TransUnion Q3 2020 Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2020. Unaudited results; amounts in millions except per-share data. TransUnion is a global information and insights company operating through U.S. Markets, International and Consumer Interactive.
Financial results
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $695.9 | $689.3 | $2,017.9 | $1,970.5 |
| Operating income | $162.3 | $171.3 | $423.0 | $453.1 |
| Net income attributable to TransUnion | $102.8 | $91.7 | $241.5 | $264.1 |
| Diluted EPS | $0.53 | $0.48 | $1.26 | $1.38 |
| Adjusted EBITDA | $269.9 | $280.9 | $775.9 | $783.5 |
| Adjusted EBITDA margin | 38.8% | 40.7% | 38.5% | 39.6% |
| Cash from operating activities | $178.8 | $279.4 | $558.2 | $587.7 |
Q3 revenue grew 1.0%; operating income fell 5.3%, while net income attributable to TransUnion rose 12.1%. The improvement in net income reflected lower interest expense and a favorable comparison with prior-year non-operating charges, despite lower operating income. For the first nine months, revenue rose 2.4%, but operating income declined 6.6% and attributable net income declined 8.6%.
Q3 operating margin was approximately 23.3%, versus 24.8% a year earlier. Nine-month operating margin was approximately 21.0%, versus 23.0%. The filing reports Adjusted EBITDA margins above; these are non-GAAP measures.
At September 30, cash and cash equivalents were $554.0, total debt was $3,616.0, and net debt was approximately $3,062.0. Current assets were $1,216.6 and current liabilities $618.4. The $300.0 revolving facility had no borrowings and $299.9 available, net of letters of credit. The company reported compliance with debt covenants. Nine-month capital expenditures were $131.7; operating cash flow less capital expenditures was approximately $426.5.
Segments and material changes
- U.S. Markets: Q3 gross revenue rose 4.3% to $438.5. Financial Services revenue increased 10.6%, primarily reflecting mortgage refinance and home-purchase activity; Emerging Verticals declined 2.8%. Segment Adjusted EBITDA fell 2.1% to $177.3.
- International: Q3 gross revenue declined 9.5% to $144.8, with weakness across most regions and foreign-currency impacts. Segment Adjusted EBITDA fell 11.4% to $56.7.
- Consumer Interactive: Q3 gross revenue increased 3.0% to $131.6, primarily from the direct channel. Segment Adjusted EBITDA increased 0.8% to $67.1.
- Consolidated Q3 Adjusted EBITDA declined 3.9%; the margin contracted 1.9 percentage points. Nine-month operating cash flow declined 5.0%, while cash increased from $274.1 at year-end 2019 to $554.0.
Outlook, risks and unusual items
- Management said demand had improved from its April low, including ongoing Q3 recovery, but COVID-19 continued to materially adversely affect demand across segments. The duration and severity of effects remained uncertain. The filing provides no specific quantitative revenue or earnings guidance.
- Management cited mortgage refinance growth as a key U.S. Financial Services driver but cautioned that it may not persist. International markets, particularly Latin America and Africa, faced pronounced demand and currency weakness.
- Management believed cash, operating cash generation and available credit would support foreseeable operating needs, while noting that prolonged disruption, collections, costs, credit markets or ratings could affect liquidity and access to financing. It intended to continue quarterly dividends subject to board approval, but could recommend reducing or suspending them if conditions deteriorated. The company did not intend short-term share repurchases amid pandemic uncertainty.
- Legal and regulatory costs were significant. The Ninth Circuit reduced the Ramirez punitive damages award to approximately $32 million; TransUnion recorded a $30.5 million expense and related tax benefit in Q1 and added a reserve in Q3. Accrued legal and regulatory liabilities were $76.4 at quarter-end, up from $30.4 at December 31, 2019. Management said actual losses could differ materially and some potential losses could not be estimated.
- Q3 other income included a $1.5 recovery related to the 2019 Fraud Incident; 2019 included a $17.8 charge. Nine-month 2020 results included legal expenses, investment impairment and gains, and currency effects. Q3 2020 operating results also included $4.5 of accelerated technology investment expense.
- Variable-rate debt and foreign exchange remain exposures. The company said roughly 70% of outstanding debt was hedged; its interest-rate swap liability was $99.5. Management expected approximately $40.4 of hedge losses to be recognized as interest expense over the next 12 months. COVID-19 and economic conditions could affect credit demand, receivable collectability, currencies and financial estimates.
Most important facts for investors to verify
- Whether recovery in U.S. mortgage activity continues and how quickly other U.S. verticals and International markets rebound.
- How COVID-19, customer demand, foreign exchange and customer payment behavior affect subsequent revenue, margins and operating cash flow.
- Updates to Ramirez and other legal or regulatory matters, including the amount and adequacy of reserves and possible insurance recoveries.
- Debt repayment, interest-rate exposure, hedge costs, covenant headroom and availability of the revolving facility.
- Dividend policy and capital allocation, particularly the stated pause in near-term share repurchases.
- Reconciliation and comparability of non-GAAP Adjusted EBITDA and margin with GAAP results, including excluded legal, acquisition, technology and other expenses.