TransUnion 2014 Form 10-K Summary
Business context and reporting period. TransUnion provides consumer credit data, analytics, decisioning and identity-related services to businesses and consumers. This 10-K reports on the fiscal year ended December 31, 2014; it also gives fourth-quarter results. Results are presented across USIS, International and Consumer Interactive, with Corporate expenses reported separately. The company was privately held at the time, with no established public trading market for its common stock.
Key financial results
| Metric | 2014 | 2013 | Change |
|---|---|---|---|
| Revenue | $1,304.7 million | $1,183.2 million | Up 10.3% |
| Operating income | $128.4 million | $169.2 million | Down 24.1% |
| Net loss attributable to TransUnion | $12.5 million | $35.1 million | Loss narrowed |
| Adjusted EBITDA (non-GAAP) | $451.6 million | $408.5 million | Up 10.6% |
| Cash from operating activities | $154.3 million | $143.4 million | Up 7.6% |
| Capital expenditures, cash paid | $155.2 million | $81.7 million | Up 90.0% |
| Total debt, book value at year-end | $2,939.9 million | $2,866.9 million | Up $73.0 million |
| Cash and cash equivalents at year-end | $77.9 million | $111.2 million | Down $33.3 million |
Despite revenue and Adjusted EBITDA growth, GAAP operating income fell and the company reported a net loss. Cash from operations less cash capital expenditures was approximately negative $0.9 million in 2014; this is a simple calculation, not a company-reported free-cash-flow measure. The total operating margin declined to 9.8% from 14.3%.
Revenue and segment performance
| Segment | 2014 revenue | 2014 operating income | Revenue change vs. 2013 |
|---|---|---|---|
| USIS | $818.6 million | $112.8 million | Up 10.5% |
| International | $255.5 million | $22.2 million | Up 6.9% |
| Consumer Interactive | $230.6 million | $85.5 million | Up 13.2% |
Management attributed 2014 revenue growth to organic growth in all segments and acquisitions, partly offset by foreign-currency weakness. Acquisitions contributed 6.4% to consolidated growth; currency movements reduced revenue by 1.4%. Excluding both, revenue grew 5.3%. Consumer Interactive growth reflected more subscribers and indirect-channel volume. USIS Decision Services revenue rose 27.4%.
For the fourth quarter, revenue was $335.6 million, compared with $292.4 million in fourth-quarter 2013. Operating income was $20.4 million versus $36.2 million, and net loss attributable to TransUnion was $13.1 million versus $17.6 million.
Material changes and unusual items
- Operating expenses increased 16.0%, including higher depreciation and amortization, acquisition operating and integration costs, strategic investment spending, legal and regulatory costs, severance, and $10.2 million of accelerated fees for a terminated data-matching contract.
- Depreciation and amortization rose $54.4 million. A change in estimated useful lives increased 2014 expense by $17.5 million and reduced net income attributable to TransUnion by $11.2 million, or $0.10 per share.
- In April 2014, the company refinanced its senior secured credit facility, increasing the term loan to $1.9 billion, and used proceeds to repay $645 million of 11.375% notes. The refinancing produced a reported net gain of $33.1 million after related refinancing costs. Management estimated the transaction would reduce annual cash interest by about $45 million and interest expense by about $20 million at then-current rates.
- Acquisitions and increased ownership included DHI, L2C and a controlling interest in CIBIL; the company also acquired the remaining interest in its Guatemala subsidiary. Acquisitions contributed to higher goodwill, which reached $2,023.9 million.
- Foreign-currency translation reduced 2014 comprehensive income; the filing cites weakening currencies, particularly the South African rand and Canadian dollar, as a drag on International results.
Liquidity, debt and outlook
At year-end, debt was $2.94 billion, including $1.9 billion of secured term loans, $50 million drawn on a $190 million revolving facility, and $998.7 million of unsecured PIK toggle notes. Cash was $77.9 million, including $50.6 million held outside the United States. The company said cash, operating cash flow and available revolver capacity should be sufficient for planned capital expenditures, debt service and operating needs for the foreseeable future. It reported compliance with debt covenants. About 65.7% of debt was variable-rate; the company identified interest rates and foreign exchange as market risks.
Management expected 2015 capital expenditures to be lower than 2014 as a percentage of revenue, as technology-transformation and headquarters spending declined. The filing does not provide numerical revenue or earnings guidance. Strategic priorities include expanding data, technology and analytics capabilities, growing existing and adjacent markets, international expansion, consumer-channel growth and selective acquisitions. Management cited improved U.S. lending and market conditions, while noting that consumer spending concerns and a stronger U.S. dollar tempered growth.
Risks, contingencies and other items
- Key risks include data breaches or service disruption, loss or restricted use of data sources, privacy and consumer-credit regulation, CFPB oversight, litigation, competition and pricing pressure, exposure to U.S. financial services, foreign exchange, acquisition integration, technology-transformation execution, and substantial debt and covenant obligations.
- The company reported a fourth-quarter 2014 DDoS attack affecting consumer-service network connectivity; business impact was minimal and no data loss was reported.
- Pending matters include OFAC-related class actions and state investigations of credit-reporting practices. Accrued legal and regulatory claims were $17.8 million at year-end; actual outcomes could differ from reserves.
- In March 2015, the nationwide credit reporting agencies announced a phased National Consumer Assistance Plan following discussions with the New York Attorney General. TransUnion said the potential impact of ongoing multi-state and other investigations remained subject to evaluation.
- A Guatemala constitutional action concerning consumer consent was upheld on appeal in February 2015. The company did not expect compliance to materially affect its financial condition or results.
- Advent and Goldman Sachs-affiliated investors each reported beneficial ownership of approximately 48.9% of common stock and held substantial board-designation rights. The company said it did not intend to pay cash dividends in the foreseeable future.
Important facts for investors to verify
- Whether organic growth and segment-level performance continue after separating acquisition contributions and foreign-currency effects.
- Whether margins recover as technology-transformation spending, acquisition costs and elevated depreciation change.
- Actual cash generation after capital expenditures, debt service and any excess-cash-flow principal payments; the company’s 2015 capex expectation was qualitative.
- Debt maturity, variable-rate exposure, covenant headroom and whether the refinancing delivers the anticipated interest savings.
- Developments in CFPB oversight, consumer-assistance commitments, privacy/security incidents and material litigation or regulatory contingencies.
- The filing presents 2014 GAAP losses alongside non-GAAP Adjusted EBITDA growth; review the company’s reconciliation and adjustments when assessing operating performance.