TransUnion 2019 Form 10-K Summary
Business context and reporting period
TransUnion is a global data, analytics, credit-reporting and consumer-information company operating in more than 30 countries. It reports three segments: U.S. Markets, International and Consumer Interactive. This annual filing covers the fiscal year ended December 31, 2019; it is not a standalone fourth-quarter filing. The financial statements received unqualified audit opinions.
Key financial metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue | $2,656.1 million | $2,317.2 million | +14.6% |
| Operating income | $607.8 million | $512.5 million | +18.6% |
| Net income attributable to TransUnion | $346.9 million | $276.6 million | +25.4% |
| Diluted EPS attributable to TransUnion | $1.81 | $1.45 | +24.8% |
| Adjusted EBITDA | $1,058.9 million | $916.9 million | +15.5% |
| Adjusted EBITDA margin | 39.8% | 39.1% | +0.7 percentage points |
| Cash provided by operating activities | $776.7 million | $555.7 million | +$221.0 million |
| Capital expenditures | $198.5 million | $180.1 million | +$18.4 million |
| Interest expense | $173.6 million | $137.5 million | +26.3% |
| Total debt at year-end | $3,657.0 million | $4,048.1 million | -$391.1 million |
Cash and cash equivalents were $274.1 million at year-end, and the company had no revolving-credit borrowings and approximately $300 million of revolver capacity available. Operating cash flow was $776.7 million; the filing reports no additional excess-cash-flow debt payment due in 2020. The reported GAAP operating margin was approximately 22.9%, compared with 22.1% in 2018.
Material changes versus the prior comparable period
- Revenue growth reflected organic growth across segments, acquisitions and new products, partly offset by a 1.0% foreign-currency headwind. Acquisitions contributed 5.1% to reported revenue growth.
- U.S. Markets revenue rose 11.4% to $1,609.6 million; Financial Services and Emerging Verticals grew 11.0% and 11.9%, respectively.
- International revenue rose 32.0% to $623.5 million, primarily reflecting the inclusion of Callcredit, acquired in June 2018, and higher local-currency volumes. Currency movements reduced reported segment revenue by 4.8%. India revenue grew 32.1%.
- Consumer Interactive revenue increased 4.6% to $497.8 million. Growth was partly offset by lower incremental credit-monitoring revenue following a competitor’s data breach; that breach had supported prior-year comparisons.
- Operating expenses increased 13.5%, including higher acquisition-related, integration, labor, advertising and depreciation/amortization costs. Adjusted EBITDA nevertheless grew faster than revenue, and consolidated adjusted margin improved.
- Debt fell after $340 million of voluntary term-loan prepayments, in addition to required repayments. The company refinanced term loans in November and December 2019; higher average debt from 2018 acquisitions contributed to the increase in annual interest expense.
Outlook, commentary, risks and unusual items
- Management described U.S. credit conditions as healthy in 2019, citing a strong labor market, consumer confidence, lower interest rates and improvements in mortgage-related activity. It reported continuing demand for consumer solutions and growth in several international markets, while noting currency weakness, Brexit concerns and political and economic uncertainty in some regions.
- The filing provides no specific forward revenue, earnings or cash-flow guidance. Management said available cash, operating cash generation and the revolver should support planned operating needs, capital expenditures and debt service for the foreseeable future.
- A fraud incident at a Hong Kong subsidiary led to $17.8 million in unauthorized wire transfers and $3.0 million of related administrative costs. The total pre-tax charge was $20.8 million; the after-tax loss was $17.3 million, of which $10.0 million was attributable to TransUnion. The company added the incident’s net impact back in its non-GAAP Adjusted EBITDA presentation. A related internal-control material weakness was reported as remediated by year-end, and management and the auditor concluded internal control over financial reporting was effective as of December 31, 2019.
- The Ramirez FCRA case remained on appeal. A jury had awarded approximately $8.1 million in statutory damages and $52.0 million in punitive damages. TransUnion accrued the statutory-damages estimate and defense costs, with a fully offsetting expected insurance receivable; it did not accrue punitive damages. The company estimated possible future punitive losses from zero to less than the statutory award and said insurance coverage for punitive damages was uncertain.
- Substantial debt, largely variable-rate, exposes the company to interest-rate and refinancing risk. Interest-rate swaps and caps hedge portions of exposure; management estimated a 10% change in average LIBOR would have changed 2019 interest expense by $8.7 million. The filing also identifies data-security incidents, regulatory changes, litigation, customer retention, access to third-party data, competition, acquisitions and foreign-exchange movements as material risks.
- Callcredit integration and acquisition-related accounting affect comparability. A $31.2 million gain on a cost-method investment and $10.0 million of investment impairments were recorded in 2019, along with a $3.7 million loss on assets held for sale in the U.K. The 2019 effective tax rate was 19.0%, versus 15.9% in 2018; excess stock-compensation tax benefits reduced both rates.
Most important facts for investors to verify
- How much future growth is organic versus acquisition-related, particularly in International, and how Callcredit integration affects margins.
- Whether operating cash flow remains strong after capital spending, dividends, debt service and any further acquisitions.
- Debt maturity, variable-rate exposure, hedge coverage and compliance with credit-facility covenants; the company reported covenant compliance at year-end.
- The outcome and insurance recovery in Ramirez, including any change to the accrued liability or exposure to punitive damages.
- Whether the Hong Kong fraud-control remediation remains effective and whether any further losses or control deficiencies arise.
- How data-privacy and consumer-protection regulation, cybersecurity threats and changes in customer or data-provider relationships affect revenue, costs and legal exposure.