TransUnion (TRU) FY 2021 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
ITEM 7. 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 Part I, Item 1A, “Risk Factors,” and Part II, Item 8, “Financial Statements and Supplementary Information,” including TransUnion’s audited consolidated financial statements and the accompanying notes. 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 in “Cautionary Notice Regarding Forward-Looking Statements” and Part I, Item 1A, “Risk Factors.”
References in this discussion and analysis to the “Company,” “we,” “us,” and “our” refer to TransUnion and its direct and indirect subsidiaries, including TransUnion Intermediate Holdings, Inc.
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 our Neustar business. 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, Inc. (“Neustar”), and particularly its OneID platform, will further enhance 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
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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. The results of operations of Neustar are included in the Emerging Verticals and 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 technology solutions services, and other value-added risk management services. We also have insurance, business and automotive databases in select geographies. These services are offered to customers in a number of industries including financial services, retail credit, insurance, automotive, collections, public sector, 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.
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. The results of operations of Sontiq are included in the Consumer Interactive segment and our consolidated statements of income since the date of the 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:
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Macroeconomic and Industry Trends, Including the Effects of the COVID-19 Pandemic on our Business and Results of Operations
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. During 2020, the economic effect of the COVID-19 pandemic had a material and adverse impact on numerous aspects of our business, including our results of operations in all of the markets where we operate. During 2021, we saw steady improvements in our results of operations in all these markets. This dynamic impacts the comparability of our results of operations, including our revenue and expenses, for each of the periods presented below. Also, given 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, we have seen generally improving macroeconomic conditions since the second quarter of 2020. In the United States, we saw strong and improving macroeconomic conditions throughout 2021, including strong gross domestic product (“GDP”) growth, falling unemployment rates, and mortgage interest rates that are still near historic lows, all of which are evident in the significantly improved 2021 results of all of our segments. During 2021, we saw similar improvements in our international markets, although in certain of these markets there remains higher ongoing concerns about the impact of COVID-19. These macroeconomic improvements are evident in our 2021 results of operations, with all of our segments showing ongoing signs of improvements compared with last year.
While we believe that a strong but slowing global GDP growth is expected for the coming year, such expectations are tempered by increasing concerns around rising inflation, geopolitical tensions and existing and new coronavirus variants, as well as waning consumer confidence, interest rate pressures and increasing supply chain and ongoing labor shortage concerns. Also, in certain of our markets, there remains concern regarding the impact COVID-19 could have on our business.
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 recent and expected future inflation increases could have a significant negative impact on our business, including decreased demand for our services as a result of rising interest rates.
Recent Developments
The following developments impact the comparability of our balance sheets, results of operations and cash flows between years:
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. 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. See Item 8, “Notes to Consolidated Financial Statements,” Note 22, “Contingencies” for additional information.
During 2020, the economic effect of the COVID-19 pandemic had a material and adverse impact on numerous aspects of our business, including the results of operations in all of our segments. During 2021, we saw ongoing improvements in our results of operations in all of the markets where we operate. This dynamic impacts the comparability of our results of operations between all of the periods presented below.
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. Discontinued operations, net of tax, also includes a gain on the disposal of the Healthcare business of $982.5, net of tax, in the consolidated statements of income for 2021. All tables and discussions below exclude the impact of the Healthcare business.
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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 $3,100.0 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.
On December 1, 2021, we entered into a Second Lien Credit Agreement to obtain term loans in an aggregate amount of $640.0 million (the “Second Lien Term Loan”), less original issue discount and deferred financing fees of $3.2 million and $14.3 million, respectively, used to fund the acquisition of Sontiq. On December 23, 2021, we fully repaid the Second Lien Term Loan using a portion of the proceeds from our sale of the Healthcare business. As a result of the prepayment, we expensed the unamortized original issue discount and deferred fees to other income and expense in the consolidated statement of income.
In March 2021, we prepaid $85.0 million of our Senior Secured Term Loans, funded from our cash on hand. In December 2020,
we prepaid $150.0 million of our Senior Secured Term Loans, funded from our cash on hand.
On March 10, 2020, we entered into two tranches of interest rate swap agreements with various counter-parties that effectively fix our LIBOR exposure on a portion of our Senior Secured Term Loans or similar replacement debt. The first tranche commenced on June 30, 2020, and expires on June 30, 2022, with a current aggregate notional amount of $1,120.0 million that amortizes each quarter. The first tranche requires 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 tranche commences 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 tranche 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.
In December 2020, we prepaid $150.0 million of our Senior Secured Term Loans, funded from our cash on hand. During 2019, we prepaid $340.0 million of our Senior Secured Term Loans, also funded from cash on hand. These transactions affect the comparability of interest expense between 2021, 2020 and 2019 as further discussed in “Results of Operations - Non-Operating Income and Expense” below.
On November 15, 2019, we refinanced our B-3 and B-4 loans with a new tranche of Senior Secured Term Loan B (“Senior Secured Term Loan B-5”) which, along with cash of $9.0 million, was used to pay-off the Senior Secured Term Loan B-3 and Senior Secured Term Loan B-4 loans. On December 10, 2019, we refinanced our A-2 loan with a new tranche of Senior Secured Term Loan A (“Senior Secured Term Loan A-3”), which was used to pay-off our existing Senior Secured Term Loan A-2 loans. With this refinance, we also converted the existing Senior Secured Revolving Line of Credit into a new Senior Secured Revolving Line of Credit.
Recent Acquisitions
We selectively evaluate acquisitions as a means to expand our business and to enter new markets. Since January 1, 2019, we have completed the following acquisitions, including those that impact the comparability of our results between periods:
•On December 1, 2021, we acquired 100% of the equity of Neustar. 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 Emerging Verticals as part of our U.S. Markets segment in our consolidated statements of income since the date of the acquisition. See Item 8, “Notes to Consolidated Financial Statements,” Note 2, “Business Acquisitions.”
•On December 1, 2021, we acquired 100% of the equity of Sontiq. 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, which are not material to our consolidated financial statements, are included in the Consumer Interactive segment in our consolidated statements of income since the date of the acquisition. See Item 8, “Notes to Consolidated Financial Statements,” Note 2, “Business Acquisitions,” for additional information.
•On October 14, 2020, we acquired 100% of the equity of Tru Optik Data Corp (“Tru Optik”). Tru Optik uses its custom audience-building platform to deliver predictive scoring to improve the performance of custom digital marketing campaigns. The results of operations of Tru Optik, which are not material to our consolidated financial statements, have been included as part of our U.S. Markets segment in our consolidated statements of income since the date of the acquisition.
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•On August 14, 2020, we acquired 100% of the equity of Signal Digital, Inc. (“Signal”). Signal is a digital marketing company that provides tag management, data collection, and onboarding capabilities to customers for activation in the marketing ecosystem. The results of operations of Signal, which are not material to our consolidated financial statements, have been included as part of our U.S. Markets segment in our consolidated statements of income since the date of the acquisition.
•On May 22, 2019, we acquired 100% of the equity of TruSignal, Inc. (“TruSignal”). TruSignal is an innovative leader in people-based marketing technology for Fortune 500 brands, agencies, platforms, publishers and data owners. TruSignal uses predictive scoring, powered by artificial intelligence, to make data actionable for one-to-one addressable marketing. The results of operations of TruSignal, which are not material to our consolidated financial statements, have been included as part of our U.S. Markets segment in our consolidated statements of income since the date of the acquisition.
Key Components of Our Results of Operations
Revenue
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 for the following verticals:
•Financial Services: The Financial Services vertical, which accounts for approximately 60.2% of our 2021 U.S. Markets revenue, consists of our consumer lending, mortgage, auto and cards and payments lines of business. Our financial services customers consist of most banks, credit unions, finance companies, POS/BNPL lenders, 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.
•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 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.
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, retail credit, insurance, automotive, collections, public sector 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 to help consumers proactively manage their personal finances.
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. With our acquisition of Sontiq in 2021, we have added to our foundational credit monitoring solutions with a comprehensive set of identity protection offerings. The results of operations of Sontiq, which are not material to our consolidated financial statements, are included in the Consumer Interactive segment in our consolidated statements of income since the date of the acquisition.
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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, if any, expenses related to successful and unsuccessful business acquisitions, loan fees, debt refinancing expenses, certain acquisition-related gains and losses and other non-operating income and expenses.
Results of Operations—Twelve Months Ended December 31, 2021, 2020 and 2019
Key Performance Measures
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 measures Adjusted Revenue and 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 twelve months ended December 31, 2021, 2020 and 2019, these key performance indicators were as follows:
| Change | |||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Twelve Months Ended December 31, | 2021 vs. 2020 | 2020 vs. 2019 | |||||||||||||||||||||||
| (dollars in millions) | 2021 | 2020 | 2019 | $ | % | $ | % | ||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||
| Consolidated revenue as reported | $ | 2,960.2 | $ | 2,530.6 | $ | 2,463.2 | $ | 429.6 | 17.0 | % | $ | 67.4 | 2.7 | % | |||||||||||
| Acquisition-related revenue adjustments(1) | — | — | 5.6 | — | nm | (5.6) | nm | ||||||||||||||||||
| Consolidated Adjusted Revenue | $ | 2,960.2 | $ | 2,530.6 | $ | 2,468.8 | $ | 429.6 | 17.0 | % | $ | 61.9 | 2.5 | % | |||||||||||
| U.S. Markets gross revenue | $ | 1,791.0 | $ | 1,510.7 | $ | 1,416.7 | $ | 280.3 | 18.6 | % | $ | 94.0 | 6.6 | % | |||||||||||
| Acquisition-related revenue adjustments(1) | — | — | — | — | nm | — | nm | ||||||||||||||||||
| U.S. Markets gross Adjusted Revenue | $ | 1,791.0 | $ | 1,510.7 | $ | 1,416.7 | $ | 280.3 | 18.6 | % | $ | 94.0 | 6.6 | % | |||||||||||
| International gross revenue | $ | 701.9 | $ | 582.7 | $ | 623.5 | $ | 119.2 | 20.5 | % | $ | (40.8) | (6.5) | % | |||||||||||
| Acquisition-related revenue adjustments(1) | — | — | 5.6 | — | nm | (5.6) | nm | ||||||||||||||||||
| International gross Adjusted Revenue | $ | 701.9 | $ | 582.7 | $ | 629.1 | $ | 119.2 | 20.5 | % | $ | (46.4) | (7.4) | % | |||||||||||
| Consumer Interactive gross revenue | $ | 545.8 | $ | 513.1 | $ | 497.8 | $ | 32.7 | 6.4 | % | $ | 15.3 | 3.1 | % |
nm: not meaningful
As a result of displaying amounts in millions, rounding differences may exist in the table above.
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| Change | |||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Twelve Months Ended December 31, | 2021 vs. 2020 | 2020 vs. 2019 | |||||||||||||||||||||||
| (dollars in millions) | 2021 | 2020 | 2019 | $ | % | $ | % | ||||||||||||||||||
| Reconciliation of net income attributable to TransUnion to consolidated Adjusted EBITDA: | |||||||||||||||||||||||||
| Net income attributable to TransUnion | $ | 1,387.1 | $ | 343.2 | $ | 346.9 | $ | 1,043.9 | nm | $ | (3.7) | (1.1)% | |||||||||||||
| Discontinued operations | (1,031.7) | (49.8) | (48.0) | (981.8) | nm | (1.8) | nm | ||||||||||||||||||
| Net income from continuing operations attributable to TransUnion | $ | 355.5 | $ | 293.4 | $ | 298.9 | $ | 62.1 | 21.2 | % | $ | (5.5) | (1.9)% | ||||||||||||
| Net interest expense | 109.2 | 120.6 | 166.2 | (11.5) | (9.5) | % | (45.6) | (27.4) | % | ||||||||||||||||
| Provision (benefit) for income taxes | 130.9 | 83.7 | 70.5 | 47.1 | 56.3 | % | 13.2 | 18.8% | |||||||||||||||||
| Depreciation and amortization | 377.0 | 346.8 | 338.6 | 30.3 | 8.7 | % | 8.2 | 2.4 | % | ||||||||||||||||
| EBITDA | $ | 972.5 | $ | 844.5 | $ | 874.2 | $ | 128.0 | 15.2 | % | $ | (29.7) | (3.4) | % | |||||||||||
| Adjustments to EBITDA: | |||||||||||||||||||||||||
| Acquisition-related revenue adjustments(1) | — | — | 5.6 | — | nm | (5.6) | nm | ||||||||||||||||||
| Stock-based compensation(2) | 70.1 | 45.9 | 55.3 | 24.3 | 52.8 | % | (9.4) | (17.1) | % | ||||||||||||||||
| Mergers and acquisitions, divestitures and business optimization(3) | 52.6 | 8.5 | 1.1 | 44.1 | nm | 7.4 | nm | ||||||||||||||||||
| Technology Transformation(4) | 42.3 | 19.3 | — | 23.0 | nm | 19.3 | nm | ||||||||||||||||||
| Net other(5) | 19.4 | 35.5 | 29.7 | (16.1) | (45.4) | % | 5.7 | 19.3 | % | ||||||||||||||||
| Total adjustments to EBITDA | 184.4 | 109.1 | 91.7 | 75.2 | 68.9 | % | 17.4 | 19.0 | % | ||||||||||||||||
| Consolidated Adjusted EBITDA | $ | 1,156.9 | $ | 953.6 | $ | 965.9 | $ | 203.2 | 21.3 | % | $ | (12.3) | (1.3) | % | |||||||||||
| Other Metrics: | |||||||||||||||||||||||||
| Cash provided by continuing operations | $ | 759.4 | $ | 716.3 | $ | 710.9 | $ | 43.2 | 6.0 | % | $ | 5.4 | 0.8 | % | |||||||||||
| Capital expenditures | $ | (224.2) | $ | (205.6) | $ | (188.4) | $ | (18.6) | 9.0 | % | $ | (17.2) | 9.1 | % |
nm: not meaningful
As a result of displaying amounts in millions, rounding differences may exist in the table above.
1.This adjustment represents certain non-cash adjustments related to acquired entities, predominantly adjustments to increase revenue resulting from purchase accounting reductions to deferred revenue we record on the opening balance sheet of acquired entities. Beginning in the third quarter of 2019, we no longer have these adjustments to revenue.
2.Consisted of stock-based compensation and cash-settled stock-based compensation.
3.For the twelve months ended December 31, 2021, consisted of the following adjustments: $48.1 million of acquisition expenses; $9.1 million of Neustar integration costs; $8.4 million of adjustments to contingent consideration expense from previous acquisitions; a $1.1 million gain reduction to notes receivable that were converted into equity upon acquisition and consolidation of an entity; a ($12.5) million gain on a Cost Method investment resulting from an observable price change for a similar investment of the same issuer; a ($1.1) million reimbursement for transition services related to divested businesses, net of separation expenses; and a ($0.5) million gain on the sale of a Cost Method investment.
For the twelve months ended December 31, 2020, consisted of the following adjustments: $7.5 million of Callcredit integration costs; $7.0 million of acquisition expenses; a $4.8 million loss on the impairment of a Cost Method investment; $1.7 million of adjustments to contingent consideration expense from previous acquisitions; an ($8.1) million remeasurement gain on notes receivable that were converted into equity upon acquisition and consolidation of an entity; a ($2.5) million gain on a Cost Method investment resulting from an observable price change for a similar investment of the same issuer; a ($1.8) million gain on the disposal of assets of a small business in our United Kingdom region; and a ($0.1) million reimbursement for transition services provided to the buyers of certain of our discontinued operations.
For the twelve months ended December 31, 2019, consisted of the following adjustments: a ($31.2) million gain on a Cost Method investment resulting from an observable price change for a similar investment of the same issuer; a ($0.5) million reimbursement for transition services provided to the buyers of certain of our discontinued operations; $15.8 million of Callcredit integration costs; a $10.0 million loss on the impairment of certain Cost Method investments; a $3.7 million loss on assets of a small business in our United Kingdom region that are classified as held-for-sale; $2.4
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million of acquisition expenses; and a $0.8 million adjustment to contingent consideration expense from previous acquisitions.
4.Represents expenses associated with our accelerated technology investment to migrate to the cloud.
5.For the twelve months ended December 31, 2021, consisted of the following adjustments: $17.9 million of deferred loan fees written off as a result of the prepayments on our debt; $1.2 million for certain legal and regulatory expenses; a ($3.5) million recovery from the Fraud Incident, net of additional administrative expense; and a $3.7 million net loss from currency remeasurement of our foreign operations, loan fees and other.
For the twelve months ended December 31, 2020, consisted of the following adjustments: $34.7 million for certain legal expenses; $0.9 million of deferred loan fees written off as a result of the prepayments on our debt; a $(1.5) million recovery from the Fraud Incident, net of additional administrative expense; and $1.4 million net loss from currency remeasurement of our foreign operations, loan fees and other.
For the twelve months ended December 31, 2019, consisted of the following adjustments: $13.5 million of expenses associated with the Fraud Incident, net of the portion that is attributable to the non-controlling interest; $13.0 million of fees related to the refinancing of senior secured credit facility; $2.0 million of deferred loan fees written off as a result of the prepayments on our debt; and $1.3 million loss from currency remeasurement, loan fees, reduction to expenses for certain legal and regulatory matters and other.
Non-GAAP Key Performance Indicators
Adjusted Revenue
We define Adjusted Revenue as GAAP revenue adjusted for certain acquisition-related deferred revenue and non-core contract-related revenue. We present Adjusted Revenue as a supplemental measure of revenue because we believe it provides a basis to compare revenue between periods. Beginning in the third quarter of 2019, we no longer have these adjustments to revenue.
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 (less) the revenue adjustments included in Adjusted Revenue, plus stock-based compensation, plus mergers, acquisitions, divestitures and business optimization-related expenses including Neustar and Callcredit 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 our net income (loss) attributable to TransUnion to consolidated Adjusted EBITDA for the twelve months ended December 31, 2021, 2020 and 2019.
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Revenue
As mentioned above, the effects of COVID-19 impact the comparability of revenue between periods for all discussions below.
For 2021, revenue increased $429.6 million compared with 2020, due primarily to improving macroeconomic conditions in all of our markets, revenue from new product initiatives, revenue from our recent acquisitions in the U.S. Markets and Consumer Interactive segments, and an increase of 1.1% increase from the impact of strengthening foreign currencies.
For 2020, revenue increased $67.4 million compared with 2019, due primarily to organic growth in the Financial Services vertical in the U.S. Markets segment, the Consumer Interactive segment, and the Canada region in the International segment, revenue from recent acquisitions in U.S. Markets Emerging Verticals, and revenue from new product initiatives, partially offset by a decrease in organic revenue in U.S. Markets Emerging Verticals and the other regions of the International segment, and a 0.9% decrease from the impact of weakening foreign currencies.
Revenue by segment and a more detailed explanation of revenue within each segment are as follows:
| Change | |||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Twelve months ended December 31, | 2021 vs. 2020 | 2020 vs. 2019 | |||||||||||||||||||||||
| (dollars in millions) | 2021 | 2020 | 2019 | $ | % | $ | % | ||||||||||||||||||
| U.S. Markets: | |||||||||||||||||||||||||
| Financial Services | $ | 1,078.9 | $ | 939.6 | $ | 849.0 | $ | 139.3 | 14.8 | % | $ | 90.6 | 10.7 | % | |||||||||||
| Emerging Verticals | 712.1 | 571.1 | 567.7 | 141.0 | 24.7 | % | 3.3 | 0.6 | % | ||||||||||||||||
| U.S. Markets gross revenue | $ | 1,791.0 | $ | 1,510.7 | $ | 1,416.7 | $ | 280.3 | 18.6 | % | $ | 94.0 | 6.6 | % | |||||||||||
| International: | |||||||||||||||||||||||||
| Canada | $ | 126.9 | $ | 108.0 | $ | 104.1 | $ | 19.0 | 17.6 | % | $ | 3.9 | 3.7 | % | |||||||||||
| Latin America | 103.2 | 86.5 | 104.2 | 16.7 | 19.3 | % | (17.7) | (17.0) | % | ||||||||||||||||
| UK | 216.5 | 183.1 | 186.7 | 33.4 | 18.2 | % | (3.6) | (1.9) | % | ||||||||||||||||
| Africa | 59.5 | 49.0 | 61.2 | 10.5 | 21.4 | % | (12.2) | (20.0) | % | ||||||||||||||||
| India | 133.1 | 100.0 | 108.1 | 33.1 | 33.1 | % | (8.1) | (7.5) | % | ||||||||||||||||
| Asia Pacific | 62.7 | 56.2 | 59.1 | 6.5 | 11.6 | % | (3.0) | (5.0) | % | ||||||||||||||||
| International gross revenue | $ | 701.9 | $ | 582.7 | $ | 623.5 | $ | 119.2 | 20.5 | % | $ | (40.8) | (6.5) | % | |||||||||||
| Consumer Interactive gross revenue | $ | 545.8 | $ | 513.1 | $ | 497.8 | $ | 32.7 | 6.4 | % | $ | 15.3 | 3.1 | % | |||||||||||
| Total gross revenue | $ | 3,038.7 | $ | 2,606.5 | $ | 2,538.0 | $ | 432.2 | 16.6 | % | $ | 68.5 | 2.7 | % | |||||||||||
| Intersegment revenue eliminations: | |||||||||||||||||||||||||
| U.S. Markets | $ | (70.5) | $ | (68.9) | $ | (68.7) | $ | (1.6) | nm | $ | (0.2) | nm | |||||||||||||
| International | (5.9) | (5.2) | (5.1) | (0.7) | nm | (0.1) | nm | ||||||||||||||||||
| Consumer Interactive | (2.0) | (1.7) | (1.0) | (0.3) | nm | (0.8) | nm | ||||||||||||||||||
| Total intersegment revenue eliminations | (78.4) | (75.9) | (74.8) | (2.5) | nm | (1.1) | nm | ||||||||||||||||||
| Total revenue as reported | $ | 2,960.2 | $ | 2,530.6 | $ | 2,463.2 | $ | 429.6 | 17.0 | % | $ | 67.4 | 2.7 | % |
nm: not meaningful
As a result of displaying amounts in millions, rounding differences may exist in the table above.
U.S. Markets Segment
For 2021, U.S. Markets revenue increased $280.3 million compared with 2020, primarily due to increases in revenue in both verticals including revenue from our acquisition of Neustar.
For 2020, U.S. Markets revenue increased $94.0 million compared with 2019, due primarily to an increase in revenue in the Financial Services vertical.
Financial Services: For 2021, Financial Services revenue increased $139.3 million due primarily to improvements in macroeconomic conditions and new product initiatives in our consumer lending, card and banking, and auto lines of business, partially offset by a decrease in revenue in our mortgage line of business as volumes have declined due to rising interest rates.
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We anticipate a decline in our mortgage line of business will continue for the foreseeable future as interest rates are expected to continue to rise.
For 2020, Financial Services revenue increased $90.6 million due primarily to improvements in market conditions in our mortgage line of business, as historically low interest rates drove refinance activity and the home purchase market experienced modest growth. The growth in the mortgage line of business was partially offset by decreases in our other lines of business, which have shown signs of improvement since the lows in April 2020.
Emerging Verticals: For 2021, Emerging Verticals revenue increased $141.0 million due primarily to improving macroeconomic conditions in most of our verticals, revenue from new product initiatives, and an increase from recent acquisitions. Every vertical had an increase in revenue during the year, except Services and Collections, which was down slightly. Our recent acquisitions accounted for an increase in revenue of 12.0%.
For 2020, Emerging Verticals revenue increased $3.3 million due primarily to an increase in the Media, Public Sector, Insurance and Tenant & Employment verticals, partially offset by a decrease in the Collections and Diversified Markets verticals. Recent acquisitions accounted for an increase in revenue of 1.8%.
International Segment
For 2021, International revenue increased $119.2 million, or 20.5%, compared with 2020, due primarily to higher local currency revenue from increased volumes resulting from improving economic conditions and from new product initiatives, and an increase of 4.5% from the impact of strengthening foreign currencies.
For 2020, International revenue decreased $40.8 million, or 6.5%, compared with 2019. The decrease was due primarily to the impact of COVID-19, and a decrease of 3.5% from the impact of weakening foreign currencies.
Canada: For 2021, Canada revenue increased $19.0 million, or 17.6%, compared with 2020. The increase was due primarily to higher local currency revenue from increased volumes resulting from improving economic conditions and from new product initiatives and an increase of 7.7% from the impact of strengthening foreign currencies.
For 2020, Canada revenue increased $3.9 million, or 3.7% compared with 2019. The increase was due primarily to higher local currency revenue from increased volumes including new product initiatives, partially offset by a decrease from the impact of COVID-19 primarily in the second and third quarters, and a decrease of less than 1.0% from the impact of weakening foreign currencies.
Latin America: For 2021, Latin America revenue increased $16.7 million, or 19.3%, compared with 2020. The increase was due primarily to higher local currency revenue from increased volumes resulting from improving economic conditions and from new product initiatives, partially offset by a decrease of 1.4% from the impact of weakening foreign currencies.
For 2020, Latin America revenue decreased $17.7 million, or 17.0%, compared with 2019. The decrease was due primarily to a decrease in local currency revenue as a result of COVID-19 primarily in the second, third and fourth quarters, and a decrease of 11.5% from the impact of weakening foreign currencies, partially offset by higher local currency revenue from increased volumes including new product initiatives in the first quarter.
United Kingdom: For 2021, United Kingdom revenue increased $33.4 million, or 18.2%, compared with 2020. The increase was due primarily to higher local currency revenue from increased volumes resulting from improving economic conditions and from new product initiatives and an increase of 7.9% from the impact of strengthening foreign currencies.
For 2020, United Kingdom revenue decreased $3.6 million, or 1.9%, compared with 2019. The decrease was due primarily to a decrease in local currency revenue as a result of COVID-19 primarily in the second, third and fourth quarters, partially offset by higher local currency revenue from increased volumes including new product initiatives in the first quarter and an increase of 0.7% from the impact of strengthening foreign currencies.
Africa: For 2021, Africa revenue increased $10.5 million, or 21.4%. The increase was due primarily to higher local currency revenue from increased volumes resulting from improving economic conditions and from new product initiatives, and an increase of 10.3% from the impact of strengthening foreign currencies.
For 2020, Africa revenue decreased $12.2 million, or 20.0%, due primarily to a decrease in local currency revenue as a result of COVID-19 primarily in the second, third and fourth quarters, and a decrease of 10.1% from the impact of weakening foreign currencies, partially offset by higher local currency revenue from increased volumes including new product initiatives in the first quarter.
India: For 2021, India revenue increased $33.1 million, or 33.1%, due primarily to higher local currency revenue from increased volumes resulting from improving economic conditions and from new product initiatives, and an increase of 0.1% from the impact of strengthening foreign currencies.
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For 2020, India revenue decreased $8.1 million, or 7.5%, due primarily to a decrease in local currency revenue as a result of COVID-19 primarily in the second and third quarters, and a decrease of 4.5% from the impact of weakening foreign currencies, partially offset by an increase in local currency revenue from increased volumes including new product initiatives in the first and fourth quarters.
Asia Pacific: For 2021, Asia Pacific revenue increased $6.5 million, or 11.6%, due primarily to higher local currency revenue from increased volumes resulting from improving economic conditions and from new product initiatives, partially offset by a decrease of 0.2% from the impact of weakening foreign currencies.
For 2020, Asia Pacific revenue decreased $3.0 million, or 5.0%, due primarily to a decrease in local currency revenue as a result of COVID-19 primarily in the second, third and fourth quarters, partially offset by an increase of 1.5% from the impact of strengthening foreign currencies and an increase in local currency revenue from increased volumes including new product initiatives in the first quarter.
Consumer Interactive Segment
For 2021, Consumer Interactive revenue increased $32.7 million, or 6.4%, compared with 2020, due primarily to an increase in revenue from both our direct and indirect channels including revenue from our acquisition of Sontiq. In our indirect channel, revenue increased primarily due to a large breach services contract which was recognized in the second half of 2021.
For 2020, Consumer Interactive revenue increased $15.3 million compared with 2019, due primarily to an increase in revenue from our direct channel, partially offset by a decrease in our indirect channel as a result of COVID-19 primarily in the second, third and fourth quarters.
Operating Expenses
As mentioned above, the effects of COVID-19 impact the comparability of expenses between periods for all discussions below. Operating expenses for the periods reported were as follows:
| Change | |||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Twelve months ended December 31, | 2021 vs. 2020 | 2020 vs. 2019 | |||||||||||||||||||||||
| (dollars in millions) | 2021 | 2020 | 2019 | $ | % | $ | % | ||||||||||||||||||
| Cost of services | $ | 991.6 | $ | 853.9 | $ | 805.5 | $ | 137.7 | 16.1 | % | $ | 48.4 | 6.0 | % | |||||||||||
| Selling, general and administrative | 943.9 | 829.7 | 777.4 | 114.2 | 13.8 | % | 52.3 | 6.7 | % | ||||||||||||||||
| Depreciation and amortization | 377.0 | 346.8 | 338.6 | 30.3 | 8.7 | % | 8.2 | 2.4 | % | ||||||||||||||||
| Total operating expenses | $ | 2,312.5 | $ | 2,030.4 | $ | 1,921.4 | $ | 282.2 | 13.9 | % | $ | 108.9 | 5.7 | % |
As a result of displaying amounts in millions, rounding differences may exist in the table above.
Cost of Services
For 2021, cost of services increased $137.7 million compared with 2020. The increase was due primarily to:
•an increase in product costs resulting from the increase in revenue, primarily in our U.S. Markets segment;
•operating and integration-related costs relating to the business acquisitions in our U.S. Markets and Consumer Interactive segments;
•an increase in labor costs, primarily in our International segment, as we continue to invest in key strategic growth initiatives;
•an increase in costs from our accelerated technology investment; and
•the impact of strengthening foreign currencies on the expenses of our International segment.
For 2020, cost of services increased $48.4 million compared with 2019. The increase was due primarily to:
•an increase in labor costs in our U.S. Markets segment, primarily due to key strategic growth initiatives;
•an increase in product costs in our U.S. Markets and Consumer Interactive segments; and
•an increase in costs from our accelerated technology investment;
partially offset by:
•a decrease in travel and entertainment expenses due to travel restrictions and shelter in place orders related to COVID-19; and
•the impact of weakening foreign currencies on the expenses of our International segment.
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Selling, General and Administrative
For 2021, selling, general and administrative expenses increased $114.2 million compared with 2020. The increase was due primarily to:
•an increase in labor costs across all segments and Corporate, including an increase in incentive and stock-based compensation due to improved performance, as we continue to invest in key strategic growth initiatives;
•operating and integration-related costs from our recent acquisitions in our U.S. Markets and Consumer Interactive segments;
•an increase in costs from our accelerated technology investment; and
•the impact of strengthening foreign currencies on the expenses of our International segment,
partially offset by:
•a decrease in costs for certain legal and regulatory matters; and
•a decrease in bad debt expense, as we have reversed reserves that were recorded at the beginning of the COVID-19 pandemic;
For 2020, selling, general and administrative expenses increased $52.3 million compared with 2019. The increase was due primarily to:
•an increase of $58.1 million for legal and regulatory matters, primarily related to the Ramirez litigation;
•an increase in bad debt expense due to an increase in our estimated reserves including the expected impact of COVID-19 primarily in our U.S. Markets and International segments;
•an increase in advertising costs, primarily in our Consumer Interactive segment; and
•an increase in costs from our accelerated technology investment;
partially offset by:
•a decrease in travel and entertainment expenses due to travel restrictions and shelter in place orders related to COVID-19;
•a decrease in incentive and stock-based compensation from lower expected achievement on certain performance-based awards due to COVID-19; and
•the impact of overall weakening foreign currencies on the expenses of our International segment.
Depreciation and amortization
For 2021, depreciation and amortization increased $30.3 million compared with 2020, due primarily to recent acquisitions of tangible and intangible assets.
For 2020, depreciation and amortization increased $8.2 million compared with 2019, due primarily to recent acquisitions of tangible and intangible assets, partially offset by a decrease in amortization related to certain intangible assets from our 2012 change in control transaction that have become fully amortized. partially offset by a decrease in amortization related to certain intangible assets from our 2012 change in control transaction that have become fully amortized.
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Adjusted EBITDA and Adjusted EBITDA margin
As mentioned above, the effects of COVID-19 impact the comparability of Adjusted EBITDA between periods for all discussions below.
| Twelve months ended December 31, | 2021 vs. 2020 | 2020 vs. 2019 | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (dollars in millions) | 2021 | 2020 | 2019 | $ Change | % Change | $ Change | % Change | ||||||||||||||||||
| Adjusted Revenue(1): | |||||||||||||||||||||||||
| U.S. Markets gross Adjusted Revenue | $ | 1,791.0 | $ | 1,510.7 | $ | 1,416.7 | $ | 280.3 | 18.6 | % | $ | 94.0 | 6.6 | % | |||||||||||
| International gross Adjusted Revenue | 701.9 | 582.7 | 629.1 | 119.2 | 20.5 | % | (46.4) | (7.4) | % | ||||||||||||||||
| Consumer Interactive gross Adjusted Revenue | 545.8 | 513.1 | 497.8 | 32.7 | 6.4 | % | 15.3 | 3.1 | % | ||||||||||||||||
| Total gross Adjusted Revenue | 3,038.7 | 2,606.5 | 2,543.6 | 432.2 | 16.6 | % | 63.0 | 2.5 | % | ||||||||||||||||
| Less: intersegment revenue eliminations | (78.4) | (75.9) | (74.8) | (2.5) | nm | (1.1) | nm | ||||||||||||||||||
| Consolidated Adjusted Revenue | $ | 2,960.2 | $ | 2,530.6 | $ | 2,468.8 | $ | 429.6 | 17.0 | % | $ | 61.9 | 2.5 | % | |||||||||||
| Adjusted EBITDA(1): | |||||||||||||||||||||||||
| U.S. Markets | $ | 715.6 | $ | 593.9 | $ | 573.7 | $ | 121.8 | 20.5 | % | $ | 20.1 | 3.5 | % | |||||||||||
| International | 300.1 | 219.8 | 258.1 | 80.3 | 36.5 | % | (38.3) | (14.8) | % | ||||||||||||||||
| Consumer Interactive | 263.1 | 247.6 | 248.4 | 15.5 | 6.3 | % | (0.8) | (0.3) | % | ||||||||||||||||
| Corporate | (121.9) | (107.6) | (114.3) | (14.3) | (13.3) | % | 6.7 | 5.9 | % | ||||||||||||||||
| Consolidated Adjusted EBITDA | $ | 1,156.9 | $ | 953.6 | $ | 965.9 | $ | 203.2 | 21.3 | % | $ | (12.3) | (1.3) | % | |||||||||||
| Adjusted EBITDA margin: | |||||||||||||||||||||||||
| U.S. Markets | 40.0 | % | 39.3 | % | 40.5 | % | 0.6 | % | (1.2) | % | |||||||||||||||
| International | 42.8 | % | 37.7 | % | 41.0 | % | 5.0 | % | (3.3) | % | |||||||||||||||
| Consumer Interactive | 48.2 | % | 48.3 | % | 49.9 | % | (0.1) | % | (1.7) | % | |||||||||||||||
| Consolidated Adjusted EBITDA margin | 39.1 | % | 37.7 | % | 39.1 | % | 1.4 | % | (1.4) | % |
nm: not meaningful
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 and the reconciliation of segment revenue to segment Adjusted Revenue in the “Key Performance Measures” section at the beginning of our discussion about our Results of Operations. See the “Revenue” table above for details of the intersegment revenue eliminations by segment. Segment Adjusted EBITDA margins are calculated using segment gross Adjusted Revenue and segment Adjusted EBITDA. Consolidated Adjusted EBITDA margin is calculated using consolidated Adjusted Revenue and consolidated Adjusted EBITDA.
For 2021, consolidated Adjusted EBITDA increased $203.2 million due primarily to:
•an increase in revenue from improving macroeconomic conditions in all of our markets;
•a decrease in costs for certain legal and regulatory matters; and
•a decrease in bad debt expense, as we have reversed reserves that were recorded at the beginning of the COVID-19 pandemic,
partially offset by:
•an increase in labor costs across all segments and Corporate, including an increase in incentive compensation due to improved performance;
•operating and integration-related 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;
For 2021, Adjusted EBITDA margins for the U.S. Markets segment increased due primarily to an increase in revenue and improving market conditions in both of our verticals and a decrease in bad debt expense, partially offset by an increase in product costs resulting from the increase in revenue and an increase in incentive compensation due to improved performance.
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Adjusted EBITDA margins for the International segment increased due primarily to an increase in revenue and improving market conditions in all of our regions and a decrease in bad debt expense, partially offset by an increase in product costs resulting from the increase in revenue and an increase in incentive compensation due to improved performance.
Adjusted EBITDA margins for the Consumer Interactive were relatively consistent compared to 2020.
For 2020, consolidated Adjusted EBITDA decreased $12.3 million due primarily to:
•an increase in expense for certain legal and regulatory matters;
•a decrease in revenue in our International segment;
•an increase in labor costs in our U.S. Markets segment, as we invested in key strategic growth initiatives;
•an increase in product costs in our U.S. Markets and Consumer Interactive segments; and
•an increase in advertising costs in our Consumer Interactive segment,
partially offset by:
•an increase in revenue in our U.S. Markets and Consumer Interactive segments;
•a decrease in travel and entertainment expenses due to travel restrictions and shelter in place orders related to COVID-19; and
•the impact of weakening foreign currencies on the expenses of our International segment.
For 2020, Adjusted EBITDA margins for the U.S. Markets segment decreased due primarily to the impact of COVID-19 on revenue in Emerging Verticals, an increase in expense for certain legal and regulatory matters and an increase in labor costs primarily due to key strategic growth initiatives, partially offset by improving market conditions in the mortgage line of business in the Financial Services Vertical and a decrease in travel and entertainment expenses.
Adjusted EBITDA margins for the International segment decreased due primarily to the impact of COVID-19 on revenue, partially offset by a decrease in travel and entertainment expenses and the impact of weakening foreign currencies on the expenses of our International segment.
Adjusted EBITDA margins for the Consumer Interactive segment decreased due primarily to an increase in advertising costs and variable product costs, partially offset by an increase in revenue.
Non-Operating Income and (Expense)
| Change | |||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Twelve months ended December 31, | 2021 vs. 2020 | 2020 vs. 2019 | |||||||||||||||||||||||
| (dollars in millions) | 2021 | 2020 | 2019 | $ | % | $ | % | ||||||||||||||||||
| Interest expense | $ | (112.6) | $ | (126.2) | $ | (173.7) | $ | 13.7 | 10.8 | % | $ | 47.5 | 27.4 | % | |||||||||||
| Interest income | 3.4 | 5.6 | 7.5 | (2.2) | (38.9) | % | (2.0) | (26.0) | % | ||||||||||||||||
| Earnings from equity method investments | 12.0 | 8.9 | 13.2 | 3.1 | 34.6 | % | (4.3) | (32.4) | % | ||||||||||||||||
| Other income and (expense), net: | |||||||||||||||||||||||||
| Acquisition fees | (48.1) | (7.0) | (2.4) | (41.1) | nm | (4.6) | nm | ||||||||||||||||||
| Loan fees | (19.6) | (2.0) | (17.0) | (17.6) | nm | 15.0 | 88.3 | % | |||||||||||||||||
| Other income (expense), net | 18.5 | 9.9 | 5.2 | 8.7 | (87.5) | % | 4.7 | (90.9) | % | ||||||||||||||||
| Total other income and expense, net | (49.2) | 0.9 | (14.2) | (50.1) | nm | 15.1 | nm | ||||||||||||||||||
| Non-operating income and expense | $ | (146.3) | $ | (110.8) | $ | (167.2) | $ | (35.5) | 32.0 | % | $ | 56.4 | 33.7 | % |
nm: not meaningful
As a result of displaying amounts in millions, rounding differences may exist in the table above.
54
Interest expense
For the twelve months ended December 31, 2021, interest expense decreased $13.7 million compared with 2020. For the twelve months ended December 31, 2020, interest expense decreased $47.5 million compared with 2019. The decrease in interest expense for both periods is due primarily to the impact of a decrease in our average interest rate and a decrease in our average outstanding principal balance, and in 2021, partially offset by expenses attributable new borrowings and early prepayments late in the year as described in further detail below.
In December 2019, we refinanced our Senior Secured Credit Facility which decreased our average interest rate in 2020 and 2021. Further, we prepaid $340.0 million, $150.0 million and $85.0 million of our Senior Secured Term Loans in the second half of 2019, in 2020, and in 2021, respectively. These prepayments decreased our average outstanding principal balance in each subsequent period.
On December 1, 2021, we borrowed $3,100.0 of additional debt under our Senior Secured Credit Facility to fund the acquisition of Neustar. In addition, on December 1, 2021, we entered into a Second Lien Credit Agreement to obtain term loans in an aggregate amount of $640.0 million (the “Second Lien Term Loan”) which was used to fund the acquisition of Sontiq. On December 23, 2021, we fully repaid the Second Lien Term Loan using a portion of the proceeds from our sale of the Healthcare business.
These factors impact the comparability of interest expense between periods. Our future interest expense could be materially impacted by changes in our variable interest rates to the extent our variable rate debt is not hedged with fixed rate debt, additional borrowings, or additional prepayments. See Part II, Item 8, “Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements,” Note 12, “Debt,” for additional information about our debt.
Acquisition fees
Acquisition fees represent costs we have incurred for various acquisition-related efforts, and include costs related to our acquisitions of Neustar and Sontiq in 2021, Tru Optik and Signal Digital in 2020, and TruSignal in 2019, as well as costs of our other acquisition efforts. See Part II, Item 8, “Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements,” Note 2, “Business Acquisitions,” for additional information about our acquisition-related efforts.
Loan fees
For 2021, loan fees included $17.9 million of financing fees and other net costs expensed as a result of our repayment of our Second Lien Term Loan and the partial repayment of our other Term Loans. For 2020, loan fees were not significant. For 2019, loan fees included, among other things, $13.0 million of refinancing fees and other net costs expensed as a result of refinancing our Senior Secured Term Loan late in 2019. See Part II, Item 8, “Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements,” Note 12, “Debt,” for additional information about our debt.
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, including recoveries from the Fraud Incident.
Provision for Income Taxes
For 2021, we reported a 26.1% effective tax rate, which is higher than the 21.0% U.S. federal corporate 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 tax rate enacted in the second quarter 2021 and nondeductible transaction costs and penalties, partially offset by excess tax benefits on stock based compensation and a tax benefit related to electing the Global Intangible Low Tax Income (“GILTI”) high-tax exclusion retroactively for the 2018 and 2019 tax years. On July 20, 2020, the U.S. Treasury issued and enacted final regulations related to GILTI that allow certain U.S. taxpayers to elect to exclude foreign income that is subject to a high effective tax rate from their GILTI inclusions. The GILTI high-tax exclusion is an annual election and is retroactively available.
For 2020, we reported a 21.5% effective tax rate, which is higher than the 21.0% U.S. federal corporate statutory rate due primarily to an increase in state taxes, valuation allowances on foreign tax credit carryforwards, and uncertain tax positions including related interest and penalties, partially offset by excess tax benefits on stock based compensation and foreign taxes in jurisdictions which have tax rates lower than the U.S. federal corporate statutory rate.
For 2019, we reported a 18.8% effective tax rate, which is lower than the 21.0% U.S. federal corporate statutory rate due primarily to excess tax benefits on stock based compensation, partially offset by U.S. federal tax on foreign earnings and foreign taxes in jurisdictions which have tax rates that are higher than the U.S. federal corporate statutory rate. We also changed our indefinite reinvestment assertion on our unremitted foreign earnings during the fourth quarter 2019, such that management intends to repatriate current year foreign earnings, net of working capital requirements, and indefinitely reinvest prior years’ foreign earnings. The change in assertion had an immaterial impact on the current year effective tax rate.
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Significant Changes in Assets and Liabilities
Total goodwill and intangibles at December 31, 2021 increased compared with December 31, 2020, due primarily to the acquisitions of Sontiq and Neustar. See “Recent Transactions” above and Part II, Item 8 “Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements,” Note 2, “Business Acquisitions” for additional information.
Total cash and cash equivalents increased due primarily to proceeds received from the disposal of our Healthcare business in December, 2021. See Part II, Item 8 “Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements,” Note 3, “Discontinued Operations,” for additional information. A portion of the proceeds from the disposal of our Healthcare business were used to fully repay the Second Lien Term Loan obtained to finance the acquisition of Sontiq. See Part II, Item 8 “Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements,” Note 12, “Debt,” for additional information.
Total debt at December 31, 2021 increased due to additional financings in connection with these acquisitions. See Part II, Item 8 “Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements,” Note 12, “Debt,” for additional information.
Liquidity and Capital Resources
Overview
Our principal sources of liquidity are cash flows provided by operating activities, cash and cash equivalents on hand, and our senior secured revolving 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 $1,842.4 million and $492.7 million at December 31, 2021 and 2020, respectively, of which $205.0 million and $232.0 million were held outside the United States. As of December 31, 2021, 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 existing senior secured credit facility up to the greater of an additional $1,000.0 million and 100% of Consolidated EBITDA. In addition, so long as the senior secured net leverage ratio does not exceed 4.25-to-1, we may incur additional incremental loans, subject to certain additional conditions and commitments by existing or new lenders to fund any additional borrowings.
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.
In April 2022, we are expected to pay approximately $352 million of income taxes related to the gain on the sale of our Healthcare business.
In the second quarter of 2022, we expect to close on the announced agreement to acquire Verisk Financial Services, including Argus Information and Advisory Services, and pay the approximate $515 million purchase price. We intend to fund the acquisition through cash on hand. For additional information on this transaction, see Part II, Item 8, “Notes to Consolidated Financial Statements,” Note 25, “Subsequent Events.”
The Company may be required to make additional principal payments on the Senior Secured Term Loan B based on excess cash flows of the prior year, as defined in the agreement. There were no excess cash flows for 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 II,
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