TransUnion 2013 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2013. The filing is a combined report for TransUnion Holding Company, Inc. and its wholly owned subsidiary, TransUnion Corp.; figures can differ materially between the parent and operating company. The 2012 change in control created a new accounting basis, so comparisons use management’s combined 2012 results where available. Amounts below are in U.S. dollars.
Business context
TransUnion provides consumer and business credit information, analytics, identity and fraud tools, and decisioning services. It operates through U.S. Information Services (USIS), International, and Interactive, with 2013 revenue contributions of approximately 63%, 20%, and 17%, respectively. The company serves customers in 33 countries; about 80% of revenue was earned in the United States. Its common stock was privately held, with no established public trading market.
Financial performance and liquidity
| Metric | 2013 | 2012 comparable | Change |
|---|---|---|---|
| Revenue | $1,183.2 million | $1,140.0 million | Up 3.8% |
| Operating income | $169.2 million | $141.0 million | Up 20.0% |
| Operating margin | 14.3% | 12.4% | Up 1.9 percentage points |
| Adjusted EBITDA, non-GAAP | $377.9 million | $385.5 million | Down 2.0% |
| Net income (loss) attributable to TransUnion Holding | $(35.1) million | $(63.7) million | Loss narrowed |
| Cash from continuing operating activities | $143.4 million | $99.4 million | Up $44.0 million |
| Cash capital expenditures | $81.7 million | $69.2 million | Up $12.5 million |
TransUnion Holding reported $197.6 million of interest expense in 2013; operating income therefore did not translate into parent-level net income. TransUnion Corp, the operating subsidiary, reported $50.1 million of net income, of which $43.2 million was attributable to TransUnion Corp. Its separate operating cash flow was $239.1 million; this differs from the $143.4 million reported for TransUnion Holding and reflects the distinct entity reporting.
At year-end, TransUnion Holding reported cash of $111.2 million, total debt of $2,866.9 million, and total assets of $4,492.3 million. The $210 million revolving credit facility was undrawn and available. Current assets were $349.7 million versus current liabilities of $247.6 million. Debt increased $186.0 million year over year, mainly to fund acquisitions. Scheduled debt maturities are concentrated in 2018, when $1,656.6 million is due at the Holding level. The company stated that cash, operating cash flow, and revolver availability should meet planned needs for the foreseeable future.
Material changes and operating trends
- Revenue growth was led by Interactive, up 13.1%, and USIS, up 2.1%; International revenue rose 1.9% reported, or 10.2% excluding currency effects.
- Interactive benefited from subscriber growth, increased indirect-channel volume, and higher average revenue per direct subscriber.
- USIS online data and decision services grew, while Credit Marketing Services fell 4.8%; management said demand for credit marketing softened beginning in the third quarter.
- Foreign currency weakness reduced International revenue growth; management also cited stronger U.S. dollar effects on reported international results.
- Adjusted Operating Income fell 23.5% to $177.2 million, and adjusted operating margin decreased to 15.0% from 20.3%. Management attributed pressure to strategic investment costs, acquisition integration, advertising, currency movements, and the increase in depreciation and amortization following 2012 purchase accounting.
- Reported operating income rose partly because 2012 included $90.7 million of accelerated stock-based compensation tied to the change in control. 2013 also included $8.0 million of specified adjustments, including a legal accrual, disposal loss and prior-year transaction-tax adjustment.
Outlook, risks, and unusual items
Management gave no quantitative revenue or earnings guidance. It expects 2014 capital expenditures to be higher as a percentage of revenue than in 2013, reflecting a technology-platform upgrade and headquarters improvements. Management described improving U.S. lending and housing conditions but noted consumer uncertainty, rising mortgage rates, and softening credit-marketing demand.
- Leverage and liquidity: Significant debt, interest costs, covenants, variable-rate exposure, and reliance on subsidiary distributions to service parent debt are key financial risks. The company was in compliance with debt covenants at year-end. No excess-cash-flow principal payment was due in 2014 based on 2013 cash flows.
- Data protection and continuity: A May 2013 denial-of-service attack disrupted North American consumer connectivity for about 24 hours, with minimal business impact and no reported data loss. In a separate 2013 incident, individuals fraudulently obtained celebrity credit reports using personal information obtained elsewhere; the company said it strengthened authentication controls.
- Legal and regulatory exposure: The filing describes ongoing OFAC-related class actions, a remanded bankruptcy-tradeline settlement, public-record litigation, and state attorney general investigations. Accrued claims were $13.8 million at year-end; some exposures could not be reasonably estimated. The company stated it did not expect pending matters to materially affect its financial condition, while noting adverse outcomes could affect a particular period.
- Other contingencies: The eScan acquisition included a contingent payment obligation capped at $17.0 million; $2.2 million was accrued. A South African Investec claim seeking approximately $10 million was settled in February 2014 on terms that, after reserves, management said were not material.
- Goodwill sensitivity: No goodwill impairment was recorded. Estimated fair value exceeded carrying value by 13.5% for Latin America and 14.6% for Africa; specified 10% adverse changes in discount rate or projected cash flows could have triggered impairment in those reporting units.
- Acquisitions and accounting: 2013 acquisitions included TLO, eScan, and ZipCode. TLO’s purchase-price allocation was preliminary at filing, and acquisition-related expenses were $10.5 million overall.
Important facts for investors to verify
- Confirm whether a cited financial figure is for TransUnion Holding or TransUnion Corp; parent-level debt and earnings differ from those of the operating subsidiary.
- Review debt maturities, interest expense, covenant terms, and the availability and restrictions on subsidiary cash distributions.
- Track whether Interactive growth and USIS decision-services gains offset weakness in credit marketing and International currency headwinds.
- Assess progress, cost, and expected returns from the technology upgrade and higher planned capital spending.
- Monitor resolution of the disclosed litigation and regulatory investigations, and the final TLO purchase accounting and eScan contingent liability.
- Test goodwill valuation assumptions, particularly for Latin America and Africa, given the disclosed sensitivity to adverse assumptions.