TransUnion 2015 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2015. This is an annual filing, not a standalone quarterly filing; selected fourth-quarter results are included below. TransUnion provides credit and consumer information, analytics, risk scores, and decisioning services to businesses and consumers in more than 30 countries. Its segments are U.S. Information Services (USIS), International, and Consumer Interactive.
Key financial results
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $1,506.8 million | $1,304.7 million |
| Operating income / margin | $197.1 million / 13.1% | $128.4 million / 9.8% |
| Net income (loss) attributable to TransUnion | $5.9 million | $(12.5) million |
| Adjusted EBITDA (non-GAAP) | $526.7 million | $454.3 million |
| Cash from operating activities | $309.1 million | $154.3 million |
| Capital expenditures | $132.2 million | $155.2 million |
| Total debt | $2,208.5 million | $2,939.9 million |
| Cash and cash equivalents | $133.2 million | $77.9 million |
Revenue grew 15.5%; Adjusted EBITDA rose 15.9%. Cash from operations less capital expenditures was approximately $176.9 million in 2015 (calculated from reported figures). Interest expense declined to $134.2 million from $190.0 million. Total debt remained substantial and was variable-rate; the weighted-average rate at year-end was 3.40%. The company had no borrowings on its $210 million revolving line and reported compliance with debt covenants.
Fourth quarter: Revenue was $386.1 million and operating income was $48.9 million. Net income attributable to TransUnion was $19.2 million, or $0.11 per diluted share. In Q4 2014, revenue was $335.6 million, operating income $20.4 million, and the company recorded a $13.1 million loss attributable to TransUnion.
Segment performance and changes
- USIS: Revenue increased 15.0% to $951.9 million. Decision Services grew 25.1%, Online Data Services 13.3%, and Marketing Services 11.7%. Operating income rose to $157.6 million from $118.6 million; operating margin increased to 16.6% from 14.3%.
- International: Revenue increased 4.6% to $269.6 million, but a 14.1% foreign-currency headwind offset local-currency growth and acquisition contribution. Operating income declined to $21.2 million from $22.8 million; margin was 7.9%, down from 8.8%.
- Consumer Interactive: Revenue increased 30.5% to $301.0 million, driven by indirect-channel growth and more direct subscribers. Operating income grew to $110.1 million from $77.1 million; margin rose to 36.6% from 33.5%.
Overall operating income improved despite higher SG&A and depreciation and amortization. Depreciation and amortization increased to $278.4 million, including $28.8 million from shortened useful lives of certain assets associated with the technology and headquarters transformation. Net income attributable to the company turned positive, but remained modest relative to revenue and Adjusted EBITDA.
Outlook, commentary, risks, and unusual items
- Management cited improving U.S. consumer lending and demand for data, analytics, and consumer identity-protection services as supporting 2015 results. A stronger U.S. dollar weighed on international results.
- The company expected capital expenditures to be lower in 2016 as a share of revenue, with the technology-platform transformation expected to be completed in the first half of 2016. This is management commentary, not formal earnings guidance.
- The June 2015 IPO generated approximately $714.7 million in net proceeds. Together with a new $350 million term loan, proceeds funded redemption of $1 billion of 9.625% and 8.125% senior notes. Refinancing and redemption charges totaled $37.6 million in 2015.
- In December 2015, TransUnion entered into interest-rate caps covering an initial $1,526.4 million notional amount, intended to cap LIBOR exposure at 0.75% beginning June 20130. The filing states that cap-related payments begin in July 2016. The company cautioned that it remains exposed to interest-rate changes on unhedged variable-rate debt.
- Acquisitions included Trustev, increased ownership in CIBIL, and acquisition of the remaining interests in Chilean and Brazilian subsidiaries. Subsequent to year-end, TransUnion acquired 71% of Colombia’s CIFIN for approximately $133 million (about $127 million net of acquired cash), funded with a $145 million revolver draw; it also agreed to acquire an additional 23.67%.
- Legal and regulatory matters include a September 2015 CFPB investigative demand concerning consumer-report, credit-score, and monitoring-product practices; the company said it was cooperating and could not predict the outcome. A Mississippi attorney general action and consumer class actions involving OFAC alerts and credit-reporting practices also remained pending. The filing reports a $16.3 million accrual for anticipated claims and warns actual resolution costs could be higher.
- Principal risks include sensitive-data security and service continuity, privacy and consumer-credit regulation, access to external data sources, dependence on financial-services activity and key customers, foreign-exchange exposure, competition and pricing, technology-transformation execution, and substantial debt with restrictive covenants. Management reported no material effect from inflation and no goodwill impairment in 2015.
- TransUnion did not expect to pay cash dividends in the foreseeable future. Sponsors Advent and Goldman Sachs collectively held approximately 79.4% of outstanding stock at year-end; the company used the NYSE controlled-company governance exemptions.
Important facts for investors to verify
- Whether revenue and operating-margin growth persist, particularly in Consumer Interactive and USIS, and how much growth is organic versus acquisition-driven.
- Whether operating cash flow remains strong after working-capital needs, capital expenditures, debt service, and acquisition spending.
- Debt paydown, variable-rate exposure, covenant headroom, and the effectiveness and cost of the interest-rate caps.
- Progress and remaining costs of the technology transformation, including whether expected efficiencies and savings are realized.
- Developments in CFPB and state investigations, consumer litigation, and the adequacy of the $16.3 million legal accrual.
- Foreign-currency effects and integration or performance of CIBIL, Trustev, CIFIN, and other acquired businesses.
- Confirm the Q4 comparisons and distinguish GAAP earnings from management’s non-GAAP Adjusted EBITDA measure.