TransUnion 2020 First-Quarter 10-Q Summary
Reporting period: Three months ended March 31, 2020; comparisons are with the three months ended March 31, 2019 unless otherwise noted. TransUnion provides credit information, analytics, identity and decisioning services through U.S. Markets, International and Consumer Interactive.
Financial results and liquidity
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $687.6 million | $619.3 million | +11.0% |
| Operating income | $136.8 million | $122.1 million | +12.0% |
| Net income attributable to TransUnion | $70.2 million | $70.9 million | −1.0% |
| Diluted EPS | $0.37 | $0.37 | Flat |
| Adjusted EBITDA (non-GAAP) | $263.4 million | $238.9 million | +10.2% |
| Adjusted EBITDA margin (non-GAAP) | 38.3% | 38.3% | Flat |
| Cash from continuing operating activities | $125.5 million | $126.2 million | −$0.7 million |
| Capital expenditures | $42.0 million | $41.9 million | +$0.1 million |
Operating income margin was approximately 19.9%, compared with 19.7% in Q1 2019. Cash less capital expenditures was approximately $83.5 million, versus $84.3 million. Interest expense declined to $37.7 million from $45.0 million, reflecting prior debt prepayments and refinancing. The effective tax rate rose to 23.1% from 0.8%, primarily because the prior-year period included larger stock-compensation tax benefits and foreign tax-credit valuation allowance releases.
At March 31, 2020, cash and cash equivalents were $305.7 million. Total debt was $3.64 billion, including $3.59 billion of long-term debt; the revolving facility had no borrowings and $299.9 million available. The company reported compliance with debt covenants. Current assets were $924.8 million and current liabilities were $555.5 million.
Material changes versus the prior period
- U.S. Markets gross revenue increased 14.4% to $421.9 million, led by Financial Services, up 21.8%; Emerging Verticals increased 6.6%.
- International gross revenue increased 8.0% to $157.7 million, although reported growth was reduced by weaker currencies. Consumer Interactive revenue increased 2.7% to $126.7 million.
- Adjusted EBITDA rose 20.8% in U.S. Markets, but fell 7.3% in International and 4.7% in Consumer Interactive. Segment margins were 40.7%, 38.2% and 45.3%, respectively; International and Consumer Interactive margins declined.
- Selling, general and administrative expense increased $39.7 million, including a $30.5 million Ramirez litigation charge, higher acquisition and integration costs, and increased advertising and bad-debt expense.
- Foreign-currency translation and hedge losses contributed to a $218.3 million other comprehensive loss. Total stockholders’ equity declined to $2.16 billion from $2.34 billion at December 31, 2019.
Outlook, risks and unusual items
- COVID-19: Revenue grew 11% for the quarter, but management said the pandemic and containment measures adversely affected demand from mid-March. The filing reports revenue declines in the last two weeks of March and expects the trend to continue, potentially worsening into Q2 and beyond, with a material adverse impact on 2020 results. It provides no numerical earnings or revenue guidance.
- Management said cash, operating cash flow and available credit were expected to fund foreseeable needs, while noting that liquidity depends on the duration and severity of disruptions, collections, cost controls and market access. Actions included pausing new hiring, reducing discretionary spending and Q2 capital spending, and not planning near-term share repurchases. The company said it was comfortable continuing its quarterly dividend for the time being, subject to board approval, but could recommend reducing or suspending it if conditions deteriorate.
- Ramirez litigation: The Ninth Circuit directed a reduction of punitive damages from about $52 million to about $32 million; rehearing was denied April 8, 2020. TransUnion accrued an estimated liability and partially offsetting insurance receivable at quarter-end, recording $30.5 million of expense and a related $7.6 million tax benefit. Insurance coverage for punitive damages may be less than the affirmed award; further post-judgment actions and insurance recovery efforts remained under consideration.
- Variable-rate debt, foreign exchange, weakening credit and housing markets, customer demand and payment capacity, litigation and regulatory matters, and the uncertain pandemic recovery are significant risks. The company had hedged approximately 73% of outstanding debt against interest-rate exposure and entered into additional swaps in March.
- COVID-19 had no material effect on the reported quarter-end financial statements based on management’s then-current assessment, but future estimates—including receivable reserves and asset impairment assessments—could be materially affected as more information becomes available.
Important facts for investors to verify
- How Q2 and subsequent revenue, particularly in Financial Services and Consumer Interactive’s indirect channel, developed after the late-March declines.
- The amount and timing of Ramirez-related liability payments, insurance recoveries and any further court action.
- Liquidity, covenant headroom and debt costs if the downturn persists or credit-market access weakens.
- Whether receivable losses, goodwill or other asset valuations, and foreign-exchange movements require material revisions.
- Whether the dividend remains sustainable and when, if ever, share repurchases resume.