WASHINGTON, D.C. 20549
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
See accompanying notes to unaudited consolidated financial statements.
See accompanying notes to unaudited consolidated financial statements.
Basic earnings per share represents income available to common stockholders divided by the weighted averageweighted-average number of common shares outstanding during the reported period. Diluted earnings per share reflects the effect of the increase in shares outstanding determined by using the treasury stock method for awards issued under our incentive stock plans.
Basic and diluted weighted average shares outstanding and earnings per share were as follows:
U.S. Information ServicesMarkets
Earnings from equity method investments included in non-operating income and expense for the periods presented werewas as follows:
On June 21, 2017, the jury in Ramirez returned a verdict in favor of a class of 8,185 individuals in the amount of approximately $8.1 million ($984.22 per class member) in statutory damages and approximately $52.0 million ($6,353.08 per class member) in punitive damages. Plaintiff’s counsel has not provided any estimate of attorneys’ fees and costs that they will seek in connection with this verdict as permitted by law. The timing and outcome of the ultimate resolution of this matter is uncertain.
We have posted a bond at nominal cost to stay the execution of the judgment pending resolution of post-judgment motions that were filed with the trial court and the expectation of a subsequent appeal. Despite the jury verdict, we continue to believe that we have not willfully violated any law and have meritorious grounds for seeking modification of the judgment at the trial court or on appeal. Given the complexity and uncertainties associated with the outcome of the post-trial proceedings and any subsequent appeals, there is a wide range of potential results, from vacating the judgment in its entirety to upholding some or all aspects of the judgment. As of September 30, 2017, we have recorded a charge for this matter equal to our current estimate of probable losses for statutory damages, net of amounts we expect to receive from our insurance carriers, the impact of which is not material to our financial condition or results of operations. We have not, however, recorded an accrual with respect to the punitive damages awarded by the jury since it is not probable, based on current legal precedent, that an award for punitive damages in conjunction with statutory damages for the alleged conduct will survive the post-judgment actions. We currently estimate, however, that the reasonably possible loss in future periods for punitive damages falls within a range from zero to something less than the amount of the statutory damages awarded by the jury. This estimate is based on currently available information. As available information changes, our estimates may change as well. We believe we will have some level of insurance coverage for the damage award and the legal fees and expenses we have incurred and will incur for defending this matter should this matter be unfavorably resolved against us after exhaustion of our post-judgment options.
The Ramirez matter involved facts that are not related to the other OFAC Alert Service matters. As a result, we do not believe the jury verdict in Ramirez will have any bearing on Miller or Larson, which are still pending before different courts.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of TransUnion’s financial condition and results of operations is provided as a supplement to, and should be read in conjunction with, TransUnion’s audited consolidated financial statements, the accompanying notes, “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2016,2022, as well as the unaudited consolidated financial statements and the related notes presented in Part I, Item 1, of this Amendment No. 1 to Quarterly Report on Form 10-Q.
References in this discussion and analysis to “the Company,” “we,” “us” and “our” refer to TransUnion and its direct and indirect subsidiaries, including TransUnion Intermediate Holdings, Inc., collectively.10-Q/A.
In addition to historical data, this discussion contains forward-looking statements about our business, operations and financial performance based on current expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those discussed below in “Cautionary Notice Regarding Forward-Looking Statements,” and Part II, Item 1A, “Risk Factors.”
References in this discussion and analysis to the “Company,” “we,”, “us,” and “our” refer to TransUnion and its direct and indirect subsidiaries, including TransUnion Intermediate Holdings, Inc., collectively. Overview
TransUnion is a leading global riskinformation and information solutions provider toinsights company that makes trust possible between businesses and consumers. consumers, working to help people around the world access opportunities that can lead to a higher quality of life. That trust is built on TransUnion’s ability to deliver safe, innovative solutions with credibility and consistency. We call this Information for Good.
Grounded in our heritage as a credit reporting agency, we have built robust and accurate databases of information for a large portion of the adult population in the markets we serve. We use our data fusion methodology to link and match an increasing set of disparate data to further enrich our database. We use this enriched data, combined with our expertise, to continuously develop more insightful solutions for our customers, all in accordance with global laws and regulations. Because of our work, organizations can better understand consumers in order to make more informed decisions, and earn consumer trust through great, personalized experiences, and the proactive extension of the right opportunities, tools and offers. In turn, we believe consumers can be confident that their data identities will result in better offers and opportunities.
We provide solutions that enable businesses to manage and measure credit risk, market to new and existing customers, verify consumer reports, risk scores, analytical servicesidentities, mitigate fraud, and decisioning capabilities to businesses.effectively manage call center operations. Businesses embed our solutions into their process workflows to acquire new customers, assess consumer ability to pay for services, identify cross-selling opportunities, measuredeliver critical insights and manage debt portfolio risk, collect debt, verify consumer identities and investigate potential fraud.enable effective actions. Consumers use our solutions to view their credit profiles and access analytical tools that help them understand and manage their personal financial information and take precautions against identity theft. We are differentiated by our comprehensive and unique datasets, our next-generation technology and our analytics and decisioning capabilities, which enable us to deliver insights across the entire consumer lifecycle. We believe we are the largest provider of risk and information solutions in the United States to possess both nationwide consumer credit data and comprehensive, diverse public records data, which allows us to better predict behaviors, assess risk and address a broader set of business issues for our customers. We have deep domain expertise across a number of attractive industries, which we also refer to as verticals, including financial services, specialized risk, insurance, and healthcare. We have a global presence in over 30 countries across North America, Africa, Latin America, and Asia.
Our solutions are based on a foundation of data assets across financial, credit, alternative credit, identity, phone activity, digital device information, marketing, bankruptcy, lien, judgment, insurance claims, automotive and other relevant information obtained from approximately 90,000 datathousands of sources including financial institutions, private databases and public records repositories. We refine, standardize and enhance this data using sophisticated algorithms to create proprietary databases.
Our deep analytics expertise, whichaddressable market includes our people as well as tools such as predictive modeling and scoring, customer segmentation, benchmarking and forecasting, enables businesses and consumers to gain better insights into their risk and financial data. Our decisioning capabilities, which are generally delivered on a software-as-a-service platform, allow businesses to interpretthe global data and applyanalytics market, which continues to grow as companies around the world increasingly recognize the benefits of data and analytics-based decision making, and as consumers recognize the important role that their specific qualifying criteriadata identities play in their ability to make decisionsprocure goods and take action with respectservices. We leverage our differentiated capabilities in order to their customers. Collectively, our data, analyticsserve a global customer base across multiple geographies and decisioning capabilities allow businessesindustry verticals.
Restatement
The Company has restated its previously issued Consolidated Financial Statements and related notes for the three and nine months ended September 30, 2023. Refer to authenticateNote 1, “Significant Accounting and Reporting Policies” in the identityNotes to the Consolidated Financial Statements for additional information.
Management’s Discussion and Analysis of consumers, effectively determineFinancial Condition and Results of Operations has not been substantively amended, updated, or changed from the most relevant products for consumers, retaindisclosures and cross-sellanalysis included in the Original Q3 2023 10-Q except to existing consumers, identifyupdate amounts impacted by the restatement. The following sections within Management’s Discussion and acquire new consumersAnalysis of Financial Condition and reduce loss from fraud. Similarly, our capabilities allow consumersResults of Operations have been updated to see how their credit profiles have changed over time, understandreflect the impactrestatement: “Developments that Impact Comparability Between Periods,” “Results of financial decisions on their credit scoresOperations,” “Non-GAAP Measures,” and manage their personal information as well as to take precautions against identity theft.“Application of Critical Accounting Estimates.”
Segments
We manage our business and report our financial results in three reportable segments: USIS,U.S. Markets, International and Consumer Interactive. See Part I, Item 1 “Notes to Unaudited Consolidated Financial Statements,” Note 17, “Reportable Segments” for additional information.
U.S. Markets
The U.S. Markets segment provides consumer reports, risk scores, analyticalactionable insights and decisioning servicesanalytics to businesses. These businesses use our services to acquire new customers, assess consumerconsumers’ ability to pay for services, identify cross-selling opportunities, measure and manage debt portfolio risk, collect debt, verify consumer identities and investigate potential fraud.mitigate fraud risk. The core capabilities and delivery platformsmethods in our USISU.S. Markets segment allow us to serve a broad set of customers and business issues. We offer our services to customers in financial services, insurance, healthcare and otheracross industries.
International
The International segment provides services similar to our USISU.S. Markets segment to businesses in select regions outside the United States. Depending on the maturity of the credit economy in each country, services may include credit reports, analytics and decisioningsolutions services, and other value-added risk management services. In addition, we have insurance, business and automotive databases in select geographies. These services are offered to customers in a number of industries including financial services, insurance, automotive, collections, and communications, and are delivered through both direct and indirect channels. The International segment also provides consumer services similar to those offered by our Consumer Interactive segment that help consumers proactively manage their personal finances.
finances and take precautions against identity theft.
Consumer Interactive offers
The Consumer Interactive segment provides solutions that help consumers manage their personal finances and take precautions against identity theft. Services in this segment include paid and free credit reports, scores and scores,freezes, credit monitoring, fraudidentity protection and resolution, and financial management.management for consumers. The segment also provides solutions that help businesses respond to data breach events. Our products are provided through user friendlyuser-friendly online and mobile interfaces and are supported by educational content and customer support. Our Consumer Interactive segment serves consumers through both direct and indirect channels.
Corporate
In addition, Corporate provides sharedsupport services for each of the segments, holds investments, and conducts enterprise functions. Certain costs incurred in Corporate that are not directly attributable to one or more of the segments remain in Corporate. These costs are typically enterprise-level costs and are primarily administrative in nature.
Factors Affecting Our Results of Operations
The following are certain key factors that affect, or have recently affected, our results of operations:
Macroeconomic and Industry Trends
Our revenues areand results of operations have been and can be significantly influenced by general macroeconomic conditions, including but not limited to, interest rates, inflation, housing demand, the availability of affordable credit and capital, interest rates, inflation, employment levels, consumer confidence and housing demand. In the markets where we compete, we have generally seen good economic conditions and increased market stabilization over the past few years. In the United States, we continue to see a healthy, well functioning consumer lending market driven by a strong labor market and consumer confidence that is near an all-time high. Additionally, the mortgage market has benefited from low long-term mortgage rates and a good housing market. We have also seen solid demand for our marketing services, and in our Consumer Interactive segment, strong demand for our credit and identity theft solutions. In addition, the strengthening of foreign currencies inconfidence.
During the first nine months of 2017 has improved2023, the operating results reportedU.S. labor market remained steady with low unemployment and rising real wages. However, subsiding but still elevated inflation, high energy prices, and continued interest rate increases by our International segmentthe Federal Reserve have all contributed to constrained economic activity. In addition, liquidity challenges within the banking sector, a slowing housing market, lower GDP growth, softening consumer confidence and global geopolitical events, all added to the deterioration of global macroeconomic conditions and increasing recession fears compared with the prior year.
Our revenues are also significantly influenced by industry trends,post-pandemic rebound of 2021 and 2022. These slowing macroeconomic conditions had a more pronounced impact in our developed markets, including the U.K., compared with our emerging markets. The U.K. is experiencing persistently unfavorable and worsening macroeconomic conditions, including rising interest rates, inflation pressures, and a slowing labor market. In addition, the impact of exchange rates had a continuing significant impact on our International segment. The impact of higher interest rates has slowed demand for information servicesconsumer loans and auto loans, and has been particularly acute in the housing sector, where higher borrowing rates significantly impacts both home affordability, driving down purchase activity, and demand for mortgage loan refinancing. The impact of higher interest rates on slowing aggregate demand is expected to result in increased unemployment levels over the next year, which is likely to reduce consumer credit activity. These dynamics impact the comparability of our results of operations, including our revenue and expense, between the periods presented below.
The ongoing uncertainty and the unpredictable nature of the macroeconomic environment could have a material adverse impact on various aspects of our business in the future, including our stock price, results of operations and financial services, insurance, healthcarecondition, including the carrying value of our long-lived assets such as goodwill and other industriesintangible assets.
Effects of Inflation
We believe that inflation has had and we serve. Companies are increasingly relying on business analytics and big-data technologies to help process this data in a cost-efficient manner. As customers have gained the ability to rapidly aggregate and analyze data generated by their own activities, they are increasingly expecting access to real-time data and analytics from their information providers as well as solutions that fully integrate into their workflows. As economies in emerging markets continue to develop and mature, we believe thereexpect will continue to be favorable socio-economic trends, such as an increasehave a negative impact on our business and results of operations, including decreased demand for our services resulting from the Federal Reserve and other central banks continuing to raise interest rates to combat inflation, slowing consumer spending on non-essential goods and services, and consequently
lower demand for credit. The impact of elevated but subsiding levels of inflation and the resulting response by the Federal Reserve and other central banks to raise interest rates could have a material adverse impact on various aspects of our business in the sizefuture.
Developments that Impact Comparability Between Periods
The following developments impact the comparability of our balance sheets, results of operations and cash flows between periods:
During the third quarter of 2023, we identified a triggering event for goodwill impairment testing purposes in our United Kingdom reporting unit as discussed in Item 1, “Notes to Unaudited Consolidated Financial Statements,” Note 5, “Goodwill.” As a result of the middle class andtriggering event, we recorded a significant increasegoodwill impairment of $414.0 million (as restated) in the usethird quarter of financial services by under-served and under-banked customers. Demand for consumer solutions is rising with higher consumer awareness2023.
In each of the importancefirst three quarters of 2023, we prepaid $75.0 million, and usageduring the quarters ended December 31, 2022 and March 31, 2022, we prepaid $200.0 million and $400.0 million, respectively, of their credit information, increased riskour Senior Secured Term Loan B-6, funded from cash-on-hand. These transactions affect the comparability of identity theft dueinterest expense between 2023 and 2022, as further discussed in “Results of Operations – Non-Operating Income and (Expense) – Interest Expense” below.
On November 16, 2022, we entered into interest rate swap agreements with various counterparties that effectively fix our variable interest rate exposure on a portion of our Senior Secured Term Loan or similar replacement debt. These swaps replaced other swaps that expired in December 30, 2022. The swaps commenced on December 30, 2022, and expire on December 31, 2024, with a current aggregate notional amount of $1,305.0 million that amortizes each quarter. The swaps require us to data breachespay fixed rates varying between 4.3380% and more readily available free credit information. The increasing number and complexity of regulations, including from4.3870% in exchange for receiving a variable rate that matches the variable rate on our loans. We have designated these swap agreements as cash flow hedges.
On April 12, 2022, after failed settlement negotiations with the Consumer Financial Protection Bureau (“CFPB”) regarding a certain regulatory matter, the CFPB filed a lawsuit against us, Trans Union LLC, TransUnion Interactive, Inc. and the Dodd-Frank Wall Street Reform andour former President of Consumer Protection Act and new capital requirements, continue to make operations for businesses more challenging.
Effects of Inflation
We do not believe that inflation has had a material effect on our business, results of operations or financial condition.
Recent Developments
Interactive. During the third quarter of 2017, we repaid $45.0 million on our Senior Secured Revolving Line of Credit.
On August 9, 2017, we refinanced and amended certain provisions of our senior secured credit facility. Amendments to the Senior Secured Term Loan B included a 0.50% reduction in the applicable margin. Amendments to the Senior Secured Term Loan A included an extension of the maturity date from June 2020 to August 2022, a reduction in the applicable margin depending on our total net leverage ratio, an increase in borrowing to $400.0 million, and a reduction in the scheduled principal repayments. Amendments to the Senior Secured Revolving Line of Credit included an extension of the maturity date from June 2020 to August 2022, a reduction in the applicable margin depending on our total net leverage ratio, a reduction in the annual commitment fee on the unused borrowings, and an increase in the commitment amount to $300.0 million. Other key provisions include changes in incremental borrowing limits and a reduction in the maximum for the senior secured net leverage ratio test to 5.5-to-1. The refinancing resulted in $5.6 million of refinancing fees and other net costs expensed and recorded in other income and expense in the consolidated statements of income in the third quarter of 2017.
During the second quarter of 2017, we repaid $60.0 million on our Senior Secured Revolving Line of Credit.
On August 4, 2017, certain of our stockholders completed a secondary offering of 25.875 million shares of TransUnion common stock, which included the underwriters’ exercise of an option to purchase an additional 3.375 million shares. On April 26, 2017, certain of our stockholders completed a secondary offering of 18.975 million shares of TransUnion common stock, which included the underwriters’ exercise of an option to purchase an additional 2.475 million shares. On February 22, 2017, certain of our
stockholders completed a secondary offering of 19.85 million shares of TransUnion common stock. On March 22, 2017, the underwriters exercised their option to purchase an additional 1.985 million shares. These secondary offerings had no impact on our financial statements, other than approximately $0.4 million and $1.4 million of transaction costs recorded in other income and expense for the three- and nine-month periods in 2017, respectively. We were obligated to pay these costs in accordance with an agreement with the stockholders. We did not receive any proceeds from this offering as all shares were sold by the selling stockholders.
As part of the April 26, 2017 offering, the Company purchased 1.65 million shares of common stock for a total of $65.2 million from the underwriters. On May 2, 2017, we borrowed $65.0 million under the Senior Secured Revolving Line of Credit to fund this share purchase. The shares purchased by the Company are held in treasury, and reduced the number of outstanding shares of common stock accordingly. As part of the March 22, 2017 offering, the Company purchased 1.85 million shares of common stock for a total of $68.3 million from the underwriters. The share purchases were funded with cash on hand. The shares purchased by the Company are held in treasury, and reduced the number of outstanding shares of common stock accordingly.
On March 21, 2017, we borrowed $40.0 million under the Senior Secured Revolving Line of Credit to partially fund the acquisition of an additional interest in TransUnion CIBIL Limited (formerly Credit Information Bureau (India) Limited (“CIBIL”)).
On January 31, 2017, we refinanced and amended certain provisions of our Senior Secured Term Loan B. Key provisions of the amendment included a two-year extension of the maturity date from April 2021 to April 2023, a 0.25% reduction in the applicable margin and a reduction in the LIBOR floor to zero from 0.75%. The refinancing resulted in $5.0 million of refinancing fees and other net costs expensed and recorded in other income and expense in the consolidated statements of income in the first quarter of 2017.
Recent Acquisitions and Partnerships
We selectively evaluate acquisitions and partnerships as a means2022, we recorded an incremental $29.5 million of expense related to expand our business and international footprint, andthis matter. See Part I, Item 1, “Notes to enter new markets. Since January 1, 2016, we completed the following acquisitions:Unaudited Consolidated Financial Statements,” Note 18, “Contingencies,” for further information about this matter.
On August 18, 2017,April 8, 2022, we acquired 100% of the equity of Datalinkthe entities that comprised Verisk Financial Services Inc. (“Datalink”VF”). Datalink’s solutions provide enhanced data that identifies risks associated with an applicant’s driving behaviorWe retained the leading core businesses of Argus, and provides insurers with a cost-competitive, timely and more detailed offering.divested the remaining non-core businesses on December 30, 2022. The results of operations of Datalink, whichArgus are not material to our consolidated financial statements, have been included as part of our USISin the U.S. Markets segment in our consolidated statements of income since the date of the acquisition. See Part I, Item 1, “Notes to Unaudited Consolidated Financial Statements,” Note 2, “Business Acquisition,” and Note 3, “Discontinued Operations,” for additional information.
On July 19, 2017, we acquired a small non-voting preferred stock equity interest in Synthetic P2P Holdings Corporation (“PeerIQ”). Also, on November 10, 2016, we entered into an agreement with PeerIQ whereby we licensed data to PeerIQ and, in return, received warrants to purchase a noncontrolling interest in their common stock. PeerIQ is a credit risk analytics firm that helps institutions analyze, access and manage risk in the peer-to-peer lending sector. We account for PeerIQ on the cost method of accounting. Any future dividends will be recorded in other income and expense when received.
During March 2017, we increased our equity interest in CIBIL from 82.1% to 92.1% with additional purchases totaling 10%. On September 30, 2016, we increased our equity interest in CIBIL from 77.1% to 82.1% with an additional purchase of 5%. In June 2016, we increased our equity interest in CIBIL from 66.1% to 77.1% with additional purchases totaling 11%.
On November 4, 2016, we increased our ownership interest in Central de Informacion Financiera S.A. (“CIFIN”) from 95.17% to 100%. On August 3, 2016, we increased our equity interest in CIFIN from 94.67% to 95.17% with an additional purchase of 0.5%. On May 31, 2016, we increased our interest from 71.0% to 94.67% with an additional purchase of 23.67%. On February 8, 2016, we acquired a 71.0% equity interest in CIFIN. CIFIN is one of two primary credit bureaus in Colombia. The results of operations of CIFIN, which are not material to our consolidated financial statements, have been included as part of our International segment in our consolidated statements of income since the date of the acquisition.
On September 21, 2016, we acquired 100% of the equity of RTech Healthcare Revenue Technologies, Inc. (“RTech”). RTech uses innovative proprietary technology to help healthcare providers protect revenue and cash. The results of operations of RTech, which are not material to our consolidated financial statements, have been included as part of our USIS segment in our consolidated statements of income since the date of acquisition.
On August 30, 2016, we made a noncontrolling interest investment in SavvyMoney, Inc. (“SavvyMoney”). SavvyMoney is a provider of credit information services for bank and credit union users. We account for SavvyMoney on the cost method of accounting. Any future dividends will be recorded in other income and expense when received.
On June 15, 2016, we acquired 100% of the equity of Auditz, LLC (“Auditz”). Auditz is a U.S.-based healthcare services organization that uses sophisticated proprietary technology to help healthcare providers identify and recover payments. The results of operations of Auditz, which are not material to our consolidated financial statements, have been included as part of our USIS segment in our consolidated statements of income since the date of the acquisition.
On April 29, 2016, we acquired the remaining 12.5% ownership interest in Drivers History Information Sales, LLC (“DHI”). We no longer record net income attributable to the noncontrolling interests in our consolidated statements of income or redeemable noncontrolling interests on our consolidated balance sheets from the date we acquired the remaining interest.
On April 15, 2016, we made a noncontrolling interest investment in Dashlane, Inc. (“Dashlane”). Dashlane is a password management company that enables users to monitor their online identities across multiple sites and applications. We account for Dashlane on the cost method of accounting. Any future dividends will be recorded in other income and expense when received.
Key Components of Our Results of Operations
Revenue
We derivereport revenue for our USIS segmentthree reportable segments, U.S. Markets, International and Consumer Interactive. Within the U.S. Markets segments, we report and disaggregate revenue from three operating platforms: Online Data Services, Marketing Services and Decision Services. Online Data Services encompass services delivered in real-time using both credit and public record datasets. We also provide online reports that link public record datasets for qualified businesses seeking to locate consumers, specific assets or investigate relationships among consumers, businesses and locations. Collectively, the reports, characteristics and scores, with variations tailored for specific industries, form the basis of Online Data Services. We also provide online services to help businesses manage fraud and authenticate a consumer’s identity when they initiate a new business relationship. Additionally, we provide data to businesses to help them satisfy “know your customer” compliance requirements and to confirm an individual’s identity. Marketing Services help our customers develop marketing lists of prospects via direct mail, web and mobile. Our databases are used by our customers to contact individuals to extend firm offers of credit or insurance. We provide portfolio review services,vertical, which are periodic reviewsconsists of our customers’ existing accounts, to helpFinancial Services vertical and Emerging vertical. Revenue from our customers develop cross-selling offers to their existing customers and monitor and manage riskacquisition of Argus is included in their existing consumer portfolios. We also provide trigger services, which are daily notifications of changes to a consumer profile. Decisionthe Financial Services our software-as-a-service offerings, includes a number of platforms that help businesses interpret data and predictive model results and apply their customer-specific criteria to facilitate real-time automated decisions atvertical. Within the time of customer interaction. Our customers use Decision Services to evaluate business risks and opportunities, including those associated with new consumer credit and checking accounts, insurance applications, optimizing accounts receivable management and collections, patient registrations and insurance coverages, and apartment rental requests.
We report our International segment, we disaggregate revenue in two categories: developed markets and emerging markets. Our developed markets areby regions, which consists of Canada, and Hong Kong. Our emerging markets include Africa, Latin America, the United Kingdom, Africa, India, and Asia Pacific and India.
Pacific. For our Consumer Interactive offers solutions that help consumers manage their personal finances and take precautions against identity theft. Services in this segment, include credit reports and scores, credit monitoring, fraud protection and resolution and financial management. Our products are provided through user friendly online and mobile interfaces and supported by educational content and customer support.we do not disaggregate revenue.
Cost of Services
Costs of services include data acquisition and royalty fees, personnel costs related to our databases and software applications, consumer and call center support costs, hardware and software maintenance costs, telecommunication expenses and occupancy costs associated with the facilities where these functions are performed.
Selling, General and Administrative
Selling, general and administrative expenses include personnel-related costs for sales, administrative and management employees, costs for professional and consulting services, advertising and occupancy and facilities expense of these functions.
Non-Operating Income and Expense
Non-operating income and expense includes interest expense, interest income, earnings from equity-method investments, dividends from cost-method investments, impairmentsfair-value adjustments of equity-method and cost-method investments,Cost Method Investments, if any, expenses related to successful and unsuccessful business acquisitions, loan fees, debt refinancing expenses, certain acquisition-related gains and losses and other non-operating income and expenses.
Results of Operations —Three and Nine Months Ended September 30, 2023 and 2022
Key Performance Measures
Management, including our chief operating decision maker, evaluates the financial performance of our businesses based on a variety of key indicators. These indicators include the non-GAAP measure Adjusted EBITDA and the GAAP measures revenue, cash provided by operating activities and cash paid for capital expenditures. For the three and nine months ended September 30, 20172023 and 2016, these key indicators2022, our results of operations were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | | 2017 | | 2016 | | $ Change | | % Change | | 2017 | | 2016 | | $ Change | | % Change |
| Revenue | | $ | 498.0 |
| | $ | 437.6 |
| | $ | 60.4 |
| | 13.8 | % | | $ | 1,427.7 |
| | $ | 1,269.0 |
| | $ | 158.7 |
| | 12.5 | % |
Reconciliation of net income (loss) attributable to TransUnion to Adjusted EBITDA(1): | | | | | |
| | | | | | | | | | |
Net income (loss) attributable to TransUnion | | $ | 68.8 |
| | $ | 41.2 |
| | $ | 27.6 |
| | 67.1 | % | | $ | 196.0 |
| | $ | 71.0 |
| | $ | 125.0 |
| | 176.0 | % |
| Net interest expense | | 20.2 |
| | 20.2 |
| | — |
| | 0.1 | % | | 61.6 |
| | 59.9 |
| | 1.7 |
| | 2.8 | % |
| Provision (benefit) for income taxes | | 32.3 |
| | 31.2 |
| | 1.1 |
| | 3.5 | % | | 68.7 |
| | 59.6 |
| | 9.1 |
| | 15.3 | % |
| Depreciation and amortization | | 59.9 |
| | 63.2 |
| | (3.2 | ) | | (5.1 | )% | | 176.2 |
| | 209.6 |
| | (33.4 | ) | | (15.9 | )% |
| EBITDA | | 181.3 |
| | 155.8 |
| | 25.5 |
| | 16.4 | % | | 502.6 |
| | 400.2 |
| | 102.4 |
| | 25.6 | % |
| Adjustments to EBITDA: | | | | | | | | | | | | | | | | |
Stock-based compensation(2) | | 9.5 |
| | 7.5 |
| | 2.0 |
| | 26.9 | % | | 34.3 |
| | 23.2 |
| | 11.1 |
| | 47.8 | % |
Mergers and acquisitions, divestitures and business optimization(3) | | (1.7 | ) | | 4.2 |
| | (5.9 | ) | | (139.0 | )% | | 5.2 |
| | 17.3 |
| | (12.1 | ) | | (69.9 | )% |
Technology transformation(4) | | — |
| | — |
| | — |
| | — | % | | — |
| | 23.3 |
| | (23.3 | ) | | (100.0 | )% |
Other(5) | | 5.0 |
| | (0.9 | ) | | 5.9 |
| | nm |
| | 9.8 |
| | 3.5 |
| | 6.4 |
| | 184.5 | % |
| Total adjustments to EBITDA | | 12.9 |
| | 10.9 |
| | 2.0 |
| | 18.6 | % | | 49.3 |
| | 67.3 |
| | (18.0 | ) | | (26.7 | )% |
Adjusted EBITDA(1) | | $ | 194.1 |
| | $ | 166.6 |
| | $ | 27.5 |
| | 16.5 | % | | $ | 551.9 |
| | $ | 467.5 |
| | $ | 84.4 |
| | 18.1 | % |
| | | | | | | | | | | | | | | | | |
| Other metrics: | | | | | | | | | | | | | |
| | |
| Cash provided by operating activities | | $ | 174.7 |
| | $ | 126.6 |
| | $ | 48.1 |
| | 38.0 | % | | $ | 348.9 |
| | $ | 276.1 |
| | $ | 72.8 |
| | 26.4 | % |
| Capital expenditures | | $ | 33.0 |
| | $ | 30.6 |
| | $ | 2.4 |
| | 7.8 | % | | $ | 91.0 |
| | $ | 85.5 |
| | $ | 5.5 |
| | 6.4 | % |
nm: not meaningful
As a result of displaying amounts in millions, rounding differences may exist in the table above.
| |
(1) | Adjusted EBITDA is defined as net income (loss) attributable to the Company before net interest expense, income tax provision (benefit), depreciation and amortization and other adjustments noted in the table above. We present Adjusted EBITDA as a supplemental measure of our operating performance because it eliminates the impact of certain items that we do not consider indicative of our cash operations and ongoing operating performance. Also, Adjusted EBITDA is a measure frequently used by securities analysts, investors and other interested parties in their evaluation of the operating performance of companies similar to ours. In addition, our board of directors and executive management team use Adjusted EBITDA as a compensation measure under our incentive compensation plan. Furthermore, under the credit agreement governing our senior secured credit facility, our ability to engage in activities such as incurring additional indebtedness, making investments and paying dividends is tied to a ratio based on Adjusted EBITDA. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Debt.” Adjusted EBITDA does not reflect our capital expenditures, interest, income tax, depreciation, amortization, stock-based compensation and certain other income and expense. Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. Adjusted EBITDA is not a measure of financial condition or profitability under GAAP and should not be considered as an alternative to cash flows from operating activities, as a measure of liquidity or as an alternative to operating income or net income as indicators of operating performance. We believe that the most directly comparable GAAP measure to Adjusted EBITDA is net income attributable to TransUnion. The table above provides a reconciliation from our net |
income (loss) attributable to TransUnion to Adjusted EBITDA for the three and nine months ended September 30, 2017 and 2016.
| |
(2) | Consisted of stock-based compensation and cash-settled stock-based compensation. |
| |
(3) | For the three months ended September 30, 2017, consisted of the following adjustments to operating income: a $0.4 million adjustment to contingent consideration expense from previous acquisitions. For the three months ended September 30, 2017, consisted of the following adjustments to non-operating income and expense: a $(2.0) million net reduction in acquisition expenses resulting from a reimbursement of certain acquisition costs recorded in prior periods partially offset by other acquisition costs and $(0.1) million of miscellaneous. For the nine months ended September 30, 2017, consisted of the following adjustments to operating income: a $0.5 million loss on the divestiture of a small business operation; and a $0.2 million adjustment to contingent consideration expense from previous acquisitions. For the nine months ended September 30, 2017, consisted of the following adjustments to non-operating income and expense: $4.5 million of acquisition expenses. |
For the three months ended September 30, 2016, consisted of the following adjustments to operating income: a $0.9 million adjustment to contingent consideration expense from previous acquisitions; and a $0.7 million loss on the divestiture of a small international line of business. For the three months ended September 30, 2016, consisted of the following adjustments to non-operating income and expense: $2.3 million of acquisition expenses; and a $0.3 million loss on the divestiture of a small international line of business. For the nine months ended September 30, 2016, consisted of the following adjustments to operating income: a $1.0 million adjustment to contingent consideration expense from previous acquisitions; a $0.8 million loss on the divestiture of a small international line of business; and a $(0.5) million adjustment to business optimization expenses. For the nine months ended September 30, 2016, consisted of the following adjustments to non-operating income and expense: $15.8 million of acquisition expenses; and a $0.2 million loss on the divestiture of a small international line of business.
| |
(4) | Represented costs associated with a project to transform our technology infrastructure. |
| |
(5) | For the three months ended September 30, 2017, consisted of the following adjustments to operating income and expense: a $(1.3) million reduction to expense for certain legal and regulatory matters; and a $(0.6) million reduction to expense for sales and use tax matters. For the three months ended September 30, 2017, consisted of the following adjustments to non-operating income and expense: $5.6 million of fees related to the refinancing of our senior secured credit facility; $0.5 million of currency remeasurement of our foreign operations; $0.4 million of fees incurred in connection with a secondary offering of shares of TransUnion common stock by certain of our stockholders; $0.3 million of loan fees; and $0.1 million mark-to-market loss related to ineffectiveness of our interest rate hedge. For the nine months ended September 30, 2017, consisted of the following adjustments to operating income and expense: a $(1.3) million reduction to expense for certain legal and regulatory matters; and a $(0.6) million reduction to expense for sales and use tax matters. For the nine months ended September 30, 2017, consisted of the following adjustments to non-operating income and expense: $10.5 million of fees related to the refinancing of our senior secured credit facility; $1.4 million of fees incurred in connection with secondary offerings of shares of TransUnion common stock by certain of our stockholders; $1.1 million of loan fees; a $0.2 million mark-to-market loss related to ineffectiveness of our interest rate hedge; $(1.1) million of currency remeasurement of our foreign operations; and $(0.4) million of miscellaneous. |
For the three months ended September 30, 2016, consisted of the following adjustments to operating income: $(0.7) million of miscellaneous. For the three months ended September 30, 2016, consisted of the following adjustments to non-operating income and expense: $0.7 million of fees connected to the filing of secondary registration statements filed on behalf of certain stockholders; $0.3 million of loan fees; $(0.9) million of currency remeasurement of our foreign operations; a $(0.1) million mark-to-market gain related to ineffectiveness of our interest rate hedge; and $(0.2) million of miscellaneous. For the nine months ended September 30, 2016, consisted of the following adjustments to operating income: a $0.3 million charge for certain legal and regulatory matters; and $(0.7) million of miscellaneous. For the nine months ended September 30, 2016, consisted of the following adjustments to non-operating income and expense: $2.5 million of fees connected to the filing of secondary registration statements filed on behalf of certain stockholders; $1.1 million of loan fees; a $0.9 million mark-to-market loss related to ineffectiveness of our interest rate hedge; and $(0.6) million of currency remeasurement of our foreign operations.
Revenue
Total revenue increased $60.4 million for the three months ended September 30, 2017, compared with the same period in 2016, due to strong organic growth in all of our segments, across all platforms and nearly all markets, revenue from our recent acquisitions in our USIS segment and the impact of strengthening foreign currencies on the 2017 revenue of our International segment. Revenue for our recent acquisitions accounted for an increase in revenue of 0.8% and the impact of strengthening foreign currencies accounted for an increase in revenue of 0.6%.
Total revenue increased $158.7 million for the nine months ended September 30, 2017, compared with the same period in 2016, due to strong organic growth in all of our segments, across all platforms and nearly all markets, revenue from our recent acquisitions in our USIS segment and by the impact of strengthening foreign currencies on the 2017 revenue of our International segment. Revenue for our recent acquisitions accounted for an increase in revenue of 1.2% and the impact of strengthening foreign currencies accounted for an increase in revenue of 0.7%. Revenue by segment in the three- and nine-month periods were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | | 2017 | | 2016 | | $ Change | | % Change | | 2017 | | 2016 | | $ Change | | % Change |
| U.S. Information Services: | | | | | | | | | | | | | | | | |
| Online Data Services | | $ | 200.2 |
| | $ | 178.4 |
| | $ | 21.8 |
| | 12.2 | % | | $ | 573.2 |
| | $ | 507.6 |
| | $ | 65.6 |
| | 12.9 | % |
| Marketing Services | | 48.5 |
| | 41.3 |
| | 7.2 |
| | 17.5 | % | | 137.0 |
| | 116.1 |
| | 20.9 |
| | 18.0 | % |
| Decision Services | | 63.3 |
| | 53.6 |
| | 9.7 |
| | 18.2 | % | | 182.0 |
| | 153.4 |
| | 28.6 |
| | 18.7 | % |
| Total U.S. Information Services | | 312.0 |
| | 273.3 |
| | 38.7 |
| | 14.2 | % | | 892.1 |
| | 777.1 |
| | 115.1 |
| | 14.8 | % |
| | | | | | | | | | | | | | | | | |
| International: | | | | | | | | | | | | | | | | |
| Developed Markets | | 33.8 |
| | 29.2 |
| | 4.6 |
| | 15.7 | % | | 92.8 |
| | 80.2 |
| | 12.6 |
| | 15.7 | % |
| Emerging Markets | | 61.2 |
| | 53.1 |
| | 8.0 |
| | 15.1 | % | | 172.8 |
| | 147.5 |
| | 25.3 |
| | 17.2 | % |
| Total International | | 94.9 |
| | 82.3 |
| | 12.6 |
| | 15.3 | % | | 265.6 |
| | 227.7 |
| | 37.9 |
| | 16.6 | % |
| | | | | | | | | | | | | | | | | |
| Total Consumer Interactive | | 107.0 |
| | 97.4 |
| | 9.6 |
| | 9.9 | % | | 317.3 |
| | 310.0 |
| | 7.4 |
| | 2.4 | % |
| Total revenue, gross | | 513.9 |
| | 453.0 |
| | 61.0 |
| | 13.5 | % | | 1,475.1 |
| | 1,314.7 |
| | 160.3 |
| | 12.2 | % |
| | | | | | | | | | | | | | | | | |
| Intersegment eliminations: | | | | | | | | | | | | | | | | |
| USIS Online | | (14.6 | ) | | (14.3 | ) | | (0.3 | ) | | | | (43.8 | ) | | (42.7 | ) | | (1.0 | ) | | |
| International Developed Markets | | (1.3 | ) | | (0.9 | ) | | (0.4 | ) | | | | (3.4 | ) | | (2.5 | ) | | (0.9 | ) | | |
| International Emerging Markets | | — |
| | (0.2 | ) | | 0.2 |
| | | | (0.1 | ) | | (0.5 | ) | | 0.3 |
| | |
| Consumer Interactive | | (0.1 | ) | | — |
| | — |
| | | | (0.1 | ) | | — |
| | — |
| | |
| Total intersegment eliminations | | (16.0 | ) | | (15.4 | ) | | (0.6 | ) | | | | (47.4 | ) | | (45.7 | ) | | (1.6 | ) | | |
| | | | | | | | | | | | | | | | | |
| Total revenue as reported | | $ | 498.0 |
| | $ | 437.6 |
| | $ | 60.4 |
| | 13.8 | % | | $ | 1,427.7 |
| | $ | 1,269.0 |
| | $ | 158.7 |
| | 12.5 | % |
As a result of displaying amounts in millions, rounding differences may exist in the table above.
USIS Segment
USIS revenue increased $38.7 million and $115.1 million for the three and nine months ended September 30, 2017, compared with the same periods in 2016, due to increases in revenue from all platforms including revenue from our recent acquisitions of Auditz, RTech and DataLink.
Online Data Services
Online Data Services revenue increased $21.8 million and $65.6 million for the three- and nine-month periods, compared with the same periods in 2016, due to a 4.7% and 3.2% increase in credit report unit volume in each respective period, a change in the mix of customer volumes, which resulted in an increase in average pricing for online credit reports for the nine months in 2017 compared with the same period in 2016, and an increase due to new product initiatives.
Marketing Services
Marketing Services revenue increased $7.2 million and $20.9 million for the three- and nine-month periods, compared with the same periods in 2016, due primarily to an organic increase in custom data sets and archive information driven by an increase in demand for our new solutions and other batch jobs.
Decision Services
Decision Services revenue increased $9.7 million and $28.6 million for the three- and nine-month periods, compared with the same periods in 2016, due primarily to increases in the healthcare market, including revenue from our recent acquisitions.
International Segment
International revenue increased $12.6 million, or 15.3%, and $37.9 million, or 16.6% for the three and nine months ended September 30, 2017, compared with the same periods in 2016. The increase was due to higher local currency revenue in most regions from increased volumes and by an increase of 3.0% and 3.9% from the impact of strengthening foreign currencies, and for the nine-month period, revenue from our acquisition of CIFIN.
Developed Markets
Developed markets revenue increased $4.6 million, or 15.7%, and $12.6 million, or 15.7% for the three- and nine-month periods, compared with the same periods in 2016, due to higher local currency revenue in both regions primarily from increased volumes and an increase of 2.6% and 0.7% from the impact of strengthening foreign currencies, primarily the Canadian dollar.
Emerging Markets
Emerging markets revenue increased $8.0 million, or 15.1%, and $25.3 million, or 17.2% for the three- and nine-month periods, compared with the same periods in 2016, due to higher local currency revenue in most regions primarily from increased volumes and an increase of 3.2% and 5.6% from the impact of strengthening foreign currencies, primarily the South African rand, Brazilian real and Indian rupee.
Consumer Interactive Segment
Consumer Interactive revenue increased $9.6 million and $7.4 million for the three and nine months ended September 30, 2017, compared with the same periods in 2016. The increase was due primarily to an increase in revenue from our indirect channel.
Operating Expenses
Operating expenses for the three and nine months ended September 30, 2017 and 2016, were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | | 2017 | | 2016 | | $ Change | | % Change | | 2017 | | 2016 | | $ Change | | % Change |
| Cost of services | | $ | 169.3 |
| | $ | 141.5 |
| | $ | 27.8 |
| | 19.7 | % | | $ | 472.3 |
| | $ | 434.4 |
| | $ | 37.9 |
| | 8.7 | % |
| Selling, general and administrative | | 142.2 |
| | 137.1 |
| | 5.0 |
| | 3.7 | % | | 436.0 |
| | 413.7 |
| | 22.3 |
| | 5.4 | % |
| Depreciation and amortization | | 59.9 |
| | 63.2 |
| | (3.2 | ) | | (5.1 | )% | | 176.2 |
| | 209.6 |
| | (33.4 | ) | | (15.9 | )% |
| Total operating expenses | | $ | 371.4 |
| | $ | 341.8 |
| | $ | 29.6 |
| | 8.7 | % | | $ | 1,084.5 |
| | $ | 1,057.7 |
| | $ | 26.8 |
| | 2.5 | % |
As a result of displaying amounts in millions, rounding differences may exist in the table above.
Cost of Services
Cost of services increased $27.8 million and $37.9 million for the three- and nine-month periods, compared with the same periods in 2016.
The increase was due primarily to:
an increase in labor costs as we continue to invest in key strategic growth initiatives;
an increase in product costs resulting from the increase in revenue, primarily in our USIS segment;
the impact of strengthening foreign currencies on the expenses of our International segment; and
operating costs relating to acquisitions in our USIS and International segments,
partially offset by:
savings enabled by our technology transformation and other key productivity initiatives; and
a decrease in product costs from a favorable shift in the mix of revenue in our Consumer Interactive segment.
Selling, General and Administrative
Selling, general and administrative expenses increased $5.0 million and $22.3 million for the three- and nine-month periods, compared with the same periods in 2016.
The increase was due primarily to:
an increase in labor costs, primarily in our USIS segment, International segment and in Corporate, attributed to higher incentive and stock-based compensation and an increase in headcount as we continue to invest in productivity initiatives;
for the three-month period, an increase in advertising costs due to market opportunities;
the impact of strengthening foreign currencies on the expenses of our International segment; and
operating costs relating to acquisitions in our USIS and International segments,
partially offset by:
the benefit of focusing our marketing spend on more efficient channels in our Consumer Interactive segment.
Depreciation and Amortization
Depreciation and amortization decreased $3.2 million and $33.4 million for the three- and nine-month periods, compared with the same periods in 2016. Certain USIS internal-use software and equipment assets became fully depreciated on September 30, 2016, in conjunction with our strategic initiative to transform our technology platform.
Operating Income and Operating Margins |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | | 2017 | | 2016 | | $ Change | | % Change | | 2017 | | 2016 | | $ Change | | % Change |
| Gross operating income by segment: | | | | | | | | | | | | | | | | |
| USIS operating income | | $ | 82.4 |
| | $ | 63.9 |
| | $ | 18.5 |
| | 29.0 | % | | $ | 238.4 |
| | $ | 135.5 |
| | $ | 102.9 |
| | 76.0 | % |
| International operating income | | 19.9 |
| | 14.4 |
| | 5.6 |
| | 38.7 | % | | 41.5 |
| | 27.5 |
| | 13.9 |
| | 50.6 | % |
| Consumer Interactive operating income | | 46.5 |
| | 41.0 |
| | 5.5 |
| | 13.3 | % | | 144.2 |
| | 125.1 |
| | 19.1 |
| | 15.3 | % |
| Corporate operating loss | | (22.3 | ) | | (23.5 | ) | | 1.2 |
| | 5.3 | % | | (80.9 | ) | | (76.8 | ) | | (4.1 | ) | | (5.3 | )% |
| Total gross operating income | | $ | 126.6 |
| | $ | 95.8 |
| | $ | 30.8 |
| | 32.1 | % | | $ | 343.2 |
| | $ | 211.3 |
| | $ | 131.9 |
| | 62.4 | % |
| | | | | | | | | | | | | | | | | |
Intersegment operating income eliminations: | | | | | | | | | | | | | | | | |
| USIS | | $ | (14.1 | ) | | $ | (13.9 | ) | | $ | (0.2 | ) | | | | $ | (42.5 | ) | | $ | (41.6 | ) | | $ | (0.9 | ) | | |
| International | | (1.0 | ) | | (0.8 | ) | | (0.2 | ) | | | | (2.6 | ) | | (2.2 | ) | | (0.4 | ) | | |
| Consumer Interactive | | 15.1 |
| | 14.7 |
| | 0.4 |
| | | | 45.1 |
| | 43.8 |
| | 1.3 |
| | |
| Corporate | | — |
| | — |
| | — |
| | | | — |
| | — |
| | — |
| | |
| Total operating income eliminations | | $ | — |
| | $ | — |
| | $ | — |
| | | | $ | — |
| | $ | — |
| | $ | — |
| | |
| | | | | | | | | | | | | | | | | |
| Operating Margin: | | | | | | | | | | | | | | | | |
| USIS | | 26.4 | % | | 23.4 | % | | | | 3.0 | % | | 26.7 | % | | 17.4 | % | | | | 9.3 | % |
| International | | 21.0 | % | | 17.5 | % | | | | 3.5 | % | | 15.6 | % | | 12.1 | % | | | | 3.5 | % |
| Consumer Interactive | | 43.5 | % | | 42.1 | % | | | | 1.3 | % | | 45.4 | % | | 40.4 | % | | | | 5.1 | % |
| Total operating margin | | 25.4 | % | | 21.9 | % | | | | 3.5 | % | | 24.0 | % | | 16.6 | % | | | | 7.4 | % |
As a result of displaying amounts in millions, rounding differences may exist in the table above. Segment operating margins are calculated using segment gross revenue and operating income. Consolidated operating margin is calculated using as reported revenue and operating income.
Total operating income increased $30.8 million and $131.9 million for the three and nine months ended September 30, 2017, compared with the same periods in 2016. The increase was due primarily to:
an increase in revenue in all of our segments, including revenue from recent acquisitions;
a decrease in depreciation and amortization in our USIS segment;
savings enabled by our technology transformation and other productivity initiatives;
a decrease in product costs from a favorable shift in the mix of revenue in our Consumer Interactive segment; and
the benefit of focusing our marketing spend on more efficient channels in our Consumer Interactive segment,
partially offset by:
an increase in labor costs, primarily in our USIS segment, International segment and in Corporate, attributed to higher incentive and stock-based compensation and an increase in headcount as we continue to invest in key strategic growth initiatives;
an increase in product costs in our USIS segment due to the increase in revenue; and
operating costs from our acquisitions in our USIS and International segments.
Margins for the USIS segment increased in both periods due to the increase in revenue, the decrease in depreciation and amortization, and savings enabled by our technology transformation, partially offset by the increase in compensation costs, product costs and operating costs from our recent acquisitions. Margins for the International segment increased in both periods due primarily to the increase in revenue and cost savings from our key productivity initiatives. Margins for the Consumer Interactive segment increased in both periods due to the decrease in product costs from a favorable shift in the mix of revenue and more efficient marketing spend.
Non-Operating Income and Expense |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | | 2017 | | 2016 | | $ Change | | % Change | | 2017 | | 2016 | | $ Change | | % Change |
| Interest expense | | $ | (21.7 | ) | | $ | (21.4 | ) | | $ | (0.3 | ) | | (1.4 | )% | | $ | (65.8 | ) | | $ | (63.1 | ) | | $ | (2.7 | ) | | (4.2 | )% |
| Interest income | | 1.5 |
| | 1.2 |
| | 0.3 |
| | 22.8 | % | | 4.2 |
| | 3.2 |
| | 1.0 |
| | 30.5 | % |
Earnings from equity method investments | | 2.6 |
| | 2.3 |
| | 0.3 |
| | 15.0 | % | | 6.3 |
| | 6.2 |
| | 0.1 |
| | 1.9 | % |
| Other income and expense, net: | | | | | | | |
| | | | | | | | |
| Acquisition fees | | 2.0 |
| | (2.3 | ) | | 4.3 |
| | 186.9 | % | | (4.5 | ) | | (15.8 | ) | | 11.3 |
| | 71.5 | % |
| Loan fees | | (5.9 | ) | | (0.3 | ) | | (5.6 | ) | | nm |
| | (11.6 | ) | | (1.1 | ) | | (10.5 | ) | | nm |
|
Dividends from cost method investments | | — |
| | — |
| | — |
| | — | % | | 0.7 |
| | 0.6 |
| | 0.1 |
| | 11.7 | % |
| Other income (expense), net | | (1.0 | ) | | 0.4 |
| | (1.4 | ) | | nm |
| | (0.1 | ) | | (2.9 | ) | | 2.8 |
| | 97.6 | % |
| Total other income and expense, net | | (4.8 | ) | | (2.2 | ) | | (2.6 | ) | | (116.6 | )% | | (15.6 | ) | | (19.2 | ) | | 3.6 |
| | 18.5 | % |
| Non-operating income and expense | | $ | (22.4 | ) | | $ | (20.1 | ) | | $ | (2.3 | ) | | (11.5 | )% | | $ | (70.9 | ) | | $ | (72.9 | ) | | $ | 2.0 |
| | 2.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | Change | Nine months ended | Change |
| September 30, | 2023 vs. 2022 | September 30, | 2023 vs. 2022 |
| | (As Restated) | | 2022 | | | | | (As Restated) | | 2022 | | $ | | % |
| 2023 | | | | | | 2023 | | | |
| Revenue | $ | 968.7 | | | $ | 938.2 | | | $ | 30.4 | | | 3.2 | % | $ | 2,876.9 | | | $ | 2,807.8 | | | $ | 69.1 | | | 2.5 | % |
| Operating expenses | | | | | | | | | | | | | | |
Cost of services (exclusive of depreciation and amortization below)1 | 344.8 | | | 338.2 | | | 6.6 | | | 2.0 | % | 1,073.2 | | | 988.2 | | | 85.0 | | | 8.6 | % |
Selling, general and administrative1 | 314.8 | | | 301.0 | | | 13.8 | | | 4.6 | % | 931.3 | | | 943.6 | | | (12.3) | | | (1.3) | % |
| Depreciation and amortization | 131.3 | | | 129.6 | | | 1.8 | | | 1.4 | % | 391.1 | | | 389.0 | | | 2.1 | | | 0.6 | % |
| Goodwill impairment | 414.0 | | | — | | | 414.0 | | | nm | 414.0 | | | — | | | 414.0 | | | nm |
| Total operating expenses | 1,205.0 | | | 768.8 | | | 436.2 | | | 56.7 | % | 2,809.6 | | | 2,320.8 | | | 488.8 | | | 21.1 | % |
| Operating income (loss) | (236.3) | | | 169.5 | | | (405.8) | | | nm | 67.3 | | | 487.0 | | | (419.7) | | | (86.2) | % |
| Non-operating income and (expense) | | | | | | | | | | | | | | |
| Interest expense | (72.7) | | | (61.3) | | | (11.4) | | | 18.6 | % | (217.2) | | | (163.4) | | | (53.8) | | | 32.9 | % |
| Interest income | 5.0 | | | 1.1 | | | 3.8 | | | nm | 15.1 | | | 3.1 | | | 12.0 | | | nm |
| Earnings from equity method investments | 3.7 | | | 3.5 | | | 0.1 | | | 3.6 | % | 11.7 | | | 9.7 | | | 2.0 | | | 20.6 | % |
| Other income and (expense), net | 8.7 | | | (2.0) | | | 10.7 | | | nm | (16.3) | | | (20.2) | | | 3.9 | | | (19.2) | % |
| Total non-operating income and (expense) | (55.4) | | | (58.7) | | | 3.3 | | | (5.6) | % | (206.8) | | | (170.9) | | | (35.9) | | | 21.0 | % |
| Income (loss) from continuing operations before income taxes | (291.7) | | | 110.8 | | | (402.5) | | | nm | (139.5) | | | 316.1 | | | (455.6) | | | nm |
| Benefit (provision) for income taxes | (22.2) | | | (30.6) | | | 8.3 | | | (27.3) | % | (60.1) | | | (84.1) | | | 24.0 | | | (28.6) | % |
| Income (loss) from continuing operations | (313.9) | | | 80.3 | | | (394.2) | | | nm | (199.6) | | | 232.0 | | | (431.5) | | | nm |
| Discontinued operations, net of tax | (0.5) | | | 2.4 | | | (2.9) | | | nm | (0.7) | | | 2.3 | | | (3.1) | | | nm |
| Net income (loss) | (314.4) | | | 82.7 | | | (397.1) | | | nm | (200.3) | | | 234.3 | | | (434.6) | | | nm |
| Less: net income attributable to noncontrolling interests | (4.3) | | | (3.5) | | | (0.8) | | | 23.1 | % | (11.9) | | | (11.3) | | | (0.6) | | | 5.6 | % |
| Net income (loss) attributable to TransUnion | $ | (318.8) | | | $ | 79.2 | | | $ | (398.0) | | | nm | $ | (212.2) | | | $ | 223.0 | | | $ | (435.3) | | | nm |
nm: not meaningful
As a result of displaying amounts in millions, rounding differences may exist in the table above.
1.We revised prior period Consolidated Statements of Income to correct the classification of certain employee related expenses between cost of services and selling, general and administrative. See Part I, Item 1, “Notes to Unaudited Consolidated Financial Statements,” Note 1, “Significant Accounting and Reporting Policies,” and Note 19, “Revision of Previously Issued Financial Statements.”
Revenue
For the three months ended September 30, 2023, revenue increased $30.4 million, or 3.2%, compared with the same period in 2022, due primarily to growth in our International and U.S. Markets segments, partially offset by a decrease in our Consumer Interactive segment.
For the nine months ended September 30, 2023, revenue increased $69.1 million, or 2.5%, compared with the same period in 2022, due primarily to a 0.7% increase from our recent acquisition in the U.S. Markets segment and organic growth in our International and U.S. Markets segments, partially offset by a decrease in our Consumer Interactive segment and a decrease from the impact of foreign currencies.
Operating Expenses
We revised prior period Consolidated Statements of Income to correct the classification of certain employee related expenses between cost of services and selling, general and administrative. See Part I, Item 1, “Notes to Unaudited Consolidated Financial Statements,” Note 1, “Significant Accounting and Reporting Policies,” and Note 19, “Revision of Prior Period Financial Statements.”
Cost of Services
Cost of services increased $6.6 million and $84.8 million for the three and nine months ended September 30, 2017, interest expense increased $0.3 million and $2.7 million2023, respectively, compared with the same periods in 2016,2022.
The increase in the three-month period was due primarily to to:
•an increase in variable product costs resulting from the average outstanding principal balance.increase in revenue in our U.S. Markets; and
Acquisition fees represent•an increase in costs we have incurredfrom our accelerated technology investment,
partially offset by:
•a decrease in various other costs due to cost initiatives.
The increase in the nine-month period was due primarily to:
•an increase in variable product costs resulting from the increase in revenue in our U.S. Markets;
•an increase in costs from our accelerated technology investment; and
•an increase in operating costs in the first quarter from our April 2022 acquisition in our U.S. Markets segment,
partially offset by:
•the impact of foreign currencies on the expenses of our International operations.
Selling, General and Administrative
Selling, general and administrative expenses increased $13.9 million and decreased $12.1 million for acquisition-related efforts. Forthe three and nine months ended September 30, 2023, respectively, compared with the same periods in 2022.
The increase in the three-month period was due primarily to:
•a net increase in labor costs, including an increase in stock-based incentive compensation and a decrease in cash-based incentive compensation,
partially offset by:
•a decrease in advertising expense; and
•a decrease in integration-related costs for our 2021 and 2022 acquisitions in our U.S. Markets and Consumer Interactive segments.
The decrease in the nine-month period was due primarily to:
•a decrease in certain legal and regulatory expenses;
•a decrease in integration-related costs for our 2021 and 2022 acquisitions in our U.S. Markets and Consumer Interactive segment;
•a decrease in advertising expense, primarily in our Consumer Interactive segment; and
•the impact of foreign currencies on the expenses of our International segment,
partially offset by:
•a net increase in labor costs, including an increase in stock-based incentive compensation and a decrease in cash-based incentive compensation; and
•an increase in operating costs in the first quarter from our April 2022 acquisition in our U.S. Markets segment.
Depreciation and Amortization
Depreciation and amortization increased $1.8 million and $2.1 million for the three and nine months ended September 30, 2023, respectively, compared with the same periods in 2022.
Goodwill impairment
During the three months ended September 30, 2017, acquisition fees include2023, we identified a net $2.0 million reduction in acquisition expenses resulting from a reimbursement of certain acquisition costs recorded in prior periods partially offset by other acquisition costs. For the nine months ended September 30, 2017, costs decreased in 2017 compared with 2016 due primarilytriggering event related to our acquisitionUnited Kingdom reporting unit. As a result of CIFINthe triggering event, we performed a quantitative impairment test for the United Kingdom reporting unit. The quantitative test indicated that the carrying value of the reporting unit exceeded its fair value, resulting in 2016 and the cost reimbursement receiveda partial goodwill impairment of$414.0 million (as restated) that we recorded in the third quarter of 2017.2023.
See Part I, Item 1, “Notes to Unaudited Consolidated Financial Statements,” Note 5, “Goodwill,” for additional information.
Non-Operating Income and Expense
Interest expense
In each of the first three quarters of 2023, we prepaid $75.0 million, and during the quarters ended December 31, 2022 and March 31, 2022, we prepaid $200.0 million and $400.0 million, respectively, of our Senior Secured Term Loan B-6, funded from cash-on-hand. The interest rate on our debt is variable and based on Term SOFR. Approximately 73.3% of this debt is hedged with interest rate swaps.
These factors impact the comparability of interest expense between periods. Our future interest expense could be materially impacted by changes in our variable interest rates to the extent our variable rate debt is not hedged, additional borrowings, or additional prepayments. See Part I, Item 1, “Notes to Unaudited Consolidated Financial Statements,” Note 11, “Debt,” for additional information about our debt.
For the three and nine months ended September 30, 2017, loan fees included $5.62023, interest expense increased $11.4 million and $10.5$53.8 million, respectively, compared with the same periods in 2022. This increase was due to the impact of refinancing fees and other net costs expensed as a result of refinancingan increase in the average periodic variable interest rate on the unhedged portion of our Senior Secured Term Loan.
For the three months ended September 30, 2017, other income net, included $0.4 million of fees incurred in connection with a secondary offering of shares of TransUnion common stock by certain of our shareholders and $0.5 million of currency remeasurement expense. For the nine months ended September 30, 2017, other income, net, included $1.4 million of fees incurred in connection with a secondary offering of shares of TransUnion common stock by certain of our stockholders,debt, partially offset by $1.1 million of currency remeasurement gains. a decrease in outstanding principal balance due to the prepayments made in 2022 and 2023.
Interest income
For the three and nine months ended September 30, 2016,2023, interest income increased $3.8 million and $12.0 million, respectively, compared with the same periods in 2022. This increase was due to interest earned on the note receivable discussed in Note 16, “Fair Value,” and the increase in interest rates.
Other income and (expense), net
Other income and (expense), net includes acquisition fees, loan fees, and various other income net, included $0.7and expenses.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | | 2023 | | 2022 | | $
Change | | %
Change | | 2023 | | 2022 | | $
Change | | %
Change |
| Other income and (expense), net: | | | | | | | | | | | | | | | | |
| Acquisition fees | | $ | (1.7) | | | $ | (3.4) | | | $ | 1.7 | | | (50.0) | % | | $ | (5.5) | | | $ | (21.4) | | | $ | 15.9 | | | (74.3) | % |
| Loan fees | | (1.3) | | | (0.4) | | | (0.9) | | | nm | | (4.5) | | | (7.7) | | | 3.2 | | | (41.6) | % |
| Other income (expense), net | | 11.7 | | | 1.8 | | | 9.9 | | | nm | | (6.3) | | | 8.9 | | | (15.2) | | | nm |
| Total other income and (expense), net | | $ | 8.7 | | | $ | (2.0) | | | $ | 10.7 | | | nm | | $ | (16.3) | | | $ | (20.2) | | | $ | 3.9 | | | (19.3) | % |
nm: not meaningful
As a result of displaying amounts in millions, rounding differences may exist in the table above.
Acquisition fees
Acquisition fees represent costs we have incurred in each period for various acquisition-related efforts, and include costs related to our acquisition of Argus in 2022.
Loan fees
Loan fees include deferred financing fees written off as a result of prepayments made on our debt. During the three and nine months ended September 30, 2023, we prepaid $75.0 million and $2.5$225.0 million, respectively, of our Senior Secured Term Loan B-6, funded from our cash-on-hand. As a result, during the three and nine months ended September 30, 2023, we expensed $1.0 million and $3.1 million of fees incurred in connection withour unamortized original issue discount and deferred financing fees. During the filing of registration statements and secondary offerings of shares of TransUnion common stock by certainnine months ended September 30, 2022, we prepaid $400.0 million of our stockholders.Senior Secured Term Loan B-6, funded from our cash-on-hand. As a result, for the nine months ended September 30, 2022, we expensed $6.5 million of our unamortized original issue discount and deferred financing fees.
Other income and (expense), net
The three months ended September 30, 2023 includes a $11.7 million adjustment to the fair value of a put option liability related to a minority investment, currency remeasurement gains and losses, dividends received from Cost Method Investments, and other miscellaneous non-operating income and expense items.
The nine months ended September 30, 2023 includes a $9.1 million loss on the impairment of a Cost Method Investment, a $6.2 million adjustment to the fair value of a put option liability related to a minority investment, gains and losses on other Cost Method investments, currency remeasurement gains and losses, dividends received from Cost Method Investments, and other miscellaneous non-operating income and expense items.
Provision for Income Taxes
For the three months ended September 30, 2017,2023, we reported an effective tax rate of 31.0%(7.6)%, which was lower than the 35%21.0% U.S. federal corporate statutory rate due primarily to the impact of excess tax benefits related to the adoption of ASU No. 2016-09. Effective January 1, 2017, this new guidance requires any excess tax benefits for share-based payment award transactions to be recorded in the income statement. Accordingly, we recognized excess tax benefits on stock option exercises, which resulted in a decrease in tax expense of $5.0 million, partially offset by an increase of $2.2 million in state tax expense including changes in state tax rates. For the nine months ended September 30, 2017, we reported an effective tax rate of 25.2%, which was lower than the 35% U.S. federal statutory rate due primarily to the excess tax benefits on stock option exercises of $28.1 million and the first quarter 2017 ownership structure change for certain international subsidiaries which resulted in a decrease in income tax expense of $5.2 million, partially offset by an increase of $3.2 million in state tax expense including changes in state tax rates.non-deductible goodwill impairment.
For the three months ended September 30, 2016,2022, we reported an effective tax rate of 41.3%27.6%, which was higher than the 35%21.0% U.S. federal corporate statutory rate due primarily to the tax expense on unremitted foreign earnings not considered permanently reinvested, the impact ofincreases in valuation allowances, onnondeductible expenses in connection with executive compensation limitations, non-U.S. return-to-provision adjustments and other rate-impacting items, partially offset by benefits from the lossesforeign rate differential, which includes the cumulative effect of certain foreign subsidiaries,a legal entity restructuring implemented in the third quarter and changes in state tax assumptions. the research and development credit.
For the nine months ended September 30, 2016,2023, we reported an effective tax rate of 43.1%(43.1)%, which was lower than the 21.0% U.S. federal corporate statutory rate due primarily to the impact of non-deductible goodwill impairment.
For the nine months ended September 30, 2022, we reported an effective tax rate of 26.6%, which was higher than the 35%21.0% U.S. federal corporate statutory rate due primarily to nondeductible expenses in connection with certain legal and regulatory matters and executive compensation limitations, increases in valuation allowances and other rate-impacting items, partially offset by excess tax benefits on stock-based compensation, benefits from the research and development credit, and benefits from the foreign rate differential, which includes the cumulative effect of a legal entity restructuring implemented in the third quarter.
Segment Results of Operations—Three and Nine Months Ended September 30, 2023 and 2022:
Management, including our chief operating decision maker (“CODM”), evaluates the financial performance of our businesses based on revenue and segment Adjusted EBITDA. For the three and nine months ended September 30, 2023 and 2022, our segment revenue, segment Adjusted EBITDA and Segment Adjusted EBITDA Margin were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | | 2023 | | 2022 | | $
Change | | %
Change | | 2023 | | 2022 | | $
Change | | %
Change |
| Revenue: | | | | | | | | | | | | | | | | |
| U.S. Markets gross revenue | | | | | | | | | | | | | | | | |
| Financial Services | | $ | 322.6 | | | $ | 323.3 | | | $ | (0.7) | | | (0.2) | % | | $ | 975.1 | | | $ | 958.6 | | | $ | 16.5 | | | 1.7 | % |
| Emerging Verticals | | 310.9 | | | 297.8 | | | 13.1 | | | 4.4 | % | | 920.9 | | | 895.8 | | | 25.1 | | | 2.8 | % |
| U.S. Markets gross revenue | | $ | 633.5 | | | $ | 621.1 | | | $ | 12.4 | | | 2.0 | % | | $ | 1,896.1 | | | $ | 1,854.4 | | | $ | 41.6 | | | 2.2 | % |
| | | | | | | | | | | | | | | | |
| International: | | | | | | | | | | | | | | | | |
| Canada | | $ | 36.7 | | | $ | 32.4 | | | $ | 4.3 | | | 13.3 | % | | $ | 103.1 | | | $ | 96.2 | | | $ | 7.0 | | | 7.2 | % |
| Latin America | | 30.9 | | | 28.6 | | | 2.4 | | | 8.2 | % | | 89.4 | | | 85.3 | | | 4.0 | | | 4.7 | % |
| United Kingdom | | 49.8 | | | 48.5 | | | 1.3 | | | 2.6 | % | | 146.0 | | | 154.5 | | | (8.5) | | | (5.5) | % |
| Africa | | 15.2 | | | 15.5 | | | (0.4) | | | (2.3) | % | | 44.3 | | | 45.9 | | | (1.6) | | | (3.6) | % |
| India | | 56.1 | | | 44.4 | | | 11.7 | | | 26.4 | % | | 161.8 | | | 129.8 | | | 32.0 | | | 24.7 | % |
| Asia Pacific | | 22.3 | | | 19.8 | | | 2.5 | | | 12.8 | % | | 65.6 | | | 55.7 | | | 9.9 | | | 17.7 | % |
| International gross revenue | | $ | 211.0 | | | $ | 189.2 | | | $ | 21.8 | | | 11.5 | % | | $ | 610.1 | | | $ | 567.4 | | | $ | 42.7 | | | 7.5 | % |
| | | | | | | | | | | | | | | | |
| Consumer Interactive | | $ | 143.1 | | | $ | 147.3 | | | $ | (4.2) | | | (2.9) | % | | $ | 429.4 | | | $ | 444.3 | | | $ | (14.9) | | | (3.3) | % |
| | | | | | | | | | | | | | | | |
| Total gross revenue | | $ | 987.6 | | | $ | 957.6 | | | $ | 30.0 | | | 3.1 | % | | $ | 2,935.6 | | | $ | 2,866.1 | | | $ | 69.5 | | | 2.4 | % |
| | | | | | | | | | | | | | | | |
| Adjusted EBITDA: | | | | | | | | | | | | | | | | |
| U.S. Markets | | $ | 223.0 | | | $ | 218.4 | | | $ | 4.6 | | | 2.1 | % | | $ | 645.1 | | | $ | 669.5 | | | $ | (24.4) | | | (3.6) | % |
| International | | 95.5 | | | 83.9 | | | 11.7 | | | 13.9 | % | | 266.9 | | | 246.9 | | | 20.0 | | | 8.1 | % |
| Consumer Interactive | | 72.1 | | | 73.1 | | | (0.9) | | | (1.3) | % | | 209.9 | | | 210.0 | | | (0.1) | | | (0.1) | % |
| | | | | | | | | | | | | | | | |
| Adjusted EBITDA margin: | | | | | | | | | | | | | | | | |
| U.S. Markets | | 35.2 | % | | 35.2 | % | | | | — | % | | 34.0 | % | | 36.1 | % | | | | (2.1) | % |
| International | | 45.3 | % | | 44.3 | % | | | | 0.9 | % | | 43.7 | % | | 43.5 | % | | | | 0.2 | % |
| Consumer Interactive | | 50.4 | % | | 49.6 | % | | | | 0.8 | % | | 48.9 | % | | 47.3 | % | | | | 1.6 | % |
nm: not meaningful
As a result of displaying amounts in millions, rounding differences may exist in the table above.
We define Adjusted EBITDA Margin for our segments as the segment Adjusted EBITDA divided by segment gross revenue.
U.S. Markets Segment
Revenue
U.S. Markets revenue increased $12.4 million, or 2.0%, and $41.6 million, or 2.2%, for the three and nine months ended September 30, 2023, respectively, compared with the same periods in 2022. The increase was due primarily to an increase in our Emerging verticals and, for the nine-month period, a 1.1% increase due to our acquisition of Argus.
Financial Services: Revenue remained relatively flat for the three months ended September 30, 2023, compared with the same period in 2022. Our Card and Banking line of business decreased due primarily to a decrease in marketing activity. Our Consumer Lending line of business decreased due to softness in the FinTech space from increasing interest rates. These decreases were offset by an increase in our Mortgage line of business due primarily to price increases partially offset by volume declines due to higher interest rates, and an increase in our Auto line of business due to price and volume increases.
Revenue increased $16.5 million, or 1.7%, for the nine months ended September 30, 2023, compared with the same periods in 2022. Our Mortgage line of business increased due primarily to price increases, partially offset by volume declines due to higher interest rates. Our Auto line of business also increased due to price increases and an increase in volumes. Our Consumer Lending line of business decreased due to macroeconomic uncertainty driving a decline in marketing activity. Our Card and
Banking line of business also decreased, due primarily to a decrease from reduced batch activity that was partially offset by an increase in online volumes.
We anticipate interest rates will remain high and continue to impact our Financial Services business.
Emerging Verticals: Revenue increased $13.1 million, or 4.4%, and $25.1 million or 2.8%, for the three and nine months ended September 30, 2023, respectively, compared with the same periods in 2022. The increase was due to increases in our Technology, Insurance, Services & Collections, Media and Public Sector verticals, partially offset by a decrease in our Tenant and Employment verticals.
Adjusted EBITDA
For the three months ended September 30, 2023, Adjusted EBITDA increased $4.6 million, primarily due to an increase in revenue and a decrease in people costs, partially offset by higher variable product costs.
For the nine months ended September 30, 2023, Adjusted EBITDA decreased $24.4 million, primarily due to higher variable product costs, an increase in people costs, and equipment and software expense, partially offset by an increase in revenue and a decrease in certain legal and regulatory expenses.
For the three months ended September 30, 2023, Adjusted EBITDA margin was flat compared with the same period in 2022.
For the nine months ended September 30, 2023, Adjusted EBITDA margin decreased, due primarily to a shift in the revenue mix and the lower margin profile of the Argus business.
International Segment
Revenue
International revenue increased $21.8 million, or 11.5%, and $42.7 million, or 7.5%, for the three and nine months ended September 30, 2023, respectively, compared with the same periods in 2022, due primarily to higher local currency revenue in all regions except for the United Kingdom, driven by increased volumes from improving economic conditions and new product initiatives. The impact of foreign currencies resulted in a revenue increase of 0.2% for the three-month period and a decrease of 4.6% for the nine-month period.
Canada: Revenue increased $4.3 million, or 13.3%, and $7.0 million, or 7.2%, for the three and nine months ended September 30, 2023, respectively, compared with the same periods in 2022. The increase was due primarily to higher local currency revenue from new business wins, including at a large bank, share-shifts from key customers, batch and breach services, and other volume increases, partially offset by a decrease in revenue of 3.3% and 5.2% in each respective period from the impact of foreign currencies.
Latin America: Revenue increased $2.4 million, or 8.2%, and $4.0 million or 4.7%, for the three and nine months ended September 30, 2023, respectively, compared with the same periods in 2022. The increase was due primarily to higher local currency revenue from broad-based growth across several of our markets, including ongoing new business wins, share-shifts, and other volume increases including expansion of our new solutions. The impact of foreign currencies resulted in a revenue increase of 5.5% for the three-month period and a revenue decrease of 1.6% for the nine-month period.
United Kingdom: Revenue increased $1.3 million, or 2.6%, for the three months ended September 30, 2023, compared with the same period in 2022. The increase was primarily driven by a 7.1% impact of foreign currencies and volume growth from new products at key Financial Services customers, partially offset by the impact of a one-time contract in the prior period.
Revenue decreased $8.5 million, or 5.5%, for the nine months ended September 30, 2023 compared with the same period in 2022. The decrease was primarily driven by the impact of a one-time contract in the prior year, and a 1.1% impact of foreign currencies, partially offset by volume growth from new products at key Financial Services customers.
Africa: Revenue decreased $0.4 million, or 2.3%, and $1.6 million, or 3.6%, for the three and nine months ended September 30, 2023, respectively, compared with the same periods in 2022. The decrease was primarily driven by a 10.3% and 14.3% impact of foreign currencies in each respective period. Excluding the impact of foreign currency, local currency revenue increased due to meaningful new business wins in the nine-month period and contract renewals as well as volume growth in emerging countries and emerging verticals in both periods.
India: Revenue increased $11.7 million, or 26.4%, and $32.0 million, or 24.7%, for the three and nine months ended September 30, 2023, respectively, compared with the same periods in 2022, due primarily to higher local currency revenue from growth in consumer and commercial credit markets fueled by healthy consumers who continued to spend despite rising inflation, including fraud, employment screening and consumer offerings, partially offset by a decrease of 4.6% and 8.2% in each respective period from the impact of foreign currencies.
Asia Pacific: Revenue increased $2.5 million, or 12.8%, and $9.9 million, or 17.7%, for the three and nine months ended September 30, 2023, respectively, compared with the same periods in 2022, due primarily to higher local currency revenue from increased volumes resulting from improved macroeconomic conditions, including new business in the financial services market, new product adoptions and increased volume in our consumer offerings. The impact of foreign currencies resulted in a revenue increase of 0.5% for the three-month period and a decrease of 1.1%for the nine-month period.
Adjusted EBITDA
For the three and nine months ended September 30, 2023, Adjusted EBITDA increased $11.7 million and $20.0 million, respectively, due primarily to an increase in revenue, partially offset by an increase in labor costs to support growth initiatives in certain regions.
For the three and nine months ended September 30, 2023, Adjusted EBITDA margins for the International segment increased and was relatively flat, for each respective period, due primarily to an increase in local currency revenue and improving market conditions in most of our regions, partially offset by an increase in labor costs to support growth initiatives in certain regions.
Consumer Interactive Segment
Revenue
Consumer Interactive revenue decreased $4.2 million, or 2.9%, and $14.9 million, or 3.3%, respectively, for the three and nine months ended September 30, 2023, compared with the same periods in 2022, due primarily to a decrease in revenue in our direct channel as reduced advertising and slowing macroeconomic conditions significantly reduced consumer demand for our paid credit products, partially offset by an increase in revenue in our indirect channel. In our indirect channel, revenue was flat for the three-month period and increased for the nine-month period, due primarily to higher volumes and new contracts with existing customers, partially offset by a prior year breach services contract.
Adjusted EBITDA
For the three and nine months ended September 30, 2023, Adjusted EBITDA decreased $0.9 million and was relatively flat, for each respective period, due primarily to a decrease in advertising expense, partially offset by a decrease in revenue.
For the three and nine months ended September 30, 2023, Adjusted EBITDA margin for the Consumer Interactive segment increased due to a decrease in advertising costs and revenue growth in our indirect channel, partially offset by a decrease in revenue in our direct channel.
Non-GAAP measures—Three and Nine Months Ended September 30, 2023 and 2022:
In addition to the GAAP measures discussed above, Management, including our CODM, evaluates the financial performance of our businesses based on the non-GAAP measures Consolidated Adjusted EBITDA, Consolidated Adjusted EBITDA Margin, Adjusted Net Income, Adjusted Diluted Earnings per Share, Adjusted Provision for Income Taxes, Adjusted Effective Tax Rate and Leverage Ratio.
Non-GAAP Financial Measures
We present Consolidated Adjusted EBITDA, Consolidated Adjusted EBITDA Margin, Adjusted Net Income, Adjusted Diluted Earnings per Share, Adjusted Provision for Income Taxes, Adjusted Effective Tax Rate and Leverage Ratio for all periods presented. These are important financial measures for the Company but are not financial measures as defined by GAAP. These financial measures should be reviewed in conjunction with the relevant GAAP financial measures and are not presented as alternative measures of GAAP. Other companies in our industry may define or calculate these measures differently than we do, limiting their usefulness as comparative measures. Because of these limitations, these non-GAAP financial measures should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP, including operating income, operating margin, effective tax rate, net income (loss) attributable to the Company, diluted earnings per share or cash provided by operating activities. Reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures are presented in the tables below.
We present Consolidated Adjusted EBITDA, Consolidated Adjusted EBITDA Margin, Adjusted Net Income, Adjusted Diluted Earnings per Share, Adjusted Provision for Income Taxes and Adjusted Effective Tax Rate as supplemental measures of our operating performance because these measures eliminate the impact of certain items that we do not consider indicative of our cash operations and ongoing operating performance. These are measures frequently used by securities analysts, investors and other interested parties in their evaluation of the operating performance of companies similar to ours.
Our board of directors and executive management team use Adjusted EBITDA as an incentive compensation measure for most eligible employees and Adjusted Diluted Earnings per Share as an incentive compensation measure for certain of our senior executives.
Under the credit agreement governing our Senior Secured Credit Facility, our ability to engage in activities such as incurring additional indebtedness, making investments and paying dividends is tied to our Leverage Ratio which is partially based on Adjusted EBITDA. Investors also use our Leverage Ratio to assess our ability to service our debt and make other capital allocation decisions.
We define Consolidated Adjusted EBITDA as net income (loss) attributable to TransUnion, less discontinued operations, net of tax, plus net interest expense, plus (less) provision (benefit) for income taxes, plus depreciation and amortization, plus goodwill impairment, plus stock-based compensation, plus mergers, acquisitions, divestitures and business optimization-related expenses, including Neustar integration-related expenses, plus certain accelerated technology investment expenses to migrate to the cloud, plus (less) certain other expenses (income). We define Consolidated Adjusted EBITDA Margin as Consolidated Adjusted EBITDA divided by total revenue as reported.
We define Adjusted Net Income as net income (loss) attributable to TransUnion, less discontinued operations, net of tax, plus goodwill impairment, plus stock-based compensation, plus mergers, acquisitions, divestitures and business optimization-related expenses, including Neustar integration-related expenses, plus certain accelerated technology investment expenses, plus (less) certain other expenses (income), plus amortization of certain intangible assets, plus or minus the total adjustment for income taxes included in our Adjusted Provision for Income Taxes. We define Adjusted Diluted Earnings per Share as Adjusted Net Income divided by the weighted-average diluted shares outstanding. We define Adjusted Provision for Income Taxes as our provision for income taxes, plus or minus the tax impact on the adjustment included in Adjusted Net Income, plus or minus the impact of excess tax benefits for share compensation, plus or minus other items that relate to prior periods such as valuation allowance changes, deferred tax rate and return-to-provision adjustments, and other unusual items that are included in our provision for income taxes. We define Adjusted Effective Tax Rate as Adjusted Provision for Income Taxes divided by Adjusted Net Income.
We define Leverage Ratio as net debt divided by Consolidated Adjusted EBITDA for the most recent twelve-month period including twelve months of Adjusted EBITDA from significant acquisitions. Net debt is defined as total debt less cash and cash equivalents as reported on the balance sheet as of the end of the period.
For the three and nine months ended September 30, 2023 and 2022, these non-GAAP measures were as follows:
Adjusted EBITDA and Adjusted EBITDA Margin:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | Change | | Nine Months Ended September 30, | Change |
| | 2023 vs. 2022 | | 2023 vs. 2022 |
| (As Restated) | | 2022 | | $ | | % | | (As Restated) | | 2022 | | $ | | % |
| (dollars in millions) | 2023 | | | | | 2023 | | | |
| Reconciliation of net income (loss) attributable to TransUnion to consolidated Adjusted EBITDA: | | | | | | | | | | | | | | | |
| Net income (loss) attributable to TransUnion | $ | (318.8) | | | $ | 79.2 | | $ | (398.0) | | | nm | | $ | (212.2) | | | $ | 223.0 | | | $ | (435.3) | | | nm |
| Discontinued operations, net of tax | 0.5 | | | (2.4) | | 2.9 | | | nm | | 0.7 | | | (2.3) | | | 3.1 | | | nm |
| Income (loss) from continuing operations attributable to TransUnion | $ | (318.3) | | | $ | 76.8 | | $ | (395.0) | | | nm | | $ | (211.5) | | | $ | 220.7 | | | $ | (432.2) | | | nm |
| Net interest expense | 67.8 | | | 60.2 | | 7.6 | | | 12.6 | % | | 202.1 | | | 160.4 | | | 41.7 | | | 26.0 | % |
| Provision for income taxes | 22.2 | | | 30.6 | | (8.3) | | | (27.3) | % | | 60.1 | | | 84.1 | | | (24.0) | | | (28.6) | % |
| Depreciation and amortization | 131.3 | | | 129.6 | | 1.8 | | | 1.4 | % | | 391.1 | | | 389.0 | | | 2.1 | | | 0.6 | % |
| EBITDA | $ | (97.0) | | | $ | 297.1 | | $ | (394.1) | | | nm | | $ | 441.8 | | | $ | 854.1 | | | $ | (412.3) | | | (48.3) | % |
| Adjustments to EBITDA: | | | | | | | | | | | | | | | |
Goodwill impairment1 | 414.0 | | | — | | 414.0 | | | nm | | 414.0 | | | — | | | 414.0 | | | nm |
Stock-based compensation2 | 27.0 | | | 19.9 | | 7.0 | | | 35.4 | % | | 73.3 | | | 60.8 | | | 12.5 | | | 20.5 | % |
Mergers and acquisitions, divestitures and business optimization3 | (6.0) | | | 7.8 | | (13.8) | | | nm | | 24.5 | | | 36.4 | | | (12.0) | | | (32.8) | % |
Accelerated technology investment4 | 16.3 | | | 12.1 | | 4.2 | | | 34.8 | % | | 53.5 | | | 32.2 | | | 21.3 | | | 66.3 | % |
Net other5 | 1.8 | | | 3.8 | | (2.0) | | | (52.1) | % | | 10.6 | | | 41.7 | | | (31.1) | | | (74.6) | % |
| Total adjustments to EBITDA | $ | 453.1 | | | $ | 43.6 | | $ | 409.5 | | | nm | | $ | 575.8 | | | $ | 171.1 | | | $ | 404.8 | | | nm |
| Consolidated Adjusted EBITDA | $ | 356.1 | | | $ | 340.7 | | $ | 15.4 | | | 4.5 | % | | $ | 1,017.6 | | | $ | 1,025.2 | | | $ | (7.6) | | | (0.7) | % |
| | | | | | | | | | | | | | | |
| Net income (loss) attributable to TransUnion margin | (32.9) | % | | 8.4 | % | | | | (41.3) | % | | (7.4) | % | | 7.9 | % | | | | (15.3) | % |
Consolidated Adjusted EBITDA margin6 | 36.8 | % | | 36.3 | % | | | | 0.5 | % | | 35.4 | % | | 36.5 | % | | | | (1.1) | % |
nm: not meaningful
As a result of displaying amounts in millions, rounding differences may exist in the table above.
1.For the three and nine months ended September 30, 2023, we recorded a goodwill impairment of $414.0 million (as restated) related to our United Kingdom reporting unit in our International segment.
2.Consisted of stock-based compensation, including amounts which are cash settled.
3.Mergers and acquisitions, divestitures and business optimization consisted of the following adjustments:
For the three months ended September 30, 2023, $4.1 million of Neustar integration costs; $1.7 million of acquisition expenses; a $1.0 million adjustment to fair value of a note receivable; an $(11.7) million adjustment to the fair value of a put option liability related to a minority investment; and $(1.1) million of reimbursements for transition services related to divested businesses, net of separation expenses.
For the three months ended September 30, 2022, $8.7 million of Neustar integration costs; $3.4 million of acquisition expenses; a $(3.4) million gain related to a government tax reimbursement from a recent business acquisition; $(0.7) million of reimbursements for transition services related to divested businesses, net of separation expenses; and a $(0.3) million adjustment to the fair value of a put option liability related to a minority investment.
For the nine months ended September 30, 2023, $15.6 million of Neustar integration costs; a $9.1 million loss on the impairment of a Cost Method Investment; $5.5 million of acquisition expenses; $5.1 million of adjustments to liabilities from a recent acquisition; a $(6.2) million adjustment to the fair value of a put option liability related to a minority investment; $(2.4) million of reimbursements for transition services related to divested businesses, net of
separation expenses; a $(1.3) million adjustment to the fair value of a note receivable; and a $(0.8) million gain on the disposal of a Cost Method Investment.
For the nine months ended September 30, 2022, $25.5 million of Neustar integration costs; $21.4 million of acquisition expenses; $(6.0) million of reimbursements for transition services related to divested businesses, net of separation expenses; a $(3.4) million gain related to a government tax reimbursement from a recent business acquisition; and a $(1.0) million adjustment to the fair value of a put option liability related to a minority investment.
4.Represents expenses associated with our accelerated technology investment to migrate to the cloud.
5.Net other consisted of the following adjustments:
For the three months ended September 30, 2023, $1.0 million of deferred loan fees written off as a result of the prepayment on our debt; and a $0.9 million net loss from currency remeasurement of our foreign operations, loan fees and other.
For the three months ended September 30, 2022, a $3.8 million net loss from currency remeasurement of our foreign operations, loan fees and other.
For the nine months ended September 30, 2023, $3.1 million of deferred loan fees written off as a result of the prepayment on our debt; and a $7.5 million net loss from currency remeasurement of our foreign operations, loan fees and other.
For the nine months ended September 30, 2022, $28.4 million for certain legal and regulatory expenses; $6.5 million of deferred loan fees written off as a result of the prepayments on our debt; and a $6.8 million net loss from currency remeasurement of our foreign operations, loan fees and other.
6.Consolidated Adjusted EBITDA margin is calculated by dividing Consolidated Adjusted EBITDA by total revenue.
Consolidated Adjusted EBITDA
Consolidated Adjusted EBITDA increased $15.5 million for the three months ended September 30, 2023 and decreased $7.6 million for the nine months ended September 30, 2023, compared with the same periods in 2022.
The increase for the three-month period was due primarily to:
•an increase in revenue; and
•a decrease in advertising expense,
partially offset by:
• higher variable product costs; and
•an increase in labor costs.
The decrease for the nine-month period was due primarily to:
•an increase in labor costs; and
•operating costs of our 2022 acquisition,
partially offset by:
• a decrease in advertising expense; and
•an increase in revenue.
Consolidated Adjusted EBITDA Margin
For the three months ended September 30, 2023 Consolidated Adjusted EBITDA margin increased, primarily due to increase in revenue and advertising expense. For the nine months ended September 30, 2023, Consolidated Adjusted EBITDA margin decreased, due primarily to lower margins from our recent acquisitions and higher variable product costs in our U.S. Markets segment.
Adjusted Net Income and Adjusted Diluted Earnings Per Share
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | Change | | Nine Months Ended September 30, | Change |
| 2023 vs. 2022 | | 2023 vs. 2022 |
| (As Restated) | | 2022 | | $ | | % | | (As Restated) | | 2022 | | $ | | % |
| (dollars in millions) | 2023 | | | | | 2023 | | | |
| Reconciliation of net income (loss) attributable to TransUnion to Adjusted Net Income: | | | | | | | | | | | | | | | |
| Net income (loss) attributable to TransUnion | $ | (318.8) | | | $ | 79.2 | | | $ | (398.0) | | | nm | | $ | (212.2) | | | $ | 223.0 | | | $ | (435.3) | | | nm |
| Discontinued operations, net of tax | 0.5 | | | (2.4) | | | 2.9 | | | nm | | 0.7 | | | (2.3) | | | 3.1 | | | nm |
| Income (loss) from continuing operations attributable to TransUnion | $ | (318.3) | | | $ | 76.8 | | | $ | (395.0) | | | nm | | $ | (211.5) | | | $ | 220.7 | | $ | (432.2) | | | nm |
| Adjustments before income tax items: | | | | | | | | | | | | | | | |
Goodwill impairment2 | 414.0 | | | — | | | 414.0 | | | nm | | 414.0 | | | — | | | 414.0 | | | nm |
Stock-based compensation3 | 27.0 | | | 19.9 | | | 7.0 | | | 35.4 | % | | 73.3 | | | 60.8 | | | 12.5 | | | 20.5 | % |
Mergers and acquisitions, divestitures and business optimization4 | (6.0) | | | 7.8 | | | (13.8) | | | nm | | 24.5 | | | 36.4 | | | (12.0) | | | (32.8) | % |
Accelerated technology investment5 | 16.3 | | | 12.1 | | | 4.2 | | | 34.8 | % | | 53.5 | | | 32.2 | | | 21.3 | | | 66.3 | % |
Net other6 | 1.8 | | | 3.4 | | | (1.6) | | | (47.3) | % | | 9.6 | | | 40.5 | | | (30.9) | | | (76.2) | % |
Amortization of certain intangible assets7 | 72.1 | | | 76.7 | | | (4.6) | | | (6.0) | % | | 221.2 | | | 231.1 | | | (9.9) | | | (4.3) | % |
| Total adjustments before income tax items | $ | 525.2 | | | $ | 119.9 | | | $ | 405.2 | | | nm | | $ | 796.0 | | | $ | 401.0 | | | $ | 395.1 | | | nm |
| Change in provision for income taxes | (29.5) | | | (16.5) | | | (13.0) | | | 78.7 | % | | (85.2) | | | (73.2) | | | (12.1) | | | 16.5 | % |
| Adjusted Net Income | $ | 177.4 | | | $ | 180.2 | | | $ | (2.8) | | | (1.5) | % | | $ | 499.3 | | | $ | 548.5 | | | $ | (49.2) | | | (9.0) | % |
| | | | | | | | | | | | | | | |
| Weighted-average shares outstanding: | | | | | | | | | | | | | | | |
| Basic | 193.4 | | | 192.6 | | | nm | | nm | | 193.3 | | | 192.4 | | | nm | | nm |
Diluted8 | 194.6 | | | 193.2 | | | nm | | nm | | 194.8 | | | 193.1 | | | nm | | nm |
| | | | | | | | | | | | | | | |
| Adjusted Earnings per Share: | | | | | | | | | | | | | | | |
| Basic | $ | 0.92 | | | $ | 0.94 | | | $ | (0.02) | | | (2.0) | % | | $ | 2.58 | | | $ | 2.85 | | | $ | (0.27) | | | (9.4) | % |
| Diluted | $ | 0.91 | | | $ | 0.93 | | | $ | (0.02) | | | (2.3) | % | | $ | 2.56 | | | $ | 2.84 | | | $ | (0.28) | | | (9.7) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | (As Restated) | | 2022 | | (As Restated) | | 2022 |
| | 2023 | | | 2023 | |
| Reconciliation of diluted earnings per share from net income attributable to TransUnion to Adjusted Diluted Earnings per Share: | | | | | | | | |
Diluted earnings per common share1 from: | | | | | | | | |
| Net income (loss) attributable to TransUnion | | $ | (1.65) | | | $ | 0.41 | | | $ | (1.10) | | | $ | 1.15 | |
| Discontinued operations, net of tax | | — | | | (0.01) | | | — | | | (0.01) | |
| Income (loss) from continuing operations attributable to TransUnion | | $ | (1.65) | | | $ | 0.40 | | | $ | (1.09) | | | $ | 1.14 | |
| Adjustments before income tax items: | | | | | | | | |
Goodwill2 | | 2.13 | | | — | | | 2.13 | | | — | |
Stock-based compensation3 | | 0.14 | | | 0.10 | | | 0.38 | | | 0.31 | |
Mergers and acquisitions, divestitures and business optimization4 | | (0.03) | | | 0.04 | | | 0.13 | | | 0.19 | |
Accelerated technology investment5 | | 0.08 | | | 0.06 | | | 0.27 | | | 0.17 | |
Net other6 | | 0.01 | | | 0.02 | | | 0.05 | | | 0.21 | |
Amortization of certain intangible assets7 | | 0.37 | | | 0.40 | | | 1.14 | | | 1.20 | |
| Total adjustments before income tax items | | $ | 2.70 | | | $ | 0.62 | | | $ | 4.09 | | | $ | 2.08 | |
| Change in provision for income taxes | | (0.15) | | | (0.09) | | | (0.44) | | | (0.38) | |
Impact of additional dilutive shares8 | | $ | 0.01 | | | $ | — | | | $ | 0.02 | | | $ | — | |
| Adjusted Diluted Earnings per Share | | $ | 0.91 | | | $ | 0.93 | | | $ | 2.56 | | | $ | 2.84 | |
As a result of displaying amounts in millions, rounding differences may exist in the table above and footnotes below.
1.For the three and nine months ended September 30, 2023, each component of earnings per share is calculated independently, therefore, rounding differences exist in the table above.
2.For the three and nine months ended September 30, 2023, we recorded a goodwill impairment of $414.0 million (as restated) related to our United Kingdom reporting unit in our International segment.
3.Consisted of stock-based compensation, including amounts which are cash settled.
4.Mergers and acquisitions, divestitures and business optimization consisted of the following adjustments:
For the three months ended September 30, 2023, $4.1 million of Neustar integration costs; $1.7 million of acquisition expenses; a $1.0 million adjustment to fair value of a note receivable; an $(11.7) million adjustment to the fair value of a put option liability related to a minority investment; and $(1.1) million of reimbursements for transition services related to divested businesses, net of separation expenses.
For the three months ended September 30, 2022, $8.7 million of Neustar integration costs; $3.4 million of acquisition expenses; a $(3.4) million gain related to a government tax reimbursement from a recent business acquisition; $(0.7) million of reimbursements for transition services related to divested businesses, net of separation expenses; and a $(0.3) million adjustment to the fair value of a put option liability related to a minority investment.
For the nine months ended September 30, 2023, $15.6 million of Neustar integration costs; a $9.1 million loss on the impairment of a Cost Method Investment; $5.5 million of acquisition expenses; $5.1 million of adjustments to liabilities from a recent acquisition; a $(6.2) million adjustment to the fair value of a put option liability related to a minority investment; $(2.4) million of reimbursements for transition services related to divested businesses, net of separation expenses; a $(1.3) million adjustment to the fair value of a note receivable; and a $(0.8) million gain on the disposal of a Cost Method Investment.
For the nine months ended September 30, 2022, $25.5 million of Neustar integration costs; $21.4 million of acquisition expenses; $(6.0) million of reimbursements for transition services related to divested businesses, net of separation expenses; a $(3.4) million gain related to a government tax reimbursement from a recent business acquisition; and a $(1.0) million adjustment to the fair value of a put option liability related to a minority investment.
5.Represents expenses associated with our accelerated technology investment to migrate to the cloud.
6.Net other consisted of the following adjustments:
For the three months ended September 30, 2023, $1.0 million of deferred loan fees written off as a result of the prepayment on our debt; and a $0.8 million net loss from currency remeasurement of our foreign operations and other.
For the three months ended September 30, 2022, a $3.4 million net loss from currency remeasurement of our foreign operations and other.
For the nine months ended September 30, 2023, $3.1 million of deferred loan fees written off as a result of the prepayment on our debt; and a $6.5 million net loss from currency remeasurement of our foreign operations and other.
For the nine months ended September 30, 2022, a $28.4 million net increase in certain legal and regulatory expenses; $6.5 million of deferred loan fees written off as a result of the prepayments on our debt; and a $5.6 million net loss from currency remeasurement of our foreign operations and other.
7.Consisted of amortization of intangible assets from our 2012 change-in-control transaction and amortization of intangible assets established in business acquisitions after our 2012 change-in-control transaction.
8.Diluted share counts for Adjusted Diluted Earnings Per Share includes an additional 1.2 million and 1.5 million of dilutive securities for the three months and nine months ended September 30, 2023, respectively, which are not included in GAAP diluted weighted-average shares outstanding due to the Company’s net loss position for the three and nine months ended September 30, 2023.
Adjusted Net Income
For the three and nine months ended September 30, 2023, Adjusted Net Income decreased slightly, due primarily to an increase in interest expense, partially offset by an increase in interest income.
Adjusted Provision for Income Taxes and Adjusted Effective Tax Rate
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | (As Restated) | | 2022 | | (As Restated) | | 2022 |
| | 2023 | | | 2023 | |
| Income (loss) from continuing operations before income taxes | | $ | (291.7) | | | $ | 110.8 | | | $ | (139.5) | | | $ | 316.1 | |
| Total adjustments before income tax items from Adjusted Net Income table above | | 525.2 | | | 119.9 | | | 796.0 | | | 401.0 | |
| Adjusted income from continuing operations before income taxes | | $ | 233.5 | | | $ | 230.8 | | | $ | 656.5 | | | $ | 717.0 | |
| | | | | | | | |
| Reconciliation of provision for income taxes to Adjusted Provision for Income Taxes: | | | | | | | | |
| Provision for income taxes | | (22.2) | | | (30.6) | | | (60.1) | | | (84.1) | |
| Adjustments for income taxes: | | | | | | | | |
Tax effect of above adjustments1 | | (27.9) | | | (26.1) | | | (90.1) | | | (82.7) | |
| Eliminate impact of excess tax expenses/(benefits) for stock-based compensation | | 0.7 | | | (0.6) | | | 2.7 | | | (5.6) | |
Other2 | | (2.2) | | | 10.2 | | | 2.2 | | | 15.1 | |
| Total adjustments for income taxes | | $ | (29.5) | | | $ | (16.5) | | | $ | (85.2) | | | $ | (73.2) | |
| Adjusted Provision for Income Taxes | | $ | (51.7) | | | $ | (47.1) | | | $ | (145.3) | | | $ | (157.3) | |
| | | | | | | | |
| Effective tax rate | | (7.6) | % | | 27.6 | % | | (43.1) | % | | 26.6 | % |
| Adjusted Effective Tax Rate | | 22.2 | % | | 20.4 | % | | 22.1 | % | | 21.9 | % |
As a result of displaying amounts in millions, rounding differences may exist in the table above.
1.Tax rates used to calculate the tax expense impact are based on unremitted foreign earnings not considered permanently reinvested, the impactnature of each item.
2.For the three months ended September 30, 2023, ($1.8) million of valuation allowances related to prior periods; ($0.5) million of return to provision, audit adjustments, and reserves related to prior periods; and $0.1 of other adjustments.
For the three months ended September 30, 2022, $6.7 million of valuation allowances related to prior periods; $1.8 million of return to provision and audit adjustments related to prior periods; and $1.7 million of other adjustments.
For the nine months ended September 30, 2023, $2.6 million of return to provision, audit adjustments, and reserves related to prior periods; ($0.7) million of valuation allowances related to prior periods; and $0.3 million of other adjustments.
For the nine months ended September 30, 2022, $7.3 million of valuation allowances related to prior periods; $2.8 million of return to provision and audit adjustments related to prior periods; $2.0 million of deferred tax rate adjustments, and $3.0 million of other adjustments.
Adjusted Provision for Income Taxes
We reported an adjusted tax rate of 22.2% for the three months ended September 30, 2023, which is higher than the 21.0% U.S. federal corporate statutory rate, due primarily to increases for state taxes and foreign withholding taxes, partially offset by benefits from the foreign rate differential and the research and development credit.
We reported an adjusted tax rate of 20.4% for the three months ended September 30, 2022, which is lower than the 21.0% U.S. federal corporate statutory rate, due primarily to benefits from the foreign rate differential, foreign tax credits, and the research and development credit, partially offset by increases for state taxes and foreign withholding taxes.
We reported an adjusted tax rate of 22.1% for the nine months ended September 30, 2023, which is higher than the 21.0% U.S. federal corporate statutory rate, due primarily to increases for state taxes and foreign withholding taxes, partially offset by benefits from the foreign rate differential and the research and development credit.
We reported an adjusted tax rate of 21.9% for the nine months ended September 30, 2022, which is higher than the 21.0% U.S. federal corporate statutory rate, due primarily to increases for state taxes and foreign withholding taxes, partially offset by benefits from the research and development credit, foreign tax credits, and the foreign rate differential.
Leverage Ratio
| | | | | | | | |
| | (As Restated) |
| (dollars in millions) | | Trailing Twelve Months Ended September 30, 2023 |
| Reconciliation of net income (loss) attributable to TransUnion to Adjusted EBITDA: | | |
| Net income (loss) attributable to TransUnion | | $ | (165.8) | |
| Discontinued operations, net of tax | | (14.3) | |
| Income (loss) from continuing operations attributable to TransUnion | | $ | (180.1) | |
| Net interest expense | | 268.0 | |
| Provision for income taxes | | 95.9 | |
| Depreciation and amortization | | 521.2 | |
| EBITDA | | $ | 704.9 | |
| Adjustments to EBITDA: | | |
Goodwill impairment1 | | $ | 414.0 | |
Stock-based compensation2 | | 93.6 | |
Mergers and acquisitions, divestitures and business optimization3 | | 38.8 | |
Accelerated technology investment4 | | 72.7 | |
Net other5 | | 14.9 | |
| Total adjustments to EBITDA | | $ | 634.0 | |
| Leverage Ratio Adjusted EBITDA | | $ | 1,338.9 | |
| | |
| Total debt | | $ | 5,368.5 | |
| Less: Cash and cash equivalents | | 420.9 | |
| Net Debt | | $ | 4,947.7 | |
| | |
| Ratio of Net Debt to Net income (loss) attributable to TransUnion | | (29.8) | |
| Leverage Ratio | | 3.7 | |
As a result of displaying amounts in millions, rounding differences may exist in the table above.
1.For the three and nine months ended September 30, 2023, we recorded a goodwill impairment of $414.0 million (as restated) related to our United Kingdom reporting unit in our International segment.
2.Consisted of stock-based compensation, including amounts which are cash settled.
3.Mergers and acquisitions, divestitures and business optimization consisted of the following adjustments: $23.3 million of Neustar integration costs; a $13.7 million loss on the lossesimpairment of Cost Method Investments; $7.9 million of acquisition expenses; a $5.8 million adjustment to the fair value of a put option liability related to a minority investment; a $5.0 million adjustment to a liability from a recent acquisition; and $(3.2) million of reimbursements for transition services related to divested businesses, net of separation expenses; a $(1.3) million adjustment to the fair value of a note receivable; a $(0.8) million gain on disposal of a Cost Method investment.
4.Represents expenses associated with our accelerated technology investment to migrate to the cloud.
5.Net other consisted of the following adjustments: a $7.4 million net loss from currency remeasurement of our foreign operations, loan fees and other; and $7.4 million of deferred loan fees written off as a result of the prepayments on our debt.
Application of Critical Accounting Estimates
We prepare our consolidated financial statements in conformity with generally accepted accounting principles (“GAAP”). The notes to our consolidated financial statements include disclosures about our significant accounting policies. These accounting policies require us to make certain foreign subsidiaries,judgments and changesestimates in state tax assumptions.reporting our operating results and our assets and liabilities. See Part II, Item 7, “Application of Critical Accounting Estimates” and Part II, Item 8, Note 1, “Significant Accounting and Reporting Policies” of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on February 14, 2023, for additional information about our critical accounting estimates.
Goodwill impairment
Significant ChangesIn our Annual Report on Form 10-K for the year ended 2022, we disclosed that for our United Kingdom reporting unit, we had $681.2 million of goodwill as of December 31, 2022. The calculated excess fair value over carrying value was less than 10% of its carrying value as of October 31, 2022, our annual assessment date. Therefore, we concluded no impairment existed for this reporting unit.
We test goodwill for impairment on an annual basis in Assetsthe fourth quarter and Liabilitiesmonitor throughout the year for impairment triggering events that indicate that the carrying value of one or more of our reporting units exceeds its fair value. During the three months ended September 30, 2023, we identified a triggering event requiring an interim impairment assessment for our United Kingdom reporting unit, which resulted in a goodwill impairment of $414.0 million (as restated). The worsening macroeconomic conditions during the third quarter from inflationary pressures and rising interest rates increasingly impacted our business for the current quarter and the near-term outlook. Due to these factors, management now believes the U.K. recovery will take longer, and will be at a slower pace, than previously expected. As a result, we have revised our short-term and mid-term forecasts for revenue and EBITDA expectations for our United Kingdom reporting unit. These factors have particularly impacted the online-only FinTech lenders that represent the largest vertical within our United Kingdom reporting unit. These lenders have seen significant declines in their access to capital impacting their ability to lend and in some cases leading to bankruptcies.
On February 22, 2017,Our quantitative impairment test for the Company purchased 1.85 million sharesUnited Kingdom reporting unit consisted of common stocka fair value calculation that combines an income approach, using the discounted cash flow method, and a market approach, using the guideline public company method. The quantitative impairment test requires the application of a number of significant assumptions, including estimates of future revenue growth rates, EBITDA margins, discount rates, and market multiples. The projected future revenue growth rates and EBITDA margins, and the resulting projected cash flows of the United Kingdom reporting unit are based on historical experience and internal operating plans reviewed by management, extrapolated over the forecast period. Discount rates are determined using a weighted average cost of capital adjusted for risk factors specific to the United Kingdom. Market multiples are based on the guideline public company method using comparable publicly traded company multiples of EBITDA for a totalgroup of $68.3 million frombenchmark companies.
We believe the underwriters ofassumptions that we use in our quantitative analysis are reasonable and consistent with assumptions that would be used by other marketplace participants. However, such assumptions are inherently uncertain, and a secondary offering of shares of TransUnion common stock by certainchange in assumptions could change the estimated fair value of our stockholders. On May 2, 2017, the Company purchased 1.65 million shares of common stock for a total of $65.2 million from the underwriters of a secondary offering of shares of TransUnion common stock by certainUnited Kingdom reporting unit. Therefore, future impairments of our stockholders. See “Recent Developments” aboveUnited Kingdom reporting unit could be required, which could be material to the consolidated financial statements.
We engaged a third-party valuation specialist to assist in our analysis of the fair value of our United Kingdom reporting unit. All judgments, significant assumptions and estimates, and forecasts were either provided by or reviewed by us. While we chose to utilize a third-party valuation specialist for additional information.assistance, the fair value analysis reflects the conclusions of management and not those of any third party.
We performed a sensitivity assessment for the significant assumptions used with the goodwill impairment analysis for the United Kingdom reporting unit for the quarter ended September 30, 2023, holding all other assumptions constant:
•A hypothetical 50 basis point increase to the discount rate, holding all other assumptions constant, would result in a further impairment expense of approximately $35 million determined by the income approach.
•A hypothetical decrease in the expected average annual revenue growth rate of approximately 70 basis points over the entire forecast period, holding all other assumptions constant, would result in a further impairment expense of approximately $30 million determined by the income approach.
•A hypothetical decrease in the expected EBITDA margins of 150 basis points in each year over the entire forecast period, holding all other assumptions constant, would result in a further impairment expense of $30 million determined by the income approach.
While unfavorable macroeconomic conditions are impacting some of our other reporting units, these reporting units are less sensitive to a change in forecast assumptions than our United Kingdom reporting unit due to greater excess of fair value over carrying value as of our 2022 goodwill impairment test. We did not identify a triggering event in any other reporting unit.
Liquidity and Capital Resources
Overview
Our principal sources of liquidity are cash flows provided by operating activities, cash and cash equivalents on hand, and our senior secured revolving lineSenior Secured Revolving Line of credit.Credit. Our principal uses of liquidity are working capital, capital expenditures, debt service and other capital structure obligations, business acquisitions, dividends, and other general corporate purposes. We believe our cash on hand,cash-on-hand, cash generated from operations, and funds available under the senior secured revolving lineSenior Secured Revolving Line of creditCredit will be sufficient to fund our planned capital expenditures, debt service and other capital structure obligations, business acquisitions, dividends, and operating needs for the foreseeable future. Our ability to maintain adequate liquidity for our operations in the future is dependent upon a number of factors, including our revenue, macroeconomic conditions, our ability to contain costs, including capital expenditures, and to collect accounts receivable, and various other factors, many of which are beyond our control. We will continue to monitor our liquidity position and may however, elect to raise funds through debt or equity financing in the future to fund significant investments or acquisitions that are consistent with our growth strategy.
Cash and cash equivalents totaled $253.3$420.9 million and $182.2$585.3 million at September 30, 20172023, and December 31, 2016,2022, respectively, of which $119.0$334.7 million and $91.3$303.4 million was held outside the United States.States in each respective period. As of September 30, 2017,2023, we had no amounts outstanding balance under the senior secured revolving lineSenior Secured Revolving Credit Facility and $1.2 million of outstanding letters of credit, and could have borrowed up to the $300.0remaining $298.8 million available. TransUnion
We also hashave the ability to request incremental loans on the same terms under the existing Senior Secured Credit Facility up to the greater of $675.0an additional $1,000.0 million orand 100% of consolidated EBITDA, and may incur additional incremental loans soConsolidated EBITDA. In addition, as long as the senior secured net leverage ratio does not exceed 4.25 to 1.0,4.25-to-1, we may incur additional incremental loans, subject to certain additional conditions and commitments by existing or new lenders to fund any additional borrowings.
The balance retained in cash and cash equivalents is consistent with our short-term cash needs and investment objectives. We may be required to make additional principal payments on the Senior Secured Term Loan B based on excess cash flows of the prior year, as defined in the credit agreement. There were no excess cash flows for 2016 and therefore no additional payment was required in 2017. See Part I, Item 1, Note 8 “Debt,” for additional information about our debt.
On February 13, 2017, our board of directors authorized the repurchase of up to $300 million of our stock over the next three years. Repurchases may be made from time to time at management’s discretion at prices management considers to be attractive through open market purchases or through privately negotiated transactions, subject to availability. Open market purchases will be conducted in accordance with the limitations set forth by Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and other applicable legal requirements.
The Company has no obligation to repurchase shares, and the timing, actual number and value of the shares that are repurchased, if any, will be at the discretion of management and will depend on a number of factors, including market conditions, the cost of repurchasing shares, the availability of alternative opportunities, liquidity, and other factors deemed appropriate. Repurchases may be suspended, terminated or modified at any time for any reason. Any repurchased shares will have the status of treasury shares and may be used, if and when needed, for general corporate purposes.
On February 22, 2017, the Company purchased 1.85 million shares of common stock for a total of $68.3 million from the underwriters of a secondary offering of shares of TransUnion common stock by certain of our stockholders. On May 2, 2017, the Company purchased an additional 1.65 million shares of common stock for a total of $65.2 million from the underwriters of a secondary offering of shares of TransUnion common stock by certain of our stockholders. See “Recent Developments” above for additional information.
Sources and Uses of Cash
|
| | | | | | | | | | | | |
| | | Nine Months Ended September 30, |
| (in millions) | | 2017 | | 2016 | | Change |
| Cash provided by operating activities | | $ | 348.9 |
| | $ | 276.1 |
| | $ | 72.8 |
|
| Cash used in investing activities | | (149.2 | ) | | (441.8 | ) | | 292.6 |
|
| Cash (used in) provided by financing activities | | (129.1 | ) | | 168.3 |
| | (297.4 | ) |
| Effect of exchange rate changes on cash and cash equivalents | | 0.5 |
| | 2.1 |
| | (1.6 | ) |
| Net change in cash and cash equivalents | | $ | 71.1 |
| | $ | 4.7 |
| | $ | 66.4 |
|
Operating Activities
The increase in cash provided by operating activities was due primarily to the increase in operating income excluding depreciation and amortization and non-cash items.
Investing Activities
The decrease in cash used in investing activities was due primarily to a decrease in cash used to fund acquisitions and an increase in net proceeds from the sale of other investments in the 2017 period compared with the 2016 period.
Financing Activities
The change in financing activities cash flows was due primarily to lower proceeds from borrowings in the 2017 period compared with the 2016 period and cash used for treasury stock purchases in the 2017 period.
Capital Expenditures
We make capital expenditures to grow our business by developing new and enhanced capabilities, to increase the effectiveness and efficiency of the organization and to reduce risks. We make capital expenditures for product development, disaster recovery, security enhancements, regulatory compliance, and the replacement and upgrade of existing equipment at the end of its useful life.
Cash paid for capital expenditures increased $5.5 million, from $85.5 million for the nine months ended September 30, 2016, to $91.0 million for the nine months ended September 30, 2017.
Debt
Senior Secured Credit Facility
On June 15, 2010, we entered into a senior secured credit facility with various lenders. This facility has been amended several times and currently consists of the Senior Secured Term Loan A, the Senior Secured Term Loan B and the Senior Secured RevolvingLine of Credit.
On August 9, 2017, we refinanced and amended certain provisions of our senior secured credit facility. Amendments to the Senior Secured Term Loan B included a 0.50% reduction in the applicable margin. Amendments to the Senior Secured Term Loan A included an extension of the maturity date from June 2020 to August 2022, a reduction in the applicable margin depending on our total net leverage ratio, an increase in borrowing to $400.0 million, and a reduction in the scheduled principal repayments. Amendments to the Senior Secured Revolving Line of Credit included an extension of the maturity date from June 2020 to August 2022, a reduction in the applicable margin depending on our total net leverage ratio, a reduction in the annual commitment fee on the unused borrowings, and an increase in the commitment amount to $300.0 million. Other key provisions include changes in incremental borrowing limits and a reduction in the financial covenant test not to exceed a senior secured net leverage ratio of 5.5-to-1. The refinancing resulted in $5.6 million of refinancing fees and other net costs expensed and recorded in other income and expense in the consolidated statements of income in the third quarter of 2017.
On January 31, 2017, we refinanced and amended certain provisions of our Senior Secured Term Loan B. The refinancing resulted in $5.0 million of refinancing fees and other net costs expensed and recorded in other income and expense in the consolidated statements of income in the first quarter of 2017.
During the quarter, we repaid $45.0 million which was the remaining outstanding borrowing on the Senior Secured Revolving Line of Credit. As of September 30, 2017, we could have borrowed up to the entire $300.0 million available. Also, we have the ability to borrow incremental term loans or increase the revolving credit commitments in one or more tranches, subject to certain additional conditions, up to the greater of an additional $675.0 million and 100% of Consolidated EBITDA, or such amount that the senior secured net leverage ratio does not exceed 4.25-to-1.0, whichever is greater, under the senior secured credit facility, subject to certain additional conditions and commitments by existing or new lenders to fund any additional borrowings.
Hedge
On December 18, 2015, we entered into interest rate cap agreements with various counter-parties that effectively cap our LIBOR exposure on a portion of our existing senior secured term loans or similar replacement debt at 0.75% beginning June 30, 2016. We have designated these cap agreements as cash flow hedges. The current aggregate notional amount under these agreements is $1,491.4 million and will decrease each quarter until the agreement terminates on June 30, 2020. In July 2016, we began to pay the various counter-parties a fixed rate on the outstanding notional amounts of between 0.98% and 0.994% and receive payments to the extent LIBOR exceeds 0.75%.
The interest rate caps are recorded on the balance sheet at fair value. The effective portion of changes in the fair value of the interest rate cap agreements is recorded in other comprehensive income. The ineffective portion of changes in the fair value of the caps, which is due to, and will continue to result from, the cost of financing the cap premium, is recorded in other income and expense. The effective portion of the change in the fair value of the caps resulted in an unrealized gain of $0.5 million and $0.4 million, net of tax, recorded in other comprehensive income for three and nine months ended September 30, 2017, respectively. The effective portion of the change in the fair value of the caps resulted in an unrealized loss of $0.2 million and $21.7 million, net of tax, recorded in other comprehensive income for the three and nine months ended September 30, 2016, respectively. The ineffective portion of the change in the fair value of the caps resulted in a loss of $0.1 million and $0.2 million recorded in other income and expense for three and nine months ended September 30, 2017, respectively. The ineffective portion of the change in the fair value of the caps resulted in a gain of $0.1 million and a loss of $0.9 million recorded in other income and expense for the three and nine months ended September 30, 2016, respectively.
In accordance with ASC 815, the fair value of the interest rate caps at inception is reclassified from other comprehensive income to interest expense in the same period the interest expense on the underlying hedged debt impacts earnings. Based on how the fair value of interest rate caps are determined, the earlier interest periods have lower fair values at inception than the later interest periods, resulting in less interest expense being recognized in the earlier periods compared with the later periods. Any payments we receive to the extent LIBOR exceeds 0.75% is also reclassified from other comprehensive income to interest expense in the period received. Interest expense reclassified from other comprehensive income to interest expense related to the fair value of the portion of the caps expiring in the three and nine months ended September 30, 2017 was $0.8 million and $3.3 million, respectively. Interest expense reclassified from other comprehensive income to interest expense related to the fair value of the portion of the caps expiring in the three and nine months ended September 30, 2016 was $0.5 million in each period. We expect to reclassify approximately $3.9 million from other comprehensive income to interest expense related to the fair value of the portion of the caps expiring and payments received to the extent LIBOR exceeds 0.75% in the next twelve months.
Effect of Certain Debt Covenants
A breach of any of the covenants under the agreements governing our debt could limit our ability to borrow funds under the senior secured revolving line of credit and could result in a default under the senior secured credit facility. Upon the occurrence of an event of default under the senior secured credit facility, the lenders could elect to declare all amounts then outstanding to be immediately due and payable, and the lenders could terminate all commitments to extend further credit. If we were unable to repay the amounts declared due, the lenders could proceed against any collateral granted to them to secure that indebtedness.
With certain exceptions, the senior secured credit facilitySenior Secured Credit Facility obligations are secured by a first-priority security interest in substantially all of the assets of Trans Union LLC, including its investmentinvestments in subsidiaries. The senior secured credit facilitySenior Secured Credit Facility contains various restrictions and nonfinancial covenants, along with a senior secured net leverage ratio test. The nonfinancial covenants include restrictions on dividends, investments, dispositions, future borrowings and other specified payments, as well as additional reporting and disclosure requirements. The senior secured net leverage test must be met as a condition to incur additional indebtedness, make certain investments, and may be required to make certain restricted payments. The senior secured net leverage ratio must not exceed 5.5 to 15.5-to-1 at any such measurement date.
Each year, the Company may be required to make additional principal payments on the Senior Secured Term Loan B based on excess cash flows of the prior year, as defined in the agreement.There were no excess cash flows for 2022 and therefore no additional payment will be required in 2023. See Part I, Item 1, “Notes to Unaudited Consolidated Financial Statements,” Note 11, “Debt,” for additional information about our debt.
During the nine months ended September 30, 2023, we prepaid $225.0 million of our Senior Secured Term Loan B-6, funded from our cash-on-hand.
In the third quarter of 2023, we paid dividends of $0.105 per share totaling $20.5 million. Dividends declared accrue to outstanding restricted stock units and are paid to employees as dividend equivalents when the restricted stock units vest. While we currently expect to continue to pay quarterly dividends, any determination to pay dividends in the future will be at the discretion of our board of directors and will depend on a number of factors, including our liquidity, results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors that our board of directors deems appropriate. We currently have capacity and intend to continue to pay a quarterly dividend, subject to approval by our board.
On February 13, 2017, our board of directors authorized the repurchase of up to $300.0 million of our common stock over the next 3 years. Our board of directors removed the three-year time limitation on February 8, 2018. To date, we have repurchased $133.5 million of our common stock and have the ability to repurchase the remaining $166.5 million.
We have no obligation to repurchase additional shares and the timing, actual number and value of the shares that are repurchased, if any, will be at the discretion of management and will depend on a number of factors, including market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity, and other factors deemed appropriate. Repurchases may be suspended, terminated or modified at any time for any reason. Any repurchased shares will have the status of treasury shares and may be used, if and when needed, for general corporate purposes.
Sources and Uses of Cash
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| (in millions) | | 2023 | | 2022 | | Change |
| Cash provided by (used in) operating activities of continuing operations | | $ | 443.8 | | | $ | 70.8 | | | $ | 373.0 | |
| Cash used in investing activities of continuing operations | | (230.5) | | | (734.7) | | | 504.2 | |
| Cash used in financing activities of continuing operations | | (375.3) | | | (563.9) | | | 188.6 | |
| Cash flows of discontinued operations and effect of exchange rate changes on cash and cash equivalents | | (2.4) | | | (18.5) | | | 16.1 | |
| Net change in cash and cash equivalents | | $ | (164.4) | | | $ | (1,246.3) | | | $ | 1,081.9 | |
Operating Activities
The increase in cash provided by continuing operations was due primarily to prior year taxes paid on the gain from the divestiture of our Healthcare business and lower bonus and commission payments in the current year, partially offset by an increase in interest expense.
Investing Activities
The decrease in cash used in investing activities of continuing operations was due primarily to the acquisition of Argus in the prior year.
Financing Activities
The decrease in cash used in financing activities of continuing operations was due primarily to a decrease in debt prepayments and cash used to pay employee taxes on restricted stock units.
Capital Expenditures
We make capital expenditures to grow our business by developing new and enhanced capabilities, to increase the effectiveness and efficiency of the organization and to reduce risks. We make capital expenditures for product development, disaster recovery, security enhancements, regulatory compliance, and the replacement and upgrade of existing equipment at the end of its useful life.
Cash paid for capital expenditures increased $20.7 million, from $192.5 million for the nine months ended September 30, 2022, to $213.2 million for the nine months ended September 30, 2023.
Debt
Hedges
Effective May 31, 2023, we amended all our interest rate swaps to replace the reference rate from LIBOR to Term SOFR. We applied the practical expedient for reference rate reform to continue to apply hedge accounting to the existing relationships.
On November 16, 2022, we entered into interest rate swap agreements with various counterparties that effectively fix our variable interest rate exposure on a portion of our Senior Secured Term Loan or similar replacement debt. The swaps commenced on December 30, 2022, and expire on December 31, 2024, with a current aggregate notional amount of $1,305.0 million that amortizes each quarter. The swaps require us to pay fixed rates varying between 4.3380% and 4.3870% in exchange for receiving a variable rate that matches the variable rate on our loans. We have designated these swap agreements as cash flow hedges.
On December 23, 2021, we entered into interest rate swap agreements with various counterparties that effectively fix our variable interest rate exposure on a portion of our Senior Secured Term Loan or similar replacement debt. The swaps commenced on December 31, 2021, and expire on December 31, 2026, with a current aggregate notional amount of $1,572.0 million that amortizes each quarter. The swaps require us to pay fixed rates varying between 1.3800% and 1.3915% in exchange for receiving a variable rate that matches the variable rate on our loans. We have designated these swap agreements as cash flow hedges.
On March 10, 2020, we entered into two tranches of interest rate swap agreements with various counterparties that effectively fix our variable interest rate exposure on a portion of our Senior Secured Term Loans or similar replacement debt. The first swap commenced on June 30, 2020, and expired on June 30, 2022. The second swap commenced on June 30, 2022, and expires on June 30, 2025, with a current aggregate notional amount of $1,085.0 million that amortizes each quarter after it
commences. The second swap requires us to pay fixed rates varying between 0.8680% and 0.8800% in exchange for receiving a variable rate that matches the variable rate on our loans. We have designated these swap agreements as cash flow hedges.
Effect of Certain Debt Covenants
A breach of any of the covenants under the agreements governing our debt could limit our ability to borrow funds under the Senior Secured Revolving Line of Credit and could result in a default under the Senior Secured Credit Facility. Upon the occurrence of an event of default under the Senior Secured Credit Facility, the lenders could elect to declare all amounts then outstanding to be immediately due and payable, and the lenders could terminate all commitments to extend further credit. If we were unable to repay the amounts declared due, the lenders could proceed against any collateral granted to them to secure that indebtedness.
With certain exceptions, the Senior Secured Credit Facility obligations are secured by a first-priority security interest in substantially all of the assets of Trans Union LLC, including its investment in subsidiaries. The Senior Secured Credit Facility contains various restrictions and nonfinancial covenants, along with a senior secured net leverage ratio test. The nonfinancial covenants include restrictions on dividends, investments, dispositions, future borrowings and other specified payments, as well as additional reporting and disclosure requirements. The senior secured net leverage test must be met as a condition to incur additional indebtedness, make certain investments, and may be required to make certain restricted payments. The senior secured net leverage ratio must not exceed 5.5-to-1 at any such measurement date. Under the terms of the Senior Secured Credit Facility, TransUnion may make dividend payments up to the greater of $100 million or 10.0% of Consolidated EBITDA per year, or an unlimited amount provided that no default or event of default exists and so long as the total net leverage ratio does not exceed 4.75-to-1. As of September 30, 2017,2023, we were in compliance with all debt covenants.
TransUnion’sOur ability to meet itsour liquidity needs or to pay dividends on itsour common stock depends on itsour subsidiaries’ earnings, the terms of their indebtedness, and other contractual restrictions. Trans Union LLC, the borrower under the senior secured credit facility, is not permitted to declare any dividend or make any other distribution subject to certain exceptions, including compliance with a fixed charge coverage ratio and a basket that depends on TransUnion Intermediate Holdings, Inc.’s consolidated net income.
For additional information about our debt and hedge, see Part I, Item 1, “Notes to Unaudited Consolidated Financial Statements,” Note 8,11, “Debt.”
Refer to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 in Part II, Item 8, “Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements,” Note 12, “Debt” for information about our long-term debt obligations, noncancelable lease obligations, and noncancelable purchase obligations as of December 31, 2022.
Recent Accounting Pronouncements
See Part I, Item 1, “Notes to Unaudited Consolidated Financial Statements,” Note 1, “Significant Accounting and Reporting Policies,” for information about recent accounting pronouncements and the potential impact on our consolidated financial statements.
Application of Critical Accounting Estimates
We prepare our consolidated financial statements in conformity with U.S. generally accepted accounting principles. These accounting principles require us to make certain judgments and estimates in reporting our operating results and our assets and liabilities. Although we believe that our estimates and judgments are reasonable, they are based on information available at the time, and actual results may differ significantly from these estimates under different conditions. See the “Application of Critical Accounting Estimates” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations and
Note 1, “Significant Accounting and Reporting Policies,” to our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on February 15, 2017, for a description of the significant accounting estimates used in the preparation of our consolidated financial statements.
Cautionary Notice Regarding Forward-Looking Statements
This Amendment No. 1 to Quarterly Report on Form 10-Q10-Q/A, including the exhibits hereto, contains “forward-looking statements” within the meaning of federal securities laws.the Private Securities Litigation Reform Act of 1995. These statements are based on the current beliefs and expectations of TransUnion’s management and are subject to significant risks and uncertainties. Actual results may differ materially from those described in the forward-looking statements. Any statements made in this quarterly report that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include information concerning possible or assumed future results of operations, including descriptions of our business plans and strategies. These statements often include words such as “anticipate,” “expect,” “guidance,” “suggest,” “plan,” “believe,” “intend,” “estimate,” “target,” “project,” “should,” “could,” “would,” “may,” “will,” “forecast,” “outlook,” “potential,” “continues,” “seeks,” “predicts,” andor the negatives of these words and other similar expressions.
Although we believeFactors that these forward-looking statements are based on reasonable assumptions, you should be aware that factors affecting our actual financial results could cause actual results to differ materially from those expresseddescribed in the forward-looking statements. Factorsstatements, or that could materiallymaterially affect our financial results or such forward-looking statements include among others,include:
•macroeconomic effects and changes in market conditions, including the risks, uncertainties and factors set forth below under Item 1A, “Risk Factors,” and the following factors:
macroeconomicimpact of inflation, risk of recession, and industry trends and adverse developments in the debt, consumer credit and financial services markets;markets, including the impact on the carrying value of our assets in all of the markets where we operate;
•our ability to provide competitive services and prices;
•our ability to retain or renew existing agreements with large or long-term customers;
•our ability to maintain the security and integrity of our data;
•our ability to deliver services timely without interruption;
•our ability to maintain our access to data sources;
•government regulation and changes in the regulatory environment;
•litigation or regulatory proceedings;
regulatory oversight of certain “critical activities;”
•our ability to effectively manage our costs;
•economic and political stability in the United States and international markets where we operate;
•our ability to effectively develop and maintain strategic alliances and joint ventures;
•our ability to timely develop new services and the market’s willingness to adopt our new services;
•our ability to manage and expand our operations and keep up with rapidly changing technologies;
•our ability to makeacquire businesses, successfully secure financing for our acquisitions, andtimely consummate our acquisitions, successfully integrate the operations of acquired businesses;our acquisitions, control the costs of integrating our acquisitions and realize the intended benefits of such acquisitions;
•our ability to protect and enforce our intellectual property, trade secrets and other forms of unpatented intellectual property;
property;
•our ability to defend our intellectual property from infringement claims by third parties;
•geopolitical conditions, including the war in Ukraine and the evolving conflict in Israel and surrounding areas;
•the ability of our outside service providers and key vendors to fulfill their obligations to us;
•further consolidation in our end-customer markets;
•the increased availability of free or inexpensive consumer information;
•losses against which we do not insure;
•our ability to make timely payments of principal and interest on our indebtedness;
•our ability to satisfy covenants in the agreements governing our indebtedness;
•our ability to maintain our liquidity;
•share repurchase plans; and
•our reliance on key management personnel.
There may be other factors, many of which are beyond our control, that may cause our actual results to differ materially from the forward-looking statements, including factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 20162022, and any subsequent Quarterly Report on Form 10-Q or Current Report on Form 8-K filed with the Securities and Exchange Commission, and in this report under the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report.Operations.” You should evaluate all forward-looking statements made in this report in the context of these risks and uncertainties.
The forward-looking statements contained in this report speak only as of the date of this report. We undertake no obligation to publicly release the result of any revisions to these forward-looking statements to reflect the impact of events or circumstances that may arise after the date of this report or to reflect the occurrence of unanticipated events.report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We operate internationally and are subject to various market risks, including those caused by potentially adverse movements in foreign currency exchange rates. We also have a significant amount of variable rate debt and funds invested in interest bearing accounts.
There have been no other material changes from the quantitative and qualitative disclosures about market risk included in our Annual Report on Form 10-K for the year ended December 31, 2016.2022.
In the normal course of business we are exposed to market risk, primarily from changes in variable interest rates and foreign currency exchange rates, which could impact our results of operations and financial position. We manage the exposure to this market risk through our regular operating and financing activities. We may use derivative financial instruments, such as foreign currency and interest rate hedges, but only as a risk management tool and not for speculative or trading purposes.
Interest Rate Risk
Our Senior Secured Credit Facility consists of Senior Secured Term Loans and a $300.0 million Senior Secured Revolving Line of Credit. Interest rates on these borrowings are based, at our election, on Term SOFR plus a credit spread adjustment, or an alternate base rate, subject to floors, plus applicable margins based on applicable net leverage ratios. As of December 31, 2022, essentially all of our outstanding debt was variable-rate debt. We currently have several interest rate hedge instruments that effectively fix our variable interest rate exposure on approximately 73.3% of our outstanding debt. Based on the amount of unhedged outstanding variable-rate debt, we have a material exposure to interest rate risk. In the future, our exposure to interest rate risk may change due to changes in the amount borrowed, changes in interest rates, or changes in the amount we have
hedged. The amount of our outstanding debt, and the ratio of fixed-rate debt to variable-rate debt, can be expected to vary as a result of future business requirements, market conditions or other factors. During the third quarter of 2023, a 10% change in the average Term SOFR rates utilized in the calculation of our actual interest expense would have increased our interest expense by $7.8 million.
See Part I, Item 1, “Notes to Unaudited Consolidated Financial Statements,” Note 11, “Debt,” for additional information about interest rates on our debt.
Foreign Currency Exchange Rate Risk
A substantial majority of our revenue, expense and capital expenditure activities are transacted in U.S. dollars. However, we transact business in a number of foreign currencies, including British pounds sterling, the South African rand, the Canadian dollar, the Indian rupee, the Colombian peso and the Brazilian real. In reporting the results of our foreign operations, we benefit from a weaker U.S. dollar and are adversely affected by a stronger U.S. dollar relative to the foreign currencies.
We are required to translate the assets and liabilities of our foreign subsidiaries that are measured in foreign currencies at the applicable period-end exchange rate in our consolidated balance sheets. We are required to translate revenue and expenses at the average exchange rates prevailing during the year in our consolidated statements of income. The resulting translation adjustment is included in other comprehensive income, as a component of stockholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in other income and expense as incurred.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
OurIn connection with the filing of the Original Q3 2023 10-Q, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. The term “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. BasedAt the time the Original Q3 2023 10-Q was filed on the evaluation of our disclosure controls and procedures as of the end of the period covered by this report,October 24, 2023, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of such date,September 30, 2023 were effective at a reasonable assurance level. Subsequent to that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2023, the end of the period covered by this Form 10-Q/A, our disclosure controls and procedures were not effective atbecause of the material weakness in internal control over financial reporting discussed below.
Material Weakness in Internal Control Over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable assurance level.possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
We did not design and maintain effective controls over the interim goodwill impairment test. Specifically, we did not design and maintain control activities over the accuracy of the manual translation of the base year forecast information used in the valuation model to calculate the reporting unit fair value. This material weakness resulted in an error to the goodwill balance and related impairment charge that resulted in the restatement of the unaudited consolidated financial statements as of and for the three and nine months ended September 30, 2023. Additionally, this material weakness could result in misstatements of the aforementioned accounts or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
Remediation of Material Weakness
Management is developing a remediation plan to address the material weakness discussed above. Remediation will not occur until the plan is implemented and there has been appropriate time for us to conclude through testing that the control operates effectively.
Changes in Internal Controls OverControl over Financial Reporting
During the quarter covered by this report, there have been no changes in our internal controlscontrol over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controlscontrol over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
General
In addition to the matters described below, we are routinely named as defendants in, or parties to, various legal actions and proceedings relating to our current or past business operations. These actions generally assert claims for violations of federal or state credit reporting, consumer protection or privacy laws, or common law claims related to privacy, libel, slander or the unfair treatment of consumers, and may include claims for substantial or indeterminate compensatory or punitive damages, or injunctive relief, and may seek business practice changes. We believe that most of these claims are either without merit or we have valid defenses to the claims, and we vigorously defend these matters or seek non-monetary or small monetary settlements, if possible. However, due to the uncertainties inherent in litigation, we cannot predict the outcome of each claim in each instance.
In the ordinary course of business, we also are subject to governmental and regulatory examinations, information-gathering requests, investigations and proceedings (both formal and informal), certain of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief. In connection with formal and informal inquiries by these regulators, we routinely receive requests, subpoenas and orders seeking documents, testimony and other information in connection with various aspects of our activities.
In view of the inherent unpredictability of litigation and regulatory matters, particularly where the damages sought are substantial or indeterminate or when the proceedings or investigations are in the early stages, we cannot determine with any degree of certainty the timing or ultimate resolution of litigation and regulatory matters or the eventual loss, fines, penalties or business impact, if any, that may result. We establish reserves for litigation and regulatory matters when those matters present loss contingencies that are both probable and can be reasonably estimated. The actual costs of resolving litigation and regulatory matters, however, may be substantially higher than the amounts reserved for those matters, and an adverse outcome in certain of these matters could have a material adverse effect on our consolidated financial statements in particular quarterly or annual periods.
On a regular basis, we accrue reserves for litigation and regulatory matters based on our historical experience and our ability to reasonably estimate and ascertain the probability of any liability. However, for certain of the matters, we are not able to reasonably estimate our exposure because damages have not been specified and (i) the proceedings are in early stages, (ii) there is uncertainty as to the likelihood of a class being certified or the ultimate size of the class, (iii) there is uncertainty as to the outcome of similar matters pending against our competitors, (iv) there are significant factual issues to be resolved, and/or (v) there are legal issues of a first impression being presented. However, for these matters we do not believe based on currently available information that the outcomes will have a material adverse effect on our financial condition, though the outcomes could be material to our operating results for any particular period.
To reduce our exposure to an unexpected significant monetary award resulting from an adverse judicial decision, we maintain insurance that we believe is appropriate and adequate based on our historical experience. We regularly advise our insurance carriers of the claims, threatened or pending, against us in the course of litigation and generally receive a reservation of rights letter from the carriers when such claims exceed applicable deductibles. We are not aware of any significant monetary claim that has been asserted against us in the course of pending litigation that would not have some level of coverage by insurance after the relevant deductible, if any, is met.
The following discussion describes material developments in previously disclosed material legal proceedings that occurred in the three months ended September 30, 2017. Refer to Part I, Item 3, “Legal Proceedings,” of our Annual Report on Form 10-K for the year ended December 31, 2016, Part II, Item 1 of our Quarterly Report on Form 10-Q for the Quarterly Period ended March 31, 2017,2022, and Part II, Item 1, “Legal Proceedings” of ourall subsequently filed Quarterly ReportReports on Form 10-Q, for theincluding this Form 10-Q/A, and Part I, Item 1, Note 18 “Contingencies,” of this Quarterly Period ended June 30, 2017,Report for a full description of our material pending legal proceedings.and regulatory matters.
Consumer Disclosure
On August 2, 2017, without admitting any wrongdoing, we agreed to the terms of a settlement of the Henderson matter, and the parties filed a stipulation with the Court dismissing all of plaintiffs’ claims. The settlement has not had and will not have a material impact on our financial condition or results of operations.
Public Records
In connection with the settlements agreed to by the industry with the various State Attorneys General in 2014, 2015 and 2016, TransUnion and the other nationwide consumer reporting agencies agreed to implement enhanced public record collection, matching and reporting standards that are to be phased in over a 3-year period. The industry reminded all users of consumer reports in 2017 that, as a result of these enhanced standards, a significant number of civil judgments and tax liens would be expunged
from files and fewer civil judgments and tax liens would be reported in the future until federal, state or county offices created compliant programs.
As a result of the voluntary actions being taken by the industry, plaintiff lawyers are now seeking to advance claims that are solely focused on public record collection. In particular, these claims allege two common legal theories in common and allege some form of class action status. The theories are: (1) the nationwide consumer reporting agency failed to disclose to consumers the sources of public record information contained in their consumer reports by failing to identify as a source the vendor(s) engaged by that consumer reporting agency to collect public record information from government entities; and (2) the nationwide consumer reporting agency failed to timely update civil judgment and tax lien records based on its obligation to have reasonable procedures to assure maximum file accuracy. In the third quarter of 2017, we agreed to settle the Morris, Andree and Candace Anderson matters on terms that have not had and will not have a material impact on our financial condition or results of operations. New matters in the third quarter that name TransUnion, allege a legal violation of this nature and assert a class claim are: Paul K. Nair v. Trans Union LLC (No. 1:17-cv-05496, United States District Court for the Southern District of New York, filed July 19, 2017); Rebecca Anne Peters v. Trans Union LLC (No. 2:17-cv-01273, United States District Court for the Northern District of Alabama, filed July 28, 2017); Treva Sudell Jones v. Trans Union LLC (No. 1:17-cv-01167, United States District Court for the Western District of Tennessee, filed August 31, 2017); Wendy Newcomb v. Trans Union LLC (No. 1:17-cv-11797, United States District Court, District of Massachusetts, filed September 19, 2017); and Brigitte A. Jakob v. Trans Union LLC (No. 2:17-cv-01247, United States District Court for the Eastern District of Wisconsin, filed September 14, 2017).
TransUnion believes it has valid defenses to each of these actions and intends to vigorously defend against the claims.
ITEM 1A. RISK FACTORS
In addition toThe following discussion supplements the other information includeddiscussion of risk factors affecting the Company as set forth in this report, you should carefully consider the factors discussed inPart I, Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2016,2022, and any subsequently filed Quarterly Reports on Form 10-Q, as well as the factors identified under “Cautionary Statement Regarding Forward-Looking Statements” at the end of Part I, Item 2 of this Quarterly Report on Form 10-Q,10-Q/A, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K for the year ended December 31, 2016, and this Quarterly Report on Form 10-Qthese reports are not the only risks facing TransUnion. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, orand operating results.
Economic and other conditions may adversely impact the valuation of our assets resulting in impairment charges that could have a material adverse impact on our results from operations.
We have significant amounts of goodwill and intangible assets. On a regular basis, we evaluate our assets for impairment based on various factors, including actual operating results and expected trends of projected revenues, profitability and cash flows. As of September 30, 2023, our consolidated balance sheet included goodwill of $5,155 million (as restated) and other net intangibles of $3,546 million. We conduct a goodwill impairment test in the fourth quarter of each year, or more frequently if events or circumstances indicate that the carrying value of goodwill may be impaired. We have the option to first perform a qualitative analysis to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the qualitative analysis indicates that an impairment is more likely than not for any reporting unit, we perform a quantitative impairment test for that reporting unit. Our quantitative impairment test consists of a fair value calculation for each reporting unit that combines an income approach, using the discounted cash flow method, and a market approach, using the guideline public company method. The quantitative impairment test requires the application of a number of significant assumptions, including estimates of future revenue growth rates, EBITDA margins, discount rates, and market multiples. The projected future revenue growth rates and EBITDA margins, and the resulting projected cash flows of each reporting unit are based on historical experience and internal operating plans reviewed by management, extrapolated over the forecast period. Discount rates are determined using a weighted average cost of capital adjusted for risk factors specific to each reporting unit.
We believe the assumptions that we use in our qualitative and quantitative analysis are reasonable and consistent with assumptions that would be used by other marketplace participants. However, such assumptions are inherently uncertain. During times of economic distress, declining demand and declining earnings could lead to us to have less favorable estimates of our future cash flows, discount rates or market multiples. Such changes could lead to lower estimated fair values of our reporting units, which could lead to a material impairment. In certain markets where we operate, macroeconomic conditions are unfavorable. If these unfavorable macroeconomic conditions persist longer than we currently expect, or are worse than we currently expect, our estimates of revenue growth rates and EBITDA margins would decline, which could lead to an impairment of goodwill.
During the three months ended September 30, 2023, we identified a triggering event requiring an interim impairment assessment for our United Kingdom reporting unit, which resulted in a goodwill impairment of $414 million (as restated). The worsening macroeconomic conditions during the third quarter from inflationary pressures and rising interest rates increasingly impacted our business for the current quarter and the near-term outlook. Due to these factors, management now believes the U.K. recovery will take longer, and will be at a slower pace, than previously expected. As a result, we have revised our short-term and mid-term forecasts for revenue and EBITDA expectations for our United Kingdom reporting unit. These factors have particularly impacted the online-only FinTech lenders that represent the largest vertical within our United Kingdom reporting unit. These lenders have seen significant declines in their access to capital impacting their ability to lend and in some cases leading to bankruptcies. Any future reduction to our forecasts of our United Kingdom reporting unit may result in a further impairment that could have a material adverse effect on our business and financial results.
Any change to the conclusion of our reporting units or the aggregation of components within our reporting units could result in a different outcome to our annual impairment test. See Part II, Item 7, “Management Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates - Goodwill” for a further information.
Management has determined that our internal control over financial reporting and disclosure controls and procedures were not effective as of September 30, 2023. A failure to maintain effective internal control over financial reporting or disclosure controls and procedures could impact our ability to accurately and timely report our financial results and other material disclosures or otherwise cause us to fail to meet our reporting obligations, which could have a material adverse effect on our operations, investor confidence in our business, and the trading price of our common stock.
We determined that our internal control over financial reporting and disclosure controls and procedures were not effective as of September 30, 2023 as a result of the material weakness related to the interim goodwill impairment test, as discussed in Part I, Item 4 of this Form 10-Q/A. This material weakness has not been remediated and accordingly our internal control over financial reporting and disclosure controls and procedures remain ineffective. Management is actively engaged in the planning for, and implementation of, remediation efforts to address our material weakness but there can be no assurance that those efforts will be successful. Refer to Part I, Item 4 for further details of the material weakness and remediation efforts.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.
As such, if we do not remediate this material weakness in a timely manner, or if additional material weaknesses in our internal control over financial reporting are discovered, they may adversely affect our ability to record, process, summarize and report financial information timely and accurately and our financial statements may contain material misstatements or omissions. Additionally, our internal control environment and remediation efforts do not provide absolute assurance with regard to timely detecting or preventing control deficiencies and thus do not insulate us from any failure to meet our financial reporting obligations.
It is possible that additional control deficiencies could be identified by our management or by our independent registered public accounting firm in the future or may occur without being identified. Such a failure could require us to incur the expense of remediation, result in regulatory scrutiny, investigations or enforcement actions, cause investors to lose confidence in our reported financial condition and have a negative effect on the trading price of our common stock, lead to a default under our indebtedness, and otherwise have a material adverse effect on our business, financial condition, results of operations, and cash flows.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, AND USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
(a) Recent Sales of Unregistered Securities
Not applicable.
(b) Use of Proceeds
Not applicable.
(c) Issuer Purchases of Equity Securities
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | (a) Total Number of
Shares Purchased | | (b) Average Price
Paid Per Share | | (c) Total Number of
Shares
Purchased as
Part of Publicly
Announced Plans
or Programs | | (d) Approximate Dollar Value, in millions, of Shares that May Yet Be Purchased Under the Plans or Programs(1) |
| July 1 to July 31 | | 199 | | | $ | 78.33 | | | — | | | $ | 166.5 | |
| August 1 to August 31 | | 81,128 | | | 78.99 | | | — | | | $ | 166.5 | |
| September 1 to September 30 | | 17,484 | | | 76.50 | | | — | | | $ | 166.5 | |
| Total | | 98,811 | | | $ | 78.55 | | | — | | | $ | 166.5 | |
|
| | | | | | | | | | | | | | |
(in millions, except share and per share data) Period | | (a) Total Number of Shares Purchased | | (b) Average Price Paid Per Share | | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | (d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(1) |
| July 1 to July 31 | | — |
| | $ | — |
| | — |
| | $ | 166.6 |
|
| August 1 to August 31 | | — |
| | — |
| | — |
| | $ | 166.6 |
|
| September 1 to September 30 | | — |
| | — |
| | — |
| | $ | 166.6 |
|
| Total | | — |
| | $ | — |
| | — |
| | |
(1) On February 13, 2017, our board of directors authorized the repurchase of up to $300.0 million of common stock over the next three years. On February 8, 2018, our board of directors removed the three-year time limitation. Prior to the thirdsecond quarter of 2017,2018, we had purchased approximately $133.4$133.5 million of common stock under the program and may purchase up to an additional $166.6$166.5 million. Additional repurchases may be made from time to time at management’s discretion at prices
management considers to be attractive through open market purchases or through privately negotiated transactions, subject to availability. Open market purchases will be conducted in accordance with the limitations set forth in Rule 10b-18 of the Exchange Act and other applicable legal requirements.
ITEM 5. OTHER INFORMATION
During the three months ended September 30, 2023, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement”, as such terms are defined in Item 408 of Regulation S-K.
ITEM 6. EXHIBITS
| | | | | | | | |
| | |
| | |
| | Amendment No. 13Third Amended and Restated Certificate of Incorporation of TransUnion (Incorporated by reference to Credit Agreement datedExhibit 3.1.2 to TransUnion’s Current Report on Form 8-K filed May 18, 2020). |
| | |
| | Fourth Amended and Restated Bylaws of TransUnion amended as of August 9, 2017.November 18, 2022 (Incorporated by reference to Exhibit 3.1 to TransUnion’s Current Report on Form 8-K filed November 23, 2022). |
| | |
| | TransUnion Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| | TransUnion Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| | TransUnion Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
101.INS*101.SCH** | | XBRL Instance Document. |
| | |
101.SCH** | | XBRL Taxonomy Extension Schema Document. |
| | |
| 101.CAL** | | XBRL Taxonomy Extension Calculation Linkbase Document. |
| | |
| 101.LAB** | | XBRL Taxonomy Extension Label Linkbase Document. |
| | |
| 101.PRE** | | XBRL Taxonomy Extension Presentation Linkbase Document. |
| | |
| 101.DEF** | | XBRL Taxonomy Extension Definition Linkbase Document. |
|
| | |
**104 | Filed or furnished herewith. | The cover page from this Amendment No. 1 to the Quarterly Report on Form 10-Q/A for the quarter ended September 30, 2023, formatted in Inline XBRL (included with Exhibit 101 attachments). |
** Filed or furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | |
| TransUnion |
| | |
| January 11, 2024 | By | | /s/ Todd M. Cello |
| | | Todd M. Cello |
| | | Executive Vice President, Chief Financial Officer |
| | | (Principal Financial Officer) |
| | | |
| January 11, 2024 | TransUnionBy | | /s/ Jennifer A. Williams |
| | | Jennifer A. Williams |
October 27, 2017 | By | | /s/ Todd M. Cello |
| | | Todd M. Cello |
| | | Executive Vice President, Chief Financial Officer |
| | |
October 27, 2017 | By | | /s/ Timothy Elberfeld |
| | | Timothy Elberfeld |
| | | Senior Vice President, Chief Accounting Officer |
| | |
(Principal Accounting Officer) |
INDEX TO EXHIBITS
|
| | |
| | Amendment No. 13 to Credit Agreement dated as of August 9, 2017. |
| | |
| | TransUnion Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| | TransUnion Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| | TransUnion Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
101.INS** | | XBRL Instance Document. |
| | |
101.SCH** | | XBRL Taxonomy Extension Schema Document. |
| | |
101.CAL** | | XBRL Taxonomy Extension Calculation Linkbase Document. |
| | |
101.LAB** | | XBRL Taxonomy Extension Label Linkbase Document. |
| | |
101.PRE** | | XBRL Taxonomy Extension Presentation Linkbase Document. |
| | |
101.DEF** | | XBRL Taxonomy Extension Definition Linkbase Document. |
|
| |
** | Filed or furnished herewith. |