TransUnion (NYSE:TRU) Q4 2022 Earnings Call Transcript

TransUnion (NYSE:TRU) Q4 2022 Earnings Call Transcript February 14, 2023

Operator: Good morning, and welcome to the TransUnion Fourth Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. Please note, this event is being recorded. I would now like to turn the conference over to Aaron Hoffman, Senior Vice President, Investor Relations. Please go ahead.

Aaron Hoffman: Good morning, everyone, 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. 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 the 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, Forms 10-Q and other reports and filings with the SEC. We do not undertake any duty to update any forward-looking statement. So with that, let me turn the time over to Chris.

Christopher Cartwright: Thank you, Aaron, and let me add my welcome and share our agenda for the call this morning. First, I’ll discuss the macroeconomic conditions in TransUnion’s markets around the world. Then I’ll provide an overview of our solid in-range fourth quarter revenue and adjusted EBITDA. I’ll also review the posing progress with our recent acquisitions to accelerate revenue growth, achieve targeted savings, and leverage their technologies across the enterprise. Finally, Todd will detail our fourth quarter results along with our first quarter and full year guidance. Beginning with Slide 4, inflation in our developed markets around the world remained elevated throughout the year and central banks raised interest rates to slow consumer demand and return to long-term inflation targets.

Economic growth flowed as a result. However, thus far, developing economies have been less impacted by these factors. Activity in our international emerging markets of India, Asia Pacific, South Africa and LatAm have remained strong. Over the course of 2022, in the U.S., the UK and Canada, higher inflation and interest rates have pressured consumers and sapped economic growth. In each succeeding quarter in these markets, growth slowed and consumers became more cautious, given the impact of inflation on their spending power. In the U.S., consumers are still healthy overall due to high employment and low debt-to-income levels, compared to before the pandemic. However, consumer savings have declined, delinquencies have risen and spending has fallen, especially for lower income and subprime consumers.

Many of our large lending customers have confirmed this perspective and while their financials are still strong and consumer demand for credit is healthy, they too are cautious that their markets might slow further and as a result, have tightened lending standards, reduced originations and increased loss reserves. Despite these headwinds, TransUnion grew revenue at high-single-digits organically in ’22, excluding the impact of mortgage in the U.S. and improved its margins, because of revenue fall-through and prudent cost management while also maintaining our transformational investments. Our forecast for ’23 assumes a continuation of the challenging market conditions from the second half of 2022 and little recovery over the year, although our growth rates will improve in the latter half due to easier comparisons.

Despite this more €“ these more difficult conditions, we expect to grow revenue in the low to mid-single-digits in organic constant currency terms and expand adjusted EBITDA margins. Our investments in recent years have diversified our business along geographic, vertical and product dimensions and this expansion is enabling our ongoing growth even as U.S. lending markets slow. Attractive growth continues across our international markets, U.S. emerging verticals and our three recent acquisitions, Neustar, Sontiq and Argus. Our solutions enable growth and effectiveness in all market conditions, and we believe we’ll be able to grow organically in ’23 even should the U.S. economy dip into recession. Todd will walk you through the details later of our full year guidance and expectations for each of our markets and verticals.

Now in the fourth quarter, our business delivered good results despite challenging macro conditions and softening lending volumes in some markets. Our financial services vertical grew in the U.S., excluding the impact of mortgage. Auto lending increased due to easing of supply chain constraints and credit cards continued the strong originations seen for over a year. And although consumer lending did declined slightly, it faced very challenging comparisons over breakout growth from a year ago. U.S. emerging verticals resumed attractive growth after an unusually slow third quarter due to anomalous and non-recurring factors. Tenant employment screening volumes improved after stalling last quarter, and media revenues resumed growth after implementing systems improvements.

Also, insurance carriers increased marketing as they began to receive rate increase approvals from state commissioners. Our international division, again, grew by €“ grew revenue by double-digits organically in constant currency, led by 33% revenue growth in India, 26% growth in Asia Pacific, 16% growth in Africa and 12% growth in Latin America. Canada grew 8% and the UK was up 3%, excluding one-time business from the year-ago quarter. And our international sales teams continue to attain record bookings through thematic selling, leveraging innovation and expanding into attractive adjacencies. Importantly, we expanded our adjusted EBITDA margin by about 110 basis points organically, while maintaining our heightened investment levels in transformational programs.

And the growth momentum from our acquisitions also increased in the fourth quarter, especially at Neustar, where we made meaningful progress integrating our acquisitions and further developing our global enablement platforms. I’ll provide further details on this in a moment. And finally, we successfully completed the divestment of several noncore assets acquired as part of the Argus transaction, further lowering the purchase multiple and enabling strong returns. Our progress in the fourth quarter across these many areas illustrates the overall strength of our execution last year. We delivered organic constant currency revenue growth of 7%, excluding mortgage, highlighted by the strength of our international emerging markets and strong growth in financial services in key emerging verticals.

We also delivered attractive adjusted EBITDA margins due to revenue flow-through, effective cost management, which we began late in the second quarter when we recognized slowing conditions and acquisition profitability improvements from growth and cost synergies. As a result, our cash flow remains strong and we prepaid roughly $600 million in debt throughout the year. Now on to Slide 7, 2022 was a strong year for the growth and integration of our recent acquisitions. These businesses are delivering financially and strategically and their strong results, along with positive customer feedback, confirm the rationale for each deal and the benefits of combining them with TransUnion’s capabilities. Neustar led the way by posting 8% organic growth in the quarter, over difficult comparisons from the last year with 9% growth in marketing.

For the full year, Neustar revenue grew 6% at the high end of our revised guide. Adjusted EBITDA margin was 28% in the quarter and 26.5% for the full year, a 150 basis points ahead of our guidance at the beginning of 2022. The strong fourth quarter for Neustar sets the stage for another significant step-up in performance in 2023, which I’ll discuss in a moment. TransUnion and Neustar marketing solutions together produced roughly $300 million in revenue last year, growing double-digits organically despite softer advertising market conditions and a step back in e-commerce activity. Marketing interest remains strong in these targeting €“ or for these targeting ineffectiveness solutions, as shown by our strong bookings last year and the growing pipeline of opportunities.

Significant wins in 2022 include an eight-figure multiyear agreement with a performance-based marketing firm to become the primary provider of credit and foreign marketing, a deal with the card division of a large consumer bank for multi-touch attribution to help them optimize their spend across all addressable channels in a partnership with a major online streaming platform to optimize the monetization of their inventory using Neustar and TransUnion solutions. We also completed the onboarding of the Fortune 10 company we announced last year and are benefiting from the ramp in its revenues. The fourth quarter also concluded a strong year of product integration as we continue to combine our data, products and infrastructure to create market-leading capabilities.

Key accomplishments include, integrating TransUnion’s relevant data into Neustar’s OneID platform to enhance identity resolution, including our header file, phone and e-mail addresses, device IDs and auditing its targeting data, among others. Commencing the replacement of all identity graphs across our non-FCRA products with our new enterprise graphs on One ID and beginning the consolidation of multiple audience targeting products on our TruAudience platform. We also closed eight datacenters and completed the migration of OneID to the Google Cloud, saving almost $20 million a year in recurring costs. And finally, we’ve integrated our identity resolution services into Snowflake’s Media Data Cloud to enable their customers to enrich their information using our services, which utilize privacy-protected resolution capabilities fueled by offline and online identity intelligence from within Snowflake’s environment.

This partnership continues our success in penetrating cloud-based data management environments using our identity services through partnerships including Amazon, Google and many other clean room and customer data platform providers. Now on to communications, our innovative family of trusted call solutions, which includes branded call display and color name optimization continues to provide differentiated growth. During 2022, we strengthened our position through several new partnerships that now provide TransUnion with the largest footprint of wireless and wireline devices in the U.S. Since the inception four years ago, Trusted Call Solutions has grown to more than $50 million of revenue, and we estimate that we’ve tapped less than 5% of the U.S. market.

This enormous potential, combined with our sales reach into large enterprises and our international footprint, positions us for significant growth. Our salesforces are now fully integrated, aimed to cross-sell Trusted Call Solutions across our many verticals, which has led to wins in insurance, collections and financial services and a strong pipeline entering the year. Now given Neustar’s revenue momentum, we have confidence in a high-single-digit organic revenue guide for 2023 based on strong prior year sales and the 80% plus recurring nature of Neustar’s revenue. We also expect adjusted EBITDA margin to expand from 26.5% to 32% end year, positioning us to reach roughly 40% margins by 2025 as we fully realize cost synergies of at least $80 million now, increased from our prior guidance of $70 million.

Now Sontiq revenue again grew in high-single-digits in the fourth quarter and for the full year on the strength of new subscription sales of integrated offerings with TU’s consumer direct business. Now this combination led to an 8-figure competitive win that should fully monetize in 2023. Also, adjusted EBITDA margins in ’22 were 32% or 38% excluding integration cost. We also have a growing pipeline of opportunities for identity collection services across our financial verticals, which should ensure that we reach our targets for Sontiq. And in the quarter, Argus’ revenues declined 3% as we lapped strong comparisons for spend-informed analytics and portfolio management services, resulting from a surge in credit card marketing beginning in late 2021.

Now for the full year of ’22, Argus grew revenues in the low-single-digits and adjusted EBITDA margin was 21%, or 29% excluding integration costs. We also divested G2, LCI and Fintellix, non-core businesses bought last year as part of the Verisk Financial Services acquisition for $176 million in consideration. Divestitures of the non-core assets from this transaction, along with expected cost and revenue synergies should comfortably lower the EBITDA multiple of this deal to high-single-digits and we continue to see renewed interest in the market for innovations using Argus data and insights. Revitalizing the delivery of Argus data on TU’s analytic platforms and infusing our market insights will be the key to increasing revenue growth in the future.

On our March 2022 Investor Day, we introduced our global operating model in our four enablement platforms, technology, data analytics, solutions and operations and during the year, we made considerable progress developing each. Our technology evolution will increase our development capacity and our innovation speed. With Project Rise, we are migrating to a hybrid multi-cloud environment on a common set of enterprise software services and eliminating redundant applications. In 2022, we moved 30 applications to our secure cloud environment and eliminated eight datacenters. This year, we will scale our migrations and move over100 applications to our two clouds and shutter portions of our legacy infrastructure. By the project end, two-thirds of our applications will run in the public cloud.

With the acquisition of Neustar and its OneID platform, we formed a data and analytics function to create a common foundation for our data management, governance, decisioning and analytics tools globally. This team set up a security, privacy, and compliance guardrails around the world for all data assets and has developed a central identity resolution capability. The DNA team has also enhanced our innovation lab model development capability using the OneID platform and extended the service from the U.S. into the UK to help lenders of all types enhance underwriting and compliance. We held a record number of innovation labs in ’22 and we expect to increase this number in ’23 as we roll this capacity out globally. And in solutions, we are integrating Neustar’s fraud capabilities into our next-generation modular and flexible platform.

We also rolled out U.S. products, like shareable into international markets. In India, we’ve launched a new solution to support agricultural lending, which accounts for roughly 18% of lending in that market. TU’s CIBIL released a credit and farm report in October, which digitizes a traditional lending process by combining credit data with satellite imagery, land records and crop intelligence. This powerful tool enables better decisions on agricultural loans and faster disbursements of funds to farmers, supporting our goal of using information for good and also promoting financial inclusion. And finally, our operations team implemented a common sales, service and order management system globally based on standardized and automated processes.

In 2023, we’ll continue to refine the user experience, workflow automation and analytics and reporting in the system to drive efficiency. We also more than doubled the employees in our global capability centers from about 1,800 to roughly 4,000 through acquisitions and also internal hiring, including opening a new center in Costa Rica. We set up our GCCs in multiple locations around the globe to prevent a single point of failure, to minimize country risk and to provide services around the clock. These centers offer broad capabilities and access to immense pools of talent along with proximity to markets with a rapid growth potential. Now that wraps up my comments on our market conditions, fourth quarter performance, and the meaningful accomplishments in 2022.

Now Todd will provide you with further details on our fourth quarter financial results, our first quarter and full year ’23 outlook. Over to Todd.

Todd Cello: Thanks, Chris, and let me add my welcome to everyone. I’ll start off with our consolidated financial results. Fourth quarter consolidated revenue increased 14% on a reported and 17% on a constant currency basis. Neustar, Sontiq and Argus added about 19 points to inorganic revenue and I’ll remind you that both Neustar and Sontiq contributed to organic growth beginning in the month of December. Organic constant currency revenue declined 2%. Our business grew 2% on an organic constant currency basis, excluding mortgage from both the fourth quarter of 2021 and 2022. For full year 2022, mortgage represented about 6.5% or about $240 million of our total revenue. Adjusted EBITDA increased 14% on a reported and 17% on a constant currency basis.

Our adjusted EBITDA margin was 35.6%, down 10 basis points, compared to the year-ago quarter. Excluding Neustar and Sontiq in October and November, and Argus from the full quarter, the organic constant currency margin would have been 36.8%, up about 110 basis points, compared to the year ago fourth quarter. Fourth quarter adjusted diluted EPS declined 4% with adjusted EBITDA growth offset by higher interest expense and a higher-than-expected full year adjusted tax rate of 22.4%, compared to our 22% guide. Our full year adjusted tax rate came in almost 0.5 point higher than we anticipated, primarily due to the completion of our analysis of certain tax implications of our recent acquisitions and the final determination of the impact of a change in the U.S. tax law regarding the requirement to capitalize and amortize R&D expenses.

The result was a slightly higher full year adjusted tax rate with a cumulative catch-up recorded in the fourth quarter. I’d point out that our multi-year proactive tax strategy has resulted in an attractive adjusted tax rate and we continue to look at future opportunities to further ensure our tax structure is operating efficiently. Now looking at our segment financial performance for the fourth quarter, U.S. markets revenue was up 23% compared to the year ago quarter. Organic revenue declined 4%, but was up 3%, excluding mortgage. Adjusted EBITDA for U.S. markets increased 21% on an as-reported basis and declined 3% on an organic basis. The adjusted EBITDA margin increased by 50 basis points on an organic basis. Diving into the results by vertical, please note that we are now reporting Neustar’s financial results to the appropriate verticals.

To help you with your modeling, we provided a recast of our 2022 results yesterday in an 8-K filing. The majority of the revenue remained within emerging verticals. For the full year 2022, Neustar contributed $120 million of revenue, that is now part of financial services. All the results we provide today will be on the recast basis. Financial services revenue grew 6% as reported and was down 10% organically, excluding Argus for the full quarter and Neustar from October and November. Excluding mortgage, organic constant currency revenue growth was 2%, despite comparing to a 27% growth rate in the fourth quarter of 2021, implying a 15% two year growth CAGR. Looking at the individual end-markets, consumer lending remained in relatively good shape.

Lenders continue to market and originate, even as we saw some modest targeted pullback. In the quarter, revenue declined 4% against 40% growth in the year-ago quarter. Our customers continue to confirm that investors are in market, but focused increasingly on lower-risk consumers and the lenders with the best recent track records. We’ve also seen balance sheet lenders using this as an opportunity to gain share. As we’ve done in past soft markets, we will use this as an opportunity to enhance our already strong position with fintech lenders, leveraging our expanded impactful set of solutions to help them understand their customers and make effective decisions through the cycle. Understanding that fintech is of particular interest to investors, let me put our current strong position in historical context.

In 2022, total fintech revenue was about $175 million, up 15% over 2021, which had been the largest year ever. The prior largest year was just over $100 million of revenue in 2019. That means today, we have a business that is almost 75% larger than just three years ago, driven not just by growing volumes, but also by share gains and innovation-led growth. We continue to believe that over the long term, we can continue this very strong growth trajectory as we win new business and expand our share of wallet with existing accounts on the strength of our innovation and the capabilities acquired with Neustar and Argus. Our credit card business had another solid quarter, growing 5% after nearly 30% growth in the year-ago quarter. We have seen consistently strong origination activity for more than a year.

To-date, we’ve observed very limited pullback in customer marketing activity as most lenders are still in strong positions to find opportunities across its spectrum and gain top-of-wallet position with a generally healthy consumer Chris described. Our auto business delivered 14% growth in the quarter. We saw new vehicle sales tick up for the first time this year, days inventory on the dealer lot building and used vehicle prices coming down. These factors set the stage for an industry expectation of a 7% increase in new car production in 2023. We are already experiencing solid market trends in the early weeks of the first quarter. Used car sales remained somewhat sluggish as higher interest rates tend to have a more pronounced impact in this part of the market.

We continue to outperform the underlying market based on wins from the strength of CreditVision Link, which lenders are using to better assess risk in the current environment, ongoing success with our digital prequalification solutions and renewals with key Neustar auto customers. For mortgage, revenue was down 44% in the quarter and down more than 30% for the full year. At this point, refinancing activity is almost non-existent while the purchase market has maintained modest origination levels. And as we’ve expected, HELOC activity has picked up as consumers use this as an efficient way to realize short-term liquidity. For 2023, we expect the inquiry market to be down mid-20s and our revenue to increase mid-single-digits. We expect to outperform the market on the strength of HELOC activity, increased demand from the targeted marketing solutions lenders are turning to in a very tight market and price increases.

Let me now turn to our Emerging Verticals, which grew 47% on a reported basis and 4% organically, excluding the revenue associated with Neustar in October and November. Insurance delivered another good quarter, growing despite the slowdown in marketing activity driven by higher repair and replacement cost and the extended time required for carriers to effect rate increases at the state level. Our attractive portfolio of innovative solutions in commercial and life applications as well as drive a risk in our traditional private auto market have helped offset some of the macro issues in the market. Importantly, we’ve seen a steady stream of rate approvals on a state-by-state basis that should result in increased marketing activity and consumer shopping, both of which lead to revenue opportunities for TransUnion.

Tenant and employment screening growth improved sequentially as a result of early signs of a recovery in the tenant market with month-over-month declines in rental rates and increases in move rates. This growth was somewhat offset by a softer employment screening market as employers take a more cautious approach to hiring. Our media vertical grew again in the quarter despite some modest market softness driven by multiple years of new business wins and accelerating usage levels with existing accounts. We continue to sign new deals and expect further growth in this area from the integrated go-to-market and solution offerings as discussed. Consumer Interactive revenue, which includes Sontiq, declined 2% on a reported basis and declined 13% organically.

As we discussed in the fourth quarter of 2021, our business benefited from significant breach remediation work last year. Excluding that large one-time business, organic revenue would have declined 5%. Adjusted EBITDA was up 3% and down 5% organically. Similar to the previous two quarters, several factors adversely impacted revenue, moderating consumer demand for paid credit-related solutions across both the indirect and direct channels, challenging multi-year comparisons to exceptionally strong performances in the direct channel in both 2020 and 2021 and the comparison to one-time breach-related business. Our continued strength in identity protection, an area where our Sontiq acquisition enhances our capabilities, partially offsets these factors.

To update you on the direct-indirect revenue split with the inclusion of Sontiq, about two-thirds of revenue is indirect and one-third is direct. For my comments international all comparisons will be in constant currency. For the total segment, revenue grew 12% with four of our six reported markets growing by double digits. Adjusted EBITDA for international increased 15% as a result of our strong revenue growth. Now let’s dig into the specifics for each region. In the UK, revenue declined 5%. Excluding the revenue related to onetime contracts and including with the UK government, we would have grown about 3% in the quarter despite a challenging macro environment. We saw softness with many lenders in the fourth quarter, but have experienced improved trends in January.

At the same time, we had a strong quarter in our game vertical driven by heightened activity levels around the World Cup. Our insurance vertical also delivered good growth as more customers are using TruVision trended credit data for pricing and our consumer business has gained share due to the CreditView platform strength, and we won a large breach contract in large part because of Sontiq and its unique remediation capabilities. Finally, a few weeks ago, we announced an investment in Bud Financial, one of the leading open banking providers in the UK to help drive innovation and growth in the market and support financial inclusion. Our Canadian business grew 8% in the fourth quarter, reflecting growth across the portfolio. Similar to last quarter, the macroeconomic indicators remain soft, yet our business continued to grow as we won material new business ranging from large banks to fintech entrants.

These new wins are still ramping up, and we expect to realize the full financial benefits in late 2023. In India, we grew 33%, reflecting strong market trends and generally healthy consumers. The diversity of our portfolio remains a real strength in India. We saw meaningful growth in both consumer and commercial credit markets, as well as from fraud, employment screening and direct-to-consumer offerings. In Latin America, revenue was up 12% with broad-based growth across our markets including another quarter of growth over 20% for our largest market, Colombia. While macro conditions have generally softened in the region, our teams continue to win new business in financial services, particularly with fintechs and neobanks, insurance, government and telcos.

We also continue to see strong adoption of CreditVision and our fraud solutions. In Asia Pacific, we grew 26% from continued good performance in Hong Kong, driven by new business with fintech players and exceptional growth in the Philippines, which is now running well ahead of pre-COVID levels as the economy is now fully reemerged from COVID and resumed its strong growth trajectory. And finally, Africa increased 16% based on broadly strong performance across the portfolio and the region despite a challenging environment that includes rolling electrical blackouts and other persistent challenges. In South Africa, our core business continues to grow on the strength of new business wins and meaningful contract renewals. We also benefited from growth in fast-growing verticals, like telco and gaming.

Outside of South Africa, we continue to see very strong growth in markets, like Kenya and Zambia, particularly with micro and fintech lenders. We ended the quarter with roughly $5.7 billion of debt after prepaying $200 million in the fourth quarter and another $400 million earlier in 2022 that left us with $585 million of cash on the balance sheet, including the receipt of approximately $104 million of the proceeds from the noncore asset divestiture that Chris already covered. We finished the year with a leverage ratio of 3.8x. Since our IPO in the summer of 2015, we have targeted a leverage ratio of less than 3.5x. Going forward, we intend to work toward a leverage ratio of less than 3x though as in the past, from time to time our leverage ratio may be higher than our target.

With that said, from this chart, you can see that we have to rapidly reduce leverage as a result of our strong adjusted EBITDA growth. What’s more, we intend to further prepay debt in 2023 with our excess cash flow. And at this time, we have no intention to pursue any large-scale acquisitions and even smaller bolt-on acquisitions are not currently in our plans. We are focused on absorbing, integrating and maximizing the growth potential of Neustar, Sontiq and Argus. We have multiple pieces related to our debt as we enter 2023 that impact our net interest expense. I want to spend a minute on these items. First, our debt stack is unchanged entering 2023, but I wanted to lay out the three tranches with their associated rates on this slide. Second, we use a layering of swap instruments to hedge about 70% of our debt, which allows us the flexibility to execute, meaning prepayments.

At the end of 2022, a swap with $1.4 billion notional value and a rate of 2.7% expired, we replaced that with another with $1.3 billion notional value bought at a higher rate of 4.4%. You’ll note this swap is a relatively short duration, expiring in just two years when we can optimistically contemplate a lower interest rate environment. Third, you can see the impact of higher LIBOR on our unhedged debt and the new higher rate swap on the right-hand side of the slide. The forecast uses the current forward curve. Net interest expense is expected to increase by $55 million. However, and this is a critical point, this does not include any additional prepayment. This is in line with our longstanding practice of not providing speculative guidance about capital allocation, whether related to acquisitions, prepayments or any other activity.

However, for your consideration, as a rule of thumb, based on the current forward curve and on an annualized basis, every $100 million of debt prepayment would add about $0.03 per share to adjusted diluted EPS. That brings us to our outlook for the first quarter where we have the most challenging comparisons of the year. For that reason, we expect our growth rates to improve as the year progresses. In the first quarter, we expect about one point of headwind from FX on revenue and two points of headwind from FX on adjusted EBITDA. For revenue, we anticipate about a two point benefit from the acquisition of Argus. We expect revenue to come in between $908 million and $917 million or down 1% to flat on an as-reported basis and down 1% to 2% on an organic constant currency basis.

Our revenue guidance includes an approximately two point headwind from mortgage, meaning that we expect the remainder of our business will be flat to up 1% on an organic constant currency basis. We expect adjusted EBITDA to be between $310 million and $316 million, a decrease of 6% to 7%. We expect adjusted EBITDA margin to be down 190 to 210 basis points as a result of incorporating Argus’ relatively lower margins and the impact of revenue mix. We also expect our adjusted diluted earnings per share to be between $0.73 and $0.75, a range of down 19% to 21%, a result of lower adjusted EBITDA and higher interest expense. Turning to the full year, we expect about one point of headwind from FX on revenue and 1 point of headwind from FX on adjusted EBITDA.

For revenue, we anticipate approximately one point of benefit from the acquisition of Argus. We expect revenue to come in between $3.825 billion and $3.885 billion or up 3% to 5% on an as-reported basis and an organic constant currency basis and is the same excluding mortgage as we expect a minimal full year impact. For our business segments, on an organic basis, we expect U.S. markets to grow mid-single-digits with and without the impact of mortgage. We anticipate financial services with and without mortgage to be up low-single-digits. We expect Emerging Verticals to be up mid-single-digits. We anticipate that international will grow high-single-digits in constant currency terms, and we expect Consumer Interactive to decline low-single-digits on an organic basis.

Turning back to the total company outlook, we expect adjusted EBITDA to be between $1.388 billion and $1.421 billion, up 3% to 6%. That would result in adjusted EBITDA margin being flat to up 30 basis points with the significant benefits of the Neustar cost savings, partially offset by the inclusion of Argus’ relatively lower margins earlier in the year and some revenue mix considerations. We anticipate adjusted diluted EPS declining 1% to 5% with higher interest expense offsetting adjusted EBITDA growth. And to help you complete your modeling of 2023 at this time, we expect our adjusted tax rate to be approximately 23%, depreciation and amortization is expected to be approximately $525 million and we expect the portion, excluding step-up amortization from our 2012 change in control and subsequent acquisitions to be about $225 million.

We anticipate net interest expense will be about $280 million for the full year, up significantly, as I showed you earlier, due to rising rates. And we expect capital expenditures to come in at about 8% of revenue. Our guidance assumes that current market conditions persist and does not incorporate a U.S. recession. Nonetheless, in the event that does happen, as we discussed in detail on our second quarter earnings call, we would still expect organic constant currency revenue growth albeit less than the mid-single-digit guide I just provided. This growth is possible because of our expansive diversified portfolio of relevant solutions and our deep partnerships built on thought leadership and innovation. And in this situation, I would expect incremental pressure on adjusted EBITDA and adjusted diluted EPS.

In a downturn, we would keep our focus on integrating our recent strategic acquisitions to ensure they deliver against our long-term expectations and we would manage our cost structure to ensure it aligns to the trajectory of revenue growth in order to support our attractive margin structure. I want to wrap up with some extra detail about our expectations for margin expansion in 2023. The bridge on this slide shows the significant benefit we expect to derive from the Neustar cost saving program. We also have good margin flow through from our revenue growth. Partially offsetting these positives are three factors. First, we have the impact of Argus’ lower margin for the first three months of the year as the acquisition closed in April of 2022.

Second, we have the year-over-year impact of resetting variable compensation cost to target while also allowing for appropriate increases in employee compensation. And finally, we will have higher royalty costs in U.S. markets. At the same time, we continue to prioritize long-term growth-focused investments in all the areas that Chris discussed this morning. I am pleased to say that we expect to be able to expand the 2023 margin without taking any significant cost actions, largely because we have a long history of prudent, consistent cost management. For example, in recent years, we’ve closed dozens of owned or acquired data centers, we’ve slowed hiring at times to calibrate to our growth and we have excellent expense management processes. Beyond that, we continue to reduce our cost structure and drive savings from the good work of our global operations organization, particularly through our global capability centers that Chris highlighted earlier and there is significant future cost benefits from these initiatives.

With that said, if the situation deteriorates, we have additional actions, like reprioritizing certain investments, managing T&E or other one-time costs that we can execute. We remain focused on maintaining our high quality workforce in order to fully execute all of the exciting projects that we’ve described in today’s call. I’ll now turn the call back to Chris for some final comments.

Christopher Cartwright: Thanks, Todd. I want to wrap up today’s call by reiterating our commitment to our 2025 targets. Despite the market challenges we’re experiencing, we expect to deliver against these targets, although we don’t expect that the growth will be linear. Our combination of attractive end-markets and geographic footprint, along with differentiated and complementary solutions and a robust innovation pipeline gives us a line of sight to reaching these goals. Now let me turn it back to Aaron.

Aaron Hoffman: Thanks, Chris. That concludes our prepared remarks today. For the Q&A, as always, we ask that you each ask only one question so that we can include more participants. Operator, we can begin the Q&A now.

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Q&A Session

Operator: The first question is from Jeff Meuler of Baird. Please go ahead.

Jeffrey Meuler: Yeah, thank you. So the overall revenue guidance looks quite good to me. You gave us a lot of detail on international bookings and emerging markets, conditions, trends in U.S. Emerging Verticals, Neustar, et cetera. It looks €“ I guess, the area that I’m struggling a bit with is, it looks like it implies quite an acceleration in U.S. financial markets getting really good growth, probably later in the year. As you mentioned, consumer lending still worsening. You gave us mortgage. Just €“ it sounds like auto is kind of a mixed bag. Can you help us with that piece, just anything further you can say to give investors confidence in the implied better trends in U.S. financial markets later in the year?

Todd Cello: Hey, Jeff, good morning. It’s Todd. Thanks for the question. I think it’s a very appropriate place to start this morning. So, clearly, when you look at our guide compared to the high end that we provided of about $3.885 billion, and you see whereQ1 where we’re guiding $917 million at the high end, we definitely see a little bit of an uptick in the revenues from the Q1 levels. And largely, what we’re seeing is we feel that we have felt the impact of businesses that are impacted by cyclicality. So, for example, the mortgage business, we definitely expect Q1 of ’23 to be a further headwind. But as the year progresses, that those headwinds will start to find an equilibrium point, as well as we were able to take some pricing actions within mortgage that as the year goes on, we’ll be able to moderate some of the volume decline.

Another area to highlight would be our insurance vertical. We saw some unusual factors in the second half of 2022 with the high repair and replacement costs that our customers were seeing due to supply chain issues and they are in a way to increase their premiums. As you heard in my prepared remarks already this morning, we’ve started to see that subside. So we’re expecting the insurance business to benefit from insurers being back in market €“ marketing, as well as consumers shopping for insurance. And just as a reminder, in our insurance vertical, it’s not necessarily linked to car sales. It’s more about the premiums and the impact to the consumer. So that shopping activity, we anticipate to be a driver as consumers are focused on managing their finances in this high inflationary environment.

And to highlight that, too, the reason I just spent as much time as I did on insurance is, it’s a large vertical for us now too based on the recast of the Neustar financials that increases the overall size of that business. And just a couple of other areas to highlight, our tenant screening business was another one that we saw some impact in the second half of 2022 as well that we’re starting to see those trends subside as consumers are moving, more apartments are coming online, creating more capacity and as a result of that, rents are coming down. And then finally, I think the last one I’d highlight for you, Jeff, would be auto. Our auto business had a good fourth quarter, but what we’re hearing from many of the auto manufacturers is the supply chain issues are starting to subside and we’re expecting for good growth to come from a new car sales perspective.

And similar to how I talked about insurance, the auto business will also benefit, as well from that shopping activity as consumers are looking safe hands. The last point I would make on this is that the guidance that we are assuming does have a sense of returning back to what I would consider to be normal seasonality for our business. So where Q1 looks a little bit light normally, you’d see Q2 and Q3 step up and Q4 maybe be a little bit less. So that’s also been factored into our guidance, as well.