Transunion quarterly report, Q3 FY2021

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TransUnion 2021 Q3 Form 10-Q Summary

Business context and reporting period

TransUnion is a global information and insights company operating through U.S. Markets, International and Consumer Interactive. This unaudited quarterly report covers the three and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods. Management cautions that pandemic-related recovery affects comparability.

Financial performance

  • Revenue: Q3 revenue was $791.6 million, up 13.8%; nine-month revenue was $2.311 billion, up 14.5%.
  • Profit: Q3 operating income was $189.4 million versus $162.3 million; net income attributable to TransUnion was $114.2 million versus $102.8 million. Diluted EPS was $0.59 versus $0.53. For nine months, operating income was $587.5 million versus $423.0 million, attributable net income was $369.7 million versus $241.5 million, and diluted EPS was $1.92 versus $1.26.
  • Margins: Q3 operating margin was approximately 23.9% versus 23.3%. Adjusted EBITDA, a non-GAAP measure, was $327.0 million, up 21.1%, with a 41.3% margin versus 38.8%. Nine-month Adjusted EBITDA was $945.9 million, up 21.9%, with a 40.9% margin versus 38.5%.
  • Segments: Q3 gross revenue growth was 13.7% in U.S. Markets, 22.9% in International and 2.6% in Consumer Interactive. International growth was broad-based; India grew 44.2%. Mortgage revenue declined in Q3 as volumes fell amid rising interest rates.
  • Cash flow: Nine-month operating cash flow was $660.2 million versus $558.2 million. Capital expenditures were $158.1 million versus $131.7 million; derived operating cash flow less capital expenditures was $502.1 million versus $426.5 million. Investing used $208.0 million and financing used $231.5 million. Cash and equivalents rose to $708.8 million from $493.0 million at year-end 2020.
  • Debt and liquidity: Total debt was $3.330 billion, including $76.5 million current, versus $3.454 billion at year-end 2020. Cash less total debt implies net debt of approximately $2.621 billion. The company prepaid $85 million of term loans during the first nine months. Its $300 million revolving facility had $299.9 million available; it reported compliance with debt covenants.

Material changes and unusual items

  • Revenue gains reflected improving economic conditions, new products, acquisitions in U.S. Markets and favorable foreign currency effects. Management also cited increased product, labor and technology investment costs.
  • Q2 2021 results included a $32.4 million net reduction in estimated Ramirez litigation expense following a U.S. Supreme Court ruling; the company recorded related tax expense of $8.1 million. The Q3 adjusted EBITDA reconciliation included $12.0 million of specified legal and regulatory expenses.
  • Nine-month effective tax rate was 25.3%, including $20.5 million of expense from remeasuring U.K. deferred taxes, partly offset by discrete tax benefits.
  • Other comprehensive income included foreign currency translation losses; Q3 translation adjustment was a negative $53.9 million, net of tax.

Outlook, risks and contingencies

  • No numerical earnings or revenue guidance is provided in the filing. Management said cash, operating cash generation and available revolving credit were expected to meet needs for the foreseeable future.
  • TransUnion had agreed to acquire Neustar for $3.1 billion in cash, expected to close in Q4 2021 subject to approvals, financed with debt and cash. After quarter-end, it agreed to acquire Sontiq for $638 million and sell its Healthcare business for $1.735 billion; both transactions were targeted for Q4, subject to customary conditions and regulatory approvals. Management expected a material gain on the Healthcare sale and intended to use proceeds partly to repay debt.
  • The CFPB’s Enforcement Division obtained authority to pursue an action concerning a 2017 consent order and Consumer Interactive marketing practices. Settlement discussions were ongoing; an accrual was recorded, but the possible loss beyond the accrual could not be reasonably estimated and could be material.
  • COVID-19 variants and vaccine effectiveness, economic conditions, credit-market trends, regulation, litigation, data security and service continuity remain risks. The company also flagged acquisition financing, integration, approval and execution risks. Approximately 75% of outstanding debt exposure was hedged, but variable-rate exposure remained material.

Important facts for investors to verify

  • Review the final terms, financing, regulatory approvals and integration progress for the Neustar and Sontiq acquisitions, and the completion and proceeds from the Healthcare divestiture.
  • Track the CFPB matter, including any settlement, litigation, additional accrual or estimate of potential losses.
  • Assess whether revenue and margin growth persist as pandemic comparisons normalize, and monitor mortgage trends, foreign exchange effects and Consumer Interactive growth.
  • Reconcile reported GAAP earnings with Adjusted EBITDA and its exclusions; confirm the effect of acquisition, legal, technology and stock-based compensation costs.
  • Monitor debt, interest-rate exposure, covenant headroom, acquisition-related borrowing and planned use of divestiture proceeds.