TransUnion — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015; compared with the corresponding 2014 periods. Amounts are in U.S. dollars and millions unless otherwise stated. TransUnion provides credit information, analytics, decisioning and consumer financial-protection services. It completed its IPO on June 30, 2015.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $378.5 | $327.5 | $731.6 | $630.9 |
| Operating income | $51.4 | $32.4 | $87.9 | $67.2 |
| Net income (loss) attributable to TransUnion | $(2.6) | $17.9 | $(9.2) | $3.2 |
| Adjusted EBITDA | $134.8 | $116.2 | $249.6 | $211.7 |
| Cash from operating activities | $100.0 | $51.7 | $116.5 | $45.6 |
- Revenue grew 15.6% in Q2 and 16.0% year to date. Q2 segment revenue growth: USIS 14.2%, International 5.8%, and Consumer Interactive 31.2%. Management attributed growth to organic increases across segments and acquisitions, partly offset by foreign-currency weakness.
- Q2 operating margin was 13.6%, up from 9.9%; six-month margin was 12.0%, up from 10.6%. Q2 USIS and Consumer Interactive operating margins improved to 18.4% and 36.6%; International fell to 2.8% from 7.4%.
- Q2 net loss reflected $46.7 million of net non-operating expense and a $5.1 million income-tax provision despite $4.7 million of pretax income. The six-month pretax loss was $2.7 million. The 2014 comparison benefited from unusual gains, including a $45.4 million net gain on debt redemption and a $21.7 million gain on remeasurement of the prior CIBIL investment.
- Adjusted EBITDA is a non-GAAP measure. Its increase includes adjustments for items such as stock compensation, technology transformation and refinancing; it should not be treated as GAAP profit or a substitute for cash flow.
- Six-month capital expenditures were $68.3 million, down from $74.3 million. Operating cash flow improved, while cash used in investing activities was $76.9 million versus $121.0 million.
Balance sheet, debt and liquidity
- At June 30, cash and cash equivalents were $758.0 million, compared with $77.9 million at year-end 2014. The IPO generated approximately $715.1 million net proceeds.
- Total debt was $2.881 billion. The balance sheet classified $1.029 billion as short-term/current, largely because the senior unsecured notes were reclassified as current after the company exercised call rights. The company reported no revolving-credit borrowings and $210 million of available revolver capacity at quarter-end.
- In June, TransUnion amended/refinanced its secured credit facility, including a $1.881 billion Term Loan B and a $210 million revolving facility; it recorded $3.8 million of refinancing expense. The filing reported compliance with debt covenants.
- After quarter-end, it drew $350 million under a new Term Loan A and used those proceeds and IPO proceeds to redeem the 9.625% and 8.125% senior notes on July 15. The redemption was expected to cause an approximately $34 million loss in Q3 2015, including premiums and write-offs of debt fees and discounts.
- Management said cash, operating cash generation and revolver availability should be sufficient for foreseeable liquidity needs. The filing gives no specific revenue or earnings guidance.
Changes, commentary and risks
- Higher revenue and operating income were partly offset by increased SG&A and depreciation and amortization. Depreciation and amortization rose $13.3 million in Q2; a useful-life estimate change contributed $6.9 million. Management said that estimate change reduced Q2 net income attributable to TransUnion by about $4.3 million, or $0.03 per share.
- Management described improving U.S. lending and consumer-market conditions, but noted continuing uncertainty affecting consumer spending. A stronger U.S. dollar reduced International revenue; currency effects reduced reported revenue by 2.5% in Q2 and 2.1% for the six-month period.
- Risks cited include economic and credit-market conditions, customer retention, data security and access, service continuity, regulation and litigation, foreign currency and political conditions, technology transformation, acquisitions and integration, competition, and ability to meet debt obligations and covenants.
- Legal matters include routine consumer-reporting and privacy claims and regulatory inquiries. A court certified a national class of approximately 11,000 and a subclass of approximately 3,000 in the Patel FCRA case; TransUnion sought appeal and a stay and said it would defend the matter. The company also paid $2 million in Q2 as part of a multistate National Consumer Assistance Plan settlement.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It cautioned that interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Post-quarter debt balances and interest costs after the July note redemption, Term Loan A draw and related approximately $34 million Q3 charge.
- Whether revenue and segment operating-margin growth persist, particularly in International, given currency headwinds and lower reported margins.
- The sustainability of cash generation and Adjusted EBITDA, including the effects of capital spending and excluded or adjusted expenses.
- Resolution, possible financial exposure and insurance coverage for the Patel class action and other legal or regulatory matters.
- Effects of tax-rule changes and foreign earnings on the effective tax rate; Q2’s reported rate was 108.1%.
- Execution and costs of the technology transformation and acquisitions, and the impact of the useful-life estimate on future depreciation and earnings.