TransUnion (TRU) Q2 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary reflects a positive sentiment with strong financial metrics, optimistic guidance, and strategic initiatives like the acquisition of Monevo and global capability centers. The Q&A section reveals stable consumer lending, positive fintech momentum, and promising growth in India. While management's responses were somewhat vague on certain timelines, the overall outlook remains optimistic. The absence of negative catalysts and the presence of growth opportunities suggest a positive stock price movement over the next two weeks.

Key Financial Performance

Revenue Revenue grew 9% on an organic constant currency basis, well above the 3% to 5% guidance. Excluding mortgage, growth was 6.5%. U.S. Markets segment delivered 10% growth, Financial Services grew 17%, and growth excluding mortgage accelerated to 11%. Reasons for growth include strong execution, innovation, and robust activity from fintech lenders supported by healthy funding and heightened consumer demand for debt consolidation products.

Mortgage Revenue Mortgage revenue grew 29% despite flat inquiry volumes. This was driven by third-party score pricing and non-tribureau revenue.

Emerging Verticals Revenue Emerging Verticals grew 5%, with Insurance growing double digits due to a gradual recovery in marketing, healthy consumer shopping activity, and new wins across solutions. Other diversified verticals like communications, tech, retail, and e-commerce also contributed.

Consumer Interactive Revenue Consumer Interactive grew 2% organically, driven by the successful launch of a freemium solution as part of a turnaround strategy.

International Revenue International revenue grew 6% on an organic constant currency basis. India's growth accelerated to 8% due to a modest pickup in consumer lending and strong growth in non-consumer businesses. Canada and Africa grew double digits, supported by innovative fraud and identity solutions and broad-based growth across financial services, retail, and insurance.

Adjusted EBITDA Adjusted EBITDA increased 8%, with an adjusted EBITDA margin of 35.7%, ahead of the 34.8% to 35.3% guidance. This was due to flow-through on stronger revenue growth.

Adjusted Diluted Earnings Per Share Adjusted diluted earnings per share was $1.08, an increase of 9%, and $0.09 ahead of the high end of guidance. This reflects strong underlying performance.

Leverage Ratio Leverage ratio declined to 2.8x, with expectations to delever to 2.5x before funding the planned Mexico acquisition. This was supported by strong financial results and disciplined capital deployment.

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Operating Highlights

Trusted Call Solutions (TCS): Revenue grew from $50 million in 2022 to an expected $150 million in 2025. TCS enhances phone call trust by authenticating and enriching call data, improving consumer engagement and fraud prevention. It is expected to reach $250 million in revenue by 2028.

OneTru AI Studio: Launched as a low-code/no-code AI workflow solution to support broader non-engineering use cases.

Freemium Consumer Interactive Solution: Successfully launched, driving 2% organic growth in Consumer Interactive.

New Fraud Models: Developed to identify consumers falsely claiming fraud, with strong early demand.

India Market Expansion: India's growth accelerated to 8% in Q2 2025, with potential for over 20% annual growth in the medium term. Focus on underserved markets like small businesses and microfinance.

Mexico Acquisition: Planned acquisition expected to close by the end of 2025, supporting geographic expansion.

Canada and Africa Growth: Canada and Africa grew double digits, driven by innovative fraud and identity solutions.

OneTru Platform Enhancements: Improved processing speeds by over 50%, enhanced cybersecurity, and enabled rapid development of new scores and models.

Developer Productivity: OneTru Assist tool increased developer productivity by 20%-50% through automation and security enhancements.

Transformation Program: $315 million incurred to date, with $355-$375 million expected by end of 2025, focusing on technology modernization and operational optimization.

Strategic Investments in India: Focus on financial inclusion and credit access for underserved markets, leveraging strong relationships with Indian regulators and banks.

TCS Global Expansion: Launched branded call display in Canada and initial solutions in Brazil and France, with plans for further global rollout.

Vertical and Geographic Growth Playbook: Continued emphasis on differentiated vertical market engagement and geographic expansion to drive growth.

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Risk or Challenges

Macroeconomic Uncertainty: Concerns about higher inflation and interest rates due to the recently passed U.S. fiscal package, which could negatively impact economic and lending conditions.

Market Conditions in Lending: Muted market conditions in auto and mortgage lending, with activity below historical trends, despite some recovery in consumer lending.

Transformation Program Costs: Ongoing transformation program has incurred $315 million in one-time expenses to date, with total expected costs of $355 million to $375 million by the end of 2025, potentially impacting profitability.

Regulatory and Policy Risks: Potential impacts from U.S. fiscal policy changes, including trade agreements and fiscal packages, which could affect inflation, interest rates, and economic growth.

International Market Challenges: Muted consumer credit volumes in India and softer economic conditions in Hong Kong, which could impact international revenue growth.

Technology Modernization Risks: Risks associated with customer migrations to the new OneTru platform, including potential conversion disruptions.

Debt and Leverage: Leverage ratio at 2.8x, with plans to reduce to 2.5x before funding the Mexico acquisition, indicating financial constraints.

Competitive Pressures: Strong competition in key markets, requiring continuous innovation and investment to maintain market leadership.

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Guidance & Outlook

2025 Full Year Revenue and Adjusted Diluted Earnings Per Share Guidance: TransUnion has raised its 2025 full-year revenue and adjusted diluted earnings per share guidance, now anticipating 6% to 7% organic constant currency revenue growth. Adjusted EBITDA is expected to grow 5% to 7%, with adjusted diluted earnings per share increasing by 3% to 6%.

Third Quarter 2025 Guidance: Revenue is expected to be between $1.115 billion and $1.135 billion, representing 2% to 4% organic constant currency growth. Adjusted EBITDA is projected to grow 1% to 4%, with adjusted diluted earnings per share ranging from $0.99 to $1.04.

Mortgage Revenue Growth: Mortgage revenue is expected to increase by over 20% in 2025, despite modest declines in mortgage inquiries.

International Growth: International revenue is anticipated to grow high single digits in 2025, with India expected to achieve nearly 10% organic constant currency revenue growth for the full year and high teens growth in Q4.

Capital Expenditures: Capital expenditures are expected to be about 8% of revenue in 2025.

Free Cash Flow Conversion: Free cash flow conversion as a percentage of adjusted net income is expected to be 70% in 2025, improving to 90%+ in 2026.

Leverage Ratio: The leverage ratio is expected to decline to under 2.5x by the end of 2025, ahead of the planned Mexico acquisition.

Emerging Verticals and Consumer Interactive: Emerging Verticals are expected to grow mid-single digits, while Consumer Interactive is anticipated to increase low single digits when excluding the impact of a large breach win in 2024.

U.S. Markets and Financial Services: U.S. Markets are projected to grow mid-single digits, with Financial Services expected to grow low double digits or high single digits excluding mortgage.

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Shareholder Return Plan

Share Repurchase: Through mid-July, we have repurchased $47 million in shares. We expect that our financial results will further support disciplined capital deployment throughout the year.

Share Repurchase: We have repurchased $47 million in shares year-to-date through mid-July in line with our balanced approach to capital deployment. We remain focused on delevering to under 2.5x leverage ratio. Throughout the remainder of the year, we plan to balance debt prepayment and share repurchases based on market conditions.

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Key Q&A

Q:Chris, you mentioned in your prepared remarks that across all lending types, you're outperforming the overall market driven by new business wins. Is this more customer mix, related to new technology and product innovation, or something else?

A:It's a combination of factors. Consumer lenders have returned strongly, particularly fintechs, benefiting TransUnion due to its large market share (over 2/3). Additionally, TransUnion is selling a broad array of products across financial services subcomponents, such as credit analytics, Trusted Call Solutions, and Marketing Solutions. The Auto vertical also showed strong growth, driven by product suite performance. This momentum has allowed TransUnion to raise its guidance for the year while maintaining a conservative posture.

Q:Why is there good momentum right now for alternative data bureaus like FactorTrust? Is it tied to stronger P loan growth?

A:The momentum is due to re-platforming and innovation at FactorTrust, including moving to the OneTru platform, improving analytics, and adding data attributes. This has led to more business wins and a robust pipeline. While some benefit comes from selling to consumer lenders and fintechs, the momentum is not solely tied to P loan growth. FactorTrust has also seen sales in the Auto vertical.

Q:How is the Mexico acquisition performing, and why does it take longer to close compared to a U.S. acquisition?

A:The Mexico asset is performing well and on plan. The longer closing time is due to government review and regulatory hurdles, which are standard in Mexico. TransUnion expects to close the deal by the end of the year and sees it as a great asset at a fair price, with plans to bring innovation to the Mexican market for sustained growth.

Q:What are the initial learnings from the CI freemium and marketplace rollout, and what is the timeline for full integration?

A:The freemium solution has shown positive impact on growth rates, particularly on the direct side. TransUnion exited the beta period in Q1 and has converted 75% of its core customer base and offer inventory to the new platform. The goal is to stabilize low single-digit growth in the coming quarters and eventually achieve mid-single-digit growth or higher. Full integration will include more lenders and offer types beyond cards, providing a broader range of consumer lending and insurance offers.

Q:Can you discuss the consumer lending environment and its outlook for the remainder of the year and into next year?

A:The consumer lending environment is stable but muted, with some improvement. Consumer lending is recovering, card activity is tempered but showing positive signs, and auto volumes are net positive. Mortgage is at a bottom with no expected refinance boom soon. TransUnion's diversified portfolio and broad product offerings are driving growth across market segments. The outlook remains cautious due to potential economic factors like deficits and inflation.

Q:What is the update on fintech exposure and its contribution to positive business momentum?

A:Fintechs are recovering well, contributing to the positive momentum in consumer lending. Stability in the market and elevated interest rates have allowed funding to flow back, creating demand for loan consolidation. While fintechs are a significant part of consumer lending growth, TransUnion is also performing well across other financial services subcategories.

Q:What are you seeing in the mortgage market, particularly in the prequalification environment?

A:Mortgage inquiries, including prequalification and tri-merge, were flat in Q2, indicating the market is at a bottom. Revenue outperformed due to prequalification, and TransUnion has maintained or gained market position. Success in selling other products like batch marketing and Trusted Call Solutions has also contributed. The second half of the year is expected to see inquiries down modestly, consistent with guidance.

Q:Can you provide an update on the growth in India and the outlook for the second half of the year?

A:India's growth accelerated from 1% to 8% organic in Q2, driven by consumer lending momentum and Reserve Bank of India's pro-growth stance. The full-year growth target is 10%, with high teens organic growth expected by Q4. Long-term growth is projected at 20%+ annually, supported by strong demographics, financial penetration, digitalization, and urbanization. TransUnion is maintaining a market share in the low 70s and expanding its product offerings, including marketing and fraud solutions.

Q:What is the strategy to gain share for VantageScore in mortgage and non-mortgage verticals?

A:TransUnion supports FHFA's policy changes for mortgage tri-merge and score competition, emphasizing the benefits of trended credit data over point-in-time data. The company is ready to collaborate with regulators and GSEs to modernize scoring and encourage competition, which is expected to lead to innovation and better outcomes for consumers and the mortgage economy.

Q:What are the expected benefits and timeline for the cost savings program?

A:The program involves up to $375 million in investments, expected to conclude by 2025. Operating expense savings of $120-$140 million are anticipated, with significant progress in 2024 and the remainder in 2026. Capital expenditures will decrease from 8% to 6% of revenue by 2026. The program aims to achieve 90%+ free cash flow conversion by 2026, with benefits already visible in innovation and business momentum.

Q:Review of Unclear Management Responses

A:Management avoided directly addressing the specific timeline for full integration of the CI freemium and marketplace rollout, using vague language about 'optimizing elements' and 'eventually achieving growth.' Additionally, while discussing the Mexico acquisition, the explanation for the longer closing time was attributed to 'standard operating procedures,' without detailed clarification.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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