TransUnion — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; unaudited. Comparisons are with Q1 2018 unless noted. TransUnion provides credit, data, analytics, identity and consumer financial-information services through U.S. Information Services (USIS), International and Consumer Interactive.
Financial performance
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Revenue | $619.3 million | $537.4 million | +15.2% |
| Operating income | $122.1 million | $125.2 million | Down $3.1 million |
| Net income attributable to TransUnion | $70.9 million | $73.1 million | Down 3.0% |
| Diluted EPS | $0.37 | $0.38 | Down $0.01 |
| Adjusted EBITDA (non-GAAP) | $238.9 million | $202.6 million | +17.9% |
| Adjusted EBITDA margin (non-GAAP) | 38.3% | 37.7% | Up 0.6 percentage points |
| Cash from continuing operating activities | $126.2 million | $101.0 million | +25.0% |
| Capital expenditures | $41.9 million | $26.9 million | Up $15.0 million |
Cash and equivalents were $200.9 million at March 31, 2019, versus $187.4 million at year-end 2018. Total debt was $4.03 billion, including $3.95 billion of long-term debt; no revolving credit was drawn and $299.9 million remained available. The company reported compliance with debt covenants. Total assets were $7.18 billion and stockholders’ equity was $2.08 billion.
Segments and changes versus prior period
- USIS: Gross revenue rose 7.7% to $368.8 million. Financial Services revenue increased 3.6% to $189.1 million; Emerging Verticals increased 12.5% to $179.7 million. Segment Adjusted EBITDA grew 6.5% to $142.0 million, while margin declined 0.5 percentage points to 38.5%, partly due to acquisition integration costs.
- International: Gross revenue increased 52.2% to $146.0 million and Adjusted EBITDA rose 96.6% to $65.0 million. Callcredit, acquired in June 2018, contributed $42.2 million of UK revenue; the UK had no reported revenue in the comparable quarter. Foreign-exchange impacts reduced International revenue by 9.2%.
- Consumer Interactive: Revenue increased 4.6% to $123.4 million and Adjusted EBITDA increased 5.8% to $60.2 million. Management cited growth in direct and indirect channels, partly offset by lower incremental credit-monitoring revenue following a competitor breach.
Reported revenue growth reflected organic growth across segments, acquisitions and new products, partly offset by weaker currencies. Acquisitions accounted for an estimated 11.1% revenue increase. Adjusted Revenue, a non-GAAP measure that includes acquisition-related revenue adjustments, increased 16.0% to $623.5 million.
Cash, debt, unusual items and outlook
- Interest expense nearly doubled to $45.0 million, primarily reflecting higher debt following 2018 acquisitions and a higher average interest rate. The company’s weighted-average variable debt rate was 4.43% at quarter-end.
- The effective tax rate was 0.8%, versus 26.8% a year earlier. Q1 2019 benefited mainly from $21.0 million of excess stock-compensation tax benefits and $7.9 million of valuation-allowance releases on foreign tax credits.
- A $5.3 million impairment of a nonconsolidated investment was recorded. Discontinued operations, related to non-core Callcredit businesses, generated a $1.6 million after-tax loss; the company said it had sold three of the five businesses and expected to sell the remaining two within a year of acquisition.
- Operating cash flow from continuing operations improved, while investing outflows increased mainly due to higher capital spending. Financing outflows included $36.8 million of employee withholding-tax payments on vested restricted stock and approximately $14.0 million of dividends paid.
- TransUnion said cash on hand, operating cash generation and available credit were expected to fund planned capital expenditures, debt service, acquisitions and operating needs for the foreseeable future. The filing provides no specific numerical full-year revenue or earnings guidance.
- Management described U.S. consumer lending as healthy but noted mortgage-market deterioration and a slowdown in customer marketing activity early in the quarter. It cited uncertainty around global growth and trade, Brexit concerns, and currency weakness, particularly in Africa, India and Latin America.
Investor points to verify
- How much future growth is organic versus acquisition-related, particularly following Callcredit, and whether expected integration synergies materialize.
- Whether mortgage weakness, customer marketing activity and foreign-exchange pressure persist, and how they affect segment growth and margins.
- Debt-service capacity and sensitivity to variable rates; the filing reports substantial term debt despite available revolver capacity and interest-rate hedges.
- The sustainability of Q1’s unusually low effective tax rate, which benefited from specified tax items.
- Progress on disposing of the remaining Callcredit non-core businesses and any resulting valuation or earnings effects.
- Cybersecurity, data access, regulatory and litigation exposures: the filing highlights these as risks and refers readers to the 2018 Form 10-K for pending legal proceedings; details are not provided in this filing text.