TransUnion — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; comparative period is Q1 2014. TransUnion provides information, analytics and decisioning services to businesses, plus consumer credit and identity-protection products. Amounts are in U.S. dollars.
Financial results
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Revenue | $353.1 million | $303.4 million | +16.4% |
| Operating income | $36.5 million | $34.8 million | +4.9% |
| Operating margin | 10.3% | 11.5% | -1.2 percentage points |
| Net loss attributable to TransUnion | $6.6 million | $14.7 million | Loss narrowed |
| Diluted loss per share | $0.06 | $0.13 | Improved |
| Adjusted EBITDA | $114.2 million | $95.3 million | +19.8% |
| Cash provided by (used in) operations | $16.5 million | $(6.1) million | Improved by $22.6 million |
| Capital expenditures | $30.1 million | $38.8 million | Down $8.7 million |
Revenue grew 13.1% excluding acquisitions and foreign-exchange effects. Acquisitions contributed 4.7% growth, while currency movements reduced revenue by 1.4%. Segment revenue was $222.2 million for U.S. Information Services (USIS, +14.4%), $62.9 million for International (+16.1%) and $68.0 million for Consumer Interactive (+23.5%). Segment operating margins were 14.1% for USIS (down 2.6 points), 3.8% for International (down 0.4 points) and 34.7% for Consumer Interactive (up 0.2 points).
Cash, debt and liquidity
Cash and equivalents were $87.0 million at March 31, 2015, versus $77.9 million at year-end. Total debt was $2,976.4 million, up from $2,939.9 million; cash less total debt implies net debt of approximately $2,889.4 million. Cash from operations less capital expenditures was negative $13.6 million. The company drew $35.0 million on its revolving facility during the quarter; $85.0 million was outstanding and $105.0 million remained available. Management said cash, operating cash generation and available revolver capacity should meet liquidity needs for the foreseeable future.
Debt included a $1,876.9 million secured term loan, $85.0 million drawn on the secured revolver, and $998.7 million carrying value of senior unsecured PIK toggle notes. The term loan’s stated interest rate was 4.00%; the notes bear fixed rates of 9.625% and 8.125% and mature in 2018. The company reported compliance with its debt covenants, including a maximum secured net leverage ratio covenant of 6.00-to-1 when applicable; its actual ratio is not stated here.
Changes, outlook and notable items
- Revenue increased in all three segments. Management cited organic growth, acquisitions (including CIBIL, L2C and DHI), higher USIS credit-report volumes, and Consumer Interactive subscriber and indirect-channel growth. International growth was partly offset by weaker currencies.
- Operating expenses rose 17.9%, faster than revenue. Selling, general and administrative expense increased 26.7%, and depreciation and amortization increased 34.2%. Management attributed higher costs to acquisitions and integration, Consumer Interactive advertising, and the technology transformation program.
- A 2014 change in estimated useful lives for certain software, equipment, leasehold improvements and headquarters assets increased Q1 2015 depreciation and amortization by $8.0 million and reduced TransUnion-attributable net income by $5.2 million, or $0.05 per share.
- Management expected 2015 capital expenditures to be lower than 2014 as a percentage of revenue, with headquarters improvements expected to be completed in the first half of 2015. No specific full-year revenue, earnings or EBITDA guidance is provided.
- The company cited improving economic conditions and lending trends, while warning that a stronger U.S. dollar had weighed on International results. Key risks include regulation and litigation, data security and service continuity, access to data, competition, technology transformation and acquisition integration, international economic and currency exposure, and substantial debt and covenant compliance.
- On April 20, 2015, Mississippi’s attorney general filed a lawsuit alleging unfair or deceptive credit-monitoring marketing and credit-report accuracy practices. TransUnion denied wrongdoing and said it would vigorously defend the case. Litigation and regulatory outcomes remain uncertain.
- Acquisition-related contingent obligations had maximum potential payouts of $19.5 million; their reported fair value was $5.4 million, and Q1 included $0.4 million of related expense. Foreign-currency translation reduced other comprehensive income by $27.0 million, net of tax.
Investor verification priorities
- Reconcile reported revenue growth with organic growth, acquired revenue and foreign-exchange effects; check the contribution and integration performance of CIBIL, L2C and DHI.
- Assess whether expense growth and the technology program continue to pressure operating margins, including the ongoing impact of the useful-life estimate change.
- Review operating cash conversion, capital spending and the funding of acquisitions; cash from operations less capital expenditures was negative in the quarter.
- Verify debt maturities, interest costs, actual covenant headroom and revolver availability; the filing states compliance but does not give the actual secured net leverage ratio.
- Monitor the Mississippi action and other legal or regulatory matters, along with contingent acquisition payments and foreign-exchange exposure.