Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 2.25M
2: EX-31.1 Certification -- §302 - SOA'02 HTML 22K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 22K
4: EX-32 Certification -- §906 - SOA'02 HTML 20K
10: R1 Document and Entity Information HTML 70K
11: R2 Consolidated Balance Sheets HTML 142K
12: R3 Consolidated Balance Sheets (Parenthetical) HTML 52K
13: R4 Consolidated Statements of Income HTML 146K
14: R5 Consolidated Statements of Comprehensive Income HTML 79K
15: R6 Consolidated Statements of Cash Flows HTML 131K
16: R7 Consolidated Statements of Stockholders' Equity HTML 134K
17: R8 Significant Accounting and Reporting Policies HTML 37K
18: R9 Business Acquisitions HTML 108K
19: R10 Discontinued Operations HTML 51K
20: R11 Fair Value HTML 65K
21: R12 Other Current Assets HTML 28K
22: R13 Other Assets HTML 28K
23: R14 Investments in Affiliated Companies HTML 40K
24: R15 Other Current Liabilities HTML 32K
25: R16 Other Liabilities HTML 30K
26: R17 Debt HTML 48K
27: R18 Stockholders' Equity HTML 29K
28: R19 Revenue HTML 32K
29: R20 Earnings Per Share HTML 62K
30: R21 Income Taxes HTML 27K
31: R22 Reportable Segments HTML 136K
32: R23 Contingencies HTML 35K
33: R24 Significant Accounting and Reporting Policies HTML 54K
(Policies)
34: R25 Significant Accounting and Reporting Policies HTML 27K
Allowance for Doubtful Accounts (Tables)
35: R26 Business Acquisitions (Tables) HTML 94K
36: R27 Discontinued Operations (Tables) HTML 51K
37: R28 Fair Value (Tables) HTML 62K
38: R29 Other Current Assets (Tables) HTML 28K
39: R30 Other Assets (Tables) HTML 28K
40: R31 Investments in Affiliated Companies (Tables) HTML 38K
41: R32 Other Current Liabilities (Tables) HTML 31K
42: R33 Other Liabilities (Tables) HTML 30K
43: R34 Debt (Tables) HTML 36K
44: R35 Earnings Per Share (Tables) HTML 60K
45: R36 Reportable Segments (Tables) HTML 127K
46: R37 Summary of Significant Accounting Policies - HTML 34K
Additional Information (Detail)
47: R38 Business Acquisitions - Narrative (Details) HTML 43K
48: R39 Business Acquisitions - Assets Acquired and HTML 118K
Liabilities Assumed (Details)
49: R40 Business Acquisitions - Identifiable Intangible HTML 51K
Assets (Details)
50: R41 Discontinued Operations - Narrative (Details) HTML 33K
51: R42 Discontinued Operations - Financial Results HTML 57K
(Details)
52: R43 Financial Instruments Measured At Fair Value, on HTML 63K
Recurring Basis (Detail)
53: R44 Other Current Assets (Detail) HTML 30K
54: R45 Other Assets (Detail) HTML 28K
55: R46 Investments in Affiliated Companies (Detail) HTML 27K
56: R47 Earnings and Dividends from Investment (Detail) HTML 26K
57: R48 Other Current Liabilities (Detail) HTML 38K
58: R49 Other Liabilities (Detail) HTML 33K
59: R50 Debt outstanding (Detail) HTML 79K
60: R51 Debt Schedule of Debt Maturities (Detail) HTML 48K
61: R52 Senior Secured Credit Facility (Detail) HTML 102K
62: R53 Stockholders' Equity (Detail) HTML 49K
63: R54 Revenue (Detail) HTML 30K
64: R55 Earnings Per Share (Detail) HTML 77K
65: R56 Income Taxes (Detail) HTML 33K
66: R57 Reportable Segments (Detail) HTML 141K
67: R58 Reportable Segments Earnings from Equity Method HTML 27K
Investments Included in Non-Operating Income and
Expense (Detail)
68: R59 Contingencies (Detail) HTML 33K
71: XML IDEA XML File -- Filing Summary XML 128K
69: XML XBRL Instance -- ck0001552033-20220630_htm XML 2.32M
70: EXCEL IDEA Workbook of Financial Reports XLSX 147K
6: EX-101.CAL XBRL Calculations -- ck0001552033-20220630_cal XML 246K
7: EX-101.DEF XBRL Definitions -- ck0001552033-20220630_def XML 589K
8: EX-101.LAB XBRL Labels -- ck0001552033-20220630_lab XML 1.61M
9: EX-101.PRE XBRL Presentations -- ck0001552033-20220630_pre XML 940K
5: EX-101.SCH XBRL Schema -- ck0001552033-20220630 XSD 146K
72: JSON XBRL Instance as JSON Data -- MetaLinks 404± 611K
73: ZIP XBRL Zipped Folder -- 0001552033-22-000048-xbrl Zip 432K
(Exact name of registrant as specified in its charter)
iDelaware
i61-1678417
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
i555 West
Adams,
iChicago,
iIllinois
i60661
(Address
of principal executive offices)
(Zip code)
i312-i985-2000
(Registrants’ telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon
Stock, $0.01 par value
iTRU
iNew York Stock Exchange
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.
☒
iYes
☐
No
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒
iYes
☐
No
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:
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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).
i☐
Yes
☒
No
As
of June 30, 2022, there were i192.5 million shares of TransUnion common stock outstanding.
Notes to Unaudited Consolidated Financial Statements
1. iSignificant
Accounting and Reporting Policies
i
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements of TransUnion have been prepared in accordance with instructions to Form 10-Q and Rule 10-01 of Regulation S-X and do not include all the information required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements. In the opinion of management, all adjustments, including normal recurring adjustments, considered necessary for a fair
statement have been included. All significant intercompany transactions and balances have been eliminated. As a result of displaying amounts in millions, rounding differences may exist in the financial statements and footnote tables. The operating results of TransUnion for the periods presented are not necessarily indicative of the results that may be expected for the full year ending December 31, 2022. The Company’s year-end Consolidated Balance Sheet data was derived from audited financial statements. Therefore, these unaudited consolidated financial statements should be read in conjunction with our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (“SEC”) on February 22,
2022.
Unless the context indicates otherwise, any reference in this report to the “Company,”“we,”“our,”“us,” and “its” refers to TransUnion and its consolidated subsidiaries, collectively.
For the periods presented, TransUnion does not have any material assets, liabilities, revenues, expenses or operations of any kind other than its ownership investment in TransUnion Intermediate Holdings, Inc.
i
Principles
of Consolidation
The consolidated financial statements of TransUnion include the accounts of TransUnion and all of its controlled subsidiaries. Investments in nonmarketable unconsolidated entities in which the Company is able to exercise significant influence are accounted for using the equity method. Investments in nonmarketable unconsolidated entities in which the Company is not able to exercise significant influence, our “Cost Method Investments,” are accounted for at our initial cost, minus any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
i
Use
of Estimates
The preparation of consolidated financial statements and related disclosures in accordance with GAAP requires management to make estimates and judgments that affect the amounts reported. We believe that the estimates used in preparation of the accompanying consolidated financial statements are reasonable, based upon information available to management at this time. These estimates and judgments affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the balance sheet date, as well as the amounts of revenue and expense during the reporting period. Estimates are inherently uncertain and actual results could differ materially from the estimated amounts.
i
Impact
of COVID-19 on Our Financial Statements
Given ongoing uncertainty and the unpredictable nature of the COVID-19 pandemic, including the rise of variants of the virus and the effectiveness of vaccines against those variants, COVID-19 may have a material and adverse impact on various aspects of our business in the future, including our consolidated financial statements.
i
Trade Accounts Receivable
We base our allowance for doubtful accounts
estimate on our historical loss experience, our current expectations of future losses, current economic conditions, an analysis of the aging of outstanding receivables and customer payment patterns, and specific reserves for customers in adverse financial condition or for existing contractual disputes.
We review long-lived asset groups that are subject to amortization for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. We test goodwill for impairment on an annual basis, in the fourth quarter, or more frequently if events or circumstances indicate that the carrying value of goodwill may be impaired. As additional information becomes available to us, our future assessment of impairments to long-lived assets and goodwill
could materially and adversely impact our consolidated financial statements in future reporting periods.
The increase in other intangibles, net of accumulated amortization, as of June 30, 2022, compared with December 31, 2021, is due primarily to the addition of the preliminary fair value estimate of intangible assets from our recent acquisition as discussed in Note 2, “Acquisitions”, and $i97.7 million
of expenditures for the development of internal use software, partially offset by $i205.4 million of amortization expense and a decrease due to the cumulative translation adjustment of our foreign entities long-lived assets resulting from changes to foreign exchange rates between periods.
The increase in goodwill as of June 30, 2022, compared with December 31, 2021, is due primarily to the addition of the preliminary estimate
of goodwill from our recent acquisition and measurement period adjustments for our 2021 acquisitions as discussed in Note 2, “Acquisitions,” partially offset by a decrease due to the cumulative translation adjustments of our foreign entities goodwill resulting from changes to foreign exchange rates between periods.
The offset to the translation adjustments are included in accumulated other comprehensive loss on our balance sheet.
/
iRecently
Adopted Accounting Pronouncements
There are no recent accounting pronouncements that have been adopted by TransUnion.
i
Recent Accounting Pronouncements Not Yet Adopted
There are no recent accounting pronouncements that have an impact on TransUnion.
The following transactions were accounted for as business combinations under the acquisition method of accounting. The acquisition method requires, among other things, that assets acquired and liabilities assumed in a business combination generally be recognized at their fair values as of the acquisition date. The determination of fair value requires management to make significant estimates and assumptions. The excess of the purchase
price over the fair value of the acquired net assets has been recorded as goodwill. The results of operations of these acquisitions are included in our consolidated financial statements from the respective dates of acquisition.
2022 Acquisitions
Verisk Financial Services
On April 8, 2022, we completed our acquisition of Verisk Financial Services (“VF”), the financial services business unit of Verisk Analytics, Inc., pursuant to a Stock Purchase Agreement dated as of February 21, 2022 (the “VF Agreement”), by and between Trans Union LLC and Verisk Analytics, Inc. We acquired i100%
of the outstanding equity interest of the entities that comprise VF for $i508.0 million, which was funded by cash on hand and is subject to certain customary purchase price adjustments as set forth in the VF Agreement. We are retaining the leading core businesses of Argus Information and Advisory Services, Inc. and Commerce Signals, Inc. (collectively, “Argus”), and intend to divest the remaining non-core businesses.
Argus is relied upon by leading financial institutions, payments
providers, and retailers worldwide for competitive studies, predictive analytics, models, and advisory services to provide a clear perspective on where their business stands today and to best position them for success in the future. We leverage the data provider consortia and proprietary and differentiated benchmarking datasets of these entities to provide more enhanced and holistic solution capabilities to our customers to make better and faster decisions that will help them increase financial inclusion, acquire new accounts, and improve fraud prevention, risk management, and other solutions.
We engaged in business activities with VF prior to the acquisition that were not material. The results of operations of Argus subsequent to the acquisition date and the acquired assets and assumed liabilities, including the preliminary allocation of goodwill and intangible assets, are included in the U.S. Markets segment. The pro forma
effects of this acquisition are not significant to the Company's reported financial results for any period presented. Accordingly, no pro forma financial statements have been presented herein. We have classified the net assets acquired of the non-core businesses as held-for-sale as of the date of acquisition and the results of operations of those businesses are presented as discontinued operations from the date of acquisition.
Acquisition Costs
We recognized transaction costs related to the acquisition of $i7.7 million
and $i11.7 million for the three and six months ended June 30, 2022, respectively, which we have recorded within other income and expense.
Purchase Price Allocation
The purchase price for this acquisition is preliminary, pending final customary purchase price adjustments. The valuation of the assets acquired and liabilities assumed has not yet been finalized as of June
30, 2022. The purchase price allocation is preliminary and subject to change, including the allocation of value to the net assets held for sale, the valuation of intangible assets, income taxes and goodwill, among other items, and will be finalized as the information necessary to complete the analyses is obtained. We expect to complete this analysis within one year from the acquisition date.
The fair values assigned to assets acquired and liabilities assumed as of June 30, 2022, are based on management’s best estimates and assumptions as of the reporting date and are considered preliminary pending finalization of the valuation analysis. Further, we have not yet allocated goodwill to reporting units.
iThe
table below summarizes the preliminary allocation of fair value of assets acquired and liabilities assumed as of April 8, 2022, the date of acquisition.
(1) For tax purposes, we estimate that $i46.8 million
of the goodwill, which originated from previous acquisitions of VF, is tax deductible.
2021 Acquisitions
Neustar
On December 1, 2021, we completed the acquisition of Neustar, Inc. (“Neustar”). We acquired i100% of the equity interests of Neustar for $i3,099.7
million in cash, including final purchase price adjustments. as set forth in the purchase agreement. The acquisition was funded primarily with the proceeds from the issuance of our Incremental Term B-6 Loan, which closed concurrently with the closing of the transaction. See Note 10, “Debt,” for additional information about our Incremental Term B-6 Loan. There was no contingent consideration resulting from this transaction.
Neustar, a premier identity resolution company with leading solutions in Marketing, Risk and Communications, enables customers to build connected consumer experiences by combining decision analytics with real-time identity resolution services driven by its OneID platform. The acquisition of Neustar provides immediate scale to our identity resolution services through Neustar’s large, well-established customer base, accelerates the future growth of our identity-based solutions and expands our powerful
digital identity capabilities through the addition of distinctive data and analytics, enabling consumers and businesses to transact online with greater confidence.
We engaged in business activities with Neustar prior to the acquisition that were not material. The results of operations of Neustar subsequent to the acquisition date and the acquired assets and assumed liabilities, including the preliminary allocation of goodwill and intangible assets, are included in the U.S. Markets segment.
On
December 1, 2021, we completed the acquisition of Sontiq, Inc. (“Sontiq”). We acquired i100% of the equity interests of Sontiq for $i642.6
million in cash, including final purchase price adjustments as set forth in the purchase agreement. The acquisition was funded primarily with the proceeds from the issuance of our Second Lien Term Loan, which closed concurrently with the closing of the transaction. The Second Lien Term Loan was repaid in full prior to December 31, 2021.
Sontiq provides solutions including identity monitoring, restoration, and response products and services to help empower consumers and businesses to proactively protect against identity theft and cyber threats. The acquisition of Sontiq provides access to an attractive new base of customers and consumers through a highly recurring subscription-based revenue model and also complements and expands our Consumer Interactive solutions portfolio by providing valuable identity protection services for consumers. Sontiq’s identity security monitoring
products incorporate our credit data, are highly complementary to our capabilities and are expected to significantly increase our opportunities for growth.
The results of operations of Sontiq subsequent to the acquisition date and the acquired assets and assumed liabilities, including the preliminary allocation of goodwill and intangible assets, are included within the Consumer Interactive segment.
Purchase Price Allocations
The purchase price for each acquisition has now been finalized. The valuations of the assets acquired and liabilities assumed have not yet been finalized as of June 30, 2022. The purchase price allocations are preliminary and subject to change, including the valuation of intangible assets, income taxes and goodwill, among other items. The purchase price allocations
for each of the acquisitions will be finalized as the information necessary to complete the analyses is obtained. We expect to complete each analysis within one year from the acquisition date.
The fair values assigned to assets acquired and liabilities assumed as of June 30, 2022 are based on management’s best estimates and assumptions as of the reporting date and are considered preliminary pending finalization of the valuation analysis. Further, we have not yet allocated goodwill to reporting units.
The table below summarizes the preliminary allocation of fair value of assets acquired and liabilities assumed, inclusive of measurement period adjustments:
(1) During the six months ended June 30, 2022, we reduced the purchase price for Neustar by $i6.9 million to reflect the final purchase price adjustments. The impact of these adjustments resulted in a decrease to goodwill of $i13.7 million,
a decrease in deferred tax liabilities of $i11.8 million and other insignificant changes.
(2) For tax purposes, we estimate that $i326.6 million
of the goodwill, which originated from previous acquisitions of Neustar and Sontiq, is tax deductible.
Identifiable Intangible Assets and Goodwill
Identifiable Intangible Assets
iThe following table sets forth the components of identifiable intangible assets acquired, inclusive of measurement period adjustments, and the weighted average amortization period as of the acquisition date:
In determining the fair value of the identifiable intangible assets, we utilized various forms of the income approach, depending on the asset being valued. The estimation of fair value requires significant judgment related to cash flow forecasts, discount rates reflecting the risk inherent in each cash flow stream, competitive trends, market comparables and other factors. Other inputs included historical data, current and anticipated market conditions, and growth rates.
The intangible assets were valued using the following valuation approaches:
Customer related assets
We valued customer related assets using the multi-period excess-earnings method, a form of the income approach, which required the application of judgment for significant assumptions.
Significant assumptions include customer attrition rates, EBITDA margins, and discount rates.
Technology and software
We valued the developed technology using the relief-from-royalty method, a form of the income approach, which required the application of judgment for significant assumptions. Significant assumptions include the royalty rate, economic depreciation factors, and discount rates.
Other identifiable intangible assets
Other identifiable intangible assets include trade names and trademarks and non-compete agreements for key employees, which are not material. Trade names and trademarks were valued using the relief-from-royalty method, and non-compete agreements were valued using the lost income method.
Goodwill
We
recorded the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired and liabilities assumed as goodwill. The purchase price of each acquisition exceeded the fair value estimate of the net assets acquired primarily due to expected future revenue growth opportunities, synergies, operating efficiencies and the assembled workforce. The acquisition of Argus provides proprietary competitive portfolio performance insights sourced from a consortium of financial institutions that, when combined with TransUnion’s authoritative datasets, is expected to allow us to better serve consortium members by providing enhanced insights and solutions. The acquisition of Neustar is expected to accelerate growth through both material revenue synergies and increased participation in the fast-growing digital marketing and identity verification marketplaces. The acquisition of Sontiq is expected to result in a more comprehensive set of
offerings which are expected to significantly increase growth opportunities for the Company.
As discussed in Note 2, “Business Acquisitions,” on April 8, 2022, we completed the acquisition of VF, including several businesses that we intend to divest within a year of the date of acquisition. We have classified the net assets of these businesses as held for sale and the results of operations as discontinued operations, net of tax, in the consolidated statements of income.
Healthcare business
On December 17, 2021, we completed the sale of our Healthcare business for total consideration of $i1,706.4
million in cash, including a $i0.5 million true-up to our estimate of net working capital recorded in three and six months ended June 30, 2022. The after-tax net proceeds were approximately $i1.4 billion.
The terms and conditions of the transaction are set forth in the Stock Purchase Agreement dated as of October 26, 2021, by and between Trans Union LLC and nThrive, Inc. (“nThrive”). We also entered into a transition services agreement (“TSA”) that requires Trans Union LLC to provide certain administrative and operational services to nThrive on a transitional basis for generally up to 24 months. This agreement is not material and does not confer upon us the ability to influence the operating or financial policies of nThrive subsequent to the closing date. Income generated from the services provided under the TSA has been recorded in other income and (expense), net in the consolidated statements of income. As the transaction closed on December 17, 2021, there are no assets or liabilities of the Healthcare business on our consolidated balance sheet as of June
30, 2022 and December 31, 2021. The results of operations of our Healthcare business are included as discontinued operations, net of tax, in the our consolidated statements of income.
Income from discontinued operations
The income from discontinued operations, net of tax reflected in the table below for the three and six months ended June 30, 2022 are related to the non-core businesses from the VF acquisition as well as an incremental gain on sale of discontinued operations, net of tax, resulting from the final net working capital adjustment related to our Healthcare business. The results reflected for three and six months ended June 30, 2021 are exclusively attributed to the Healthcare business that we disposed of in December of
2021:
i
Three
Months Ended June 30,
Six Months Ended June 30,
(in millions)
2022
2021
2022
2021
Revenue
$
i10.9
$
i46.0
$
i10.9
$
i92.4
Operating
expenses
Cost of services (exclusive of depreciation and amortization below)
i4.4
i15.6
i4.7
i32.0
Selling,
general and administrative
i4.7
i8.2
i4.6
i16.3
Depreciation
and amortization
i—
i5.2
i—
i10.0
Total
operating expenses
$
i9.1
$
i29.0
$
i9.3
$
i58.3
Operating
income of discontinued operations
i1.8
i17.0
i1.6
i34.1
Non-operating
income and (expense)
(i1.9)
(i2.4)
(i2.2)
(i2.4)
(Loss)
income before income taxes from discontinued operations
$
(i0.1)
$
i14.7
$
(i0.6)
$
i31.8
(Provision)
benefit for income taxes
(i0.1)
(i3.9)
i—
(i7.7)
Gain
on sale of discontinued operations, net of tax
The following table summarizes
financial instruments measured at fair value, on a recurring basis, as of June 30, 2022:
(in millions)
Total
Level 1
Level 2
Level 3
Assets
Interest
rate swaps (Notes 6 and 10)
$
i168.8
$
i—
$
i168.8
$
i—
Available-for-sale
marketable securities (Note 5)
i3.1
i—
i3.1
i—
Total
$
i171.9
$
i—
$
i171.9
$
i—
Liabilities
Interest
rate swaps (Notes 9 and 10)
$
i0.3
$
i—
$
i0.3
$
i—
Put
option on Cost Method Investment (Note 9)
i10.0
i—
i—
i10.0
Total
$
i10.3
$
i—
$
i0.3
$
i10.0
/i
The
following table summarizes financial instruments measured at fair value, on a recurring basis, as of December 31, 2021:
(in millions)
Total
Level 1
Level 2
Level 3
Assets
Interest
rate swaps (Notes 6 and 10)
$
i12.1
$
i—
$
i12.1
$
i—
Available-for-sale
marketable securities (Note 5)
i3.1
i—
i3.1
i—
Total
$
i15.2
$
i—
$
i15.2
$
i—
Liabilities
Interest
rate swaps (Notes 9 and 10)
$
i34.5
$
i—
$
i34.5
$
i—
Put
option on Cost Method Investment (Note 9)
i11.9
i—
i—
i11.9
Contingent
consideration (Note 8)
i16.8
i—
i—
i16.8
Total
$
i63.2
$
i—
$
i34.5
$
i28.7
/
Level
2 instruments consist of interest rate swaps and available-for-sale foreign exchange-traded corporate bonds. The interest rate swaps fair values are determined using the market standard methodology of discounting the future expected net cash receipts or payments that would occur if variable interest rates rise above or fall below the fixed rates of the swaps. The variable interest rates used in the calculations of projected receipts on the swaps are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. As discussed in Note 10, “Debt,” there are two tranches of interest rate swaps that we entered into in 2020. As of June 30, 2022, one of those tranches is in an asset position, and the other is in a liability position. Foreign exchange-traded corporate bonds are available-for-sale marketable securities valued at their current quoted prices. These securities
mature between 2027 and 2033. Unrealized gains and losses on available-for-sale marketable securities, which are not material, are included in other comprehensive income.
Level 3 instruments consist of contingent consideration related to a Cost Method investment we acquired in 2021 and a put option on the same Cost Method investment, and a contingent consideration obligation of an acquisition made by Neustar prior to the date we acquired Neustar. During the first quarter of 2022, we paid $i14.8 million
of contingent consideration obligation related to the Cost Method investment. The put option allows the owner of the other shares to compel TransUnion to purchase their remaining shares, subject to the fulfillment of certain conditions. The fair value of the put option is determined using a Monte Carlo analysis with assumptions that include revenue projections, volatility rates, discount rates and the option period, among others. During the second quarter of 2022, we paid $i2.8 million
of contingent consideration obligation of Neustar as discussed above.
Other
includes other investments in non-negotiable certificates of deposit that are recorded at their carrying value, which approximates fair value, and which was the primary reason for the increase in other.
The
increase in the interest rate swaps asset was due primarily to changes in the forward LIBOR curve during the period.
7. iInvestments in Affiliated Companies
Investments in affiliated companies represent our investment in non-consolidated domestic and foreign entities. These entities are in businesses similar to ours.
We
use the equity method to account for investments in affiliates where we are able to exercise significant influence. For these investments, we adjust the carrying value for our proportionate share of the affiliates’ earnings, losses and distributions, as well as for purchases and sales of our ownership interest.
We account for nonmarketable investments in equity securities in which we are not able to exercise significant influence, our “Cost Method Investments”, at our initial cost, minus any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. For these investments, we adjust the carrying value for any purchases or sales of our ownership interests. We record any dividends received from these investments as other income in non-operating income and expense.
We have elected
to account for our investment in a limited partnership, which is not material, using the net asset value fair value practical expedient. Gains and losses on this investment, which are not material, are included in other income and expense in the consolidated statements of income.
Total
investments in affiliated companies (Note 6)
$
i264.4
$
i240.5
/
These
balances are included in other assets in the consolidated balance sheets.
The increase in Cost Method Investment at June 30, 2022 compared with December 31, 2021 was due primarily to a Cost Method Investment acquired as part of our VF acquisition. There are call and put options associated with one of our Cost Method Investments that are exercisable in 2024 and 2025, subject to certain restrictions. The carrying value of the call option is included in other assets on our balance sheet. The fair value of the put option is included in other liabilities on our balance sheet, and is adjusted to fair value at each reporting date. See Note 4, “Fair Value,” and Note 9, “Other Liabilities,” for additional information about the contingent consideration and put option.
i
Earnings
from equity method investments, which are included in other non-operating income and expense, and dividends received from equity method investments consisted of the following:
Three Months Ended June 30,
Six
Months Ended June 30,
(in millions)
2022
2021
2022
2021
Earnings from equity method investments (Note 15)
$
i3.1
$
i2.7
$
i6.1
$
i5.7
Dividends
received from equity method investments
$
i10.1
$
i7.4
$
i10.6
$
i8.0
/
8.
iOther Current Liabilities
i
Other current liabilities consisted of the following:
The
decrease in accrued payroll was due primarily to the payment of accrued bonuses during the first quarter of 2022 that were earned in 2021. The increase in accrued legal and regulatory was due primarily to an increase of our estimated liabilities for certain legal and regulatory expenses. The decrease in income taxes payable was primarily due to the taxes due on the gain on the sale of our Healthcare business that were paid in the second quarter of 2022.
Senior Secured Term Loan B-6, payable in quarterly installments through iDecember 1,
2028, with periodic variable interest at LIBOR or alternate base rate, plus applicable margin (i3.92% at June 30, 2022, and i2.75%
at December 31, 2021), net of original issue discount and deferred financing fees of $i6.2 million and $i35.0 million,
respectively, at June 30, 2022, and original issue discount and deferred financing fees of $i7.7 million and $i43.1
million, respectively, at December 31, 2021
$
i2,643.3
$
i3,049.2
Senior
Secured Term Loan B-5, payable in quarterly installments through iNovember 15, 2026, with periodic variable interest at LIBOR or alternate base rate, plus applicable margin (i3.42%
at June 30, 2022, and i1.85% at December 31, 2021), net of original issue discount and deferred financing fees of $i2.9
million and $i7.0 million, respectively, at June 30, 2022, and original issue discount and deferred financing fees of $i3.2
million and $i7.7 million, respectively, at December 31, 2021
i2,215.2
i2,227.1
Senior
Secured Term Loan A-3, payable in quarterly installments through iDecember 10, 2024, with periodic variable interest at LIBOR or alternate base rate, plus applicable margin (i3.17%
at June 30, 2022, and i1.35% at December 31, 2021), net of original issue discount and deferred financing fees of $i1.6
million and $i1.0 million, respectively, at June 30, 2022, and original issue discount and deferred financing fees of $i1.9
million and $i1.2 million, respectively, at December 31, 2021
i1,061.2
i1,089.4
Senior
Secured Revolving Credit Facility
i—
i—
Finance
leases
i0.1
i0.2
Total
debt
i5,919.8
i6,365.9
Less
short-term debt and current portion of long-term debt
(i114.6)
(i114.6)
Total
long-term debt
$
i5,805.2
$
i6,251.3
/
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 B-6, Senior Secured Term Loan B-5, Senior Secured Term Loan A-3 (collectively, the “Senior Secured Term Loans”), and the Senior Secured Revolving Credit Facility.
On December 1, 2021, we entered into an agreement to amend certain provisions of the Senior Secured Credit Facility and exercise our right to draw additional debt in an amount of $i3,100.0 million,
less original issue discount and deferred financing fees of $i7.8 million and $i43.6 million, respectively. Proceeds from the incremental
loan on the Senior Secured Credit Facility were used to fund the acquisition of Neustar.
During the six months ended June 30, 2022, we prepaid $i400.0 million
of our Senior Secured Term Loan B-6, funded from our cash on hand. As a result of this prepayment, we expensed $i6.5 million of our unamortized original issue discount and deferred financing fees to other income and expense in the consolidated statement of income.
As of June 30, 2022, we had ino
outstanding balance under the Senior Secured Revolving Credit Facility and $i0.1 million of outstanding letters of credit, and could have borrowed up to the remaining $i299.9
million available.
TransUnion also has the ability to request incremental loans on the same terms under the Senior Secured Credit Facility up to the sum of the greater of $i1,000.0 million and i100% of
Consolidated EBITDA, minus any amounts of secured indebtedness previously issued under this provision, and may incur additional incremental loans so long as the senior secured net leverage ratio does not exceed i4.25-to-1, subject to certain additional conditions and commitments by existing or new lenders to fund any additional borrowings.
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 i5.5-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 $i100 million or i10.0%
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 i4.75-to-1. As of June 30, 2022, we were in compliance with all debt covenants.
Interest Rate Hedging
On December 23, 2021, we entered into new interest rate swap agreements with various counterparties that effectively fix our
LIBOR exposure on a portion of our Senior Secured Term Loan or similar replacement debt. The new swaps commenced on December 31, 2021, and expire on December 31, 2026, with a current aggregate notional amount of $i1,592.0 million that amortizes each quarter. The agreement requires TransUnion to pay fixed rates varying between i1.4280%
and i1.4360% 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 iLIBOR
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 first swap required TransUnion to pay fixed rates varying between i0.5200% and i0.5295%
in exchange for receiving a variable rate that matches the variable rate on our loans. The second swap commenced on June 30, 2022, and expires on June 30, 2025, with an initial aggregate notional amount of $i1,110.0 million that amortizes each quarter after it commences. The second swap requires TransUnion to pay fixed rates varying between i0.9125%
and i0.9280% 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 17, 2018, we entered into interest rate swap agreements with various counterparties that effectively fix our iLIBOR
exposure on a portion of our Senior Secured Term Loans or similar replacement debt. The current aggregate notional amount under these agreements is $i1,380.0 million, decreasing each quarter until the second agreement terminates on December 30, 2022. The agreements require TransUnion to pay fixed rates currently fixed at i2.702%
and i2.706% 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.
The change in the fair value of our hedging instruments, included in our assessment of hedge effectiveness, is recorded in other comprehensive income, and reclassified to interest expense when the corresponding hedged debt affects earnings.
The net change in the fair value of the swaps resulted in unrealized gains of $i47.8 million
($i35.9 million, net of tax) and $i190.9 million
($i143.2 million, net of tax) for the three and six months ended June 30, 2022, respectively, recorded in other comprehensive income. The net change in the fair value of the swaps resulted in unrealized gains of $i4.8 million
($i3.6 million, net of tax) and $i33.1 million
($i24.9 million, net of tax) for the three and six months ended June 30, 2021, respectively, recorded in other comprehensive income. Interest expense on the swaps in the three and six months ended June 30, 2022 was $i8.6 million
($i6.5 million, net of tax) and $i22.3 million ($i16.7 million,
net of tax), respectively. Interest expense on the swaps in the three and six months ended June 30, 2021 was $i10.4 million ($i7.8 million,
net of tax) and $i20.7 million ($i15.5 million, net of tax), respectively. We currently expect
to recognize a gain of approximately $i50.3 million as interest expense due to our expectation that LIBOR will exceed the fixed rates of interest over the next twelve months.
As of June 30, 2022 and December 31, 2021 the fair value of our Senior Secured Term Loan B-6, excluding original issue discounts and deferred fees was approximately $i2,573.7 million and $i3,096.1 million,
respectively. As of June 30, 2022 and December 31, 2021 the fair value of our Senior Secured Term Loan B-5, excluding original issue discounts and deferred fees was approximately $i2,124.8 million and $i2,217.0 million,
respectively. As of June 30, 2022 and December 31, 2021, the fair value of our Senior Secured Term Loan A-3, excluding original issue discounts and deferred fees, was approximately $i1,026.5 million and $i1,076.1 million,
respectively. The fair values of our variable-rate term loans are determined using Level 2 inputs, based on quoted market prices for the publicly traded instruments.
11. iStockholders’ Equity
Common Stock Dividends
In the first and second quarter of 2022 we paid dividends of $i0.095
per share totaling $i18.3 million and $i18.3 million, respectively. Dividends declared accrue to outstanding restricted stock units and are paid to
employees as dividend equivalents when the restricted stock units vest.
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 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.
Treasury Stock
On February 13, 2017, our board of directors authorized the repurchase of up to $i300.0
million of our common stock over the next i3 years. Our board of directors removed the three-year time limitation on February 8, 2018. To date, we have repurchased $i133.5
million of our common stock and have the ability to repurchase the remaining $i166.5 million.
We have no obligation to repurchase additional shares. Any determination to repurchase additional shares will be at the discretion of management and will depend on a number of factors, including our liquidity, results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law, market conditions, the cost
of repurchasing shares, the availability of alternative investment opportunities and other factors management deems appropriate. Any repurchased shares will have the status of treasury shares and may be used, if and when needed, for general corporate purposes.
For the six months ended June 30, 2022 and 2021, i0.8 million
and i1.1 million outstanding employee restricted stock units vested and became taxable to the employees, respectively. For the three months ended June 30, 2022, the outstanding employee restricted stocks units that vested and became taxable to employees were less than i0.1 million.
For the three months ended June 30, 2021, i0.1 million outstanding employee restricted stock units vested and became taxable to the employees. Employees satisfy their payroll tax withholding obligations in a net share settlement arrangement. During the six months ended June 30, 2022 and
2021, we remitted cash equivalent to the value of the shares employees used to satisfy their withholding obligations of $i29.2 million and $i34.0 million,
respectively. During the three months ended June 30, 2022 and 2021, we remitted cash equivalent to the value of the shares employees used to satisfy their withholding obligations of $i0.4 million and $i5.4 million,
respectively.
Preferred Stock
As of June 30, 2022 and December 31, 2021, we had ii100.0/
million shares of preferred stock authorized, and iiiino///
preferred stock issued or outstanding.
12. iRevenue
All of our revenue is derived from contracts with customers and is reported as revenue in the consolidated statements of income generally as, or at the point in time, the performance obligation is satisfied. A performance
obligation is a promise in a contract to transfer a distinct good or service to a customer. We have contracts with itwo general groups of performance obligations: ithose
that require us to stand ready to provide goods and services to a customer to use as and when requested (“Stand Ready Performance Obligations”) and ithose that do not require us to stand ready (“Other Performance Obligations”). Our Stand Ready Performance Obligations include obligations to stand ready to provide data, process transactions, access our databases, software-as-a-service and direct-to-consumer products, provide rights to use our intellectual property and other services. Our Other Performance Obligations include the sale of certain batch data sets and various professional and other
services.
Most of our Stand Ready Performance Obligations consist of a series of distinct goods and services that are substantially the same and have the same monthly pattern of transfer to our customers. We consider each month of service in this time series to
be a distinct performance obligation and, accordingly, recognize revenue over time. For a majority of these Stand Ready Performance Obligations, the total contractual price is variable because our obligation is to process an unknown quantity of transactions, as and
when requested by our customers, over the contract period. We allocate the variable price to each month of service using the time-series concept and recognize revenue based on the most likely amount of consideration to which we will be entitled, which is generally the amount we have the right to invoice. This monthly amount can be based on the actual volume of units delivered or a guaranteed minimum, if higher. Occasionally we have contracts where the amount we will be entitled to for the transactions processed is uncertain, in which case we estimate the revenue based on what we consider to be the most likely amount of consideration we will be entitled to, and adjust any estimates as facts and circumstances evolve.
For
all contracts that include a Stand Ready Performance Obligation with variable pricing, we are unable to estimate the variable price attributable to future performance obligations because the number of units to be purchased is not known. As a result, we use the exception available to forgo disclosures about revenue attributable to the future performance obligations where we recognize revenue using the time-series concept as discussed above, including those qualifying for the right to invoice practical expedient. We also use the exception available to forgo disclosures about revenue attributable to contracts withexpected durations of one year or less.
Certain of our Other Performance Obligations, including
certain batch data sets and certain professional and other services, are delivered at a point in time. Accordingly, we recognize revenue upon delivery, once we have satisfied that obligation. For certain Other Performance Obligations, including certain professional and other services, we recognize revenue over time,based on an estimate of progress towards completion of that obligation. These contracts are not material.
In certain circumstances we apply the revenue recognition guidance to a portfolio of contracts with similar characteristics. We use estimates and assumptions when accounting for a portfolio that reflect the size and composition of the portfolio of contracts.
Our contracts include standard commercial payment terms generally acceptable in each region, and do not include financing with extended payment terms. We have no significant obligations for refunds, warranties, or similar obligations. Our revenue does not include taxes collected from our customers.
Accounts receivable are shown separately on our balance sheet. Contract assets and liabilities result due to the timing of revenue recognition, billings and cash collections. Contract assets include our right to payment for goods and services already transferred to a customer
when the right to payment is conditional on something other than the passage of time, for example, contracts pursuant to which we recognize revenue over time but do not have a contractual right to payment until we complete the contract. Contract assets are included in other current assets and are not material as of June 30, 2022 and December 31, 2021.
As our contracts with customers generally have a duration of one year or less, our contract
liabilities consist of deferred revenue that is primarily short-term in nature. Contract liabilities include current and long-term deferred revenue that is included in other current liabilities and other liabilities. We expect to recognize the December 31, 2021, current deferred revenue balance as revenue during 2022. The majority of our long-term deferred revenue, which is not material, is expected to be recognized in less than two years.
We have certain contracts that have a duration of more than one year. For these contracts, the transaction price allocable to the future performance obligations is primarily
fixed but contains a variable component. There is one material fixed fee contract with a duration of more than one year, and for this contract, we expect to recognize revenue of approximately $i117.0 million over the next two years and $i107.2 million
thereafter.
For additional disclosures about the disaggregation of our revenue see Note 15, “Reportable Segments.”
13. iEarnings Per Share
Basic earnings per share represents income available to common stockholders divided by the weighted-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.
As of June 30, 2022, there were i0.3 million anti-dilutive weighted stock-based awards outstanding, compared to i0.1 million
as of June 30, 2021. As of June 30, 2022, there were i0.2 million contingently-issuable performance-based stock awards outstanding that were excluded from the diluted earnings per share calculation, because the contingencies had not been met, compared to i0.1 million
as of June 30, 2021.
Basic and diluted weighted average shares outstanding and earnings per share were as follows:
Three
Months Ended June 30,
Six Months Ended June 30,
(in millions, except per share data)
2022
2021
2022
2021
Income from continuing operations
$
i99.3
$
i122.1
$
i151.7
$
i239.4
Less:
income from continuing operations attributable to noncontrolling interests
(i4.1)
(i5.2)
(i7.7)
(i8.0)
Income
from continuing operations attributable to TransUnion
$
i95.3
$
i116.8
$
i143.9
$
i231.4
Discontinued
operations, net of tax
i0.3
i10.8
i—
i24.1
Net
income attributable to TransUnion
$
i95.6
$
i127.6
$
i143.9
$
i255.6
Basic
Earnings Per Share:
Income from continuing operations attributable to TransUnion
$
i0.49
$
i0.61
$
i0.75
$
i1.21
Discontinued
operations, net of tax
i—
i0.06
i—
i0.13
Net
Income attributable to TransUnion
$
i0.50
$
i0.67
$
i0.75
$
i1.34
Diluted
Earnings Per Share:
Income from continuing operations attributable to TransUnion
$
i0.49
$
i0.61
$
i0.75
$
i1.20
Discontinued
operations, net of tax
i—
i0.06
i—
i0.13
Net
Income attributable to TransUnion
$
i0.49
$
i0.66
$
i0.75
$
i1.33
Weighted-average
shares outstanding:
Basic
i192.5
i191.4
i192.3
i191.2
Dilutive
impact of stock based awards
i0.6
i1.4
i0.9
i1.6
Diluted
i193.1
i192.8
i193.1
i192.8
/
14. iIncome Taxes
For the three months ended June 30, 2022, we reported an effective tax rate of i22.7%,
which was higher than the i21.0% U.S. federal statutory rate due primarily to nondeductible expenses in connection with acquisition costs and executive compensation limitations, state taxes and other rate-impacting items, partially offset by benefits from the research and development credit, excess tax benefits on stock-based compensation and foreign rate differential.
For the six months ended June 30, 2022, we
reported an effective tax rate of i26.1%, which was higher than the i21.0% U.S. federal statutory rate
due primarily to nondeductible expenses in connection with certain legal and regulatory matters, acquisition costs and executive compensation limitations and state taxes and other rate-impacting items, partially offset by excess tax benefits on stock-based compensation and benefits from the research and development credit.
For the three months ended June 30, 2021, we reported an effective tax rate of i32.4%, which was higher than the i21.0%
U.S. federal statutory rate due primarily to recording tax expense related to the remeasurement of our U.K. deferred taxes to reflect an increase in the U.K. corporate income tax rate enacted in the second quarter of 2021, partially offset by discrete tax benefit related to electing the Global Intangible Low Tax Income (“GILTI”) high-tax exclusion retroactively for the 2019 tax year and excess tax benefits on stock-based compensation.
For the six months ended June 30, 2021, we reported an effective tax rate of i25.6%,
which was higher than the i21.0% U.S. federal statutory rate due primarily to recording tax expense related to the remeasurement of our U.K. deferred taxes to reflect an increase in the U.K. corporate income tax rate enacted in the second quarter 2021, partially offset by discrete tax benefit related to electing the GILTI high-tax exclusion retroactively for the 2018 and 2019 tax years and excess tax benefits on stock-based compensation.
The gross amount of unrecognized
tax benefits, which excludes indirect tax effects, was $i47.6 million as of June 30, 2022, and $i45.8 million as of December
31, 2021. The amounts that would affect the effective tax rate if recognized are $i30.6 million and $i28.3 million,
respectively. We classify interest and penalties as income tax expense in the consolidated statements of income and their associated liabilities as other liabilities in the consolidated balance sheets. Interest and penalties on unrecognized tax benefits were $i9.0 million as of June 30, 2022, and $i7.6 million
as of December 31, 2021. We are regularly audited by federal,
state and foreign taxing authorities. Given the uncertainties inherent in the audit process, it is reasonably possible that certain audits could result in a significant increase or decrease in the total amounts of unrecognized tax benefits. An estimate of the range of the increase or decrease in unrecognized tax benefits due to audit results cannot be made at this time. Tax years 2009 and forward remain open for examination in some foreign jurisdictions,
2012 and forward for U.S. federal income tax purposes and 2015 and forward in some state jurisdictions.
We have ithree reportable segments, U.S. Markets, International, and Consumer Interactive, and the Corporate unit, which provides support services to each of the segments. Our chief operating decision maker (“CODM”) uses the profit measure of Adjusted EBITDA, on both a consolidated and a segment basis, to allocate resources and assess performance of our businesses. We use Adjusted EBITDA as our profit measure because it eliminates the impact of certain items that we do not consider indicative of operating
performance, which is useful to compare operating results between periods. Our board of directors and executive management team also use Adjusted EBITDA as a compensation measure for both segment and corporate management under our incentive compensation plans. Adjusted EBITDA is also a measure frequently used by securities analysts, investors and other interested parties in their evaluation of the operating performance of companies similar to ours.
We define Adjusted EBITDA as net income (loss) attributable to each segment plus net interest expense, plus (less) provision (benefit) for income taxes, plus depreciation and amortization, plus stock-based compensation, plus mergers, acquisitions, divestitures and business optimization-related expenses including certain integration-related expenses, plus certain accelerated technology investment expenses to migrate to the cloud, plus (less) certain other expenses (income).
The
segment financial information below aligns with how we report information to our CODM to assess operating performance and how we manage the business. The accounting policies of the segments are the same as described in Note 1, “Significant Accounting and Reporting Policies” and Note 12, “Revenue.”
The following is a more detailed description of our reportable segments and the Corporate unit, which provides support services to each segment:
U.S. Markets
The U.S. Markets segment provides consumer reports, actionable insights and analytics to businesses. These businesses use our services to acquire customers, assess consumers’ ability to pay for services, identify cross-selling opportunities, measure and manage debt portfolio risk, collect debt, verify consumer identities and mitigate fraud risk. The core capabilities and delivery
methods in our U.S. Markets segment allow us to serve a broad set of customers across industries. We report disaggregated revenue of our U.S. Markets segment for Financial Services and Emerging Verticals.
•Financial Services: The Financial Services vertical, which accounted for i46.8% of our U.S. Markets revenue for the six months ended June 30, 2022, consists of our consumer lending, mortgage, auto and cards and payments lines of business, and our recently
acquired Argus business. Our Financial Services clients consist of most banks, credit unions, finance companies, auto lenders, mortgage lenders, FinTechs, and other consumer lenders in the United States. We also distribute our solutions through most major resellers, secondary market players and sales agents. Beyond traditional lenders, we work with a variety of credit arrangers, such as auto dealers and peer-to-peer lenders. We provide solutions across every aspect of the lending lifecycle; customer acquisition and engagement, fraud and ID management, retention and recovery. Our products are focused on mitigating risk and include credit reporting, credit marketing, analytics and consulting, identity verification and authentication and debt recovery solutions. The results of operations of our Argus are included in the Financial Services vertical in our consolidated statements of income since the date of the acquisition.
•Emerging
Verticals: Emerging Verticals include Insurance, Services and Collections, Tenant and Employment, Technology, Commerce & Communications, Public Sector, Media, and other emerging verticals we serve, as well as our recently acquired Neustar business. Our solutions in these verticals are also data-driven and address the entire customer lifecycle. We offer onboarding and transaction processing products, scoring and analytic products, marketing solutions, fraud and identity management solutions and customer retention solutions. The results of operations of Neustar are included in Emerging Verticals in our consolidated statements of income since the date of the acquisition.
International
The International segment provides services similar to our U.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 solutions 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 and take precautions against identity theft.
We report disaggregated revenue of our International segment for the following regions: Canada, Latin America, the United Kingdom, Africa, India and Asia Pacific.
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 freezes, credit monitoring, identity protection and resolution, and financial management for consumers. The segment also provides solutions that help businesses respond to data breach events. Our products are provided through user-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, including our recently acquired Sontiq business. The results of operations of Sontiq are included in the Consumer Interactive segment in our consolidated statements of income since the date of the acquisition.
Corporate
Corporate
provides support services for each of the segments, holds investments, and conducts enterprise functions. Certain costs incurred in Corporate that are not directly attributable to ione or more of the segments remain in Corporate. These costs are typically enterprise-level costs and are primarily administrative in nature.
i
Selected
segment financial information and disaggregated revenue consisted of the following:
A reconciliation of Segment Adjusted EBITDA to income from continuing operations before income taxes for the periods presented is as follows:
Three
Months Ended June 30,
Six Months Ended June 30,
(in millions)
2022
2021
2022
2021
U.S. Markets Adjusted EBITDA
$
i234.4
$
i186.8
$
i451.1
$
i363.5
International
Adjusted EBITDA
i81.0
i72.2
i163.0
i143.6
Consumer
Interactive Adjusted EBITDA
i68.0
i64.8
i137.0
i123.3
Total
$
i383.5
$
i323.8
$
i751.0
$
i630.4
Adjustments
to reconcile to income before income taxes:
Corporate expenses(1)
$
(i33.1)
$
(i28.5)
$
(i66.5)
$
(i57.6)
Net
interest expense
(i50.7)
(i24.7)
(i100.2)
(i49.8)
Depreciation
and amortization
(i130.6)
(i93.2)
(i259.4)
(i182.7)
Stock-based
compensation(2)
(i20.3)
(i17.1)
(i40.8)
(i32.5)
Mergers
and acquisitions, divestitures and business optimization(3)
(i14.0)
(i8.8)
(i28.6)
(i10.6)
Accelerated
technology investment(4)
(i8.1)
(i9.8)
(i20.1)
(i17.1)
Net
other(5)
(i2.2)
i33.8
(i37.9)
i33.7
Net
loss (income) attributable to non-controlling interests
i4.1
i5.2
i7.7
i8.0
Total
adjustments
$
(i254.9)
$
(i143.1)
$
(i545.8)
$
(i308.6)
Income
from continuing operations before income taxes
$
i128.5
$
i180.7
$
i205.2
$
i321.8
(1)Certain
costs 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.
(2)Consisted of stock-based compensation and cash-settled stock-based compensation.
(3)For the three months ended June 30, 2022, consisted of the following adjustments: $(i9.0) million
of acquisition expenses; $(i7.7) million of Neustar integration costs; $i1.8 million reimbursements for transition services related to divested businesses, net of separation
expenses; and a $i0.9 million adjustment to fair value of put options.
For the six months ended June 30, 2022, consisted of the following adjustments: $(i17.9) million
of acquisition expenses; $(i16.7) million of Neustar integration costs; a $i5.3 million reimbursements for transition services related to divested businesses, net of separation
expenses; and a $i0.8 million adjustment to fair value of put options.
For the three months ended June 30, 2021, consisted of the following adjustments: $(i6.7) million
of adjustments to contingent consideration expense from previous acquisitions; $(i1.1) million of acquisition expenses; and a $(i1.1) million gain reduction to notes receivable
that were converted into equity upon acquisition and consolidation of an entity.
For the six months ended June 30, 2021, consisted of the following adjustments: $(i7.9) million of adjustments to contingent consideration expense from previous acquisitions; $(i2.2) million
of acquisition expenses; a $(i1.1) million gain reduction to notes receivable that were converted into equity upon acquisition and consolidation of an entity; and a $i0.5 million
gain on the sale of a cost method investment.
(4)Represents expenses associated with our accelerated technology investment to migrate to the cloud.
(5)For the three months ended June 30, 2022, consisted of $(i2.2) million of net other, which includes net losses from currency remeasurement of our foreign operations, loan fees and other.
For
the six months ended June 30, 2022, consisted of the following adjustments: $(i28.4) million for certain legal and regulatory expenses; $(i6.5) million
of deferred loan fees written off as a result of the prepayments on our debt; and $(i3.0) million of net other, which includes net losses from currency remeasurement of our foreign operations, loan fees and other.
For the three months ended June 30, 2021, consisted of the following adjustments: a $i32.4 million
net reduction in certain legal expenses; a $i3.4 million recovery from the Fraud Incident, net of additional administrative expenses; and $(i2.0) million of net other consisting of net losses
from currency remeasurement of our foreign operations, loan fees and other.
For the six months ended June 30, 2021, consisted of the following adjustments: a $i32.4 million net reduction in certain legal expenses; a $i3.4 million
recovery from the Fraud Incident, net of additional administrative expense; and
$(i2.1) million
of net other consisting of net losses from currency remeasurement of our foreign operations, loan fees and other.
i
Earnings from equity method investments included in non-operating income and expense was as follows:
Three
Months Ended June 30,
Six Months Ended June 30,
(in millions)
2022
2021
2022
2021
U.S. Markets
$
i0.3
$
i0.7
$
i0.7
$
i1.3
International
i2.8
i2.0
i5.4
i4.4
Total
$
i3.1
$
i2.7
$
i6.1
$
i5.7
/
16.
iContingencies
Legal and Regulatory Matters
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 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 legal 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 legal and regulatory matters or the eventual loss, fines or penalties, if any, that may result from such matters. We establish reserves for legal and regulatory matters when those matters present loss contingencies that are both probable and can be reasonably estimated. 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. The actual costs of resolving legal 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. We accrue amounts for certain legal and regulatory matters for which losses were considered to be probable of occurring based on our best estimate of the most likely outcome. It is reasonably possible actual losses could be significantly different from our current estimates. In addition, there are some matters for which it is reasonably possible that a loss will occur, however we cannot estimate a range of the potential losses for these matters. Legal fees incurred in connection with ongoing litigation are considered a period cost and are expensed as incurred.
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.
As of June 30, 2022 and December 31, 2021, we have accrued $i113.0 million
and $i85.6 million, respectively, for anticipated claims. These amounts were recorded in other accrued liabilities in the consolidated balance sheets and the associated expenses were recorded in selling, general and administrative expenses in the consolidated statements of income. Legal fees incurred in connection with ongoing litigation are considered period costs and are expensed as incurred.
The following discussion describes material developments in previously disclosed material legal and regulatory matters that occurred in the six months
ended June 30, 2022. Refer to Part II, Item 8, Footnote 22, “Contingencies” of our Annual Report on
Form 10-K for the year ended December 31, 2021, for a full description of our material pending legal and regulatory matters at that time.
Ramirez v. Trans Union LLC
On January 24, 2022, we reached a tentative class settlement
with the plaintiffs, which has been preliminarily approved by the court on July 19, 2022. We expect this matter to be resolved by the end of 2022.
Accordingly, in 2021, we revised the amount of the probable loss that we previously estimated, resulting in a reduction of our estimated liability and partially offsetting insurance receivable, and a corresponding net reduction recorded in selling, general and administrative expense for the year end December 31, 2021.
CFPB Matters
In June 2021, we received a Notice and Opportunity to Respond and Advise (“NORA”) letter from the Consumer Financial Protection Bureau (“CFPB”), informing us that the CFPB’s Enforcement Division was considering whether to recommend that the CFPB take legal
action against us and certain of our executive officers. The NORA letter alleged that we failed to comply with and timely implement a Consent Order issued by the CFPB in January 2017 (the “Consent Order”), and further alleged additional violations related to Consumer Interactive’s marketing practices. On September 27, 2021, the Enforcement Division advised us that it had obtained authority to pursue an enforcement action. On April 12, 2022, after failed settlement negotiations with the CFPB related to the matter, the CFPB filed a lawsuit against us, Trans Union LLC, TransUnion Interactive, Inc. (collectively, the “TU Entities”) and the former President of Consumer Interactive, John Danaher, in the United States District Court for the Northern District of Illinois seeking restitution, civil money penalties, and injunctive relief, among other remedies, and
alleging that the TU Entities violated the Consent Order, engaged in deceptive acts and practices in marketing the TransUnion Credit Monitoring product, failed to obtain signed written authorizations from consumers before debiting their bank accounts for the TransUnion Credit Monitoring product and diverted consumers from their free annual file disclosure into paid subscription products. The CFPB further alleges that Mr. Danaher violated the Consent Order and that we and Trans Union LLC provided substantial assistance to TransUnion Interactive, Inc. in violating the Consent Order and the law. We continue to believe that our marketing practices are lawful and appropriate and that we have been, and remain, in compliance with the Consent Order, and we will vigorously defend against allegations to the contrary in such proceedings. On July 8, 2022, the TU Entities and Mr. Danaher each filed a motion
to dismiss the lawsuit.
As of June 30, 2022, we have an accrued liability of $i56.0 million, compared with $i26.5 million
as of December 31, 2021, in connection with this matter and there is a reasonable possibility that a loss in excess of the amount accrued may be incurred, and such an outcome could have a material adverse effect on our results of operations and financial condition. However, any possible loss or range of loss in excess of the amount accrued is not reasonably estimable at this time. In addition, we will incur increased costs litigating this matter.
In March 2022, we received a NORA letter from the CFPB, informing us that the CFPB’s Enforcement Division is considering whether to recommend that the CFPB take legal action against us related to our tenant and employment screening business, TransUnion Rental Screening Solutions, Inc. (“TURSS”). The NORA letter alleges that Trans Union LLC and TURRS violated the Fair Credit Reporting Act by failing to (i) follow reasonable procedures
to assure maximum possible accuracy of information in consumer reports and (ii) disclose to consumers the sources of such information. We believe that our acts and practices are lawful and we intend to vigorously defend against any allegations to the contrary. Should the CFPB commence an action against us, it may seek restitution, disgorgement, civil monetary penalties, injunctive relief or other corrective action. We cannot provide assurance that the CFPB will not ultimately commence a legal action against us in this matter, nor are we able to predict the likely outcome of any such action. As of June 30, 2022, we have recorded an accrued liability for an immaterial amount in connection with this matter. There is a possibility that a loss in excess of amounts accrued may be incurred; however, the possible loss or range of loss is not estimable at this time.
In June 2022, the
CFPB informed Trans Union LLC that it intends to issue a NORA letter following an investigation relating to potential violations of law in connection with the placement and lifting of security freezes resulting from certain system issues. As of the date of this disclosure, Trans Union LLC has not received the NORA letter and has not otherwise been informed of the allegations the CFPB may make. We have corrected associated system issues and have processes in place to monitor and address issues going forward. Should the CFPB commence an action against us, it may seek restitution, disgorgement, civil monetary penalties, injunctive relief or other corrective action. We cannot provide assurance that the CFPB will not ultimately commence a legal action against us in this matter, nor are we able to predict the likely outcome of any such action. As of June 30, 2022, we are not able to reasonably estimate our potential loss or
range of loss related to this matter.
We are cooperating with an inquiry originating from the civil division of the United States Attorney’s Office for the Eastern District of Virginia related to Argus’s historical use of certain data it collected under certain government contracts. We acquired Argus in connection with
our acquisition of VF in April 2022. This matter pertains to alleged conduct that occurred before we acquired Argus. We cannot predict the timing, outcome, or potential impact of this matter, financial or otherwise. Under the stock purchase agreement Trans Union LLC entered into with Verisk Analytics, Inc. (the “Seller”) pursuant to which we acquired VF, including Argus, the Seller agreed to indemnify us for certain losses with respect to this matter, including all losses directly resulting from any settlement agreement in connection with this matter, including civil monetary penalties, remediation costs and fees and expenses.
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, 2021, as well as the unaudited consolidated financial statements and the related notes presented in Part I, Item 1, of this Quarterly Report on Form 10-Q.
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, collectively.
Overview
TransUnion
is a leading global information and insights company that makes trust possible between businesses and 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 identities, mitigate fraud, and effectively manage call center operations. Businesses embed our solutions into their process workflows to deliver critical insights and 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 have deep domain expertise across a number of attractive industries, which we
also refer to as verticals, including Financial Services and the Emerging Verticals, consisting of Insurance, Services and Collections, Tenant and Employment, Technology, Commerce & Communications, Public Sector, Media, and other emerging verticals we serve, as well as Neustar, Inc. (“Neustar”). We have a global presence in over 30 countries and territories across North America, Latin America, Europe, Africa, India, and Asia Pacific.
Our addressable market includes the global data and analytics 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 data identities play in their ability to procure goods and services. There are several underlying trends supporting this market growth, including the proliferation of data, advances
in technology and analytics that enable data to be processed more quickly and efficiently to provide business insights, and growing demand for these business insights across industries and geographies. Leveraging our established position as a leading provider of information and insights, we have grown our business by expanding the breadth and depth of our data, strengthening our analytics capabilities to deliver innovative solutions, expanding into complementary adjacencies and vertical markets, investing in technology infrastructure to leverage capabilities to best serve our customers and enhancing our global operating model. As a result, we believe we are well positioned to expand our share within the markets we currently serve and capitalize on the larger data and analytics opportunity.
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 thousands 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 acquisition of Neustar, and particularly its OneID platform, further enhances our ability to deliver real-time, persistent identity resolution of disparate data fragments and attributes, in a privacy compliant manner. Our technology infrastructure allows us to efficiently integrate our data with our analytics and technology capabilities to create and deliver innovative solutions to our customers and to quickly adapt to changing customer needs. Our deep analytics resources, including our people and tools driving predictive modeling and scoring, customer segmentation, benchmarking and forecasting, enable
us to provide businesses and consumers with better insights.
We leverage our differentiated capabilities in order to serve a global customer base across multiple geographies and industry verticals. We offer our solutions to business customers in Financial Services, Insurance and other industries, and our customer base includes many of the largest companies in the industries we serve. We sell our solutions to leading consumer lending banks, credit card issuers, alternative lenders, online-only lenders (“FinTechs”), Point of Sale (“POS”)/Buy Now Pay Later
(“BNPL”) lenders, auto lenders, auto insurance carriers, cable and telecom operators, retailers, and federal, state and local government agencies. We have been successful in leveraging our brand, our expertise and our solutions and have a leading presence in several high-growth international markets. Millions of consumers across the globe also use our data to help manage their personal finances and take precautions against identity theft.
We believe we have an attractive business model that has recurring and diversified revenue streams, low capital requirements, significant operating leverage and strong and stable cash flows. The proprietary and embedded nature of our solutions and the integral role that we play in our customers’ decision-making processes have historically translated into high customer retention and revenue visibility. We continue to deliver organic growth by increasing our sales to existing customers,
developing new solutions and gaining new customers. We have a diversified portfolio of businesses across our segments, reducing our exposure to cyclical trends in any particular industry vertical or geography. We operate primarily on contributory data models in which we typically obtain updated information including a growing set of public record and alternative data, at little or no cost, as we develop new solutions and expand into new industries and geographies. We are evolving our hybrid public-private cloud technology infrastructure to ensure that our systems remain highly secure, reliable, scalable, and performant by design. We are focused on processes and foundational technology that allows us to leverage demand-led consumption from public cloud providers and from our high performance privately owned infrastructure.
Segments
We
manage our business and report our financial results, including disaggregated revenue, in three reportable segments: U.S. Markets, International and Consumer Interactive.
U.S. Markets
The U.S. Markets segment provides consumer reports, actionable insights and analytics to businesses. These businesses use our services to acquire customers, assess consumers’ ability to pay for services, identify cross-selling opportunities, measure and manage debt portfolio risk, collect debt, verify consumer identities and mitigate fraud risk. The core capabilities and delivery methods in our U.S. Markets segment allow us to serve a broad set of customers across industries. We report disaggregated revenue of our U.S. Markets segment for Financial Services and Emerging Verticals.
•Financial Services: The Financial
Services vertical, which accounted for i46.8% of our U.S. Markets revenue for the six months ended June 30, 2022, consists of our consumer lending, mortgage, auto and cards and payments lines of business, and our recently acquired Argus Information and Advisory Services, Inc. and Commerce Signals, Inc. (collectively, “Argus”) businesses. Our Financial Services clients consist of most banks, credit unions, finance companies, auto lenders, mortgage lenders, FinTechs, and other consumer lenders in the United States. We also distribute our solutions
through most major resellers, secondary market players and sales agents. Beyond traditional lenders, we work with a variety of credit arrangers, such as auto dealers and peer-to-peer lenders. We provide solutions across every aspect of the lending lifecycle; customer acquisition and engagement, fraud and ID management, retention and recovery. Our products are focused on mitigating risk and include credit reporting, credit marketing, analytics and consulting, identity verification and authentication and debt recovery solutions. The results of operations of Argus are included in the Financial Services vertical in our consolidated statements of income since the date of the acquisition.
•Emerging Verticals: Emerging Verticals include Insurance, Services and Collections, Tenant and Employment, Technology, Commerce & Communications, Public Sector, Media, and other emerging verticals
we serve, as well as our recently acquired Neustar, Inc. (“Neustar”) business. Our solutions in these verticals are also data-driven and address the entire customer lifecycle. We offer onboarding and transaction processing products, scoring and analytic products, marketing solutions, fraud and identity management solutions and customer retention solutions. The results of operations of Neustar are included in Emerging Verticals in our consolidated statements of income since the date of the acquisition.
The International segment provides services similar to our U.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 solutions 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 and take precautions against identity theft.
We
report disaggregated revenue of our International segment for the following regions: Canada, Latin America, the United Kingdom, Africa, India and Asia Pacific.
Consumer Interactive
The Consumer Interactive segment 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, identity protection and resolution, and financial management for consumers. The segment also provides solutions that help businesses respond to data breach events. Our products are provided through user-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, including our recently acquired Sontiq, Inc. (“Sontiq”) business. The results of
operations of Sontiq are included in the Consumer Interactive segment since the date of acquisition.
Corporate
In addition, Corporate provides support 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 can be significantly influenced by general macroeconomic conditions, including the impact of the global COVID-19 pandemic, the availability of credit and capital, interest rates, inflation, employment levels, consumer confidence and housing demand. Given the ongoing uncertainty and the unpredictable nature of the pandemic, including the rise of variants of the virus and the effectiveness of vaccines against those variants, COVID-19 may have a material and adverse impact on various aspects of our business in the future, including our results of operations.
In the markets where we compete, during 2021, we saw generally improving macroeconomic conditions, followed by modest softening during the first half of 2022. Macroeconomic improvements during 2021 were generally driven by an increase in gross domestic product (“GDP”), interest rates that remained near historic lows, and continuing increases in employment
levels. During 2022, while consumer balance sheets, employment rates and demand for labor continue to remain strong, concerns about rising inflation, largely driven by rapidly increasing energy prices, have led to increases in interest rates. Coupled with ongoing supply chain issues, declining stock markets, lower GDP growth, global geopolitical events and declining consumer confidence, there has been a deterioration of global macroeconomic conditions compared to the post-pandemic rebound of 2021. The macroeconomic softening had a more pronounced impact on our more developed markets compared to our emerging markets.
While we believe that positive but slowing global GDP growth is expected for the remainder of 2022, such expectations are tempered by increasing concerns around persistently high inflation, rising energy prices and interest rates, geopolitical tensions including the war in Ukraine, persistent supply chain and labor
shortage concerns, waning consumer confidence and lingering concerns about COVID-19.
Effects of Inflation
We do not believe that inflation has had a material effect on our business, results of operations or financial condition. The impact of significant recent and expected future inflation could have a substantial negative impact on our business, including decreased demand for our services as a result of rising interest rates, slowing consumer spending on non-essential goods and services, and consequently lower demand for credit.
Recent Developments
The following developments impact the comparability of our balance sheets, results of operations and cash flows between years:
Since December 1, 2021, we completed the acquisition of three businesses that materially affected, and will continue to materially affect, our results of operations in 2022 and the comparability of results to prior year periods. See Part I, Item 1, Note 2 “Business Acquisitions” for further information about these transactions.
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 our former President of Consumer Interactive. As of June 30, 2022, we have an accrued liability of $56.0 million, compared with $26.5 million
as of December 31, 2021, in connection with this matter and there is a reasonable possibility that a loss in excess of the amount accrued may be incurred. Such an outcome could have a material adverse effect on our results of operations and financial condition. See Part I, Item 1, “Notes to Unaudited Consolidated Financial Statements,” Note 16, “Contingencies,” for further information about this matter.
On January 31, 2022, we prepaid $400 million of our Senior Secured Term Loan B-6, funded from our cash on hand.
On January 24, 2022, we reached a tentative class settlement with the plaintiffs in Ramirez v. Trans Union LLC (“Ramirez” or the “Ramirez Litigation”),
which will require court approval. We expect this matter to be resolved by the end of 2022. See Part 1, Item 1, Note 16, “Contingencies” for additional information.
On December 23, 2021, we entered into a tranche of interest rate swap agreements with various counter parties that effectively fix our LIBOR exposure on a portion of our Senior Secured Term Loan or similar replacement debt. The tranche commenced on December 31, 2021, and expires on December 31, 2026, with a current aggregate notional amount of $1,600.0 million that amortizes each quarter. The tranche requires TransUnion to pay fixed rates varying between 1.428% and 1.4360% 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 17, 2021, we completed the sale of our Healthcare business. The Healthcare business met the criteria for discontinued operations at December 31, 2021, as the sale represented a strategic shift in our business that will have a major effect on our results of operations. The results of operations are classified as discontinued operations, net of tax, in our consolidated statement of income for all periods presented. All tables and discussions below exclude the impact of the Healthcare business.
On December 1, 2021, we entered into an agreement to amend certain provisions of the Senior Secured Credit Facility and exercise our right to draw additional debt in an amount of $3,100 million, less original issue discount
and deferred financing fees of $7.8 million and $43.6 million, respectively. Proceeds from the incremental loan on the Senior Secured Credit Facility were used to finance the acquisition of Neustar.
In March 2021, we prepaid $85.0 million of our Senior Secured Term Loans, funded from our cash on hand.
Recent Acquisitions
We selectively evaluate acquisitions as a means to expand our business and enter new markets. Since January 1, 2021, we have completed the following acquisitions, including those that impact the comparability of our results between periods:
•On April 8, 2022, we acquired 100% of the equity of the entities that comprised
Verisk Financial Services (“VF”), the financial services business unit of Verisk Analytics, Inc. We are retaining the leading core business of Argus, and intend to divest the remaining non-core businesses. Argus is relied upon by leading financial institutions, payments providers, and retailers worldwide for competitive studies, predictive analytics, models, and advisory services to provide a clear perspective on where their business stands today and to best position them for success in the future. The results of operations of Argus are included in the Financial Services vertical of our U.S. Markets segment in our consolidated statements of income since the date of the acquisition. The non-core businesses from the acquisition were classified as held for sale and are presented as discontinued operations, net of tax, for the three and six months ended June 30, 2022.
•On
December 1, 2021, we acquired 100% of the equity of Neustar, a premier identity resolution company with leading solutions in Marketing, Risk and Communications, enables customers to build connected consumer experiences by combining decision analytics with real-time identity resolution services driven by its OneID platform. The results of operations of Neustar are included in the Emerging Verticals of our U.S. Markets segment in our consolidated statements of income since the date of the acquisition.
•On December 1, 2021, we acquired 100% of the equity of Sontiq, a leader in digital identity protection and security, provides solutions including identity monitoring, restoration, and response products and services to help empower consumers and businesses to proactively protect against identity theft and cyber
threats. The results of operations of Sontiq are included in the Consumer Interactive segment in our consolidated statements of income since the date of the acquisition.
The following is a more detailed description of how we derive and report revenue for our three reportable segments:
U.S.
Markets
U.S. Markets provides consumer reports, actionable insights and analytics such as credit and other scores, and solutions capabilities to businesses. We report disaggregated revenue of our U.S. Markets segment in the Financial Services Vertical, which includes Argus, and the Emerging Verticals, which includes Neustar.
International
The International segment provides services similar to our U.S. Markets segment to businesses in select regions outside the United States. We report disaggregated revenue of our International segment for the following regions: Canada, Latin America, the United Kingdom, Africa, India, and Asia Pacific.
Consumer Interactive
The Consumer Interactive segment offers solutions that help consumers manage their personal finances
and take precautions against identity theft. Our Consumer Interactive segment serves consumers through both direct and indirect channels, including our recently acquired Sontiq business.
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, fair-value adjustments of equity-method and Cost Method investments, 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.
Management, including our chief operating decision maker (“CODM”), evaluates the financial performance of our businesses based on a variety of key indicators. These indicators include the GAAP measures of revenue, segment Adjusted EBITDA, cash provided by operating activities and cash paid for capital expenditures, and the non-GAAP measure consolidated Adjusted EBITDA. Refer to the “Non-GAAP Key Performance Indicators” section immediately below the table for more information, including the definitions of our non-GAAP measures.
For the three and six months ended June 30, 2022 and 2021, these key indicators were as follows:
Three
Months Ended June 30,
Six Months Ended June 30,
(in millions)
2022
2021
$ Change
% Change
2022
2021
$ Change
% Change
Revenue:
Consolidated
revenue as reported
$
948.3
$
728.2
$
220.1
30.2
%
$
1,869.5
$
1,427.1
$
442.5
31.0
%
U.S.
Markets gross revenue
633.4
438.7
194.7
44.4
%
1,233.3
860.4
372.9
43.3
%
International
gross revenue
187.0
172.5
14.6
8.4
%
378.2
338.7
39.5
11.7
%
Consumer
Interactive gross revenue
147.4
136.6
10.8
7.9
%
297.0
266.9
30.1
11.3
%
Reconciliation
of net income attributable to TransUnion to Adjusted EBITDA:
Net income attributable to TransUnion
$
95.6
$
127.6
$
(32.1)
(25.1)
%
$
143.9
$
255.6
$
(111.7)
(43.7)
%
Discontinued
operations
(0.3)
(10.8)
(10.5)
nm
—
(24.1)
24.1
nm
Net income from continuing operations attributable to TransUnion
$
95.3
$
116.8
$
(42.6)
(36.4)
%
$
143.9
$
231.4
$
(87.5)
(37.8)
%
Net
interest expense
50.7
24.7
26.0
105.1
%
100.2
49.8
50.3
101.0
%
Provision
for income taxes
29.2
58.6
(29.4)
(50.2)
%
53.5
82.3
(28.8)
(35.0)
%
Depreciation
and amortization
130.6
93.2
37.4
40.1
%
259.4
182.7
76.7
42.0
%
EBITDA
$
305.7
$
293.4
$
12.3
$
557.1
$
546.3
$
(13.4)
Adjustments
to EBITDA:
Stock-based compensation(1)
$
20.3
$
17.1
$
3.2
18.6
%
$
40.8
$
32.5
$
8.4
25.8
%
Mergers
and acquisitions, divestitures and business optimization(2)
14.0
8.8
5.2
58.6
%
28.6
10.6
18.0
nm
Accelerated
technology investment(3)
8.1
9.8
(1.6)
(16.8)
%
20.1
17.1
3.0
17.7
%
Net
other(4)
2.2
(33.8)
36.0
nm
37.9
(33.7)
71.6
nm
Total adjustments to EBITDA
$
44.6
$
1.9
$
42.7
nm
$
127.5
$
26.5
$
101.0
nm
Consolidated
Adjusted EBITDA
$
350.3
$
295.3
$
55.0
18.6
%
$
684.5
$
572.8
$
111.7
19.5
%
Adjusted
EBITDA:
U.S. Markets
$
234.4
$
186.8
$
47.6
25.5
%
$
451.1
$
363.5
$
87.6
24.1
%
International
81.0
72.2
8.9
12.3
%
163.0
143.6
19.4
13.5
%
Consumer
Interactive
68.0
64.8
3.2
5.0
%
137.0
123.3
13.6
11.0
%
Corporate
(33.1)
(28.5)
(4.6)
(16.2)
%
(66.5)
(57.6)
(8.9)
(15.4)
%
Consolidated
Adjusted EBITDA
$
350.3
$
295.3
$
55.0
18.6
%
$
684.5
$
572.8
$
111.7
19.5
%
Other
metrics:
Cash (used in) provided by operating activities of continuing operations
As a result of displaying amounts in millions, rounding differences may exist in the tables above and footnotes below.
(1)Consisted of stock-based compensation and cash-settled stock-based compensation.
(2)For the three months ended June 30, 2022, consisted of the following adjustments: $9.0 million of acquisition expenses; $7.7 million of Neustar integration costs;
$(1.8) million reimbursements for transition services related to divested businesses, net of separation expenses; and a $(0.9) million adjustment to fair value of put options.
For the six months ended June 30, 2022, consisted of the following adjustments: $17.9 million of acquisition expenses; $16.7 million of Neustar integration costs; $(5.3) million reimbursements for transition services related to divested businesses, net of separation expenses; and a $(0.8) million adjustment to fair value of put options.
For the three months ended June 30, 2021, consisted of the following adjustments: $6.7 million of adjustments to contingent consideration expense from previous acquisitions; $1.1 million of acquisition expenses; and a $1.1 million gain reduction to notes receivable that were converted
into equity upon acquisition and consolidation of an entity.
For the six months ended June 30, 2021, consisted of the following adjustments: $(7.9) million of adjustments to contingent consideration expense from previous acquisitions; $(2.2) million of acquisition expenses; a $(1.1) million gain reduction to notes receivable that were converted into equity upon acquisition and consolidation of an entity; and a $0.5 million gain on the sale of a cost method investment.
(3)Represents expenses associated with our accelerated technology investment.
(4)For the three months ended June 30, 2022, consisted of $2.2 million of net other, which includes net losses from currency remeasurement of our foreign
operations, loan fees and other.
For the six months ended June 30, 2022, consisted of the following adjustments: $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 $3.0 million of net other, which includes net losses from currency remeasurement of our foreign operations, loan fees and other.
For the three months ended June 30, 2021, consisted of the following adjustments: a $(32.4) million net reduction in certain legal expenses; a $(3.4) million recovery from the Fraud Incident, net of additional administrative expenses; and $2.0 million of net other consisting of net losses from currency remeasurement of our foreign operations, loan fees and other.
For the
six months ended June 30, 2021, consisted of the following adjustments: a $(32.4) million net reduction in certain legal expenses; a $(3.4) million recovery from the Fraud Incident, net of additional administrative expense; and $2.1 million of net other consisting of net losses from currency remeasurement of our foreign operations, loan fees and other.
Non-GAAP Key Performance Indicators
Adjusted EBITDA
We define Adjusted EBITDA as net income (loss) attributable to TransUnion plus (less) loss (income) from discontinued operations, net of tax, plus net interest expense, plus (less) provision (benefit) for income taxes, plus depreciation and amortization, 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 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. Adjusted EBITDA is also a measure 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 a compensation measure under our incentive compensation plan. 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 (loss) attributable to TransUnion. The table above provides a
reconciliation from net income (loss) attributable to TransUnion to consolidated Adjusted EBITDA for the three and six months ended June 30, 2022 and 2021.
Revenue
For the three months ended June 30, 2022, revenue increased
$220.1 million, or 30.2%, compared with the same period in 2021, due primarily to an increase in revenue from our recent acquisitions of 27.1%, improved, but slowing, macroeconomic conditions in most of our markets and revenue from new product initiatives, partially offset by a 1.5% decrease due to the impact of foreign currencies on certain of our international businesses.
For the six months ended June 30, 2022 revenue increased $442.5 million, or 31.0%, compared with the same period in 2021, due primarily to an increase in revenue from our recent acquisitions of 25.9%, improved, but slowing, macroeconomic conditions in most of our markets and revenue from new product initiatives, partially offset by a 1.1% decrease due to the impact of foreign currencies on certain of our international businesses.
Revenue by segment and a more detailed
explanation of revenue within each segment are as follows:
Three
Months Ended June 30,
Six Months Ended June 30,
(in millions)
2022
2021
$ Change
% Change
2022
2021
$ Change
% Change
U.S.
Markets:
Financial Services
$
301.2
$
270.7
$
30.5
11.3
%
$
577.6
$
533.7
$
43.9
8.2
%
Emerging
Verticals
332.2
168.0
164.2
97.7
%
655.7
326.7
329.0
100.7
%
U.S.
Markets gross revenue
$
633.4
$
438.7
$
194.7
44.4
%
$
1,233.3
$
860.4
$
372.9
43.3
%
International:
Canada
$
33.1
$
34.0
$
(0.9)
(2.6)
%
$
63.8
$
64.4
$
(0.6)
(0.9)
%
Latin
America
29.5
26.0
3.5
13.3
%
56.8
50.1
6.6
13.2
%
United
Kingdom
49.6
53.4
(3.7)
(7.0)
%
106.0
103.7
2.3
2.3
%
Africa
15.6
15.2
0.4
3.0
%
30.4
28.9
1.5
5.2
%
India
40.2
27.9
12.2
43.8
%
85.3
61.9
23.5
37.9
%
Asia
Pacific
19.0
16.0
3.0
18.9
%
35.9
29.7
6.2
20.8
%
International
gross revenue
$
187.0
$
172.5
$
14.6
8.4
%
$
378.2
$
338.7
$
39.5
11.7
%
Consumer
Interactive gross revenue
$
147.4
$
136.6
$
10.8
7.9
%
$
297.0
$
266.9
$
30.1
11.3
%
Total
gross revenue
$
967.8
$
747.7
$
220.1
29.4
%
$
1,908.5
$
1,466.0
$
442.5
30.2
%
Intersegment
revenue eliminations:
U.S. Markets
$
(17.8)
$
(17.6)
$
(0.2)
(1.4)
%
$
(35.5)
$
(35.0)
$
(0.5)
(1.5)
%
International
(1.5)
(1.5)
—
0.3
%
(2.9)
(2.9)
—
(0.9)
%
Consumer
Interactive
(0.3)
(0.5)
0.3
48.8
%
(0.5)
(1.0)
0.5
51.3
%
Total
intersegment revenue eliminations
$
(19.5)
$
(19.6)
$
—
0.1
%
$
(39.0)
$
(39.0)
$
—
—
%
Total
revenue as reported
$
948.3
$
728.2
$
220.1
30.2
%
$
1,869.5
$
1,427.1
$
442.5
31.0
%
nm:
not meaningful
As a result of displaying amounts in millions, rounding differences may exist in the table above.
U.S. Markets revenue increased $194.7 million, or 44.4%, and $372.9 million, or 43.3%, for the three and six months ended June 30, 2022, compared with the same periods in 2021, due to an increase in revenue
in both verticals, including an increase in revenue of 39.6% and 37.5% from our recent acquisitions in each respective period.
Financial Services: Revenue increased $30.5 million, or 11.3%, and $43.9 million, or 8.2%, for the three and six months ended June 30, 2022, compared with the same periods in 2021. The increase in revenue is due primarily to an 8.3% and 4.2% increase from our recent acquisition of Argus in each respective period, as well as improved, but slowing, macroeconomic conditions and revenue from new product initiatives in our consumer lending and card and banking lines of business, and to a lesser extent our auto line of business, partially offset by a decrease in revenue in our mortgage line of business as volumes steadily declined throughout the quarter due to the significant increase in interest rates during
the quarter. We anticipate a decline in our mortgage line of business will continue for the foreseeable future as we expect interest rates to continue to rise.
Emerging Verticals: Revenue increased $164.2 million, or 97.7%, and $329.0 million, or 100.7%, for the three and six months ended June 30, 2022, compared with the same period in 2021. The increase in revenue is due primarily to an increase of 90.0% and 92.0% from our acquisition of Neustar in each respective period, and improved, but slowing, macroeconomic conditions and revenue from new product initiatives in all of our verticals.
International Segment
International revenue increased $14.6 million, or 8.4%, and $39.5 million, or 11.7%, for the three and six months ended June
30, 2022, compared with the same period in 2021, due primarily to higher local currency revenue from increased volumes resulting from improved macroeconomic conditions that are slowing in the more developed regions, and revenue from new product initiatives, partially offset by a decrease in revenue of 6.2% and 4.5% in each respective period from the impact of foreign currencies.
Canada: Revenue decreased $0.9 million, or 2.6%, and $0.6 million, or 0.9%, for the three and six months ended June 30, 2022, compared with the same period in 2021, due primarily to a decrease in revenue of 3.7% and 1.9% in each respective period from the impact of foreign currencies and a significant breach contract in last year’s periods, partially offset by
higher local currency revenue from increased volumes resulting from improved but slowing macroeconomic conditions and new business wins and new product initiatives.
Latin America: Revenue increased $3.5 million, or 13.3%, and $6.6 million, or 13.2%, for the three and six months ended June 30, 2022, compared with the same period in 2021, due primarily to higher local currency revenue from increased volumes resulting from improving macroeconomic conditions and revenue from new business wins, partially offset by a decrease of 1.1% and 2.4% in each respective period from the impact of foreign currencies.
United Kingdom: Revenue decreased $3.7 million, or 7.0%, and increased $2.3 million, or 2.3%, for the three and six months ended June
30, 2022, respectively, compared with the same period in 2021. The decrease in the three months ended June 30, 2022 is due primarily to a 10.2% decrease in revenue from the impact of foreign currencies and one-time contracts last year, partially offset by higher local currency revenue from increased volumes resulting from improved, but slowing, macroeconomic conditions and revenue from new business wins and new product initiatives. The increase in the six months ended June 30, 2022 is due primarily to higher local currency revenue from increased volumes resulting from improved, but slowing, macroeconomic conditions and revenue from new product initiatives, partially offset by a 6.8% decrease in revenue from the impact of foreign currencies.
Africa:
Revenue increased $0.4 million, or 3.0%, and $1.5 million, or 5.2%, for the three and six months ended June 30, 2022, compared with the same period in 2021, due primarily to higher local currency revenue from increased volume resulting from improved economic conditions and from new product initiatives, and a decrease of 8.8% and 5.5% in each respective period from the impact of foreign currencies.
India: Revenue increased $12.2 million, or 43.8%, and $23.5 million, or 37.9%, for the three and six months ended June 30, 2022, compared with the same period in 2021, due primarily to higher local currency revenue from increased volumes resulting from strong macroeconomic conditions compared with last year’s second wave COVID lockdown, and revenue from new product
initiatives and business wins, partially offset by a decrease of 6.7% and 5.4%in each respective period from the impact of foreign currencies.
Asia Pacific: Revenue increased $3.0 million, or 18.9%, and $6.2 million, or 20.8%, for the three and six months ended June 30, 2022, compared with the same period in 2021, due primarily to higher local currency revenue from increased volumes resulting from improved macroeconomic conditions, particularly in the Philippines, and revenue from new business wins and
new product initiatives, partially offset by a decrease of 3.3% and 2.6%in each respective period from the impact of foreign currencies.
Consumer Interactive Segment
Consumer Interactive revenue increased $10.8 million, or 7.9%, and $30.1 million, or 11.3%, for the three and six months ended June 30, 2022, compared with the same period in 2021, due primarily to an increase of 17.3% in each period from our acquisition of Sontiq, partially offset by a decrease in revenue in our other channels.
Operating Expenses
Operating expenses for the three and six months ended
June 30, 2022 and 2021, were as follows:
Three
Months Ended June 30,
Six Months Ended June 30,
(in millions)
2022
2021
$ Change
% Change
2022
2021
$ Change
% Change
Cost
of services
$
308.1
$
234.7
$
73.4
31.3
%
$
606.2
$
461.5
$
144.7
31.4
%
Selling,
general and administrative
327.1
199.8
127.3
63.7
%
686.5
418.9
267.6
63.9
%
Depreciation
and amortization
130.6
93.2
37.4
40.1
%
259.4
182.7
76.7
42.0
%
Total
operating expenses
$
765.8
$
527.7
$
238.1
45.1
%
$
1,552.1
$
1,063.0
$
489.1
46.0
%
As
a result of displaying amounts in millions, rounding differences may exist in the table above.
Cost of Services
Cost of services increased $73.4 million and $144.7 million for the three and six months ended June 30, 2022, compared with the same periods in 2021.
The increase was due primarily to:
•operating costs from our recent acquisitions in our U.S. Markets and Consumer Interactive segments;
•an increase in costs from our accelerated technology investment;
•an increase in product costs resulting from the increase in revenue in all of our segments; and
•an
increase in labor costs, primarily in our U.S. Markets and International segments, as we continue to invest in key strategic growth initiatives,
partially offset by:
•A decrease in incentive and stock-based compensation due to lower performance and forfeitures; and
•the impact of foreign currencies on the expenses of our International segment.
Selling, General and Administrative
Selling, general and administrative expenses increased $127.3 million and $267.6 million for the three and six months ended June 30, 2022, compared with the same period in 2021.
The increase was due primarily to:
•operating
costs from our recent acquisitions in our U.S. Markets and Consumer Interactive segments;
•an increase for certain legal and regulatory expenses;
•an increase in labor costs in our U.S. Markets and International segments, and in corporate, as we continue to invest in key strategic growth initiatives; and
•an increase in travel and entertainment expenses due to increased travel following the easing of COVID-19 travel restrictions,
partially offset by:
•a decrease in advertising, primarily in our Consumer Interactive segment;
•A decrease in incentive and stock-based compensation due to lower
performance and forfeitures;
•a decrease in adjustments to contingent consideration expense in our U.S. Markets segment; and
•the impact of foreign currencies on the expenses of our International segment.
Depreciation and Amortization
Depreciation and amortization increased $37.4 million and $76.7 million for the three and six months ended June
30, 2022, compared with the same period in 2021. These increases were due primarily to an increase in depreciation and amortization from our recent acquisitions of tangible and intangible assets.
Adjusted EBITDA and Adjusted EBITDA margin
Three
Months Ended June 30,
Six Months Ended June 30,
(in millions)
2022
2021
$ Change
% Change
2022
2021
$ Change
% Change
Revenue:
U.S.
Markets gross revenue
$
633.4
$
438.7
$
194.7
44.4
%
$
1,233.3
$
860.4
$
372.9
43.3
%
International
gross revenue
187.0
172.5
14.6
8.4
%
378.2
338.7
39.5
11.7
%
Consumer
Interactive gross revenue
147.4
136.6
10.8
7.9
%
297.0
266.9
30.1
11.3
%
Total
gross revenue
$
967.8
$
747.7
$
220.1
29.4
%
1,908.5
1,466.0
442.5
30.2
%
Less:
intersegment revenue eliminations
(19.5)
(19.6)
—
0.1
%
(39.0)
(39.0)
—
—
%
Total
revenue as reported
$
948.3
$
728.2
$
220.1
30.2
%
$
1,869.5
$
1,427.1
$
442.5
31.0
%
Net
income attributable to TransUnion
$
95.6
$
127.6
$
(32.1)
(25.1)
%
$
143.9
$
255.6
$
(111.7)
(43.7)
%
Net
income attributable to TransUnion margin
10.1
%
17.5
%
(7.5)
%
7.7
%
17.9
%
(10.2)
%
Adjusted
EBITDA(1):
U.S. Markets
$
234.4
$
186.8
$
47.6
25.5
%
$
451.1
$
363.5
$
87.6
24.1
%
International
81.0
72.2
8.9
12.3
%
163.0
143.6
19.4
13.5
%
Consumer
Interactive
68.0
64.8
3.2
5.0
%
137.0
123.3
13.6
11.0
%
Corporate
(33.1)
(28.5)
(4.6)
(16.2)
%
(66.5)
(57.6)
(8.9)
(15.4)
%
Consolidated
Adjusted EBITDA(1)
$
350.3
$
295.3
$
55.0
18.6
%
$
684.5
$
572.8
$
111.7
19.5
%
Adjusted
EBITDA margin(1):
U.S. Markets
37.0
%
42.6
%
(5.6)
%
36.6
%
42.2
%
(5.7)
%
International
43.3
%
41.8
%
1.5
%
43.1
%
42.4
%
0.7
%
Consumer
Interactive
46.2
%
47.5
%
(1.3)
%
46.1
%
46.2
%
(0.1)
%
Consolidated
Adjusted EBITDA margin(1)
36.9
%
40.6
%
(3.6)
%
36.6
%
40.1
%
(3.5)
%
Net
income attributable to TransUnion margin
10.1
%
17.5
%
(7.5)
%
7.7
%
17.9
%
(10.2)
%
As
a result of displaying amounts in millions, rounding differences may exist in the table above.
1.See the reconciliation of net income attributable to TransUnion to Consolidated Adjusted EBITDA in the “Key Performance Measures” section at the beginning of our discussion about our Results of Operations. Segment Adjusted EBITDA margins are calculated using segment gross revenue and segment Adjusted EBITDA. Consolidated Adjusted EBITDA margin is calculated using consolidated revenue and consolidated Adjusted EBITDA.
Consolidated Adjusted EBITDA increased $55.0 million and $111.7 million for the three and six months ended June 30, 2022, compared to the same periods in 2021.
•an increase in revenue from our recent acquisitions in our U.S. Markets and Consumer Interactive segments, and improved macroeconomic conditions, slowing in our more developed markets;
•A decrease in incentive and stock-based compensation due to lower performance and forfeitures; and
•a decrease in advertising costs, primarily in our Consumer Interactive segment,
partially offset by:
•an increase in operating costs from our recent acquisitions in our U.S. Markets and Consumer Interactive segments;
•an
increase in product costs resulting from the increase in revenue in all of our segments;
•an increase in labor costs in our U.S. Markets and International segments, and in corporate, as we continue to invest in key strategic growth initiative; and
•an increase in travel and entertainment expenses following the easing of COVID-19 travel restrictions.
Adjusted EBITDA margin for the U.S. Markets segment decreased due primarily to the impact of the lower margin profile of the Neustar business, integration costs of VF, an increase in product costs resulting from the increase in revenue and an increase in travel and entertainment expenses as a result of fewer travel restrictions, partially offset by an increase in revenue and improving market conditions in both of our verticals as well as revenue
from our recent acquisitions.
Adjusted EBITDA margins for the International segment increased due primarily to an increase in local currency revenue and improving market conditions in all of our regions, partially offset by an increase in labor costs in the six-month period, increased travel and entertainment expenses due to fewer travel restrictions, and the impact of weakening foreign currencies in certain regions.
Adjusted EBITDA margin for the Consumer Interactive segment decreased due to a decrease in revenue in our direct and indirect channel and integration costs of Sontiq, partially offset by a decrease in advertising costs.
Non-Operating Income and Expense
Three
Months Ended June 30,
Six Months Ended June 30,
(in millions)
2022
2021
$ Change
% Change
2022
2021
$ Change
% Change
Interest
expense
$
(51.9)
$
(25.6)
$
(26.3)
(102.8)
%
$
(102.1)
$
(51.4)
$
(50.7)
(98.7)
%
Interest
income
1.2
0.9
0.3
38.5
%
1.9
1.5
0.4
24.4
%
Earnings
from equity method investments
3.1
2.7
0.4
14.6
%
6.1
5.7
0.4
7.3
%
Other
income and expense, net:
Acquisition fees
(9.0)
(1.1)
(7.9)
nm
(17.9)
(2.2)
(15.7)
nm
Loan
fees
(0.4)
(0.4)
—
nm
(7.3)
(1.2)
(6.1)
nm
Other income (expense), net
3.0
3.7
(0.8)
nm
7.0
5.2
1.8
nm
Total
other income and expense, net
(6.4)
2.2
(8.7)
nm
(18.2)
1.8
(20.0)
(1,111.1)
%
Non-operating
income and expense
$
(54.0)
$
(19.7)
$
(34.2)
(173.5)
%
$
(112.2)
$
(42.3)
$
(69.9)
(165.2)
%
nm:
not meaningful
As a result of displaying amounts in millions, rounding differences may exist in the table above.
For the three and six months ended June 30, 2022, interest expense increased $26.3 million and $50.7 million compared with the same periods in 2021. This increase was due to additional borrowings of $3,100.0 million under our Senior Secured Credit Facility to fund the acquisition of Neustar on December 1, 2021, and the impact of an increase in the average interest rate.
Acquisition fees represent costs we have incurred in each period for various acquisition-related efforts.
For the six months ended June 30, 2022,
loan fees include $6.5 million of our unamortized original issue discount and deferred financing fees written off as a result of the $400.0 million prepayment of our Senior Secured Term Loan.
Other income (expense), net includes currency remeasurement gains and losses, dividends received from cost method investments, gains and losses on cost method investments, if any, and other miscellaneous non-operating income and expense items.
For
the three months ended June 30, 2022, we reported an effective tax rate of 22.7%, which was higher than the 21.0% U.S. federal statutory rate due primarily to nondeductible expenses in connection with acquisition costs and executive compensation limitations, state taxes and other rate-impacting items, partially offset by benefits from the research and development credit, excess tax benefits on stock-based compensation and foreign rate differential.
For the six months ended June 30, 2022, we reported an effective tax rate of 26.1%, which was higher than the 21.0% U.S. federal statutory rate due primarily to nondeductible expenses in connection with certain legal and regulatory matters, acquisition costs and executive compensation limitations and state taxes and other rate-impacting items, partially offset by excess tax benefits
on stock-based compensation and benefits from the research and development credit.
For the three months ended June 30, 2021, we reported an effective tax rate of 32.4%, which was higher than the 21.0% U.S. federal statutory rate due primarily to recording tax expense related to the remeasurement of our U.K. deferred taxes to reflect an increase in the U.K. corporate income tax rate enacted in the second quarter of 2021, partially offset by discrete tax benefit related to electing the Global Intangible Low Tax Income (“GILTI”) high-tax exclusion retroactively for the 2019 tax year and excess tax benefits on stock-based compensation.
For the six months ended June 30, 2021, we reported an effective tax rate of 25.6%, which was higher than the 21.0% U.S. federal statutory rate
due primarily to recording tax expense related to the remeasurement of our U.K. deferred taxes to reflect an increase in the U.K. corporate income tax rate enacted in the second quarter 2021, partially offset by discrete tax benefit related to electing the GILTI high-tax exclusion retroactively for the 2018 and 2019 tax years and excess tax benefits on stock-based compensation.
Significant Changes in Assets and Liabilities
Total cash decreased by $1,330.8 million from December 31, 2021 to June 30, 2022 due primarily to cash paid for acquisitions, prepayments made on our debt, payments for taxes due on the gain on the divestiture of our Healthcare business made in the second quarter of 2022, as well as normal recurring payments that occur in the first quarter annually. For further
information, refer to the Liquidity and Capital Resources section directly below.
The increase in other intangibles, net of accumulated amortization, as of June 30, 2022, compared with December 31, 2021, is due primarily to the addition of the preliminary fair value estimate of intangible assets from our recent acquisition of Argus and expenditures for the development of internal use software, partially offset by 2022 amortization expense and a decrease due to the cumulative translation adjustment of our foreign entities long-lived assets resulting from changes to foreign exchange rates between periods. The increase in goodwill as of June 30, 2022, compared with December 31, 2021, is due primarily to the addition of the preliminary
estimate of goodwill from our recent acquisition, partially offset by translation adjustments of our foreign entities goodwill resulting from changes to foreign exchange rates between periods. See Part I, Item 1, Note 2, “Acquisitions,” for the preliminary estimates of the fair value of the intangible assets and goodwill from our recent acquisition. The offset to the translation adjustments are included in accumulated other comprehensive loss on our balance sheet.
The decrease in current liabilities is due primarily to taxes due on the gain on the sale of our Healthcare business that were paid in the second quarter of 2022 and the payment of accrued bonuses during the first quarter of 2022 that were earned in 2021, partially offset by an increase in our estimated liabilities for certain legal and regulatory expenses. See Part I, Item 1, Note 8, “Other Current Liabilities” for further information.
Total
debt decreased from December 31, 2021 to June 30, 2022 primarily due to our prepayment of $400.0 million of our Senior Secured Term Loans. See Part I, Item 1, Note 10, “Debt” for additional information.
Our principal
sources of liquidity are cash flows provided by operating activities, cash and cash equivalents on hand, and our senior secured revolving line of credit. Our principal uses of liquidity are working capital, capital expenditures, debt service and other capital structure obligations, business acquisitions, and other general corporate purposes. We believe our cash on hand, cash generated from operations, and funds available under the senior secured revolving line of credit will be sufficient to fund our planned capital expenditures, debt service and other capital structure obligations, business acquisitions 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 elect to raise funds through debt or equity financing in the future to fund operations, significant investments or acquisitions that are consistent with our growth strategy.
Cash and cash equivalents totaled $521.8 million and $1,842.4 million at June 30, 2022, and December 31, 2021, respectively, of which $242.7 million and $205.0 million was held outside the United States in each respective period. As of June 30, 2022, we had no outstanding balance under the Senior Secured Revolving Credit Facility and $0.1 million of outstanding letters of credit, and could have borrowed up to the remaining $299.9 million available.
We also have the ability to request incremental loans on
the same terms under the Senior Secured Credit Facility up to the sum of the greater of $1,000.0 million and 100% of Consolidated EBITDA, minus any amounts of secured indebtedness previously issued under this provision, and may incur additional incremental loans so long as the senior secured net leverage ratio does not exceed 4.25-to-1, subject to certain additional conditions and commitments by existing or new lenders to fund any additional borrowings.
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 investments 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.
On January 31, 2022, we prepaid $400 million of our Senior Secured Term Loans, funded from our cash on hand. The remaining balance retained in cash and cash equivalents is consistent with our short-term cash needs and investment objectives.
On April 8, 2022, we completed our acquisition of VF for $508.0 million, which was funded by cash on hand.
For additional information on this transaction, see Part I, Item 1, “Notes to Unaudited Consolidated Financial Statements,” Note 2, “Business Acquisitions” and Note 3, “Discontinued Operations.”
In April 2022, we paid $355 million of taxes due on the gain on the divestiture of our Healthcare business funded with cash on hand.
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 loan agreement.There were no excess cash flows for 2021 and therefore no additional payment will be required in 2022. Additional payments based on excess cash flows could be due in future years. See Part I, Item
1, “Notes to Unaudited Consolidated Financial Statements,” Note 10, “Debt,” for additional information about our debt.
For the six months ended June 30, 2021, we prepaid $85.0 million of our Senior Secured Term Loan B-5, funded from our cash on hand.
On February 13, 2018, we announced that our board of directors approved a dividend policy pursuant to which we intend to pay quarterly cash dividends on our common stock. We paid dividends of $0.095 per share totaling $37.2 million in the first half of 2022. 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.
During the first quarter of 2022, 0.8 million outstanding employee restricted stock units vested and became taxable to the employees. Employees satisfy their payroll tax withholding obligations in a net share settlement arrangement. During the first
quarter of 2022, we remitted cash
to the respective governmental agencies equivalent to the value of the shares employees used to satisfy their withholding obligations of $29.2 million. We expect a similar cash obligation during the first quarter of 2023.
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. Any determination to repurchase additional shares will be at the discretion of management and will depend on a number of factors, including our liquidity, results of
operations, financial condition, contractual restrictions, restrictions imposed by applicable law, market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities and other factors management deems appropriate. 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
Six
Months Ended June 30,
(in millions)
2022
2021
Change
Cash (used in) provided by operating activities of continuing operations
$
(115.4)
$
347.7
$
(463.1)
Cash
used in investing activities of continuing operations
(676.2)
(142.2)
(534.0)
Cash used in financing activities of continuing operations
(521.8)
(202.5)
(319.3)
Cash flows of discontinued operations and effect of exchange rate changes on cash
and cash equivalents
(7.2)
30.0
(37.2)
Net change in cash and cash equivalents
$
(1,320.6)
$
33.0
$
(1,353.6)
Operating Activities
The
decrease in cash used in operating activities of continuing operations was due primarily to payments for taxes due on the gain on the divestiture of our Healthcare business, an increase in cash used to pay accrued incentive and other compensation in the first quarter of 2022 compared to the first quarter of 2021 and an increase in interest expense payments.
Investing Activities
The increase in cash used in investing activities of continuing operations was due primarily to payments made for the VF acquisition and an increase in capital expenditures.
Financing Activities
The increase in cash used in financing activities of continuing operations was due primarily to an increase in debt prepayments.
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 $28.1 million, from $93.2 million for the six months ended June 30, 2021, to $121.3 million for the six months ended June 30, 2022.
Debt
Hedges
On December 23, 2021, we entered into new interest rate swap agreements with various
counterparties that effectively fix our LIBOR exposure on a portion of our Senior Secured Term Loan or similar replacement debt. The new swaps commenced on December 31, 2021, and expire on December 31, 2026, with a current aggregate notional amount of $1,592.0 million that amortizes each quarter. The agreement requires TransUnion to pay fixed rates varying between 1.4280% and 1.4360% 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 LIBOR 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 first swap required TransUnion to pay fixed rates varying between 0.5200% and 0.5295% in exchange for receiving a variable rate that matches the variable rate on our loans. The second swap commenced on June 30, 2022, and expires on June 30, 2025, with an initial aggregate notional
amount of $1,110.0 million that amortizes each quarter after it commences. The second swap requires TransUnion to pay fixed rates varying between 0.9125% and 0.9280% 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 17, 2018, we entered into interest rate swap agreements with various counterparties that effectively fix our LIBOR exposure on a portion of our Senior Secured Term Loans or similar replacement debt. The current aggregate notional amount under these agreements is $1,380.0 million, decreasing each quarter until the second agreement terminates on December 30, 2022. The agreements require TransUnion to pay fixed rates currently fixed at 2.702% and 2.706% 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 Credit Facility 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 June 30, 2022, we were in compliance with all debt covenants.
For additional information about our debt and hedge, see Part I, Item 1, “Notes to Unaudited Consolidated Financial Statements,” Note 10, “Debt.”
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 impact on our consolidated financial
statements.
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 judgments and estimates in 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, 2021, filed with the Securities and Exchange Commission on February
22, 2022, for additional information about our critical accounting estimates.
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of 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 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,” or the negatives of these words and other similar expressions.
Factors
that could cause actual results to differ materially from those described in the forward-looking statements, or that could materially affect our financial results or such forward-looking statements include:
•the effects of the COVID-19 pandemic, including the prevalence and severity of the variants;
•the war in Ukraine and escalating geopolitical tensions as a result of Russia’s invasion of Ukraine;
•macroeconomic effects including the impact of inflation, and industry trends and adverse developments in the debt, consumer credit and financial services markets;
•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 “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 acquire businesses, including any recently announced business acquisitions, successfully secure financing for our acquisitions, timely consummate our acquisitions, successfully integrate the operations of our acquisitions, control the costs of integrating our acquisitions and realize the intended benefits of such
acquisitions;
•our ability to consummate the sale of our recently announced divestiture on a timely basis or at all;
•our ability to protect and enforce our intellectual property, trade secrets and other forms of unpatented intellectual property;
•our ability to defend our intellectual property from infringement claims by third parties;
•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,
2021, 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. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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, 2021.
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 Credit Facility. Interest rates on these borrowings are based, at our election, on LIBOR or an alternate base rate, subject to floors, plus applicable margins based on applicable net leverage ratios. We currently have several interest rate hedge instruments that effectively fixes our LIBOR exposure on approximately 68% 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.
See Part I, Item 1, “Notes to Unaudited Consolidated Financial Statements,” Note 10, “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
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. Based on the evaluation of our disclosure controls and procedures as of the
end of the period covered by this report, our Chief Executive
Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable assurance level.
Changes in Internal Controls over Financial Reporting
During the quarter covered by this report, there have been no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting.
Refer to Part I, Item 3, “Legal Proceedings,” of our Annual
Report on Form 10-K for the year ended December 31, 2021, and Part II, Item 1, “Legal Proceedings” of all subsequently filed Quarterly Reports on Form 10-Q, including this Quarterly Report, and Part I, Item 1, Note 16 “Contingencies,” of this Quarterly Report for a full description of our material pending legal and regulatory matters.
ITEM 1A. RISK FACTORS
The following discussion supplements the discussion of risk factors affecting the Company as set forth in Part I, Item 1A "Risk Factors” included in our Annual Report on Form 10-K for the year ended December
31, 2021, 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, which could materially affect our business, financial condition or future results. The risks described in these 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, and operating results.
Risks Related to Laws, Regulations and Government Oversight:
The Consumer Financial Protection Bureau has supervisory and examination authority over our business and may initiate enforcement actions and litigation with regard to our compliance with federal consumer
protection laws, which could have a material adverse effect on our business, results of operations and financial condition.
The CFPB has broad authority over our business. This includes authority to issue regulations under federal consumer financial protection laws, such as under FCRA and other laws applicable to us and our financial customers. The CFPB is authorized to prevent “unfair, deceptive or abusive acts or practices” through its regulatory, supervisory and enforcement authority.
In 2012, credit reporting companies like us became subject to a federal supervision program for the first time under the CFPB’s authority to supervise and examine certain non-depository institutions that are “larger participants” of the consumer credit reporting market. The CFPB conducts examinations and investigations, and may issue subpoenas and bring civil actions in federal court
for violations of the federal consumer financial laws including FCRA. In these proceedings, the CFPB can seek relief that includes: rescission or reformation of contracts, restitution, disgorgement of profits, payment of damages, limits on activities and civil money penalties of up to $1.0 million per day for knowing violations. The CFPB conducts periodic examinations of us and the consumer credit reporting industry, which could result in new regulations or enforcement actions or proceedings. Actions by the CFPB could result in requirements to alter or cease offering affected products and services, making them less attractive and restricting our ability to offer them.
For example, in January 2017, as part of an agreed settlement with the CFPB, we agreed among other things, to implement certain practice changes in the way we advertise,
market and sell products and services offered directly to consumers. In June 2021, we received a Notice and Opportunity to Respond and Advise (“NORA”) letter from the CFPB, informing us that the CFPB’s Enforcement Division was considering whether to recommend that the CFPB take legal action against us and certain of our executive officers. The NORA letter alleged that we failed to comply with and timely implement the Consent Order issued by the CFPB in January 2017 (the “Consent Order”), and further alleged additional violations related to Consumer Interactive Inc.’s marketing practices. On September 27, 2021, the Enforcement Division advised us that it had obtained authority to pursue an enforcement action. On April 12, 2022, after failed settlement negotiations with the CFPB related to the matter, the CFPB filed a lawsuit against us and our former President
of Consumer Interactive in the United States District Court for the Northern District of Illinois alleging that we violated the Consent Order, engaged in deceptive acts and practices in marketing TransUnion Credit Monitoring, provided substantial assistance to TransUnion Interactive, Inc. in violating the Consent Order and the law, failed to obtain signed written authorizations from consumers before debiting their bank accounts for the TransUnion Credit Monitoring product and illegally diverted consumers from their free annual file disclosure into paid subscription products. We continue to believe that our marketing practices are lawful and appropriate and that we have been, and remain, in compliance with the Consent Order, and we will vigorously defend against allegations to the contrary in such proceedings. On July 8, 2022, the TU Entities and Mr. Danaher each filed a motion to dismiss the lawsuit.
As of June 30, 2022, we have an accrual of $56.0 million recorded in connection with this matter and there is a reasonable possibility that a loss in excess of the amount accrued may be incurred, and such an outcome could have a material adverse effect on our results of operations and financial condition, however, any possible loss or range of loss in excess of the amount accrued is not reasonably estimable at this time. In addition, we will incur increased costs litigating this matter. See Part I, Item 1, Notes to Unaudited Consolidated Financial Statements, Note 16, “Contingencies,” for information regarding our legal proceedings.
Additionally, in March 2022, we received a NORA from the CFPB informing us that the CFPB’s Enforcement Division is considering whether to recommend that the CFPB take legal action against us related to our tenant and employment screening business, TransUnion Rental Screening Solutions, Inc. (“TURSS”). The NORA letter alleges that Trans Union LLC and TURRS violated the Fair Credit Reporting Act by failing to (i) follow reasonable procedures to assure maximum possible accuracy of information in consumer reports and (ii) disclose to consumers the sources of such information. We believe that our acts and practices are lawful and we intend to vigorously defend against any allegations to the contrary. Also, in June 2022, the CFPB informed Trans Union LLC that it intends to issue a NORA letter following an investigation relating to potential violations of law in connection with the placement and lifting
of security freezes resulting from certain system issues. As of the date of this disclosure, Trans Union LLC has not received the NORA letter and has not otherwise been informed of the allegations the CFPB may make. We have corrected associated system issues and have processes in place to monitor and address issues going forward. Should the CFPB commence an action against us in connection with either of these matters, it may seek restitution, disgorgement, civil monetary penalties, injunctive relief or other corrective action. We cannot provide assurance that the CFPB will not ultimately commence a legal action against us in either of these matters, nor are we able to predict the likely outcome of any such action.
Recently, the consumer reporting industry has been subject to heightened scrutiny. Based in part on public comments by CFPB officials, we believe that this trend is likely to continue and could result in more regulatory
and legislative scrutinyof the practices of our industry and additional regulatory enforcement actions and litigation, which could adversely affect the Company’s business and results of operations.
Our compliance costs and legal and regulatory exposure could increase materially if we are targeted by the CFPB for additional enforcement actions, or if the CFPB or other regulators enact new regulations, change regulations that were previously adopted, modify through supervision or enforcement past regulatory guidance, or interpret existing regulations in a manner different or stricter than have been previously interpreted. For example, the CFPB recently issued guidance that indicates increased focus on consumer reporting agencies’ compliance with the accuracy and dispute obligations under the
FCRA with respect to rental information. Although we have committed resources to enhancing our risk and compliance programs, actions by the CFPB or other regulators against us or our current or former executives could result in increased operating costs, reputational harm, payment of damages and civil monetary penalties, injunctive relief and/or restitution, any of which could have a material adverse effect on our business, results of operations and financial condition.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(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)
April 1 to April 30
293,374
$
98.48
—
$
166.5
May
1 to May 31
2,041
88.21
—
$
166.5
June 1 to June 30
1,175
85.29
—
$
166.5
Total
296,590
—
Shares
shown in column (a) above consist of shares that were repurchased from employees for withholding taxes on options exercised and restricted stock units vesting pursuant to the terms of the Company's equity compensation plans and net settled.
(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 second quarter of 2018, we had purchased approximately $133.5 million of common stock under the program and may purchase up to an additional $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.
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.
The cover page from this Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in Inline XBRL (included with Exhibit 101 attachments).
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.
