Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- TransUnion (TRU, Financial) exceeded guidance across revenue, adjusted EBITDA, and adjusted diluted EPS for Q2 2024.
- Revenue grew 8% on an organic constant currency basis, surpassing the 5% to 6% guidance.
- The international segment experienced 14% growth on a constant currency basis, marking the 13th consecutive quarter of double-digit growth.
- TransUnion (TRU) prepaid $80 million in debt during the quarter and plans further prepayments in the second half of the year.
- The company is making significant progress with its technology modernization, including the OneTru platform, which is expected to drive innovation and cost savings.
Negative Points
- US lending volumes remain muted and well below historical trends, impacting overall market conditions.
- Consumer delinquencies rose slightly for mortgages and auto loans, indicating some financial stress among consumers.
- The Consumer Interactive segment declined by 1%, reflecting ongoing challenges in stabilizing this part of the business.
- Despite growth in several verticals, the tenant and employment segment experienced low single-digit declines.
- The company incurred $33 million in one-time charges related to its transformation program, impacting short-term financials.
Q & A Highlights
Q: What drove the year-over-year decline in card and banking and consumer lending, and when can we expect improvement beyond easier comps?
A: (Todd Cello, CFO) The decline is due to stable but muted market conditions. We expect low single-digit growth in Q3 and mid-single-digit growth in Q4 due to easier comps. Despite the volume challenges, we continue to win new business and cross-sell Neustar capabilities. (Christopher Cartwright, CEO) We view the market as stable, and our diversified business model allows us to grow even in muted conditions. Improvement may come as consumer distress moderates and if the Fed reduces rates.
Q: Can you provide more color on what's driving Neustar's revenue growth within marketing and fraud solutions?
A: (Christopher Cartwright, CEO) Neustar's revenue growth is driven by strong performance in fraud solutions and Trusted Call Solutions, despite softer marketing conditions. We are launching next-generation integrated marketing and fraud products built on the OneTru platform, which we expect to drive material growth. Neustar's EBITDA margins are expected to be around 32% this year, with potential upside as we realize acquisition synergies and complete technology modernization.
Q: Why are you maintaining a low single-digit growth outlook for emerging verticals despite strong performance in the first half?
A: (Todd Cello, CFO) While we saw 4% growth in emerging verticals, driven by insurance, public sector, tech retail, e-commerce, and media, we also faced slower growth in collections and declines in tenant and employment. We expect tenant and employment to return to growth in the second half. Despite these offsets, we believe the risk skews more to the upside, but we are maintaining a conservative guidance approach.
Q: Why does your Q3 organic growth guide imply a deceleration, and are there specific headwinds to call out?
A: (Todd Cello, CFO) The deceleration is due to our conservative guidance approach. We are maintaining our second-half guidance from earlier in the year, assuming no lending recovery or benefit from Fed rate cuts. We aim to outperform this conservative guidance, as we did in the first half of the year.
Q: Can you provide more details on the large breach wins and the competitive landscape in breach revenues?
A: (Christopher Cartwright, CEO) We have emerged as a significant player in breach services with the acquisition of Sontiq. While breach deals are episodic, we are better positioned to compete and win these deals. The breach wins in Q3 are higher than usual, but they come with attractive margins. The competitive landscape includes strong players like Experian, but we are confident in our comprehensive range of services.
Q: How is the leadership aligned within the seven product suites, and are they interconnected?
A: (Christopher Cartwright, CEO) We have a global operating model with vertical leadership in countries and a parallel product organization. Each product family has defined leadership and product management teams, similar to a global software or consumer packaged goods company. This structure ensures alignment and focus on each product suite.
Q: What gives you confidence in the consumer interactive business nearing an inflection point?
A: (Christopher Cartwright, CEO) The rate of decline in the direct-to-consumer subscription business is slowing, and we expect it to stabilize by Q4. The indirect channel is showing growth, and Sontiq continues to perform strongly. We believe we can return the consumer business to consistent revenue growth through subscription sales, supporting offers, and identity and breach remediation services.
Q: Was there any unusual breach activity in Q2, and how is the transformation project tracking?
A: (Christopher Cartwright, CEO) There was no unusual breach activity in Q2. The transformation project is on track, with significant progress in achieving integration savings and reengineering products into integrated suites. We are confident in delivering the expected savings and benefits from the technology modernization.
Q: Did the CDK outage impact auto sales in Q2, and do you expect any delayed impact in Q3?
A: (Todd Cello, CFO) The CDK outage had a small impact on auto sales in Q2, but it was managed effectively. We do not expect a significant delayed impact in Q3.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
