Q2 2024 Earnings Summary
- TransUnion's launch of next-generation integrated marketing and fraud products, built on the OneTru platform, is expected to drive material acceleration in growth regardless of market conditions.
- TransUnion has strengthened its position in the growing breach remediation market through the acquisition of Sontiq, enabling it to compete more effectively and potentially achieve higher sustainable breach revenues.
- TransUnion's Consumer Interactive segment is approaching an inflection point, with direct-to-consumer subscription declines slowing and expected to stabilize, reducing drag on earnings and supporting future growth.
- Deceleration in Organic Growth Guidance: Excluding the impact of recent large breach wins, TransUnion's third-quarter organic growth guidance implies a deceleration, with growth rates stepping down from previous quarters. The company attributes this to maintaining a prudent guidance approach due to ongoing uncertainties, which may indicate potential headwinds in the business.
- Challenges in Core Financial Services Segment: The Financial Services segment, excluding mortgage, showed a revenue decline of 2% in the second quarter, compared to 1% growth in the first quarter. Stable but muted lending volumes and no clear signs of recovery suggest challenges in the core business areas of card, banking, and consumer lending.
- Episodic and Lower-Margin Breach Revenues: The recent large breach remediation wins are contributing significantly to revenue growth, but these revenues are episodic and come with lower margins due to higher costs associated with services like physical notification. This reliance on breach revenues may not be sustainable, and margins could be pressured if future revenues are derived from similar lower-margin activities.
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Guidance and Organic Growth
Q: Why is organic growth expected to decelerate?
A: Management explained that excluding one-time breach wins, organic growth is expected to slow from 4% in Q2 to about 3.5% in Q3 and 3% in Q4. They are maintaining conservative guidance despite outperforming earlier, as core financial services remain stable without an uptick. They believe it's prudent not to raise expectations due to ongoing uncertainties. -
Financial Services Outlook
Q: When will financial services growth improve?
A: Despite a 2% decline in Q2 for financial services excluding mortgage, management expects low single-digit growth in Q3 and mid-single-digit growth in Q4 due to easier comparisons. They note stabilization in volumes and are cautiously optimistic that easing delinquencies and potential Fed rate reductions could improve market conditions. -
Neustar Performance and Margins
Q: How is Neustar performing and what are margins?
A: Neustar's EBITDA margin is guided at 32% for the year, with potential upside as acquisition synergies are realized and technology modernization completes. While marketing is softer due to market pressures, fraud solutions are performing well, and they expect growth acceleration from new integrated products launching late Q3. -
Breach Revenues and Margins
Q: What's driving breach revenues and margins?
A: Large breach wins are contributing to higher-than-usual breach revenues in Q3. While breach deals are episodic, they come with attractive margins similar to enterprise levels. Management expects a higher sustainable level of breach revenues going forward due to their strengthened position after the Sontiq acquisition. -
Consumer Interactive Inflection
Q: Is Consumer Interactive nearing an inflection?
A: The direct-to-consumer subscription business decline is slowing, expected to reach low single-digit declines by Q4. This will reduce the earnings drag. Growth in the indirect channel and strong performance from Sontiq, which grew 20% last year, bolster confidence in returning the consumer business to consistent revenue growth. -
Emerging Verticals Growth
Q: How are emerging verticals performing?
A: Emerging Verticals grew 4% in the quarter, with insurance up 6%, and strong growth in public sector and media. Despite some drags from collections and tenant businesses, risks skew to the upside, and management maintains a conservative growth outlook for the second half. -
Transformation Project Progress
Q: How is the transformation project progressing?
A: Management reports great progress, on track to achieve technology transformation benefits. Significant savings are expected in 2024, with over $80 million in integration savings from acquisitions like Neustar, Argus, and Sontiq. Focus is on reengineering products using the OneTru platform to simplify operations and reduce costs. -
Auto Segment Impact
Q: Did the CDK outage affect auto sales?
A: Auto grew 3% in the quarter, with a small impact from the CDK outage. Management feels the situation is managed and expects only a minor impact going forward.