TransUnion Q2 2021 Form 10-Q Summary
Business context and reporting period
TransUnion filed an unaudited Form 10-Q for the quarter and six months ended June 30, 2021. The company provides credit information, analytics, identity and related consumer and business solutions through U.S. Markets, International and Consumer Interactive. Comparisons are against the same periods in 2020, when COVID-19 had materially reduced demand.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $774.2 million | $634.4 million | $1,519.5 million | $1,322.0 million |
| Operating income | $217.5 million | $123.9 million | $398.2 million | $260.7 million |
| Net income attributable to TransUnion | $127.6 million | $68.5 million | $255.6 million | $138.7 million |
| Diluted EPS | $0.66 | $0.36 | $1.33 | $0.72 |
| Adjusted EBITDA | $318.6 million | $242.7 million | $619.0 million | $506.0 million |
| Adjusted EBITDA margin | 41.1% | 38.2% | 40.7% | 38.3% |
| Cash provided by operating activities | $235.7 million | $253.9 million | $380.5 million | $379.4 million |
Q2 GAAP operating margin was approximately 28.1%, versus 19.5% a year earlier; net income attributable to TransUnion was 16.5% of revenue versus 10.8%. Q2 growth reflected recovering demand as well as a $32.4 million net reduction in estimated Ramirez litigation expense. Adjusted EBITDA is a non-GAAP measure and should not be viewed as a substitute for GAAP results or operating cash flow.
- Segments: Q2 gross revenue increased 19.5% in U.S. Markets to $484.7 million, 44.1% in International to $172.5 million, and 6.4% in Consumer Interactive to $136.6 million. International Adjusted EBITDA rose 92.7% to $72.2 million; U.S. Markets rose 22.4% to $209.4 million; Consumer Interactive rose 5.0% to $64.8 million.
- Cash flow and investment: First-half capital expenditures were $97.1 million, compared with $87.6 million. Investing activities used $146.1 million and financing activities used $202.5 million. Cash increased by $33.2 million to $526.2 million.
- Debt and liquidity: Total debt was $3,342.5 million at June 30, down from $3,454.2 million at year-end; cash was $526.2 million. The company prepaid $85 million of term loans during the first half. It had no revolver borrowings and $299.9 million available, and reported compliance with debt covenants.
- Balance sheet: Current assets were $1,253.0 million and current liabilities $601.8 million. Total assets were $7,395.1 million and stockholders’ equity $2,907.6 million.
Material changes versus the prior period
- Revenue increased 22.0% in Q2 and 14.9% in the first half, attributed mainly to recovering economic conditions, new products and, in U.S. Markets, acquisitions. Foreign currency translation also boosted reported growth, particularly in International.
- Operating income and diluted EPS increased substantially. Lower interest expense, supported by lower average rates and debt repayments, also improved results.
- Q2 cost of services rose 14.5%, while SG&A rose 3.4%. Higher product, labor, acquisition and technology costs were partly offset by reduced legal expense and lower bad-debt provisions.
- First-half operating cash flow was nearly flat year over year despite higher earnings, with working-capital changes among the offsets. Q2 operating cash flow was lower than in Q2 2020.
- The quarterly dividend increased from $0.075 to $0.095 per share during Q2.
Outlook, commentary, risks and unusual items
- Management described demand and macroeconomic conditions as improving across segments, but gave no specific financial guidance in the provided filing text. It cautioned that COVID-19, including virus variants, could adversely affect results and financial condition.
- The Supreme Court’s Ramirez decision led TransUnion to reduce its estimated liability and partially offsetting insurance receivable, recording a $32.4 million net reduction in SG&A expense and $8.1 million related tax expense. Further proceedings remained pending.
- In June, the CFPB sent a Notice and Opportunity to Respond and Advise concerning alleged failures to implement a 2017 consent order and alleged Consumer Interactive marketing violations. The company disputed the allegations; any probable loss was not reasonably estimable.
- The Q2 effective tax rate was 32.0%, including $20.3 million of tax expense from remeasuring U.K. deferred taxes after an enacted tax-rate increase. The first-half effective rate was 25.5%.
- Variable-rate debt and foreign-currency movements remain exposures. The company said hedges fixed LIBOR exposure on approximately 75% of outstanding debt; it expects to recognize about $40.3 million of swap-related losses as interest expense over the next twelve months.
- Other stated risks include regulatory change, litigation, data security and access, customer retention, competition, acquisitions and integration, and maintaining liquidity and debt-covenant compliance.
Important facts for investors to verify
- How much of revenue and margin growth reflects sustained underlying demand versus pandemic-recovery comparisons, currency effects and the Ramirez expense reversal.
- The eventual financial effect and timing of the Ramirez proceedings and CFPB matter, including insurance recoveries and potential penalties or corrective actions.
- Progress in cash conversion, working capital and capital spending, alongside debt repayment and interest-rate exposure.
- Whether International growth and Consumer Interactive performance persist as recovery effects moderate; the filing notes mortgage growth slowed significantly in Q2 and the Consumer Interactive indirect channel was moderating.
- Future dividend capacity under the credit agreement and the company’s stated intention to continue quarterly dividends, subject to board approval and financial conditions.