TransUnion — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; comparisons are with Q1 2016 unless otherwise noted. TransUnion provides credit information, analytics, decisioning, and consumer credit and identity-protection services through U.S. Information Services (USIS), International, and Consumer Interactive.
Financial performance
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Revenue | $455.0 million | $405.7 million; up 12.1% |
| Operating income | $101.1 million | $51.9 million; up 94.6% |
| Operating margin | 22.2% | 12.8% |
| Net income attributable to TransUnion | $62.3 million; diluted EPS $0.33 | $12.6 million; diluted EPS $0.07 |
| Adjusted EBITDA | $171.6 million | $141.4 million; up 21.4% |
| Cash provided by operating activities | $67.3 million | $41.7 million |
| Capital expenditures | $26.0 million | $30.9 million |
Revenue growth reflected organic growth in USIS and International, acquisitions, and a favorable foreign-currency effect; Consumer Interactive revenue declined slightly. Management attributed the substantial operating-income improvement to revenue growth, lower depreciation and amortization, technology and productivity savings, and more efficient Consumer Interactive marketing, partly offset by higher compensation and acquisition costs.
- Segments: USIS revenue was $282.2 million, up 14.3%; International was $83.4 million, up 22.9%; Consumer Interactive was $105.0 million, down 1.0%. Segment operating margins were 25.6%, 10.7%, and 45.7%, respectively.
- Cash and liquidity: Cash and equivalents were $131.2 million at March 31, down from $182.2 million at year-end. Operating cash flow less capital expenditures was $41.3 million. Cash fell by $51.0 million during the quarter.
- Debt: Total debt was $2,402.0 million, including $40.0 million drawn on the revolving facility; long-term debt was $2,309.3 million. The company reported $170.0 million of additional revolver availability and compliance with debt covenants.
Material changes and unusual items
- Q1 net income benefited from $11.6 million of excess tax benefits from stock-option exercises under newly adopted share-based compensation guidance and a $4.3 million tax benefit from a change in the structure of certain international subsidiaries. The effective tax rate was 15.1%, versus 45.1% in Q1 2016; reported earnings therefore include significant tax benefits.
- On January 31, 2017, TransUnion refinanced Term Loan B, extending maturity by two years to April 2023, reducing the applicable margin by 0.25 percentage points, and lowering the LIBOR floor from 0.75% to zero. The company expensed $5.0 million of refinancing fees and related net costs.
- TransUnion increased its ownership of India’s CIBIL from 82.1% to 92.1%. It also repurchased 1.85 million shares for $68.3 million in connection with a stockholders’ secondary offering; the company received no proceeds from that offering. The board authorized up to $300 million of repurchases over three years.
- Depreciation and amortization declined 19.9%, primarily because certain USIS software and equipment assets became fully depreciated in 2016.
Outlook, risks, and contingencies
Management said improving U.S. lending and housing conditions, demand for analytics and consumer credit/identity products, and stronger foreign currencies supported results. It stated that cash, operating cash flow, and available revolver capacity should cover planned capital spending, debt service, acquisitions, and operating needs for the foreseeable future. The filing provides no specific numerical earnings or revenue guidance.
Key stated risks include adverse credit or macroeconomic conditions; competition and customer retention; data security, service continuity, and access to data sources; regulation and litigation; foreign exchange and variable-rate debt exposure; acquisition integration; and maintaining liquidity and debt-covenant compliance. The company described ongoing consumer-reporting litigation and new or continuing public-record class-action claims, which it intends to defend. Outcomes and potential losses could not be predicted with certainty. A $13.9 million CFPB escrow deposit was included in other current assets. Management reported effective disclosure controls and no material change in internal controls during the quarter.
Important facts for investors to verify
- How much of earnings growth is sustainable after separating operating improvement from the $15.9 million of disclosed tax benefits and the lower depreciation burden.
- Whether USIS and International growth continues, and whether Consumer Interactive’s revenue decline persists.
- Debt, floating-rate exposure, refinancing effects, and remaining borrowing capacity; the filing reports $2.4 billion of total debt and $131.2 million of cash.
- Developments in public-record and other consumer-reporting litigation, regulatory matters, and the use or status of the CFPB escrow deposit.
- The pace and price of future share repurchases and the returns from acquisitions, including the increased CIBIL ownership.