policy for the U.S. mortgage market.
I also want to emphasize that we have looked at this and believe that our financial exposure to an FHFA shift to a bi-merge standard for GSE-conforming mortgages would have a limited impact on our financial performance and would likely play out over a couple of years at least. Over the past decade, TU has invested several hundred million dollars in data innovation to build a more complete view of consumers.
We pioneered the use of trending credit data, we helped power the expansion of fintech lending, and we broadened our complementary alternative data assets to deliver a deeper consumer insights. As a founding shareholder in VantageScore, we also help foster competition in credit scoring by creating a modern score based on trended credit and alternative data. Together, these innovations enable 33 million more consumers to be scored, thereby increasing financial inclusion in mainstream consumer lending.
This innovation enables responsible credit expansion in the U.S., particularly in the mortgage market, benefiting both home buyers but also lenders. For home buyers, trended and alternative data, along with the VantageScore, expand the mortgage-eligible population by approximately 5 million consumers, representing an estimated $1 trillion in incremental mortgage lending opportunity.
Our data and the TriMerge also support more equitable outcomes by enabling consumers to be evaluated based on a complete view of their borrowing history. Lenders benefit from this expanded addressable market, along with more accurate risk assessment and loan pricing. Over the past decade, TransUnion data has supported 32 million mortgages, representing $9.2 trillion in loan value. That scale underscores the important role credit data plays in enabling access and sound underwriting across the U.S. mortgage market.
TransUnion's credit data delivers meaningful underwriting value at a small fraction of mortgage closing costs. Today, TransUnion charges approximately $11 for our credit data in the TriMerge. That fee reflects our innovation and the ongoing investments in innovation, cybersecurity, compliance, and consumer dispute management. Our credit file accounts for less than 10% of the TriMerge cost, and the TriMerge itself accounts for less than 1% of overall mortgage closing costs.
The relevant comparison is not merely the cost of one additional credit file, but the value of more complete information relative to the risks and cost of less informed lending decisions. In our view, the potential negative costs of reaching fewer consumers and making lending decisions with less complete information outweigh the potential modest savings from purchasing one fewer credit file. O
ur analysis shows that under a BiMerge model, an estimated 600,000 new mortgage borrowers each year could pay more in interest, with affected borrowers paying almost $7,000 more over the life of their mortgage. Although credit data accounts for a small share of closing costs, we support efforts to reduce mortgage closing costs without compromising data completeness or underwriting quality. A key example of this is continued adoption of VantageScore. VantageScore was included in roughly 35% of mortgage credit pulls in the third quarter.
We expect adoption to continue rising as the unified LLPA grid removes another source of friction. Now, we have extended our industry-first $0.99 VantageScore mortgage pricing through 2028, at more than 90% below the current price of the legacy score. This offers potentially meaningful savings for lenders and consumers while preserving access to complete credit data. We also recently introduced First Look, which allows lenders to review credit report insights before purchasing additional scores, improving early-stage underwriting efficiency.
Finally, we believe our direct financial exposure to potential change in FHFA requirements is limited. Within our mortgage revenue, a substantial portion consists of no-margin FICO royalties, pre-qualification usage, and other revenue that is not subject to a TriMerge requirement. The remaining TriMerge revenue spans FHFA-regulated loans as well as other government and non-conforming loans. Only approximately $100 million in annual revenue is directly connected to the FHFA requirement.
Now, if all FHFA-regulated loans move to BiMerge, and assuming the bureaus maintain equal share, we expect the annual impact will be roughly $33 million in revenue, excluding FICO royalties, and $0.15 of adjusted diluted earnings per share. This equates to less than 1% of total revenue and less than 3% of adjusted diluted EPS. We also believe that lender behavior and incentives would provide additional mitigation.
Now, there are several key commercial reasons for lenders to continue using TriMerge, even in the absence of a regulatory requirement. First, broader market borrower coverage. Complete data expands the mortgage-eligible population, and lenders often use TriMerge during pre-qualification despite the availability of single-file options. Second, there is optionality in the type of loan to originate.
For example, lenders at the beginning of the process often do not know whether they will be originating an FHFA or an FHA loan when they pull credit. Today, the FHA, the VA, the USDA continue to support the TriMerge standard. Third, the ability to offer the most attractive mortgage rate to consumers is important. These consumers are actively shopping for mortgages.
Using less complete data could lead lenders to place borrowers in a less favorable credit score tier than their competitors do. Fourth, consistent and comprehensive risk assessment is essential. For 35% of consumers, at least one individual bureau score differs from the TriMerge score by 10 points or more. Underwriting with less complete information could increase risk across the mortgage ecosystem, and with that risk ultimately borne by lenders, investors, or the GSEs. Now taken together, TriMerge delivers better outcomes across the mortgage ecosystem.
At the same time, we believe our direct revenue exposure to potential regulatory change is limited, and that TransUnion remains well-positioned for a range of potential outcomes. Now, the TriMerge discussion reinforces an important point that is evident in our third quarter results, and that is our growth is increasingly diversified, durable, and innovation-led rather than dependent on any single product, vertical, or geography.
We continue to execute our strategic priorities to navigate an uncertain environment and deliver on our commitments. Now, before I conclude, I also want to recognize Todd in his final earnings call as TransUnion CFO. Todd joined the company as a staff accountant 29 years ago and has helped guide TransUnion through two leveraged buyouts and an initial public offering, and most recently, a transformative period of growth and innovation as our CFO.
He has been an exceptional leader, a keeper of our culture, and a tremendous partner to me personally, and I want to thank him. Todd and I are working closely to ensure a smooth transition. Although this marks Todd's final call as CFO, we are grateful that he will remain in the role through the end of the year and serve as a full-time advisor through March 1st. We have begun and are well in process with a comprehensive search for our next CFO, and we will share updates as they become available. With that, I'll turn it back to Greg.
That concludes our prepared remarks. For the Q&A, we ask that you each ask only one question so that we can include more participants. Operator, we can begin the Q&A.
We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. 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. Again, please limit yourself to one question. At this time, we will pause momentarily to assemble the roster. Our first question will come from Toni Kaplan of Morgan Stanley. Please go ahead.
Thank you so much, and thanks for the extra clarity on the bi-merge impact at the end of the slides there. When you think about market share across the bureaus, I guess, how do you differentiate your credit report from the others? Is it certain data that you can provide that others can't? Maybe in the pre-qual part of the market, if you could just update us on how much share you have there and how the share is trending. Thank you.
Yeah. Good morning, Toni, and thank you for the question. This is Chris. Well, I guess I would first point to our revenue performance in mortgage in recent years and certainly recent quarters where the growth and the performance relative to our estimates of mortgage inquiries and the like really suggests that we have held or increased our market share, particularly during this period when the early assessment program from the GSEs.
The market's been digesting it over the past few years and deciding how many credit pulls make sense at the origination or the early part of the mortgage origination process. As we've said, the market's not settling at one, it's settling at over two. There still are lenders that are pulling three credit reports for the reasons that I explained in the mortgage slides and the commentary that we ended the presentation on.
In short, I think our financial results in mortgage show that we have continued to perform well. Now, look, in our case, and I would say each of the bureaus will have an argument as to why their bundle of data is attractive. In our case, we lead the industry in core trended credit data. We were the first mover in the space. We provide 2 and a half years of trended data.
As I mentioned in my slides, we've seen a 60% increase in the number of consumers that we have trended data going back 2 and a half years on. We also have market-leading coverage in fintech, which has been for well over a decade, a significant portion of the loan origination marketplace.
We have leading coverage down the risk spectrum because of an attractive acquisition of a payday lending-oriented credit bureau, and we have significantly expanded our alternative data. All of that, we have found, makes us extremely competitive in terms of the value proposition of our credit data.
We are also kind of a neutral player providing that bundle of information to the resellers who ultimately serve the mortgage lenders. What that means is we don't compete in the tri-bureau market. In a bi-merge environment, those resellers are going to be able to choose which two bureaus that they want to do business with. I think our neutrality as well as the value add from our data bundle positions us well.
Thank you.
The next question comes from Andrew Steinerman of JPMorgan. Please go ahead.
Hi. I am focused on slide 13, and particularly looking at the U.S. financials ex mortgage growth in the quarter of 5%, and the sub-segments that decelerated was card and banking and consumer lending, and then auto actually accelerated. Could you just tell us why the first two sub-segments decelerated? And I was a little surprised to see auto accelerate. Chris, you mentioned about affordability and rates. Maybe that was a prospective comment and just help us bring that together.
Okay. Good morning, Andrew. I am going to take that one, and then Chris can add on. In financial services, I am going to answer this big picture first to start. When you look at it on a quarter-over-quarter basis throughout 2026, you definitely do see a deceleration from 10% growth in Q1 to 8% to 5%. And these numbers I am giving you all exclude mortgage.
Yes, we did see some moderated growth throughout the third quarter. But as we said in our prepared remarks, the underlying conditions in the market still remain healthy, and we have not really seen any signal of a downward shift in conditions. In fact, when we look at our volumes up until yesterday, we really do not see an acceleration of any deterioration in these markets. Where we saw some modest slowing in the quarter was particularly in auto and consumer lending categories.
I think to really provide context on this specific question, it is really important to remember you have to go back to 2025 as the year that we saw a recovery in these end markets. We think it is more instructive when you look at things on a two-year basis. What we see when you do that is relatively consistent performance.
To that point, to give you some numbers around that, if you were to look at a two-year CAGR for financial services excluding mortgage, Q1, Q2, Q3, the growth rate is 10%, 10%, and 9% respectively in each of those quarters. Yes, we are dealing with the comparable, and that is where you are seeing the deceleration. But when you look at it in that way, you still see a very healthy market.
I would say that that was all, in essence, backed up by the recent bank earnings reports, where there was a consistent theme across large lenders as well as medium to small size lenders that lending conditions remained stable and delinquency levels also remained consistent. You did not see a big increase in loan loss reserves said another way.
Just as a reminder, when we think about the financial services business, clearly mortgage is the most rate sensitive part of the business. Everybody knows that. But when you think about the other lines of business on a continuum downward, auto would be the next rate sensitive. But then consumer lending and card, not as much rate sensitivity to those lines of business.
Yeah, look, I agree with that. There is no change in our perspective on how these different consumer lending verticals are impacted in rising rates. As Todd said, mortgage is the most sensitive because it is the largest loan over the longest duration. Auto is probably the next largest loan, and again, as rates have risen over the past couple of years, you have seen the duration of auto loans increasing so that the consumer monthly payment remains affordable.
Consumer lending, not as rate sensitive because the spread and the APRs is higher and the duration is lower. Of course, card has the highest spread and as balances revolve, rates can adjust. Now, look, the numbers in this particular quarter may deviate a little bit from that kind of hierarchy or those dynamics, if you will. I would not read too much into it, right?
There can be a variety of puts and takes in any of these categories in a given quarter. I think the way Todd framed it, looking at the trajectory over the past couple of years and considering that we have had some pretty heady growth in consumer lending as it has resurged, I think that kind of explains what you are seeing in the current quarter. It does not necessarily reflect what we expect to happen in the fourth quarter. I think that probably covers the waterfront of perspective on that issue.
Thank you. Very thoughtful.
The next question comes from Jeff Meuler of Baird. Please go ahead.
Yeah, thank you. Todd, congratulations and best wishes to you. My question is on India. I know you have talked about kind of the recovery starting to set in in recent quarters that we are expecting acceleration, but it seems to be accelerating more and faster than expected. So help us with what is driving that or how you kind of think about the growth potential looking out over the next 12 months for it. Thank you.
Okay. Thanks, Jeff. Look, let us just pause for a moment and enjoy the good news that the third quarter brought in India. It is exciting to see it get back to this level of growth, and we think that is indicative of the level of growth that we can get out of India in the coming years.
It is a combination of some market improvements, both on the consumer lending in the commercial side with better volumes. The RBI is more comfortable with the lending practices in the unsecured consumer lending market. So some of the pressures there that were dampening volumes have been lifted. We are seeing the big banks post some good loan growth, and that is even with a recent rate hike. The economy in India continues to grow. It is 7% plus, and inflation is manageable.
But I think what I'm most excited about is the way we're competing in India. We've had a couple of years of challenging macros, which we've discussed many times in these quarterly calls. But the business today is materially stronger than it was a couple of years ago in a very foundational way. We have improved our core credit data asset by broadening the number of banks that are furnishing to us and increasing the breadth of data that they are furnishing.
That's one. Two, we have redeveloped all of our consumer and commercial credit scores, and so they are performing better relative to the competition. That's helping us win more. And then finally, we've got tremendous momentum around TruIQ, our analytics platform in India. We've recently had client events there that were just really successful. We're building a great pipeline.
We've also already achieved multimillion-dollar bookings from multiple banks, and I think this gives us a new vector for growth in India. So as we think about the next three years, we think it's mid-teens, top-line organic plus. And hopefully, it will be plus because India is still an enormously attractive market. As I said, 7% real GDP growth, manageable inflation, great demographics, 840 million people under the age of 35, and our share is very stable.
And as I mentioned, our competitive position never better. And we are introducing into the Indian market some of our new global products. First is TruIQ. We've also made great progress with the telcos in establishing the relationships for Trusted Call Solutions. And then our fraud product will be the next to launch in India. And we're even taking part of the marketing portfolio. India is less developed from a marketing data perspective, but we're bringing our media mix modeling services to India, and we're starting to gain traction there. So a lot to feel good about with the India business.
Thank you.
The next question comes from Andrew Nicholas of William Blair. Please go ahead.
Hi. Good morning. Appreciate you taking my question and congrats, Todd. I had a quick question for you, Todd, on the comment you made about reinvesting some of the margin in the fourth quarter. Could you flesh that out a little bit? I think you mentioned it being focused on technology and potentially some legal costs. Is that a fourth quarter item only, or is that something that we should think about from a reinvestment perspective looking ahead to next year? Thank you.
Good morning, Andrew, and thanks for the question. I think it's a good opportunity for us to kind of unpack the fourth quarter guidance. I can talk specifically to start just about us being perhaps opportunistic in the third quarter with making certain investments back into the business from more of a technology perspective to enable the solutions growth that we talked about during our investor day in March of this year.
We're going to do that when we see the opportunity on a go-forward basis. I don't think it's something that you necessarily need to be overly concerned about. There was just a good opportunity for us to expand on that spend, so we did that. We also did talk about higher litigation expense in the quarter. This is more related to individual small claims cases.
It is an industry-wide issue pertaining to FCRA litigation, so not just a TransUnion specific dynamic. Most recently, Law360 ran an article last week articulating this in the marketplace. We're focused, as we always are, on a proactive litigation strategy.
But most importantly, implementing internal process enhancements to make the process as smooth as possible for the consumer when they interact with TransUnion. Now diving into the fourth quarter itself and the guidance that we have. When we look at things excluding the FICO mortgage royalty, in essence, the revenues for Q3 and then if you compared that to the Q4 high-end guidance
In essence, that revenue is pretty much exactly the same. As far as drivers are concerned, when you look at things from Q3 to Q4, you obviously saw a strong international performance, and that trajectory we expect to continue into the fourth quarter. But when you look at things from the third quarter to the fourth quarter in U.S. markets, there are some seasonal aspects pertaining to credit card marketing activity, as well as consumer lending that we would normally see a seasonal uptick.
So think about revenues as a repeat performance. In essence, on an absolute dollar basis. When we look at the expenses, which go to the initial part of your question, the expense base also when we exclude the FICO mortgage royalty, it is roughly flat on a quarter-to-quarter basis. So, no big expectation that we have to manage costs down.
In essence, we let the run rate of the business continue onward. And that all shakes out to an adjusted EBITDA of about the same as well from $465 million that we achieved in the third quarter, and the high end of our guidance for the fourth quarter is at $468 million. So that gives us the conviction that another repeat performance is out there for us, just simply doing what we just did in the third quarter.
And I would point you to the fact that, again, we look at the high end of the guidance as something that we look to achieve. So, we are guiding you again to the high end of the guidance. The noise here, though, will continue to be mortgage, and whatever happens with interest rates.
But we feel comfortable that the range that we have put together for the fourth quarter should be able to absorb any potential disruption that could be potentially on the horizon. So we feel very strong about what we have laid out for the fourth quarter.
Yeah. And Andrew, since you asked about the technology journey and the technology investment. I will take this chance to jump on the OneTru. Obviously, we have been investing heavily over the past several years to build our next generation tech platform. That is OneTru. And we are approaching the end of the migration in the U.S. of the U.S. credit customers to the OneTru platform.
We feel comfortable that we are going to get that done by the end of this year, largely done. If there are a couple of customers that require a bit more time, we have provisioned a capacity for them to run on the legacy platform for a period of time, and we have greatly consolidated the cost of running the legacy platform so that we have achieved the full savings and beyond.
But as we stressed before, the real goal is to roll this platform out across our markets globally. The next focus is on the next four largest markets plus the Philippines, which if we can migrate them all to the OneTru platform, will mean about 94% of our revenue globally will be running on the common platform.
That is going to enable a step change function in both our revenue performance and our cost structure. When we say we are spending a bit more in the third quarter and we have an eye toward, it is because we are trying to accelerate that. We are trying to get the global rollout to compress the time it is going to take to get that so we can get the step function benefits in the technology operating environment.
It is also worth mentioning that after several years of building a new platform and then migrating legacy to the new platform, this is an opportunity for us to accelerate the feature functionality and robustness of the various products that run on the platform, be it credit, analytics, marketing, fraud, et cetera. We put more of our resources against accelerating innovation in those categories because that can help us achieve higher top-line growth sooner. Again, that is a real priority for our business. Hopefully, that gives you the color you are looking for.
Very helpful. Thank you.
The next question comes from Faiza Alwy of Deutsche Bank. Please go ahead.
Yes, hi. Thank you, and congratulations from me as well to you, Todd Cello. I wanted to ask about the emerging vertical businesses and some of the puts and takes there. I think you mentioned softer than expected revenues in media and tenant employment screening. I just wanted to talk about that because I know you have a tougher comp in 4Q on some project-related revenue in the media business. I just wanted to understand if this is more timing or just any additional color you can provide.
Yeah, Faiza Alwy, happy to provide that. Emerging verticals, as you know, is almost half of the revenue coming out of the U.S. As you can see from the slides we provided, insurance is the anchor tenant, so to speak. It is about a third of those revenues, and it has been compounding double digit over the last five years. In the recent couple of years, it has performed exceptionally well. The reason we wanted to showcase it, because we wanted to illustrate the way in which our broader mix of products have enabled us to accelerate growth in that particular vertical over the fullness of time.
Not only have we innovated on the quality of credit data and scores and analytics, but we were able to acquire some unique insurance data assets like Drivers History and motor vehicle record access that broadened our value proposition, diversified our revenues, and allowed a step up in growth.
The final incremental growth component has been the marketing and fraud suites that we acquired and built in recent years, which are just starting to really contribute meaningfully to the overall revenue mix in insurance. Look, I frame this up because that is what we are going to do across all the various verticals in emerging and, in particular, in the diversified markets. As you pointed out, we achieved 6% growth in the quarter. That is solid. But we had some puts and takes on performance.
I would say starting on the positive side of things, we had a good quarter of growth for our public sector business. Public sector was challenged in recent years because of cost-focused efforts at the federal level. That is really DOGE. DOGE had some moderate impact on our existing revenues, but it certainly chilled new business acquisition.
We have seen an improvement in the environment, an improvement in closes, and also pipeline, particularly for our fraud suite. The fraud suite, again, we have made a lot of investments in recent years. We have got some great assets that we have brought together on the OneTru platform. We recently achieved FedRAMP certification, which is a certification that is required for us to sell the fraud solution across the federal government, and it is also kind of a foundation enabler for selling at the state level as well.
In short, because of the certification and the strength of the fraud solution, we think we are going to get better growth out of public sector going forward, and we think there is a lot of upside for us. There were some weaknesses as we mentioned. I will start with tenant and employment. Even though we have seen improving growth rates in recent quarters, the volume of moves has been under pressure because the housing market in general in the U.S. is under pressure.
What happens is, typically you would have renters leaving rental units to purchase their first homes, creating capacity, that capacity gets filled, and our tenant employment revenues benefit as a result. Because of higher rates and really lower availability, both of new homes but also of new apartment units, you really are not seeing the volume of movement or the velocity of movement.
Tenant employment had a difficult quarter and is, I think, probably resetting to a more modest level of volume in the coming quarters. We also had some challenges in media, which you asked about. What I would say about media is even though the vertical is down, there are definitely some marketing growth highlights within that. First, we have three core marketing products, identity, audiences, and measurement, as you might recall.
The identity products are growing exceptionally well. As we have said many times, we have got a tremendous foundation of credit, marketing, fraud, and public records information in the U.S. that gives us a leading identity graph, and that is being recognized, and we have got great bookings, revenue, and pipeline there. Our media spend planning and measurement services is also doing well. To your question, we have got a big fourth quarter that we are comping against.
Our guide contemplates that, and we have been looking at the inventory of measurement performance jobs that we have got, and we feel pretty well positioned for the fourth quarter. You should feel comfortable about that. Again, thank you for your question. The challenge has been on the audience side. We have created a next-generation marketing audience and activation product on OneTru. It is called TruAudience.
Today, the revenue lives on a series of legacy platforms. We are in the process of migrating customers from the legacy platforms to the more functional and attractive OneTru audience and activation platforms. This is the one area of our product migration where we actually have to engage with our clients and handhold as they move from the legacy to the next generation. In this intermediate transition, what we have seen is a reduction in the usage volume.
That took us negative, and we might have a few bumps over the next couple of quarters as we complete the migration. The good news is we are really confident in the new TruAudience product. We get great feedback from the clients who have migrated to it from the legacy, and we do not see any reason why over the medium term, we will not get back to growthfulness in audiences. That is kind of the range for emerging verticals in this quarter.
Great. Thank you. Very helpful.
The next question comes from Simon Clinch of Rothschild & Co. Please go ahead.
Hi. Thanks for taking my question. Todd, I will echo everyone's comments here and just say congrats and wish you all the best. I was wondering if you could just talk about the international opportunity more broadly.
We have had some strong growth in India, strong growth in LATAM, but we have also got quite a lot of volatility happening in certain parts of, well, Brazil, for example, more recently. I was just wondering, is there anything on the horizon that you see that gives you some cause of concern that unpredictability or anything like that is worth calling out? How you think about navigating any of those kinds of issues. Thanks.
Yeah. Well, thanks for the question, Simon. Look, clearly geopolitical risks abound in this environment as we all know. That said, I think I am pretty optimistic about international. I think for the past couple of years, they have been working through some challenges in India, but also in the Asia Pac region. Some bumps and difficult revenue comps in Hong Kong related to a surge of one-time revenues, consulting revenues, preparing for a bureau competition, the MCRA change in Hong Kong, which we have talked about previously.
But in the most growthful part of Asia Pac, the Philippines has really been hit hard by rising oil prices. So there has been contraction there and a slowing of our growth. So International has been working through all of that. When we think about international, we think about it as at least a 10% organic compounder in okay conditions around the world.
But it can certainly grow above that, and we saw that in the COVID time and the COVID era plus where it was growing near 15% for two to three years, right? So I think the international business gives us great growth potential and also really helpful diversification as we experience this quarter when rising rates over the course of the year, 80 bps year to date, has put some pressure on U.S. financial services volumes.
Now, when I think about the various countries, obviously Canada has done a terrific job and continues to compound above market rates. I think the same thing is true with our U.K. business, and we are positioned to strengthen that business through introducing OneTru and some of the new global products. India is getting back online. Asia Pac is pivoting from shrinking to growing.
And then Brazil, yes, there has been some volatility, but there has been a huge step forward in Brazil because we are successfully seeding the market and launching Trusted Call Solutions in Brazil, right? So that will give us a whole new product and a whole new growth vector. So net-net, I am optimistic about international, and I think it is additive to the growth profile overall and really helpful diversification.
The next question comes from Ashish Sabadra of RBC Capital Markets. Please go ahead.
Thanks for taking my question. As you think about some of the headwinds going into next year, you've called out the interest expense headwind there, which is roughly 5 points to the earnings growth, and potentially some headwinds from mortgage volume as well. But as we think about some of the tailwinds, can you highlight some of the tailwinds which can continue to help you deliver on your midterm guidance? Thank you.
Yeah, for sure. I mean, look, we've had some discussion of the headwinds, and we would just characterize the headwinds as higher rates leading to lower volumes in mortgage in particular, and then some cooling in other product categories. But I think we've been clear on our perspective there. Then again, we're going to have some comps in the first half of next year that could create some pressures depending on the volumes and depending on the rates in U.S. financial services.
To the upside, again, I would point to international. I'm not going to elaborate because I just provided some lengthy context of that in the prior question. But international will definitely buttress and kind of fortify our growth rates going into next year. Then on top of that, in the emerging markets.
I mean, we still have products like our fraud solutions and our marketing solutions that can reach another gear of growth and sustain it. That's part of the reason why we are investing more in advancing the value props for fraud and marketing, as I mentioned previously. Then we have spent a good deal of this year rolling out the TruIQ analytics solution to India, the U.K., and Canada. We'll probably push it to more markets next year. That gives us another product to monetize. So I would view that as some of the positives supporting our growth next year and-
Yeah, and Chris, I just would want to add on to that and just think about the performance that we just delivered in the third quarter and what we anticipate in the fourth quarter. To me, that is a display of us being able to deliver strong results despite a challenging interest rate environment in the U.S. And that really speaks to the portfolio diversification that we've intentionally built at TransUnion.
And hand in hand with that, strong free cash flows that we're also generating in the most recent quarter and what we expect going forward from a capital allocation perspective as the business is able to absorb these challenges, still going to enable TransUnion to be in a position to focus on shareholder returns.
That's a good point. We haven't talked about our capital allocation in the third quarter on the call yet and what we expect. But the fact that EBITDA is growing, free cash flow conversion is high, it's in the low 90s. The debt level is now within our long-term target range. We're going to buy back a lot of shares. We've got an increased authorization by $1 billion that brings it to $2 billion, and Todd and team will be putting that to good use in the fourth quarter and beyond.
That's very helpful, Todd. Todd, let me add my congrats as well, and best wishes.
Our last question will come from Kelsey Zhu of Autonomous. Please go ahead.
Hey, good morning. Thanks for squeezing me in. Chris, what's your expectation around the adoption rate for FICO Preferred? Obviously, we know you're selling FICO scores at 0% margin, but FICO Preferred will lead to zero revenues for lenders enrolled in that program as well.
I also just want to get your updated expectations for VantageScore adoption rate in 2027 and 2028. Just to double confirm, the First Look for mortgage program, is that going to be available through resellers? Because if it is not, does that mean that lenders who are pulling both FICO and VantageScore will incur double the crediting of fee under the FICO Preferred program? Thanks a lot.
Okay, so we got Preferred, we've got Vantage adoption, and First Look. Probably a good question because we're all curious about the dynamics in the mortgage market, both scoring and credit. We'll start with the Preferred Program. We read with interest the launch of this program via press release on Thursday and Friday night.
What I'll say is, as is typically the case, there's still work to do to translate between the press release and contractual terms and operational requirements to make the program a reality. We're working with FICO on that, as you would expect. There's also an additional portion of it. The Preferred Program is only one part of how FICO intends to monetize their score in 2027.
The other parts, which they haven't publicly announced, they are working through with us and the other bureaus in real time as we renew our annual pricing and terms and conditions. Look, all of that at this point is confidential between TransUnion and FICO and our customers, the resellers, and some lenders directly. So more news to come on that.
I would say generally, with the Preferred Program and other efforts, what is clear is that the market has an enormous appetite for score competition. I think the rate of adoption across the mortgage market has been stronger than most people anticipated and even stronger than we anticipated. Again, many sell-side analysts and other sources are providing the weekly reports on the rate of adoption, and that's just what's happened in the current period.
We've got greater insights into all of the preparations that are taking place with various lenders across the mortgage ecosystem to adopt the VantageScore. So I think what you'll see is various efforts to try to slow the migration by changing monetization paths, if you will. Again, give us a bit more time to work things out as an industry, and I think all the various approaches to score monetization will become clear. But stepping back, I would make two points.
The first is that regardless of a Preferred Program or any other way of monetization that may be put forward, what is clear is that the VantageScore performs extremely well, better than the incumbent, and it only costs one-tenth of the incumbent. In our experience working around the globe, that price is more reflective of what scores sell for.
They don't sell for $10 elsewhere. So regardless of changes in monetization approach, while that may slow migration in the near term, it won't stop the overall movement of the market to a highly performing score that costs 90% less than the current score.
Right? We're going to continue to support the efforts of lenders and resellers across the spectrum by providing them with free credit reports in the analytic and evaluation phase and $0.99 credit reports through the end of 2028. Right? So, I think that's our thoughts on Preferred and the Vantage adoption. First Look is, again, it's another innovation from us to try to address for lenders, the cost of evaluating and originating mortgages in what will continue to be a challenging environment.
With this, they are able to pull Vantage and to pull a credit report and get a perspective on the attractiveness of the loan and where they might sell it before they have to pull a more expensive product. Then again, within a narrow time window, we will allow them to pull an additional credit score and apply it to the same report that they pulled from TransUnion if they are looking for additional information that might provide additional insights or alpha for them. Again, this is our effort to address the cost of evaluating and originating mortgages in a very mortgage-challenged market.
The second point that I want to make clear, and it just bears reiteration, is at the end of last year or into last year, we changed our pricing structure at TransUnion and also our competing bureaus did as well, and our industry has essentially decoupled our revenue from the FICO score. We charge what we charge for the data.
They can charge what they want for the score. They can direct license if they choose. We are happy to support almost all of the options that they have articulated at this point. But we chart our own course on revenue, and we offer a score that is tremendously valuable, and it is at one-tenth of the price. That is just additive revenue to everything that we do, and we are going to maintain this attractive level of pricing and promote market share, adopt market shift, and share adoption in the coming years.
Perfect. Thank you, Chris. I think that is a good place to end. Thank you all for your time today, and have a great rest of your day. Thanks.
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