TransUnion Q3 2022 Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited results; amounts are in millions except per-share data. TransUnion operates U.S. Markets, International and Consumer Interactive segments.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $938.2 | $743.4 | $2,807.8 | $2,170.4 |
| Operating income | $169.5 | $169.7 | $487.0 | $533.7 |
| Net income attributable to TransUnion | $79.2 | $114.2 | $223.0 | $369.7 |
| Diluted EPS | $0.41 | $0.59 | $1.15 | $1.92 |
| Adjusted EBITDA | $340.7 | $301.7 | $1,025.2 | $874.5 |
| Adjusted EBITDA margin | 36.3% | 40.6% | 36.5% | 40.3% |
- Q3 revenue rose 26.2%; nine-month revenue rose 29.4%. Recent acquisitions were a major contributor. Q3 growth also reflected new business and product initiatives, while mortgage and Consumer Interactive demand softened.
- Q3 operating income was essentially flat, while net income attributable to TransUnion fell 30.7%. Higher interest expense, depreciation and amortization, and operating costs weighed on GAAP earnings. Interest expense was $61.3 in Q3 versus $25.7 a year earlier.
- Adjusted EBITDA increased 12.9% in Q3, but its margin declined 4.3 percentage points. The company attributes margin pressure in part to Neustar’s lower margin profile, acquisition integration costs, and higher product costs.
- Segment gross revenue in Q3: U.S. Markets $621.1 (+38.0%), International $189.2 (+6.3%), and Consumer Interactive $147.3 (+9.1%). U.S. Markets growth was heavily acquisition-driven; Financial Services revenue increased 5.0%, while Emerging Verticals increased 91.2%.
- Nine-month cash provided by operating activities of continuing operations was $70.8, versus $603.2 in 2021. The filing cites taxes paid on the Healthcare divestiture gain, compensation payments and higher interest payments. Capital expenditures were $192.5, versus $148.7.
- Cash and cash equivalents were $596.1 at September 30, 2022, down from $1,842.4 at December 31, 2021. Total debt was $5,893.5, including $5,778.9 of long-term debt. The company prepaid $400.0 of Term Loan B-6 debt; it had no revolving-credit borrowings and $299.9 available. It reported compliance with debt covenants.
- Q3 basic and diluted EPS were both $0.41. Nine-month diluted EPS was $1.15. Net income included discontinued operations of $2.4 in Q3 2022, compared with $21.5 in Q3 2021.
Material changes and unusual items
- TransUnion acquired Verisk Financial Services for $504.5 in cash in April 2022, retaining Argus and intending to divest the acquired non-core businesses. Argus results are included in U.S. Markets; non-core businesses are classified as discontinued operations and held for sale. The purchase price allocation remains preliminary.
- Neustar and Sontiq, acquired in December 2021, also affect year-over-year comparability. Neustar is included in U.S. Markets and Sontiq in Consumer Interactive.
- Revenue comparisons also reflect the 2021 sale of the Healthcare business, whose prior-period results are presented as discontinued operations. The company paid $355 in taxes on the sale gain during 2022.
- Foreign-currency movements reduced international revenue and drove substantial translation losses in other comprehensive income. The nine-month foreign-currency translation loss was $280.6, net of tax.
- Legal and regulatory accruals were $119.1 at September 30, up from $85.6 at year-end 2021. The CFPB matter described below contributed to this increase.
Outlook, risks and contingencies
- No specific quantitative company-wide revenue or earnings guidance is provided in the supplied filing text. Management says macroeconomic conditions have deteriorated, citing persistent inflation, rising interest rates, slowing housing activity, weaker consumer confidence and recession concerns.
- Management expects mortgage-related declines to continue for the foreseeable future, as it expects interest rates to remain high or rise further. Consumer Interactive faced weaker demand for paid credit products; tenant-market activity was also soft.
- Management believes cash on hand, operating cash generation and the revolving facility are sufficient for planned needs for the foreseeable future, while noting liquidity depends on business performance and broader conditions. It intends to continue quarterly dividends, subject to board approval and applicable restrictions.
- The CFPB sued TransUnion and related parties in April 2022 over alleged consent-order and consumer-marketing violations. The company disputes the allegations and is defending the matter. It accrued $56.0; a loss above that amount is reasonably possible but not estimable, and an adverse result could materially affect results and financial condition.
- The CFPB also issued notices concerning tenant and employment screening and security-freeze issues. Potential outcomes and losses are uncertain; the company says it corrected the freeze-related system issues. It is also cooperating with a U.S. Department of Justice inquiry into Argus’s use of data under certain government contracts; the seller agreed to indemnify specified losses.
- A tentative class settlement in Ramirez v. Trans Union received preliminary court approval; the company expected resolution by the end of 2022. The filing does not establish the subsequent outcome.
- Interest-rate and foreign-exchange exposure remain risks. Interest-rate swaps cover approximately 68% of outstanding debt, leaving material exposure to variable rates. The company also identifies potential acquisition-integration, data-security, regulatory, litigation, recession and impairment risks.
Important facts for investors to verify
- How much reported growth is sustainable organically after separating acquisition contributions, foreign exchange and discontinued operations.
- Whether softer mortgage, consumer-direct and tenant demand continues, and the resulting effect on revenue and margins.
- Cash conversion and liquidity following the sharp year-to-date decline in operating cash flow and the $355 tax payment.
- Debt-service costs and covenant headroom as variable borrowing rates change; confirm the effect and coverage of interest-rate hedges.
- Developments, potential exposure and reserve adequacy for CFPB matters, other legal and regulatory proceedings, and the Argus inquiry.
- Final purchase accounting and divestiture progress for the Verisk Financial Services non-core businesses, as well as realized benefits and integration costs from recent acquisitions.