TransUnion Q3 FY2021 Earnings Call

Good morning and welcome to the TransUnion Third Quarter 2021 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Aaron Hoffman, Senior Vice President of Investor Relations. Please go ahead.

Good morning everyone and thank you for joining us today. Hope that all of you remain safe and healthy. On the call today we have 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. Our earnings release and the accompanying slides include various schedules, which contain more detailed information about revenue, operating expenses and other items as well as certain non-GAAP disclosures and financial measures along with their corresponding reconciliations 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. We will also be making statements during this call that are forward looking. These statements are based on current expectations and assumptions and are subject to risks 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, Form 10-Q and other reports and filings with the SEC. We do not undertake any duty to update any forward-looking statement. With that out of the way, my pleasure to turn things over to Chris Cartwright.

Let me add my welcome and my best wishes that you and your families are healthy. Now I'd like to lay out the agenda for this morning's call. First, I'll discuss the resilience of our markets along with some of the broad macro trends that we experienced in the third quarter. I'll also update you on our strong underlying business performance that reflects our ability to execute the growth playbook that I've outlined on previous calls. Next, I will discuss our strategic ambitions, and how our recently announced acquisitions and divestitures support them. We continue to build off a strong foundation in identity resolution that's applied broadly across our various solutions and all of our end markets. This capitalizes on our strengths as a credit bureau as we extend and scale our marketing, risk, authentication and fraud solutions to enable better consumer experiences in a digital environment. As part of this discussion, I'll offer some additional comments about our recently announced acquisition of Neustar. I'll also provide color on today's announced acquisition of Sontiq, a highly complementary business that empowers consumers with identity protection solutions. I'll also touch on two attractive equity investments we made in financial technology firms in the UK and India. Each furthers our consumer identity focus strategy. And at the same time, our decision to divest TransUnion Healthcare both helps to fund these attractive acquisitions and sharpens our focus on our core markets and capabilities. Finally, I'll pass the baton to Todd to discuss our third quarter results in detail, along with fourth quarter and full year 2021 guidance. Let me start with the third quarter. We posted very strong results as most of our markets continued to rebound and our growth outpaced underlying market recovery on the strength of our growth playbook, namely, new business wins, a steady stream of new product innovation and success in attractive adjacent markets. In the US, we've never seen a healthier consumer balance sheet driving consumer spending above pre-COVID levels and spurring more aggressive marketing by our customers. We expect this to drive further upside in most of our US businesses, particularly consumer lending, credit card and employment screening. At the same time, we continue to see a phased recovery across our international markets, and notably did not see any meaningful COVID-related setback in our major markets during the quarter. Despite another quarter of robust performance, we expect to see significant further recovery over the next several quarters in emerging markets, such as India, the Philippines, South Africa and much of Latin America. Importantly, beyond market-based recovery, we continue to deliver growth above our underlying markets, reflecting a combination of market recovery and organic growth. Given our strong third quarter and increasingly positive macro environment, we've raised our full year 2021 guidance again, and we remain confident in our long-term growth algorithm of high single-digit revenue growth at an expanding attractive margin with double-digit EPS growth. We believe our strategic evolution to further support consumers and customers in an ecommerce environment provides the next chapter of our growth story. With that point today, I want to talk about our focus on improving identity verification, and targeting precision to enable safe, tailored consumer experiences as we see attractive white spaces created by a more digitized economy, building off of our legacy capabilities as a credit bureau. For decades, the national credit bureaus have operated at the intersection of credit analysis, marketing, and fraud mitigation. We engage with the risk management arm of a consumer lender to help them understand the broader credit market. We then help them develop the audience that they want to reach through our batch pre-screen services. Traditionally, that offer would arrive via direct mail, relying on our header information built on broad and authoritative terrestrial data. If the consumer responded to the offer, they would contact the call center to activate it. And during that process, they're authenticated using knowledge-based questions likely derived from our credit information or public records data. TransUnion sits at the center of all three dimensions of this activity: credit analysis, target marketing and fraud mitigation. With a growth in ecommerce, we began to evolve our strategy to incorporate digital identity. How can we combine still-valuable PII with new identifiers, such as email addresses, cell numbers, device IDs, advertising IDs, geolocation data, URLs, and cookies? The acquisitions of TLO and iovation with its comprehensive digital device data laid a valuable foundation that we augmented with the later purchases of TruSignal, Signal, and Tru Optik to build out our marketing capabilities. Each of these investments furthered our ability to accurately link and match data to consumers — what we would now call our identity graph — incorporating both offline and online data, helping our clients enrich their customer intelligence with the digital information necessary to target consumers across media channels. For marketers, this solves a fundamental problem that outside of the walled gardens, less than half of the time businesses don't know exactly who they're interacting with on the so-called open web. With our digital identifiers and modern technology stack, we can help answer the question: who am I dealing with in a digital environment? And with that knowledge, our customers can ensure that the right customers are receiving the right offers with minimal friction or, in the case of bad actors, putting up the necessary barriers to prevent fraud. Now with that as a backdrop, the pending acquisition of Neustar significantly enhances our identity resolution capabilities for a variety of online applications. As a reminder, we expect this transaction to close in the fourth quarter of 2021, pending customary closing conditions and regulatory approval. Neustar provides real-time identity resolution through its oneID platform, powering solutions that serve three attractive markets: marketing, online fraud mitigation, and communications. We've talked about the power of bringing these capabilities together with TransUnion. It bolsters our already strong identity resolution capabilities and authoritative PII, generating incremental scale and scope in the three complementary markets that Neustar serves. As we expand in these high-growth, non-credit markets, we further diversify our portfolio, which contributes to our ability to consistently outperform our underlying markets. Additionally, the complementary capabilities and data-enabled innovation and cross-selling further fuel our ability to deliver above-market growth. Finally, we're particularly excited about the influx of strong and relevant talent, including in high-impact areas like data science, engineering and sales. With considerable strength in developing solutions, we see a great fit with our highly evolved vertical market strategy. As a result of the substantial benefits, we expect our long-term growth rate will accelerate over time. Let me step back for a moment and talk about the journey that Neustar has been on in recent years. They have evolved into a very different company today than the one that many people knew before they were taken private in 2017. As we look at Neustar today, we believe that they've gone through a similar transformation as TransUnion and today are at both a growth and financial inflection point. Neustar's new leadership and owners made broad meaningful improvements in the business. They implemented organizational leadership, cultural, strategic, and operational changes to position the company for long-term growth. These include new leadership in key functions, investment in sales, account management, and product development, along with data science and marketing talent and processes, implementation of a cloud-based and scalable product and technology stack, and fully realizing the vision of the oneID identity resolution platform. So let me spend a minute on the power of oneID, which is a modern, cloud-native, AI-enabled connected platform that solves the complex problem of resolving multiple identity signals into single individuals or households. oneID today uses proprietary data and analytic capabilities to deliver market-leading identity resolution accuracy across disparate online and offline signals, with signal strength generating insight from high-volume observable events and the breadth and depth of scale the market requires. As part of its oneID-centric strategy Neustar made new product investments, leveraging oneID and proprietary decision analytics to drive differentiated value propositions in marketing, fraud and communications. Organic growth initiatives have been complemented by tuck-in acquisitions to broaden and strengthen their solutions. As Neustar sits at the inflection point between significant investment and growth acceleration, we see a long path of opportunities to drive incremental revenues. We think about this in three waves. Initially, cross-selling; then innovating from the combined data and technology assets; and longer-term taking the oneID platform and related marketing, fraud and data management solutions across our global markets. In the first phase, for example, Neustar had success with very large financial services customers but less so with mid-market lenders where TransUnion has considerable sales coverage and strength. Our teams will begin to sell a number of Neustar solutions to mid-market accounts quickly after we close the transaction. And it's a similar story in insurance and other verticals. On the other hand, Neustar has a well-established foothold in markets such as technology, retail, ecommerce and telecommunications, where we've been growing and building a presence but lack the kind of scale and strong relationships with C-suite decision makers that Neustar has. This opens the door to cross-sell TransUnion solutions to these customers. In the second wave, we envision developing new solutions built on our combined data assets that leverage the strength of oneID to enhance our industry-leading innovation. That might include leveraging data analytics from Neustar to better develop a household view for our insurance customers or to develop a closed-loop marketing solution. And in the third wave, we will extend oneID to our international markets. The oneID platform has clear global applications that were part of Neustar's long-term strategy; by combining their best-in-class technology with our data assets and customer relationships around the globe, we will position ourselves to deliver superior identity resolution in local markets, allowing us to drive incremental growth. I'd also like to spend a moment discussing marketing solutions. You have heard us talk a lot about our opportunity in the fraud space in the past, but not as much about what we can do in marketing by leveraging the same identity resolution capabilities that we use in fraud. Neustar provides identity-based solutions that enable marketers to better understand their consumers, message to them effectively and orchestrate personalized experiences across channels and optimize the effectiveness of their marketing investments. We have no interest in becoming an ad tech company or a measurement currency. Rather, we aspire to deliver best-in-class data and analytics to help our customers make better decisions, just as we do in other parts of our business. Combining TransUnion and Neustar capabilities creates an identity precision targeting and marketing performance optimization suite required to operate in a world without cookies or device ID. With Neustar, we have the opportunity to become the leading marketing-centered identity solutions provider that enables personalized marketing, and can measure its effectiveness. As with the entirety of our business, this is a data-centric solution, where we have broad authoritative data now combined with best-in-class technology and analytics to make that data actionable. We have great conviction that our proposed investment in Neustar will significantly advance our ambitions in this large and quickly evolving space. Let me move to another transformational growth opportunity. Today, we also announced our intent to acquire Sontiq for $638 million, and we expect the transaction to close in the fourth quarter subject to the satisfaction of customary closing conditions and regulatory approvals. Leveraging a cloud-based technology infrastructure, Sontiq provides solutions to help consumers and businesses protect against identity theft and cybercrime, including identity monitoring, restoration, and breach response products and services. The current owners executed a smart roll-up strategy beginning in 2017 to bring together complementary assets to provide identity protection solutions. Today, they serve a broad range of customers primarily in employee benefits, insurance, financial services and the public sector. The acquisition is attractive for three primary reasons. First, ID protection is an attractive, fast-growing market driven by the rapid evolution of online commerce that I've already discussed. In this environment, consumers have a heightened awareness and concern about the risks of identity theft. However, many of them are reluctant to enroll in a service that's not supported by a trusted brand like TransUnion. We've seen the impact of this market demand in our consumer interactive business over the past several years. Sontiq allows us to access a considerably larger part of this market fueling stronger growth long term. Second, the acquisition fits nicely with our ongoing evolution to provide data-driven identity solutions for consumers and customers as they more frequently interact and transact online. Our consumer interactive business entails empowering consumers by helping them understand their credit profile, improve their access to goods and services, advance their financial standing, and protect the financial profile that they build. Sontiq helps us transition from a credit data provider to a full solutions provider combining core credit monitoring with sophisticated identity protection, augmenting both our direct and indirect businesses. It provides us access to new attractive end markets like employee benefits, and expands our position in current markets such as insurance. Sontiq provides incremental capabilities such as dark web monitoring, transaction and child monitoring and proprietary capabilities for breach risk assessment. Finally, in addition to being a strong strategic fit that will enable growth, the business already has an attractive financial profile with $85 million of estimated revenue in 2021 at a roughly 40% margin. We expect the transaction to be neutral to adjusted EPS in 2022 and accretive after that. We expect the business to grow in the low double digits in the future on the strength of the underlying digital identity protection market, and the benefits of combining with TransUnion. So, like Neustar, we expect Sontiq to accelerate our long-term revenue growth. And let me wrap up with a brief discussion of some attractive equity investments that we made recently. The first, Monevo, extends our presence in the fast-growing online lending market, and again advances our ability to support customers and consumers in the rapid transition to ecommerce that I described earlier. Monevo delivers pre-qualification services to lenders and price comparison websites, mainly in the UK and US to support consumer access to finance. This enables consumers to easily shop for credit products by obtaining multiple pre-qualified credit quotes that don't adversely affect their credit score. We also made an investment and established a commercial relationship with IDfy, an Indian provider of video-based ID verification, authentication, and onboarding solutions. This partnership will enable TransUnion to offer expanded digital onboarding and verification technologies to its global customer base, including enriched video-based Know Your Customer identification. This investment also supports our agenda to capitalize on key ecommerce trends globally. And as we announced this morning, we've agreed to sell TransUnion Healthcare to nThrive, backed by Clearlake Capital Group for $1.735 billion, which we believe will result in about $1.4 billion in after-tax proceeds at current tax rates. These proceeds will help fund a significant portion of the cost to acquire Neustar and Sontiq. This portfolio transformation reflects our clear focus on the best long-term growth opportunities for TransUnion that I've just highlighted. And for TransUnion Healthcare, this outstanding business will benefit from being part of a pure-play healthcare data and analytics business. We're targeting a fourth-quarter close pending regulatory reviews. And for the TransUnion Healthcare employees, I want to extend our gratitude for all of your contributions to TransUnion over the years as you build your fine business; we believe that TransUnion Healthcare will benefit from this combination. Now let me turn the time over to Todd to walk you through our third quarter financial results, and our fourth quarter and full year 2021 guidance. Over to you, Todd.

Thanks Chris. Let me take you through our performance starting with our consolidated results. And for the sake of simplicity, all of the comparisons I discussed today will be against the third quarter of 2020 unless noted otherwise. Third quarter consolidated revenue increased 14% on a reported basis and 13% in constant currency. The Signal and Tru Optik acquisitions had just under one point of impact, resulting in organic constant currency growth of 12%. Excluding mortgage, which represented about 12% of total revenue over the past 12 months from both the third quarter of 2020 and 2021, our business grew 17% on an organic constant currency basis. Adjusted EBITDA increased 21% on a reported basis and 20% on a constant currency basis. Our adjusted EBITDA margin was 41.3%, up 250 basis points compared with the year-ago quarter, driven primarily by the strong revenue performance. Third quarter adjusted diluted EPS increased 24%. This was largely driven by strong adjusted EBITDA growth and the benefit from reduced interest expense related to our debt refinancing, prepayments and lower LIBOR. Now looking at segment financial performance, US markets revenue was up 14% compared to the year-ago quarter; the two media acquisitions had about one point of impact on revenue. Excluding mortgage, organic revenue grew 21%. Adjusted EBITDA for US markets increased 19% on an as-reported and on an organic basis. Adjusted EBITDA margin improved by 175 basis points, largely as a result of the strong revenue growth, partially offset by our continued strategic and operational investments and the cost to integrate and scale our recent media acquisitions. Diving into the results by vertical: financial services revenue grew 11% and was up 31% excluding mortgage. Looking at the individual end markets, consumer lending continued its strong rebound throughout the third quarter, as lenders across the space have aggressively stepped up their customer acquisition activity to capture share of wallet for the historically strong consumer that Chris described. At the same time, investor funding is readily available and continues to be a strong driver of growth in this business. We also had a very strong quarter in our credit card business reflecting similar dynamics to consumer lending, as issuers proactively pursue incremental share of wallet. Much of this activity has been driven by the largest issuers and we continue to see regional players ramp up their activity levels, which should further propel this market in the quarters to come. Our auto business delivered solid growth in the quarter as new business wins helped offset a challenging environment for new and, to a certain extent, used cars. While new vehicle inventory issues are well chronicled, they have a knock-on effect with used cars as dealers see less trade activity and shrinking supply that further exacerbates the situation. With that said, consumer demand remains high, giving us confidence that as inventory issues are resolved, volumes will return. For mortgage, for the full year we now expect the market to be down slightly but still near historically high levels. We had previously expected a flat market. As we wrap up the year, rates remain lower than many anticipated, providing lift to the refi market and strengthening the purchase market despite continued inventory issues and correspondingly higher prices. Let me turn to our emerging verticals, which grew 17% on a reported basis and 14% excluding the revenue associated with the two media vertical acquisitions. We saw strong double-digit growth in almost all our major verticals. Public sector delivered another very strong quarter driven by ongoing new business wins and opportunities created by changing policies and new programs from the Biden administration. Tenant and employment screening remain strong, though they have stabilized at a very high level. In tenant screening, we won meaningful new business, and our SmartMove platform continues to deliver strong growth. We expect employment screening to remain robust as the US continues to move toward fuller employment levels. Our media vertical continues to deliver strong double-digit organic growth as we sign new accounts and see expanded usage with existing customers. Insurance also delivered another very good quarter on the strength of new business wins in 2020 and 2021, along with significant growth in our new products. Additionally, we are seeing the return of segments of consumer shopping activity that slowed considerably during the pandemic. Finally, our healthcare vertical revenue returned to solid growth due to our successful sales efforts, augmented by improving front-end volumes across all care settings. Volumes have slowly approached more normal levels and are starting to flow through to the back end of the business. With the market recovering, our new bookings are converting to revenue and back-end volumes are picking up; the vertical is well positioned for a strong 2022. Consumer interactive revenue increased 3% as we grew in both the direct and indirect channels; adjusted EBITDA was up 4%. Our direct business continues to see a solid increase in our subscriber base with improving retention rates as consumers value our credit health and identity protection services. Growth moderated from recent quarters, as we are now lapping very strong 2020 results. Our indirect channel grew again, as we continue to see strength with partners who provide identity protection for consumers. The acquisition of Sontiq will better position us in this fast-growing part of the market as Chris discussed. For my comments about international, all comparisons will be in constant currency. For the total segment, revenue grew 18% as we saw trends improve in most of our regions. Adjusted EBITDA for international increased 31% as a result of the strong revenue growth and particularly easy comparisons to the year-ago quarter. Let me dig into the specifics for each region. In the UK, revenue increased 16% as lending markets largely returned to normal levels, and we experienced continued strength in other markets like fraud, online gaming and gambling. Last quarter, we mentioned a meaningful government contract that will be one-time and extend over a number of quarters. Excluding that revenue, our UK business still would have grown about 9% in the quarter. Our Canadian business grew 4% in the third quarter, as we saw growth across our portfolio moderated by a comparison to significant breach remediation business in the year-ago quarter. Overall, lending markets softened in the quarter due to a slowing pace of mortgage origination and new vehicle supply challenges. Excluding the non-recurring breach business, revenue would have grown about 6%. As we've noted on previous calls, our Canadian business has done an outstanding job securing a sizable amount of this type of business in recent years; however, it is entirely unpredictable and can be very lumpy, which can create year-over-year variances. Given the flow of breach wins in 2019 and 2020, I expect that we'll see more of this negative comparison in the next two quarters, barring new significant breach-related business. In India, we grew 44%, reflecting a sharp improvement in consumer and lender activity as COVID cases have plummeted and vaccination rates have increased significantly. This led to increasingly strong performance during the quarter, culminating with all-time high levels of inquiries, batch activity and commercial revenue. We also saw significant growth in fraud, direct-to-consumer and marketing solutions, reflecting broad strength across our diversified portfolio. Given the strength of the consumer and significant pent-up demand for consumption, we expect these trends to persist. In Latin America, revenue was up 22% as we grew in every market we serve, and importantly realized double-digit growth in our largest markets, Colombia and Brazil. This strong growth reflects broad-based market recovery and the benefits of a steady stream of new customer wins. In Asia Pacific, we grew 11% driven by positive momentum with our relaunched direct-to-consumer offering in Hong Kong and business wins with lending customers there. This strength was offset by ongoing significant market challenges in the Philippines, as the country has struggled to recover from the COVID-related shutdowns. Finally, Africa increased 8% in our largest market, South Africa. Despite the challenges of a third COVID wave and some civil unrest in July, the economy has begun to stabilize. We continue to generate growth from CreditVision, commercial solutions and seamless onboarding for digital commerce. With the pending acquisitions of Neustar and Sontiq along with the proceeds generated by selling our healthcare business, we intend to reenter the debt markets to fund the purchases. Based on our past experiences, we expect a robust market for our paper. The acquisitions of Neustar and Sontiq are approximately $3.7 billion in total. We intend to fund both acquisitions with incremental debt and with the net proceeds from the healthcare business; our net debt to adjusted EBITDA leverage ratio will be about 3.8x on a December 31, 2021 pro forma basis. The $709 million of cash we've built up on our balance sheet gives us additional opportunity for future capital deployment, including additional M&A and/or debt prepayment. As this chart shows, we have a highly credible track record of rapidly delevering, driven by our strong cash flows and our ability to significantly improve the adjusted EBITDA of the assets we acquire. Given our cost savings and revenue growth expectations for Neustar and Sontiq, along with the Healthcare proceeds, we have confidence that we can reduce our leverage ratio to about 3.3x by the end of 2022. That brings us to our outlook for the fourth quarter and the full year. Other than the equity investments, none of the transactions we've discussed today have closed. So our guidance reflects ongoing TransUnion without acquisitions or the divestiture of the Healthcare business. Starting with fourth quarter revenue, we expect minimal impact from foreign exchange, and no impact from M&A. Revenue is expected to come in between $764 million and $774 million, or a 9% to 11% increase on an as-reported and organic constant currency basis. Embedded in our revenue guidance is an approximate four-point headwind for mortgage, meaning that the business would grow 13% to 14% excluding mortgage on an organic constant currency basis. Adjusted EBITDA is expected to be between $293 million and $301 million, an increase of 9% to 12%. Adjusted diluted EPS is expected to be between $0.88 and $0.91, an increase of 10% to 14%. And for the full year, we expect one point of tailwind to both revenue and adjusted EBITDA from foreign exchange. And we expect about one point of benefit from M&A. Revenue is expected to be between $3.075 billion to $3.085 billion, up 13% to 14%. Our guidance includes two points of headwind for mortgage for the full year. So full year revenue excluding mortgage on an organic and constant currency basis is expected to increase 13% to 14%. For our business segments, we expect US markets, financial services, and emerging verticals to each be up low double-digits. Excluding the impact of mortgage, US markets would be up high teens and financial services would be up more than 20%. We anticipate that international will grow approximately 20% on an as-reported basis, and we expect consumer interactive to be up mid-single digits, benefiting from some one-time breach-related business in the fourth quarter. Adjusted EBITDA is expected to be between $1.239 billion and $1.247 billion, up 19%. We expect our adjusted EBITDA margin to expand 180 to 190 basis points this year, even as we continue to aggressively invest in the business. Adjusted diluted earnings per share for the year are expected to be between $3.76 and $3.79, up 25% to 26%. At this time, we have no material updates to our other guidance items like tax rate, D&A, interest expense, and capital expenditures. They remain the same as what we provided on our year-end earnings call in February. I'll now turn the call back to Chris for some final comments.

Thanks Todd. To conclude this morning, we took you through a strong third quarter that highlights the resilience of our markets and our ability to effectively execute our growth playbook. As our outlook for the year has further improved, we raised our outlook for the full year for the third consecutive quarter. We also highlighted our ongoing strategic pivot to deliver solutions for consumers and our customers in a rapidly evolving online environment. The Neustar and Sontiq acquisitions will play a critical role in advancing the strategy and will deliver compelling financial performance. I'll end by reiterating my hope that all of you and your families remain safe and healthy. And with that, I will turn the time back to Aaron.

Right. Thanks Chris. That concludes our prepared remarks. For the Q&A, as always, we ask that you each ask only one question so that we can include more participants. And now we'll be glad to take those questions.

And the first question comes from Andrew Steinerman of JPMorgan.

Hi, everybody. I'd like to know on Sontiq what's the mix of revenues between corporate or institutional revenues versus direct-to-consumer? And I'd also want to know who the competitors of Sontiq are. If it's okay, I'm going to ask a second question: what were mortgages as a percentage of revenues as of the third quarter?

Yes, so good morning, Andrew. I believe you asked two questions: the revenue mix across Sontiq and the mortgage percentage of total revenue in the third quarter.

Yes.

Let me jump into Sontiq. The mix of revenues is roughly: about 25% of their revenues are direct-to-consumer, a little bit more than that; close to 20% is direct sales to the insurance industry, where their solutions are bundled with personal and commercial policies. Direct sales into employee benefits, both to corporations directly and through brokers, is another 20%. And then about 34% to 35% is into financial services. So it's a fairly broad mix. We like it because it gives us additional channels for the combined suite of solutions with TransUnion bringing credit monitoring and education and Sontiq focused on protection. Todd, why don't you handle the mortgage question?

Sure, Chris. Good morning, Andrew. As far as mortgage is concerned, on a trailing 12-month basis about 12% of our revenue is coming from mortgage and it's down a little bit from where we were at the end of the second quarter when we said it was about 13%.

The next question comes from Jeff Meuler of Baird.

On Sontiq, I recognize the consumer-interactive business and the immediate cross-selling opportunities between Sontiq and your consumer interactive capabilities and partners. Can you help us with the long-term vision? As you think about bringing together Neustar capabilities, TransUnion capabilities, potentially into Sontiq, can you build some sort of super app or something that's really differentiated relative to what else is out there in the market?

Thanks Jeff. At the core, we're extending the value proposition of what we can do for consumers, whether we reach them directly through our own marketing efforts and website, or indirectly through different platform providers. We've had relationships where we provide capabilities on a partnership basis, but we felt we were missing the opportunity to develop a broader integrated suite, and that's where Sontiq comes in. Sontiq has multiple channels, including a direct-to-consumer presence, and we can augment that with our credit information. The acquisition of Neustar helps with identity information and resolution capabilities to help businesses target consumers and protect transactions. Combined with Sontiq's fraud and identity capabilities, there is opportunity for innovation between these positions. We are also the only bureau that owns a complete public records archive and investigative solutions in the US, which gives us compelling content to engage consumers and help them understand and correct aspects of their identity. So this adds audience and capabilities for us to be creative with.

The next question comes from Gary Bisbee of Bank of America Securities.

You talked about each of the transactions and the financial impact they would have on 2022 and that the two acquisitions would be slightly dilutive or neutral. Can you give us a high-level view of how you are thinking about the combined impact of the three portfolio moves — Neustar, Sontiq, and the Healthcare divestiture — on 2022 in total?

Yes, Gary, here's how we're thinking about Neustar, Sontiq and Healthcare in 2022. With Neustar, from a margin perspective, it's a lower-margin business today than TransUnion, but we are focused on top-line growth. Today Neustar has roughly a 20% EBITDA margin; our aspiration is that over the next four to five years it can scale toward TransUnion's margin. In 2022, it will be a year of heavy lifting, so it will have an impact on margin and we expect it to be slightly dilutive to EPS in 2022 and accretive thereafter. Sontiq has margins similar to TransUnion, so it will not be dilutive to the overall margin profile and we expect it to be roughly neutral to EPS in 2022 and accretive thereafter. Healthcare, with revenues about $190 million and mid-40% adjusted EBITDA margins, has a higher margin than TransUnion's overall margin. Divesting Healthcare will have a dilutive impact on margin and on EPS in 2022. Overall, 2022 is a year where we will integrate these acquisitions. These are investments for the future to sustain top-line growth. We plan to provide more detail at our Investor Day, likely in the first quarter of 2022.

The next question comes from Andrew Nicholas of William Blair.

Thanks. I wanted to ask about capital allocation from here. It's been a pretty active last couple of months. Are there any other portfolio moves you anticipate? Are you open to additional M&A? Or are you planning to take a step back in the near term to handle integration?

What a difference a quarter makes. In the second quarter, we had questions about deleveraging to a 2x net-debt-to-EBITDA target by year-end and whether we would increase the dividend. We said we were active in M&A discussions to advance our strategy, and we've now executed on several moves, including the divestiture of Healthcare to free capital to pay for these portfolio moves. These moves are designed to drive growth; we need to digest them and apply our talent and innovation capacity to maximize value, because each acquisition is synergistic with a core position we have. That said, we are open to other moves that advance the strategy, but we must be mindful of our balance sheet and our ability to digest integrations. We will execute effectively and consider additional opportunities prudently.

To add, on leverage: on a pro forma basis for all of 2021, layering in Neustar and Sontiq and subtracting Healthcare, our leverage ratio would be about 3.8x. Our long-standing target is about 3.5x, so we're slightly above that pro forma. We expect to reduce the leverage ratio to about 3.3x for full year 2022 based on the cash flows and margin improvements. That delevering creates capacity for M&A, so we'll continue to look at opportunities, but we also need to execute the integrations we have underway.

The next question comes from Manav Patnaik of Barclays.

Two quick ones. What is the current normalized Healthcare growth rate so we can understand the impact to 2022 numbers? And on Sontiq, who are the competitors on the consumer side?

On the competitive landscape for Sontiq: major players include Experian and Equifax, which have offerings in this marketplace and broad suites of solutions. There are also large insurers and other providers, such as InfoArmor, Identity Guard, and NortonLifeLock, which is a direct-to-consumer player with a comparable suite of functionality. With the combination we're assembling, we meet the market terms for breadth and depth of offering and also have unique benefits: credit scores, reports, simulators, single- and multi-bureau monitoring as part of the core package, dark web monitoring, transaction monitoring through bank relationships, reputation and social monitoring, restoration services, and pursuit of reimbursement of stolen funds. We've deepened our product offering in direct-to-consumer and indirect channels, which will benefit both markets.

As far as Healthcare's growth rate, the vertical returned to growth in the third quarter as pandemic-related volume impacts eased. Historically, Healthcare has grown in the mid-single digits, and the business is now getting back to that mid-single-digit growth rate that we expect.

The next question comes from Mario Cortellacci of Jeffries.

Just wondering about the rationale for selling Healthcare. It seems like Healthcare could have some synergies with TransUnion. Were there no synergies worth keeping? And are there any dis-synergies from divesting? Also, you said volumes are approaching pre-COVID levels; could you update us on where revenue and margins are today versus pre-COVID?

On the strategic rationale for divesting Healthcare: Healthcare has been a good diversification investment for TransUnion and we invested in internal innovation and acquisitions to grow it. However, the healthcare market has pushed toward consolidation and scale, both among providers and healthcare technology vendors. To fully compete, the Healthcare business needs scale and focus that a dedicated strategic owner like nThrive can provide. At the same time, we had other growth and innovation investments we wanted to pursue that required capital and focus. Selling Healthcare frees capital to fund transactions that better align with our core identity strategy and allows Healthcare to combine with an asset that can accelerate its growth. We will maintain a business relationship with the new combined Healthcare entity to provide data and analytics services. Regarding synergies and dis-synergies: there will be transition services agreements to help the combination, and any dis-synergies are expected to be minor. Overall, this was a portfolio decision to sharpen focus and fund strategic investments.

From a financial point of view, the Healthcare business is about $190 million of revenue in 2021 with a mid-40% adjusted EBITDA margin. The business persevered through the pandemic, with volume impacts. Now volumes are returning to more normal levels and the business is getting back to the mid-single-digit growth rate we expect.

The next question comes from Andrew Jeffrey of Truist Securities.

I go back to Alliance Data Conversion in 2014. Some of that rationale sounds similar to Neustar. I understand there's more fraud and ID resolution here and proprietary data. Can you talk about why, from a media effectiveness standpoint, this is a different or better transaction and how the market has changed?

At the strategic level, Neustar helps us fully translate our traditional business model into the digital world. Historically, CRAs have operated at the intersection of credit risk analysis, target marketing and product creation. Pre-internet, offers arrived via direct mail and were activated via call centers with authentication based on knowledge from credit files. With the internet, many transactions became anonymous on the open web, so we began aggregating digital identifiers. Neustar was a leader in both aggregating that data and developing a technology platform and algorithms to resolve identity in real time to enable accurate targeting and fraud mitigation online. With this transaction, we now cover a hybrid era: traditional direct mail and call center channels remain valuable, while digital channels are growing. The combination gives us a leading identity resolution platform, strong data assets and sophisticated marketing tools for audiences and media mix optimization. This creates a scaled, cross-channel player that can serve customers with a new level of effectiveness.

The next question comes from Toni Kaplan of Morgan Stanley.

The growth in India seems strong and it's recovering from lockdowns. Can you talk about the current state of India and if you think the growth trajectory is fully back on track for that business?

The India business is proving its resilience. Lending volumes and business activity were directly influenced by the intensity of the pandemic; India went through a very intensive infection period and is now recovering. The recovery shows how growth-full and resilient that market is. We have a broad position there: we are a leading provider of consumer credit information, commercial credit information, fraud mitigation and other services. India is exciting; while no market is yet firing on all cylinders, we are seeing strong momentum and positions that should continue to drive growth as recovery continues.

To add on India, our minority investment in IDfy supports expanded capabilities for video ID verification and authentication for onboarding. For years we exported IP into India, benefiting from capabilities like CreditVision, fraud, decisioning, and analytics. Now, strategic partnerships in India can allow IP to flow back the other way, enabling capabilities used in other geographies. We're excited about bolstering the capabilities we have in India.

The next question comes from Ashish Sabadra of RBC Capital Markets.

My question is about Apple's IDFA changes that are impacting social and digital advertising. With the acquisition of Neustar and given your iovation and other identity products, how are you positioned to help advertisers address those issues?

Ashish, can you repeat that? We had a bit of a technical issue and didn't hear everything clearly. Could you ask the question again so we answer it properly?

Sure. The Apple IDFA changes are affecting social media companies because of how identity gets resolved. With the acquisition of Neustar and your existing iovation and identity solutions, how does TransUnion position advertisers to operate in this changing environment?

This is one of the highest-order questions in the industry. Identity on the web was initially solved largely with cookies. With moves by Apple, Google and others toward greater consumer privacy, third-party cookies and device identifiers are diminishing, which reduces the performance of identity graphs anchored solely on cookies. Companies like Neustar and TransUnion design their solutions to operate in a post-cookie world. We resolve identity using multiple factors: cookies when available, but also terrestrial information, cell phone numbers, URLs, device IDs, mobile ad IDs, behavioral signals, and more. We combine these signals with deep algorithmic intelligence to resolve identities in milliseconds to support real-time personalized transactions. One of the reasons we've doubled down in this space is that the market is moving toward broader identity resolution capabilities that are not dependent on a single identifier and can therefore provide advertisers and clients resilient identity solutions in a privacy-conscious environment.

The next question comes from George Tong of Goldman Sachs.

Turning to the base business, you touched on relatively healthy consumer credit trends. Can you elaborate on bank card, auto and mortgage volume trends that you're currently seeing and how you are factoring them into your outlook?

Year-to-date and in the third quarter, our US financial services performance is strong and substantially stronger if you control for the decline in mortgage. We've seen a surge in consumer lending activity and card activity, and the auto business is performing well despite supply constraints. For mortgage, we provided guidance for the fourth quarter that reflects an approximate four-point headwind for mortgage. We are not providing 2022 guidance today; that will come in early 2022.

Great. That brings us to the conclusion of the call today. I know it's a very busy earnings day and we had a lot of news today. We appreciate everybody's patience and perseverance working through all the news. It's an exciting day, and we thank you for spending the time with us this morning. Wish you all a great day today. Bye-bye.

The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.