TransUnion 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2022. Amounts are in U.S. dollars; financial statement figures are unaudited. TransUnion is a global information and insights company operating through U.S. Markets, International and Consumer Interactive.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|
| Revenue | $948.3 million | $728.2 million | $1,869.5 million | $1,427.1 million |
| Operating income | $182.5 million | $200.4 million | $317.4 million | $364.0 million |
| Net income attributable to TransUnion | $95.6 million | $127.6 million | $143.9 million | $255.6 million |
| Diluted EPS | $0.49 | $0.66 | $0.75 | $1.33 |
| Adjusted EBITDA | $350.3 million | $295.3 million | $684.5 million | $572.8 million |
| Adjusted EBITDA margin | 36.9% | 40.6% | 36.6% | 40.1% |
- Q2 revenue rose 30.2%; management attributed much of the increase to recent acquisitions, alongside new products and improved, but slowing, market conditions. Foreign exchange was a partial offset.
- Revenue growth did not translate into higher GAAP operating income or net income. Higher operating expenses, acquisition-related amortization and interest expense contributed to lower earnings; Q2 interest expense more than doubled year over year to $51.9 million.
- Six-month cash from continuing operations was negative $115.4 million, versus positive $347.7 million in 2021. Cash used in investing was $676.2 million, including $504.0 million invested in consolidated affiliates; cash used in financing was $521.8 million.
- Cash and cash equivalents were $521.8 million at June 30, down from $1,842.4 million at year-end 2021. Management cited the Verisk Financial Services acquisition, debt prepayment, Healthcare-sale taxes and recurring first-quarter payments as drivers of the decline.
- Total debt was $5,919.8 million, including $5,805.2 million long-term debt. The company prepaid $400 million of Term Loan B-6 during the first half. It had no revolver borrowings and $299.9 million available; management reported compliance with debt covenants.
Segments and changes versus prior period
| Q2 segment gross revenue | 2022 | Year-over-year change |
|---|
| U.S. Markets | $633.4 million | +44.4% |
| International | $187.0 million | +8.4% |
| Consumer Interactive | $147.4 million | +7.9% |
- U.S. Markets growth was led by Emerging Verticals, up 97.7%, primarily reflecting Neustar, acquired in December 2021. Financial Services increased 11.3%, with Argus contributing and mortgage revenue weakening as interest rates rose.
- International growth reflected increased local-currency volumes and new products, partly offset by foreign exchange. Consumer Interactive growth included Sontiq, acquired in December 2021, while revenue in other channels declined.
- Consolidated Adjusted EBITDA increased 18.6% in Q2, but margin fell 3.6 percentage points. U.S. Markets margin declined to 37.0%, primarily due to Neustar’s lower margin profile, VF integration costs and higher product costs.
Acquisitions, outlook and risks
- TransUnion acquired Verisk Financial Services for $508.0 million in April 2022, retaining Argus and planning to divest the acquired non-core businesses. The purchase-price allocation remains preliminary. Neustar and Sontiq acquisitions also affect year-over-year comparisons.
- Management described global conditions as deteriorating from the 2021 rebound, citing inflation, rising interest rates, geopolitical tensions, supply-chain and labor concerns, and weakening consumer confidence. It expected positive but slowing global GDP growth for the remainder of 2022; no numerical company-wide guidance is provided in the filing text.
- Management expects mortgage-line declines to continue as interest rates rise. It stated inflation had not materially affected results to date, but warned it could reduce demand for credit and the company’s services.
- The CFPB filed a lawsuit in April concerning consumer product marketing and alleged Consent Order violations. TransUnion accrued $56.0 million; it said additional loss is reasonably possible but not estimable and could materially affect results and financial condition. The company disputes the allegations and intends to defend itself.
- The company also disclosed CFPB inquiries involving tenant and employment screening and security-freeze systems, plus a Department of Justice inquiry concerning Argus’s historical use of data under government contracts. Potential losses for these matters were not estimable or were immaterial as disclosed; the VF seller agreed to indemnify certain Argus-related losses.
- Other notable items include $113.0 million accrued for anticipated legal and regulatory claims, compared with $85.6 million at year-end, and a $28.4 million six-month adjustment for certain legal and regulatory expenses. The company reported that disclosure controls were effective at a reasonable assurance level.
Important facts for investors to verify
- How much of revenue and Adjusted EBITDA growth is attributable to acquisitions versus organic growth, and how acquisition integration affects margins.
- Whether cash generation improves after the first-half outflows, and how the company plans to balance debt reduction, investment and dividends.
- Exposure to further interest-rate increases: approximately 68% of outstanding debt was hedged, leaving material variable-rate exposure.
- Developments, potential financial impact and resolution timing for the CFPB lawsuit and other legal, regulatory and government inquiries.
- Final purchase-price allocations and planned divestiture of Verisk Financial Services non-core businesses.
- Effects of macroeconomic weakening, mortgage-market contraction, inflation, foreign exchange and COVID-19 uncertainty on demand and results.
