TransUnion 2018 Form 10-K Summary
Business context and reporting period
TransUnion provides consumer credit and risk data, analytics, decisioning, identity and fraud solutions to businesses and consumers. It operates in three reportable segments: U.S. Information Services (USIS), International and Consumer Interactive. This annual report covers the fiscal year ended December 31, 2018; the filing also reports fourth-quarter results.
Financial results and liquidity
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $2,317.2 million | $1,933.8 million |
| Operating income | $512.5 million | $464.7 million |
| Net income attributable to TransUnion | $276.6 million | $441.2 million |
| Diluted earnings per share | $1.45 | $2.32 |
| Adjusted EBITDA (non-GAAP) | $916.9 million | $748.1 million |
| Cash provided by operating activities | $559.4 million | $465.8 million |
| Capital expenditures | $180.1 million | $135.3 million |
| Total debt | $4,048.1 million | $2,464.6 million |
| Cash and cash equivalents | $187.4 million | $115.8 million |
Revenue grew 19.8% and Adjusted EBITDA grew 22.6%. Operating margin was approximately 22.1%, compared with 24.0%; consolidated Adjusted EBITDA margin increased to 39.1% from 38.7%. Operating cash flow less capital expenditures was approximately $379.3 million, versus $330.5 million. Interest expense rose to $137.5 million from $87.6 million.
Fourth-quarter revenue was $613.1 million, versus $506.1 million. Fourth-quarter net income attributable to TransUnion was $102.1 million, compared with $245.1 million in 2017, which included a substantial one-time tax benefit.
Material changes versus the prior period
- USIS revenue rose 20.0% to $1,444.7 million; financial services revenue increased 23.4%, supported by higher credit-report volumes and new products.
- International revenue increased 30.5% to $472.4 million, including $71.3 million from Callcredit, acquired in June. Foreign currency movements reduced 2018 revenue by 0.5% overall and International revenue by 2.5%.
- Consumer Interactive revenue grew 10.1% to $475.8 million, partly reflecting incremental credit-monitoring revenue associated with a competitor’s data breach.
- Net income attributable to TransUnion declined 37.3%. 2017 results included a $175.3 million estimated tax benefit from U.S. tax reform; 2018 included $5.3 million of tax expense to finalize the accounting for that legislation. Higher interest, acquisition-related costs and amortization also affected 2018 results.
- Debt increased primarily to fund acquisitions. The company acquired Callcredit, iovation, Healthcare Payment Specialists and Rubixis; 2018 acquisition and related noncontrolling-interest purchases used $1,828.4 million of cash.
Outlook, risks and unusual items
The filing provides no formal 2019 financial guidance. Management described healthy U.S. consumer lending and demand for credit and identity solutions, while noting mortgage softness, higher interest rates, home affordability constraints, financial-market volatility and uncertainty about trade and global growth. International growth was tempered by currency weakness and uncertainty in South Africa. Management expected synergies from integrating Callcredit and planned a U.K. CreditVision launch in 2019.
Liquidity at year-end included $187.4 million of cash and a fully available $300 million revolving credit facility. The company reported compliance with its debt covenants. Debt is primarily variable-rate; new interest-rate swaps covered $1.45 billion of exposure, but the company continued to disclose material interest-rate risk. The company initiated quarterly dividends in 2018, declaring $0.075 per share for each of three quarters.
- Leverage and refinancing: $4.05 billion of debt, variable-rate exposure and restrictive covenants could constrain investment, dividends or financial flexibility.
- Data security and regulation: A breach, service interruption, loss of data access or tighter privacy and consumer-reporting rules could cause substantial costs, liability, reputational damage or limits on products.
- Litigation: In the Ramirez class action, a jury awarded approximately $8.1 million in statutory damages and $52.0 million in punitive damages. The company appealed; it accrued its estimated probable loss net of expected insurance, but did not accrue the punitive award. The outcome remained uncertain.
- Acquisition integration: Callcredit’s purchase-price allocation was preliminary; it contributed $71.3 million of revenue and an operating loss of $28.2 million after acquisition. Some acquired operations were classified as discontinued operations and were expected to be sold.
- Tax and accounting: 2018 effective tax rate was 15.9%, compared with a negative 21.2% in 2017. The company adopted revenue-recognition guidance with no material financial-statement impact; it estimated lease-accounting adoption would add approximately $75 million to $85 million of lease liabilities and corresponding right-of-use assets in 2019.
Most important facts for investors to verify
- How much of reported growth and future performance is organic versus acquisition-related, particularly after Callcredit integration.
- Debt repayment capacity, interest-rate sensitivity, covenant headroom and the effect of acquisition financing on interest expense.
- The status, potential exposure and insurance coverage of the Ramirez appeal and other legal or regulatory matters.
- Whether reported margin gains and cash generation persist as acquisition, integration and amortization costs evolve.
- Progress on data-security controls and compliance with changing U.S. and international privacy and credit-reporting requirements.