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TransUnion (TRU) Q3 Earnings Surpass Estimates, '18 View Up

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TransUnion (TRU - Free Report) reported mixed third-quarter 2018 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same.

Adjusted earnings per share (EPS) of 65 cents outpaced the consensus mark by 2 cents and improved 33% year over year. Lower tax rate, resulting from Tax Cuts and Jobs Act, aided the company’s earnings in the reported quarter.

Total revenues came in at $604 million, which missed the consensus mark by $13 million. However, the top line was up 21% on a reported basis and 22% in terms of constant currency. This uptick can be attributed to solid double-digit growth in each of its operating segments — U.S. Information Services (USIS), International and Consumer Interactive — and contributions from incremental credit monitoring business from a competitor.

Adjusted revenues (excluding the impact of deferred revenue purchase, accounting reductions and other adjustments to revenue for the company’s recently acquired entities) came in at $621 million, up 25% year over year on a reported basis, 26% on a constant-currency basis and 11% on an organic constant-currency basis. Acquisitions of DataLink services, FactorTrust, eBureau, iovation, HPS and Callcredit drove adjusted revenues.

We expect TransUnion to continue benefiting from a strong business model, focus on innovation diversified revenue streams, significant operating leverage, low capital requirements, and solid and stable cash flows.

In a year’s time, shares of TransUnion have gained 29.2%, significantly outperforming the industry’s 15.8% rally.

Let’s delve deeper in to the numbers

Operating Segments’ Revenues

The U.S. Information Services (USIS) revenues of $375 million increased 20% year over year on a reported basis and 11% on an organic basis, courtesy of solid performance across all the three platforms within the segment. USIS adjusted revenues amounted to $376 million. Within the segment, Online Data Services, Marketing Services and Decision Services’ revenues of $235 million, $60 million and $80 million were up 17%, 23% and 26%, respectively, on a year-over-year basis. Online Data Services and Decision Services’ revenues increased 11% and 3%, respectively, on an organic basis. Decision Services adjusted revenues totaled $81 million.

International revenues surged 36% year over year on a reported and 42% constant-currency basis to $129 million, driven by strength in both developed and emerging markets. International adjusted revenues summed $145 million. Within the segment, developed markets revenues of $64 million increased 89% year over year on a reported basis and 92% on a constant-currency basis. Developed markets adjusted revenues were $80 million. Emerging markets revenues of $65 million was up 6% on a reported basis and 14% on a constant-currency basis.

Revenues at the Consumer Interactive segment improved 11% from the prior-year quarter number to $119 million, aided by strong growth in both direct and indirect channels. Notably, this included roughly $5 million of incremental credit monitoring revenues due to a breach at a competitor.

TransUnion Revenue (TTM)

Margins

Adjusted EBITDA was $245 million, up 26% year over year on a reported and 28% on a constant-currency basis. Adjusted EBITDA margin of 39.4% expanded 40 basis points (bps) year over year. Total adjusted operating income came in at $131 million, up 19% from the year-ago quarter number on a reported basis and 15% on an organic basis.

Balance Sheet and Cash Flow

TransUnion had $226.6 million in cash and cash equivalents at the end of the third quarter compared with $192.3 million at the end of the prior quarter. Long-term debt was $4.1 billion, more or less flat with the prior-quarter figure. The company generated $178.9 million in cash from operating activities and spent $47.9 million on capex.

4Q18 Outlook

For the fourth quarter of 2018, TransUnion expects adjusted revenues between $620 million and $625 million, reflecting an improvement of 23-24% year over year. Adjusted EBITDA is envisioned to be in the range of $243-$246 million, mirroring an increase of 24-26%. Adjusted earnings per share, including a benefit of roughly 8 cents owing to Tax Cuts and Jobs Act, are expected between 62 cents and 63 cents, indicating a rise of 24-26% year over year. The Zacks Consensus Estimate for fourth-quarter earnings is pegged at 64 cents.

2018 View

TransUnion raised adjusted revenue, adjusted EBITDA and adjusted earnings per share guidance for 2018. It now expects adjusted revenues between $2.342 billion and $2.347 billion compared with $2.333 billion and $2.343 billion, projected earlier. Guidance increased 21% on a year-over-year basis.

Adjusted EBITDA is anticipated to be in the range of $912-$915 million compared with the earlier guidance of $904-$910 million. The projection increased 22% year over year. Adjusted earnings per share, including a benefit of roughly 31 cents from tax cuts and 2 cents headwind from unfavorable foreign exchange rates, are anticipated to be in the band of $2.46-$2.47 compared with $2.42-$2.44, guided earlier. The guidance increased 31-32% year over year. The Zacks Consensus Estimate for adjusted earnings is pegged at $2.46.

Zacks Rank & Upcoming Releases

TransUnion has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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