TransUnion — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. TransUnion provides credit, data, analytics, identity and consumer-finance solutions through U.S. Markets, International and Consumer Interactive. The filing is unaudited.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $634.4m | $661.9m | $1,322.0m | $1,281.2m |
| Operating income | $123.9m | $159.7m | $260.7m | $281.8m |
| Net income attributable to TransUnion | $68.5m | $101.5m | $138.7m | $172.4m |
| Diluted EPS | $0.36 | $0.53 | $0.72 | $0.90 |
| Adjusted EBITDA | $242.7m | $263.7m | $506.0m | $502.6m |
| Adjusted EBITDA margin | 38.2% | 39.7% | 38.3% | 39.1% |
Q2 revenue fell 4.1%, operating income fell 22.4%, and attributable net income fell 32.5% year over year. First-half revenue grew 3.2%, while operating income and attributable net income declined 7.5% and 19.5%, respectively. Adjusted EBITDA was down 8.0% in Q2 but up 0.7% for the first half. Interest expense declined to $33.5m in Q2 and $71.1m for the half, primarily reflecting lower debt balances and rates.
Segment trends: Q2 U.S. Markets gross revenue was essentially flat at $405.5m; Financial Services grew 4.3%, offset by a 5.0% decline in Emerging Verticals. International revenue fell 20.8% to $119.7m, with declines across all regions. Consumer Interactive grew 3.9% to $128.4m. For the first half, U.S. Markets grew 6.8%, International declined 6.6%, and Consumer Interactive grew 3.3%.
Cash, debt and liquidity
- Cash and cash equivalents were $432.2m at June 30, 2020, versus $274.1m at December 31, 2019. Current assets were $1,064.7m and current liabilities $582.2m.
- Six-month operating cash flow was $379.4m, compared with $308.3m a year earlier. Capital expenditures were $87.6m, yielding approximately $291.8m of operating cash flow less capital expenditures.
- Total debt was $3,629.1m, including $3,573.4m long-term debt; cash-adjusted debt was approximately $3.20bn. The revolving facility had no borrowings and $299.9m available.
- The company reported compliance with debt covenants. It said cash, operating cash flow and available credit should fund foreseeable operating needs, planned capital expenditures and debt service, while noting that pandemic-related disruption could affect liquidity and capital access.
Material changes, outlook and risks
- Management said COVID-19 materially and adversely affected customer demand across all segments from mid-March. Demand showed signs of recovery from its April low, but the duration and severity of the effects remained uncertain. International markets were particularly weak; mortgage refinance activity supported U.S. Financial Services revenue.
- No numerical full-year guidance is provided in the supplied filing text. Management cited continued uncertainty and said pandemic effects could remain material for an uncertain period. It reported no material COVID-19 impact to its evaluated accounting estimates through June 30, but warned later assessments could affect results.
- The first-half results included a $30.5m Ramirez litigation expense, recorded in Q1, following an appellate court’s reduction of the punitive damages award to approximately $32m. The company recorded an estimated liability and a partially offsetting insurance receivable.
- Q2 2019 included a $31.2m gain on an investment, making year-over-year comparisons of other income and earnings less favorable in 2020. For the first half of 2020, foreign currency translation produced a $179.1m loss before tax in other comprehensive income; the company also cited weaker foreign currencies as a drag on revenue.
- Interest-rate swaps cover approximately 70% of outstanding debt, according to the filing; unhedged variable-rate debt and foreign-exchange movements remain risks. The company expects to recognize approximately $40.3m of hedge losses as interest expense over the next 12 months.
- The board declared quarterly dividends of $0.075 per share in Q1 and Q2. Management intended to continue quarterly dividends subject to board approval, but said it could recommend a temporary reduction or suspension if conditions deteriorated. It did not intend short-term share repurchases given pandemic uncertainty.
Key facts for investors to verify
- Whether demand recovery continued after the April low, especially in International and U.S. Emerging Verticals.
- How much of reported performance reflects recurring operations versus litigation, investment and other adjustment items; review the company’s Adjusted EBITDA reconciliation alongside GAAP results.
- Receivables collectability, bad-debt reserves and future impairment or tax-asset assessments as pandemic conditions evolve.
- Debt, covenant headroom, unhedged interest-rate exposure and the expected timing and accounting impact of swap losses.
- Any subsequent developments in the Ramirez matter, insurance recovery, dividend policy or capital-return plans.