TransUnion Q1 2018 Form 10-Q Summary
Business context and reporting period
TransUnion is a global risk and information solutions provider, serving businesses through U.S. Information Services (USIS) and International, and consumers through Consumer Interactive. This unaudited report covers the three months ended March 31, 2018; year-over-year comparisons are to Q1 2017 unless noted.
Financial performance and liquidity
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Revenue | $537.4 million | $455.0 million; up 18.1% |
| Operating income | $125.2 million | $101.1 million; up 24.0% |
| Operating margin | 23.3% | 22.2% |
| Net income attributable to TransUnion | $73.1 million; diluted EPS $0.38 | $62.3 million; diluted EPS $0.33 |
| Adjusted EBITDA (non-GAAP) | $202.6 million | $171.6 million; up 18.1% |
| Cash provided by operating activities | $101.0 million | $65.3 million |
| Capital expenditures | $26.9 million | $26.0 million |
Revenue grew across all segments: USIS gross revenue was $342.3 million, International $95.9 million, and Consumer Interactive $117.9 million. USIS operating margin declined to 24.2% from 25.6%; International rose to 14.7% from 10.7%; Consumer Interactive eased to 45.3% from 45.7%.
At March 31, 2018, cash was $154.3 million, total debt $2,423.9 million, and total current assets $646.5 million versus current liabilities of $400.4 million. The revolving credit facility had $55.0 million drawn and $245.0 million available. Total debt declined from $2,464.6 million at December 31, 2017; the company repaid $30.0 million on the revolver during Q1. It reported compliance with all debt covenants.
Material changes versus the prior period
- Revenue increased 18.1%, reflecting broad organic growth, recent USIS acquisitions and favorable foreign exchange. Acquisitions contributed 3.3% to revenue growth; currency contributed 0.7% overall.
- USIS revenue rose 21.3%, including 8.6% growth in credit report unit volume within Online Data Services. Consumer Interactive growth included incremental credit-monitoring revenue following a competitor data breach.
- Operating expenses increased 16.4%, including higher product, labor, acquisition, litigation, advertising, and depreciation and amortization costs. Operating income grew faster than revenue.
- Operating cash flow increased by $35.7 million year over year. Investing cash outflow was lower, primarily because the prior-year period included greater acquisition spending.
- The effective tax rate was 26.8%, compared with 15.1%. Q1 2018 included $14.2 million of tax expense associated with the Tax Cuts and Jobs Act, foreign rate differentials and unrecognized tax benefits, partly offset by $8.2 million of excess stock-compensation tax benefits. Q1 2017 benefited from tax items including $11.6 million of excess stock-compensation benefits.
Outlook, management commentary, risks and unusual items
- Management described U.S. consumer lending, labor-market and consumer-confidence conditions as healthy, and reported strong demand in marketing and consumer solutions. It noted ongoing headwinds in Africa and expected foreign currency movements to affect reported International results. No quantified earnings or revenue guidance is provided in the filing.
- On April 20, 2018, after quarter-end, TransUnion agreed to acquire U.K.-based Callcredit for approximately £1.0 billion, subject to customary adjustments and regulatory and other closing conditions. The company expected to close in late Q2 or early Q3 2018 and intended to finance substantially all of the purchase with debt; transaction and financing costs were expected.
- The board approved a policy to begin quarterly cash dividends in Q2 2018, subject to board discretion and contractual restrictions. The remaining authorization under the stock repurchase program was $166.6 million; the company had no obligation to repurchase shares.
- Legal contingencies include an approved Patel class settlement, fully accrued and expected to be paid in May absent an appeal, and public-record matters. A broader public-record settlement received preliminary court approval, with final approval scheduled for August 2018; the Walsh matter was excluded. Management said the agreed settlement terms for the other pending matters would not materially affect financial condition or results.
- Key risks include data security and service continuity, access to data sources, regulation and litigation, customer retention, economic and foreign-exchange conditions, integration of acquisitions, leverage and covenant compliance, and the closing and expected benefits of the Callcredit acquisition. The company recorded a $1.6 million impairment loss on a cost-method investment.
- TransUnion adopted ASC Topic 606 using the modified retrospective method; management reported no material impact on financial statements or revenue recognition. The filing notes that interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether Callcredit received required approvals, closed on expected terms and timing, and how debt financing affects leverage and interest expense.
- Subsequent revenue growth and margins by segment, particularly USIS margin pressure and the durability of Consumer Interactive growth following the competitor breach.
- Cash conversion, capital spending, debt repayment, variable-rate exposure and continued compliance with debt covenants.
- Final approval and payment of the public-record settlements, developments in the Walsh matter, and any changes in accrued legal and regulatory liabilities.
- Dividend commencement and any future repurchases, considering board discretion, liquidity needs and credit-agreement restrictions.
- Final tax effects of the Tax Cuts and Jobs Act and changes in unrecognized tax benefits as audits and guidance develop.