TransUnion — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. TransUnion provides risk and information services through U.S. Information Services (USIS), International, and Consumer Interactive.
Financial performance
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $474.8 million | $425.7 million | $929.7 million | $831.4 million |
| Operating income | $115.5 million | $63.5 million | $216.6 million | $115.4 million |
| Net income attributable to TransUnion | $64.9 million | $17.3 million | $127.3 million | $29.9 million |
| Diluted EPS | $0.34 | $0.09 | $0.67 | $0.16 |
| Adjusted EBITDA | $186.1 million | $159.5 million | $357.7 million | $300.9 million |
- Q2 revenue grew 11.5%; six-month revenue grew 11.8%. Q2 growth reflected USIS and International strength, acquisitions and currency benefits, partly offset by lower Consumer Interactive revenue.
- Q2 operating margin was 24.3%, versus 14.9%; six-month margin was 23.3%, versus 13.9%. Lower depreciation and amortization, growth, and efficiency initiatives contributed. Certain USIS software and equipment assets became fully depreciated in June 2016.
- Q2 effective tax rate was 27.0%; the six-month rate was 21.6%. Stock-option tax benefits reduced tax expense by $11.4 million in Q2 and $23.0 million for the first half; a first-quarter international ownership-structure change provided a further $4.3 million benefit. These items materially aided reported earnings.
- Six-month operating cash flow was $174.2 million, up from $149.5 million. Capital expenditures were $58.0 million, versus $54.9 million. Cash declined $40.2 million during the period to $142.0 million.
- At June 30, total debt was $2,397.4 million, including $45.0 million drawn on the revolving facility; cash was $142.0 million. The company had $165.0 million of additional revolver availability. It reported compliance with debt covenants.
Material changes and capital allocation
- USIS revenue increased 16.0% in Q2; International revenue increased 12.5%. Consumer Interactive revenue declined 1.1%. Segment operating margins improved across all three segments.
- In January, the company extended Term Loan B maturity by two years to April 2023, reduced its applicable margin by 0.25%, and lowered the LIBOR floor to zero. Refinancing costs of $5.0 million were expensed in Q1.
- The company repurchased 3.5 million shares for a total of $133.5 million in the first half, funding the May purchase partly with revolver borrowing. The board authorized up to $300 million in repurchases over three years; purchases are discretionary.
- Cash used in investing fell to $104.5 million from $323.4 million, primarily due to lower acquisition spending than in the prior-year period.
Outlook, risks and unusual items
- No specific revenue or earnings guidance is provided in the filing. Management said cash, operating cash generation and available revolver capacity should meet planned capital expenditures, debt service, acquisitions and operating needs for the foreseeable future.
- Management cited improving U.S. lending and economic conditions, strong demand for consumer credit and identity products, and favorable currency effects in International. Results remain exposed to economic and credit-market conditions, customer retention, data security and access, technology execution, regulation, litigation, acquisitions, foreign exchange and variable-rate debt.
- In the Ramirez litigation, a jury awarded approximately $8.1 million in statutory damages and $52.0 million in punitive damages. The company accrued its estimated probable statutory losses, net of expected insurance, but did not accrue punitive damages; it estimated the reasonably possible punitive loss at zero to less than the statutory award. Post-trial motions and appeal remained pending. A separate Patel settlement was subject to court approval and was not expected to have a material financial impact.
- Revenue standard ASC 606 was planned for adoption January 1, 2018, using the modified retrospective method. The company had not identified an expected material effect on revenue recognition but was continuing its contract review and implementation work.
Important facts for investors to verify
- Whether earnings growth persists after the substantial share-based tax benefits and the year-over-year reduction in depreciation and amortization.
- Whether Consumer Interactive revenue stabilizes and whether USIS and International growth continues absent favorable currency or acquisition contributions.
- The eventual Ramirez judgment, including punitive damages, attorneys’ fees, insurance recovery and appeal outcome.
- Debt levels, variable-rate exposure, covenant headroom and liquidity after repurchases and acquisitions.
- The completed assessment and implementation effects of ASC 606 and other pending accounting standards.