TransUnion 2017 Form 10-K Summary
Business context and reporting period
TransUnion is a global risk and information services provider, offering consumer reports, scores, analytics and decisioning solutions to businesses, plus credit and identity-related products to consumers. It reports three segments: U.S. Information Services (USIS), International and Consumer Interactive. This annual report covers the fiscal year ended December 31, 2017; the filing also provides fourth-quarter results.
Financial performance and liquidity
| Metric | 2017 | 2016 | Change |
|---|---|---|---|
| Revenue | $1,933.8 million | $1,704.9 million | +13.4% |
| Operating income | $464.7 million | $300.5 million | +54.6% |
| Operating margin | 24.0% | 17.6% | +6.4 percentage points |
| Net income attributable to TransUnion | $441.2 million | $120.6 million | +$320.6 million |
| Diluted EPS | $2.32 | $0.65 | +$1.67 |
| Adjusted EBITDA | $748.1 million | $636.8 million | +17.5% |
| Cash from operating activities | $468.0 million | $389.9 million | +20.0% |
| Capital expenditures | $135.3 million | $124.0 million | +9.1% |
All three segments grew. USIS revenue was $1,204.1 million (+15.2%), International revenue was $361.9 million (+15.3%), and Consumer Interactive revenue was $432.1 million (+6.1%). Segment operating margins were 26.0%, 16.1% and 45.9%, respectively. International revenue benefited from a 3.5% currency impact; acquisitions added 1.6% to consolidated revenue growth.
Cash and cash equivalents were $115.8 million at year-end, down from $182.2 million. Total debt was $2,464.6 million, up from $2,375.6 million; interest expense was $87.6 million. Current assets were $588.7 million and current liabilities were $458.4 million. The company reported $85.0 million drawn on its $300 million revolving credit line, with $215.0 million available, and stated it was in compliance with debt covenants.
Material changes versus prior period
- Revenue growth was broad-based, with particularly strong USIS performance. Operating income rose faster than revenue, supported by revenue growth, lower depreciation and amortization, technology-related savings and lower litigation expense than in 2016.
- Net income benefited substantially from a $175.3 million estimated tax benefit related to the Tax Cuts and Jobs Act and $39.3 million of excess tax benefits on stock-based compensation. The reported 2017 effective tax rate was negative 21.2%, compared with 36.0% in 2016; the improvement is not solely indicative of ongoing operating performance.
- Cash used in investing activities was $480.8 million, including $342.6 million for acquisitions and purchases of noncontrolling interests. Financing activities used $53.9 million, including $133.5 million for treasury-stock purchases.
- The company acquired Datalink, eBureau and FactorTrust in 2017 and increased its ownership of India’s CIBIL to 92.1%. It also amended and refinanced its credit facilities, extending certain maturities and reducing some interest margins.
Fourth-quarter results
Fourth-quarter 2017 revenue was $506.1 million, operating income $121.5 million, and net income attributable to TransUnion $245.1 million, or diluted EPS of $1.29. The quarter’s net income and EPS included a significant tax benefit from the Tax Act. Fourth-quarter 2016 revenue was $435.9 million, operating income $89.3 million, and net income attributable to TransUnion $49.5 million, or diluted EPS of $0.27.
Outlook, risks, contingencies and unusual items
- Management described favorable U.S. lending and consumer demand conditions, continued growth in key international markets, and ongoing investment in data, technology, analytics, new products and international expansion. The filing does not provide quantified forward revenue or earnings guidance.
- Principal risks include data security incidents or service interruptions, restricted access to data sources, privacy and consumer-credit regulation, litigation, competition and pricing pressure, customer concentration and retention, economic sensitivity in financial services, foreign exchange movements, and substantial variable-rate debt.
- A jury returned a June 2017 verdict in the Ramirez FCRA class action of about $8.1 million in statutory damages and $52.0 million in punitive damages. TransUnion appealed; it accrued its estimate of probable statutory losses net of expected insurance, but did not accrue punitive damages. The company estimated a possible future punitive loss ranging from zero to less than the statutory award amount, subject to change. Other FCRA and public-record class actions remain pending; the filing says outcomes may be material to individual periods.
- Accrued legal and regulatory claims were $46.3 million at year-end, versus $35.9 million a year earlier. The company also reported an $8 million proposed settlement in Patel, subject to final court approval at the filing date.
- The Tax Act accounting was incomplete in certain respects at year-end. The company recorded estimates, including a $33.5 million transition-tax expense, and expected to refine its accounting during 2018. Its dividend policy, announced after year-end, anticipated quarterly dividends beginning in the second quarter of 2018, subject to board discretion and debt restrictions.
Most important facts for investors to verify
- How much of 2017’s earnings increase reflects recurring operating improvement versus the one-time tax benefit and stock-compensation tax effects.
- The status, insurance coverage and potential financial exposure from Ramirez, Patel and the other consumer-reporting litigation.
- Debt repayment capacity, covenant headroom, variable-rate exposure and the effect of acquisitions and repurchases on leverage and liquidity.
- Whether segment growth and margins can persist, particularly in Consumer Interactive and internationally, after currency and acquisition contributions.
- The final tax accounting under the Tax Act and the feasibility of planned dividends within credit-facility restrictions.