TransUnion 10-Q Summary
Business context and period. TransUnion Holding Company, Inc. and its wholly owned subsidiary, TransUnion Corp., filed this combined unaudited report for the quarter ended September 30, 2013. They operate as one business providing credit information, analytics and consumer subscription services through U.S. Information Services (USIS), International and Interactive segments. Unless stated otherwise, figures below are for TransUnion Holding’s consolidated results. The 2012 change in control created purchase-accounting adjustments and makes some nine-month comparisons less directly comparable.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 comparable |
|---|---|---|---|---|
| Revenue | $299.5 million | $291.7 million | $890.8 million | $855.6 million |
| Operating income | $49.3 million | $61.3 million | $132.9 million | $97.6 million |
| Operating margin | 16.5% | 21.0% | 14.9% | 11.4% |
| Adjusted EBITDA | $99.5 million | $106.0 million | $286.1 million | $296.3 million |
| Net income (loss) attributable to Holding | ($3.4) million | $11.3 million | ($17.5) million | ($55.5) million |
| Cash from operating activities | $63.8 million | $66.7 million | $111.1 million | $34.5 million |
| Capital expenditures | $23.9 million | $18.8 million | $54.1 million | $46.6 million |
The nine-month 2012 comparison combines Holding’s results from inception with TransUnion Corp.’s predecessor results through April 30, 2012. Adjusted EBITDA is a non-GAAP measure; the filing cautions that it is not a substitute for GAAP results or operating cash flow.
- Q3 revenue grew 2.7%; growth excluding currency effects and recent acquisitions was 3.4%. Interactive revenue rose 10.5%, USIS 1.2% and International 1.3%.
- Q3 operating income fell 19.6% as operating expenses rose 8.6%, led by strategic hiring, Interactive advertising and product costs, acquisition-related operating costs and higher depreciation and amortization.
- Q3 Holding net loss reflected $49.0 million of interest expense and a $3.9 million income-tax provision despite positive operating income. TransUnion Corp separately reported Q3 net income of $19.5 million and income attributable to it of $17.5 million.
- Nine-month operating cash flow improved by $76.6 million versus the comparable 2012 period, which included cash payments related to the 2012 change-in-control transaction. Cash and cash equivalents were $117.5 million at quarter-end, down from $154.3 million at year-end 2012.
Debt and liquidity
At September 30, 2013, Holding reported total debt of $2.727 billion, including $76.1 million classified as current, and long-term debt of $2.651 billion. This includes Holding-level notes not included in TransUnion Corp’s separate $1.728 billion total debt. Holding cash was $117.5 million. TransUnion Corp had $65.0 million drawn on its $210.0 million revolving facility, leaving $145.0 million available. Its senior secured net leverage ratio was 2.01-to-1, below the 4.00-to-1 covenant limit; the company reported compliance with debt covenants. Beginning in 2014, term-loan principal payments will also depend on prior-year excess cash flow.
Changes, outlook and risks
- Management attributed revenue growth to improving economic conditions and acquisitions, partly offset by foreign-exchange headwinds. It noted that U.S. credit-report volume growth slowed late in Q2 as rising mortgage rates reduced refinancing activity, and credit-marketing demand softened in Q3.
- Acquisitions included eScan, acquired September 4, 2013, and ZipCode, acquired in March 2013; the company also acquired the remaining 15% of CRB during Q3. eScan’s sellers may receive up to $17 million contingent on future performance; its fair value had not yet been determined.
- Management said cash, operating cash generation and revolving-credit availability should meet liquidity needs for the foreseeable future. It expected capital spending in the remainder of 2013 and in 2014 to be higher than 2012 as a percentage of revenue, including for a technology-platform upgrade and headquarters improvements. No specific earnings or revenue guidance was provided.
- Risks highlighted include economic and credit-market conditions, data security and service continuity, access to data, regulation and litigation, foreign exchange, acquisition integration, technology investment, customer retention and the ability to service debt and maintain covenant compliance.
- In an Investec arbitration, the arbitrator ruled on November 11, 2013, that a subsidiary had an implied contract and was liable for Investec’s losses. The company planned to appeal; if unsuccessful, a further arbitration would determine damages. The filing does not provide a clear value for potential damages.
- Management reported disclosure controls were effective at a reasonable-assurance level and no material change in internal controls during the quarter.
Important facts for investors to verify
- Whether operating-margin pressure and the Q3 slowdown in mortgage-related and credit-marketing demand persist.
- Debt service, available revolver capacity, 2014 excess-cash-flow amortization and continued covenant compliance.
- Capital spending plans and the returns expected from the technology upgrade and recent acquisitions.
- Outcome and potential damages of the Investec matter, and valuation or payout of eScan’s contingent consideration.
- Effects of currency movements and purchase-accounting amortization on reported growth and earnings.