The following discussion and analysis ofTransUnion '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," includingTransUnion '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 toTransUnion and its direct and indirect subsidiaries, includingTransUnion 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 onTransUnion '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. 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. 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. We leverage our differentiated capabilities in order to serve a global customer base across multiple geographies and industry verticals.
Segments
We manage our business and report our financial results in three reportable
segments:
Item 8 “Notes to Consolidated Financial Statement,”, Note 20, “Reportable
Segments” for additional information.
TheU.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 ourU.S. Markets segment allow us to serve a broad set of customers across industries. International The International segment provides services similar to ourU.S. Markets segment to businesses in select regions outsidethe 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.
Consumer Interactive
44 -------------------------------------------------------------------------------- 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.
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 and results of operations have been and can be significantly
influenced by general macroeconomic conditions, including but not limited to,
interest rates, inflation, housing demand, the availability of credit and
capital, employment levels, consumer confidence and the impact of the global
COVID-19 pandemic.
During 2020, the economic effect of the COVID-19 pandemic had a material and
adverse impact on numerous aspects of our business, including customer demand
for our services and solutions in all of our segments. During 2021, in the
markets where we compete, we saw generally improving macroeconomic conditions,
driven by an increase in gross domestic product ("GDP"), interest rates that
remained near historic lows, and continuing increases in employment levels.
During 2022, the labor market remained strong and supply chain constraints began
to ease, while persistent inflation, rapidly increasing energy prices, and
consecutive interest rate increases by the Federal Reserve have all contributed
to constrained economic activity. In addition, a slowing housing market, coupled
with lower GDP growth, softening consumer confidence and global geopolitical
events added to the deterioration of global macroeconomic conditions and
increasing recession fears compared to the post-pandemic rebound of 2021. These
slowing macroeconomic conditions had a more pronounced impact in our developed
markets compared to our emerging markets, although the impact of exchange rates
had a significant impact on our International segment. The impact of higher
interest rates has been particularly acute in the housing sector, where higher
borrowing rates significantly impacts both home affordability, driving down
purchase activity, and demand for mortgage loan refinancing. The impact of
higher interest rates on slowing aggregate demand is expected to result in
increased unemployment levels over the next year, which is likely to reduce
consumer demand for credit. These dynamics impact the comparability of our
results of operations, including our revenue and expense, between the periods
presented below.
The ongoing uncertainty and the unpredictable nature of the macroeconomic
environment could have a material adverse impact on various aspects of our
business in the future, including our stock price, results of operations and
financial condition, including the carrying value of our long-lived assets such
as goodwill and intangible assets.
Effects of Inflation
We believe that inflation has had a significant negative impact on our business and results of operations, including decreased demand for our services resulting from theFederal Reserve and other central banks consistently raising interest rates to combat inflation, slowing consumer spending on non-essential goods and services, and consequently lower demand for credit, especially during the last half of the year. The impact of continued elevated levels of inflation and the resulting response by theFederal Reserve and other central banks to raise interest rates could have a material adverse impact on various aspect of our business in the future. Recent Developments
The following developments impact the comparability of our balance sheets,
results of operations and cash flows between years:
Since the acquisition ofNeustar, Inc. ("Neustar") onDecember 1, 2021 , we have reflected allNeustar revenue in the Emerging Verticals within ourU.S. Markets segment. Beginning in the fourth quarter 2022, we integrated theNeustar sales team into our legacy vertically-aligned sales teams, and a portion of theNeustar revenue is now included in the Financial Services vertical. We have recast the revenue reported for each vertical inU.S. Markets in the historical periods to be consistent with the fourth quarter 2022 presentation, which provides comparability among the periods. This recast has no net impact on our overall financial statements in 2022. 45 -------------------------------------------------------------------------------- SinceDecember 1, 2021 , we have completed the acquisition of three businesses that collectively materially affected 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. OnDecember 30, 2022 , we completed the previously announced sale of the non-core businesses ofVerisk Financial Services ("VF"), the financial services business unit we acquired from Verisk Analytics, Inc. We classified the results of operations of these non-core businesses as discontinued operations, net of tax, in the consolidated statements of income since the acquisition inApril 2022 . Upon the sale, we received total proceeds of$173.9 million , consisting of$103.6 million in cash, and a note receivable with a face value of$72.0 million and a fair value of$70.3 million . The purchase price is subject to certain customary adjustments. We recognized a$7.5 million gain on the sale of these businesses, which is included in discontinued operations, net of tax. OnDecember 30, 2022 , we prepaid$200.0 million of our Senior Secured Term Loan B-6, funded from our cash-on-hand. OnJanuary 31, 2022 , we prepaid$400 million of our Senior Secured Term Loan B-6, funded from our cash-on-hand. We also made prepayments of our Senior Secured Term Loans in 2021 and 2020 of$85.0 million inMarch 2021 and$150.0 million inDecember 2020 both funded by cash-on-hand. These transactions affect the comparability of interest expense between 2022, 2021, and 2020, as further discussed in "Results of Operations - Non-Operating Income and (Expense) - Interest Expense" below. OnNovember 16, 2022 , 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. These swaps replaced other swaps that expired inDecember 30, 2022 . The new swaps commenced onDecember 30, 2022 , and expire onDecember 31, 2024 , with a current aggregate notional amount of$1,320.0 million that amortizes each quarter. The swaps requireTransUnion to pay fixed rates varying between 4.4105% and 4.4465% 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. OnApril 12, 2022 , after failed settlement negotiations with theConsumer Financial Protection Bureau ("CFPB") regarding a certain regulatory matter, theCFPB filed a lawsuit against us,Trans Union, LLC ,TransUnion Interactive, Inc. and our former President of Consumer Interactive. As ofDecember 31, 2022 , we have an accrued liability of$56.0 million , compared with$26.5 million as ofDecember 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. See Part I, Item 1, "Notes to Unaudited Consolidated Financial Statements," Note 22, "Contingencies," for further information about this matter. OnJanuary 24, 2022 , we reached a tentative class settlement with the plaintiffs in Ramirez v.TransUnion LLC , which required court approval. Accordingly, 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-endDecember 31, 2021 . OnDecember 19, 2022 , the court entered final approval of the class settlement and we paid the settlement amount to the plaintiffs onJanuary 20, 2023 , resulting in a full resolution of this matter. OnDecember 23, 2021 , we entered into a tranche of 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 tranche commenced onDecember 31, 2021 , and expires onDecember 31, 2026 , with a current aggregate notional amount of$1,584.0 million that amortizes each quarter. The tranche requires us 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. OnDecember 17, 2021 , we completed the sale of our Healthcare business. The Healthcare business met the criteria for discontinued operations atDecember 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 divestiture of the Healthcare business of$982.5 million , net of tax, in the consolidated statements of income for 2021. All tables and discussions below exclude the impact of the Healthcare business. OnDecember 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 ofNeustar . OnDecember 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 46 --------------------------------------------------------------------------------$14.3 million , respectively, used to fund the acquisition ofSontiq . OnDecember 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. OnMarch 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 tranche commenced onJune 30, 2020 , with an initial notional amount of$1,150.0 million that amortized each quarter. The first tranche required us 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 and expired onJune 30, 2022 . The second tranche commenced onJune 30, 2022 , and expires onJune 30, 2025 , with a current aggregate notional amount of$1,100.0 million that amortizes each quarter after it commences. The second tranche requires us 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.
Recent Acquisitions
We selectively evaluate acquisitions as a means to expand our business and to
enter new markets. Since
acquisitions, including those that impact the comparability of our results
between periods:
•OnApril 8, 2022 , we acquired 100% of the equity of the entities that comprised VF. We retained the leading core businesses of Argus, and divested the remaining non-core businesses onDecember 30, 2022 . 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 theU.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," Note 3 "Discontinued Operations," for additional information. •OnDecember 1, 2021 , we acquired 100% of the equity ofNeustar .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 ofNeustar are included in Financial Services and Emerging Verticals as part of ourU.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." •OnDecember 1, 2021 , we acquired 100% of the equity ofSontiq .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 ofSontiq 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. •OnOctober 14, 2020 , we acquired 100% of the equity ofTru 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 are included as part of ourU.S. Markets segment in our consolidated statements of income since the date of the acquisition. •OnAugust 14, 2020 , we acquired 100% of the equity ofSignal 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, are included as part of ourU.S. Markets segment in our consolidated statements of income since the date of the acquisition.
Key Components of Our Results of Operations
Revenue
We derive and report revenue for our three reportable segments,U.S. Markets, International and Consumer Interactive. Within theU.S. Markets segment, we report and disaggregate revenue by vertical, which consists of our Financial Services and Emerging verticals. Revenue from our recent acquisition ofNeustar is partially included in both verticals. Revenue from our recent acquisition of Argus is included in the Financial Services vertical. Within the International segment, we disaggregate revenue by regions, which consists ofCanada ,Latin America , theUnited Kingdom ,Africa ,India , andAsia Pacific . For our Consumer Interactive segment, we do not disaggregate revenue. Revenue from our recent acquisition ofSontiq is included in our Consumer Interactive segment. 47 --------------------------------------------------------------------------------
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.
48
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Results of Operations-Twelve Months Ended
For the twelve months endedDecember 31, 2022 , 2021 and 2020, our results of operations were as follows: Twelve Months Ended Change December 31, 2022 vs. 2021 2021 vs. 2020 2022 2021 2020 $ % $ % Revenue$ 3,709.9 $ 2,960.2 $ 2,530.6 $ 749.7 25.3 %$ 429.6 17.0 % Operating expenses Cost of services (exclusive of depreciation and amortization below) 1,222.9 991.6 853.9 231.3 23.3 % 137.7 16.1 % Selling, general and administrative 1,337.4 943.9 829.7 393.5 41.7 % 114.2 13.8 % Depreciation and amortization 519.0 377.0 346.8 142.0 37.7 % 30.3 8.7 % Total operating expenses$ 3,079.3 $ 2,312.5 $ 2,030.4 $ 766.8 33.2 %$ 282.1 13.9 % Operating income$ 630.5 $ 647.7 $ 500.3 $ (17.2) (2.7) %$ 147.4 29.5 % Non-operating income and (expense) Interest expense$ (230.9) $ (112.6) $ (126.2) $ (118.3) 105.1 %$ 13.7 (10.9) % Interest income 4.7 3.4 5.6 1.3 38.2 % (2.2) (39.3) % Earnings from equity method investments 13.0 12.0 8.9 1.0 8.3 % 3.1 34.8 % Other income and (expense), net (30.0) (49.2) 0.9 19.2 (39.0) % (50.1) nm Total non-operating income and (expense)$ (243.3) $ (146.3) $ (110.8) $ (97.0) 66.3 %$ (35.5) 32.0 % Income from continuing operations before income taxes$ 387.2 $ 501.4 $ 389.5 $ (114.2) (22.8) %$ 111.9 28.7 % Provision for income taxes (119.9) (130.9) (83.7) 11.0 (8.4) % (47.2)
56.4 %
Income from continuing operations
(27.9) %$ 64.8 21.2 % Discontinued operations, net of tax 17.4 1,031.7 49.8 (1,014.3) (98.3) % 981.9 nm Net income$ 284.7 $ 1,402.2 $ 355.6 $ (1,117.5) (79.7) %$ 1,046.6 nm Less: net income attributable to noncontrolling interests (15.2) (15.0) (12.4) (0.2) 1.3 % (2.6)
21.0 %
Net income attributable to
(80.6) % 1,043.9 nm nm: not meaningful
As a result of displaying amounts in millions, rounding differences may exist in
the table above.
Revenue For 2022, revenue increased$749.7 million compared with 2021, due primarily to a 24.4% increase from our recent acquisitions in theU.S. Markets and Consumer Interactive segments and organic growth from new business wins and product initiatives in certain markets, partially offset by macroeconomic weakness in several markets and a decrease of 2.3 % from the impact of foreign currencies. 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 theU.S. Markets and Consumer Interactive segments, and an increase of 1.1% from the impact of foreign currencies. Operating Expenses Cost of Services
For 2022, cost of services increased
increase was due primarily to:
• operating and integration-related costs from our recent acquisitions in our
• an increase in costs from our accelerated technology investment;
49 --------------------------------------------------------------------------------
• an increase in organic product costs resulting from the increase in revenue
in our
• an increase in labor costs, including an increase in stock-based
compensation, primarily in our International segment, as we continue to invest
in key strategic growth initiatives;
partially offset by,
•the impact of foreign currencies on our international operations.
For 2021, cost of services increased
increase was due primarily to:
•an increase in product costs resulting from the increase in revenue, primarily
in our
•operating and integration-related costs relating to the business acquisitions
in our
•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.
Selling, General and Administrative
For 2022, selling, general and administrative expenses increased
compared with 2021. The increase was due primarily to:
•operating and integration-related costs from our recent acquisitions in our
• an increase for certain legal and regulatory expenses;
• an increase in labor costs, 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, primarily in our
Markets and International segments,
partially offset by:
• a decrease in incentive compensation due to lower financial performance;
• a decrease in advertising expense, primarily in our Consumer Interactive
segment; and
• the impact of foreign currencies on the expenses of our International
segment.
For 2021, selling, general and administrative expenses increased
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
•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.
Depreciation and amortization
For 2022, depreciation and amortization increased$142.0 million compared with 2021, due primarily to an increase in depreciation and amortization from our recent acquisitions of tangible and intangible assets.
For 2021, depreciation and amortization increased
2020, due primarily to recent acquisitions of tangible and intangible assets.
50 --------------------------------------------------------------------------------
Non-Operating Income and (Expense)
Interest expense
OnDecember 30, 2022 , we prepaid$200.0 million of our Senior Secured Term Loan B-6, funded from our cash-on-hand. OnJanuary 31, 2022 , we prepaid$400 million of our Senior Secured Term Loan B-6, funded from our cash-on-hand. We also made prepayments of our Senior Secured Term Loans in 2021 and 2020 of$85.0 million inMarch 2021 and$150.0 million inDecember 2020 both funded by cash-on-hand. OnDecember 1, 2021 , we borrowed$3,100.0 of additional debt under our Senior Secured Credit Facility to fund the acquisition ofNeustar . In addition, onDecember 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 ofSontiq . OnDecember 23, 2021 , we fully repaid the Second Lien Term Loan using a portion of the proceeds from our sale of the Healthcare business.
The interest rate on our debt is variable and based on LIBOR. Approximately 70%
of this debt is hedged with interest rate swaps.
These factors impact the comparability of interest expense between periods. Our future interest expense could be materially impacted by changes in our variable interest rates to the extent our variable rate debt is not hedged, additional borrowings, or additional prepayments. See Part II, Item 8, "Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements," Note 12, "Debt," for additional information about our debt. For the twelve months endedDecember 31, 2022 , interest expense increased$118.3 million compared with 2021. For the twelve months endedDecember 31, 2021 , interest expense decreased$13.7 million compared with 2020. The increase in interest expense for 2022 is due primarily to additional borrowings of$3,100.0 million under our Senior Secured Credit Facility to fund the acquisition ofNeustar onDecember 1, 2021 , and the impact of an increase in the average interest rate. The decrease in interest expense for 2021 was due primarily to the impact of a decrease in our average interest rate and a decrease in our average outstanding principal balance, partially offset by expenses attributable to new borrowings and early prepayments late in the year.
Other income and (expense), net
Other income and (expense), net includes acquisition fees, loan fees, and
various other income and expenses.
Change
Twelve months ended December 31, 2022 vs. 2021 2021 vs. 2020
( in millions) 2022 2021 2020 $ % $ %
Other income and (expense), net:
Acquisition fees $ (23.7) $ (48.1) $ (7.0) $ 24.4 (50.7) % $ (41.1) nm
Loan fees (11.0) (19.6) (2.0) 8.6 (43.9) % (17.6) nm
Other income (expense), net 4.7 18.5 9.9 (13.8) 74.7 % 8.7 (87.5) %
Total other income and (expense),
net $ (30.0) $ (49.2) $ 0.9 $ 19.2 (39.0) % $ (50.1) nm
nm: not meaningful
As a result of displaying amounts in millions, rounding differences may exist in
the table above.
Acquisition fees Acquisition fees represent costs we have incurred for various acquisition-related efforts, and include costs related to our acquisitions of Argus in 2022,Neustar andSontiq in 2021; and Tru Optik and Signal Digital in 2020, 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 2022, loan fees included$9.3 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 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 51 -------------------------------------------------------------------------------- significant. 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 net recoveries from a fraud incident that occurred inJuly 2019 in ourAsia Pacific region. Provision for Income Taxes For 2022, we reported a 31.0% effective tax rate, which is higher than the 21.0%U.S. federal corporate statutory rate due primarily to increases in valuation allowances on foreign tax credit carryforwards, nondeductible expenses in connection with certain legal and regulatory matters and executive compensation limitations, and other rate-impacting items, partially offset by benefits from the research and development credit and excess tax benefits on stock-based compensation. 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 ourU.K. deferred taxes to reflect an increase in theU.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. OnJuly 20, 2020 , theU.S. Treasury issued and enacted final regulations related to GILTI that allow certainU.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 theU.S. federal corporate statutory rate. 52
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Segment Results of Operations-Twelve Months Ended
2020:
Management, including our chief operating decision maker ("CODM"), evaluates the
financial performance of our businesses based on revenue and segment Adjusted
EBITDA. For the twelve months ended December 31, 2022 , 2021 and 2020, our
segment revenue and adjusted EBITDA were as follows:
For the twelve months ended
performance indicators were as follows:
Revenue, Adjusted EBITDA and Adjusted EBITDA margin by Segment
Change
Twelve months ended December 31, 2022 vs. 2021 2021 vs. 2020
(dollars in millions) 2022 2021 2020 $ % $ %
Revenue:
U.S. Markets gross revenue
Financial Services $ 1,255.1 $ 1,090.0 $ 939.6 $ 165.1 15.1 % $ 150.4 16.0 %
Emerging Verticals 1,192.1 701.0 571.1 491.1 70.1 % 129.9 22.7 %
U.S. Markets gross revenue $ 2,447.3 $ 1,791.0 $ 1,510.7 $ 656.3 36.6 % $ 280.3 18.6 %
International:
Canada $ 128.2 $ 126.9 $ 108.0 $ 1.2 1.0 % $ 19.0 17.6 %
Latin America 112.9 103.2 86.5 9.7 9.4 % 16.7 19.3 %
UK 203.0 216.5 183.1 (13.5) (6.2) % 33.4 18.2 %
Africa 61.7 59.5 49.0 2.2 3.7 % 10.5 21.4 %
India 174.2 133.1 100.0 41.1 30.9 % 33.1 33.1 %
Asia Pacific 75.9 62.7 56.2 13.2 21.1 % 6.5 11.6 %
International gross revenue $ 755.9 $ 701.9 $ 582.7 $ 54.0 7.7 % $ 119.2 20.5 %
Consumer Interactive gross
revenue $ 585.3 $ 545.8 $ 513.1 $ 39.5 7.2 % $ 32.7 6.4 %
Total gross revenue $ 3,788.4 $ 3,038.7 $ 2,606.5 $ 749.8 24.7 % $ 432.2 16.6 %
Intersegment revenue eliminations (78.6) (78.4) (75.9) (0.1) nm (2.5) nm
Total revenue as reported $ 3,709.9 $ 2,960.2 $ 2,530.6 $ 749.6 25.3 % $ 429.6 17.0 %
Adjusted EBITDA:
U.S. Markets $ 870.6 $ 715.6 $ 593.9 $ 155.0 21.7 % $ 121.7 20.5 %
International 329.3 300.1 219.8 29.2 9.7 % 80.3 36.5 %
Consumer Interactive 282.3 263.1 247.6 19.2 7.3 % 15.5 6.3 %
Adjusted EBITDA margin:
U.S. Markets 35.6 % 40.0 % 39.3 % (4.4) % 0.7 %
International 43.6 % 42.8 % 37.7 % 0.8 % 5.1 %
Consumer Interactive 48.2 % 48.2 % 48.3 % - % (0.1) %
nm: not meaningful
As a result of displaying amounts in millions, rounding differences may exist in
the table above.
53 --------------------------------------------------------------------------------
We define Adjusted EBITDA Margin for our segments as the segment Adjusted EBITDA
divided by segment gross revenue.
Revenue
For 2022,
period in 2021, due primarily to a 36.6% increase from our acquisitions of
financial services vertical.
For 2021,
period in 2020, due primarily to increases in revenue in both verticals
including revenue from our acquisition of
Financial Services: For 2022, Financial Services revenue increased$165.1 million due primarily to a 16.7% increase from our acquisitions ofNeustar and Argus, partially offset by a decrease in organic revenue. Organic revenue decreased in our mortgage line of business as volumes declined due to the significant increases in interest rates, which was partially offset by an increase in revenue from new product initiatives in our card and banking, consumer lending, and auto lines of business. We anticipate interest rates will remain high and continue to impact our Financial Services business. For 2021, Financial Services revenue increased$150.4 million due primarily to improvements in macroeconomic conditions and new product initiatives in our consumer lending, card and banking, and auto lines of business and revenue from our acquisition ofNeustar , partially offset by a decrease in revenue in our mortgage line of business as volumes have declined due to rising interest rates.
Emerging Verticals: For 2022, Emerging Verticals revenue increased
million
an increase in organic revenue. Organic revenue increased in all of our
verticals due primarily to new wins in our existing product portfolio.
For 2021, Emerging Verticals revenue increased$129.9 million due primarily to improving macroeconomic conditions in most of our verticals, revenue from new product initiatives, and an increase from our acquisition ofNeustar . 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%. Adjusted EBITDA Margin For 2022, Adjusted EBITDA margins for theU.S. Markets segment decreased due primarily to the impact of the lower margin profile of theNeustar business, integration costs from our acquisition of Argus, and an increase in product costs resulting from the increase in revenue, and a decrease in organic revenue in our financial services vertical, partially offset by an increase in organic revenue in our Emerging Verticals For 2021, Adjusted EBITDA margins for theU.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.
International Segment
Revenue
For 2022, International revenue increased$54.0 million , or 7.7%, compared with 2021, due primarily to higher local currency revenue in all regions from increased volumes, which resulted from improving economic conditions and from new product initiatives, and a decrease of 7.3% from the impact of foreign currencies. 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 foreign currencies.Canada : For 2022,Canada revenue increased$1.2 million , or 1.0%, compared with 2021. The increase was due primarily to higher local currency revenue from new business wins and incremental revenue with current customers, partially offset by a decrease in revenue of 3.8% from the impact of foreign currencies, and revenue earned from a significant breach contract in the prior year. 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 foreign currencies. 54 --------------------------------------------------------------------------------Latin America : For 2022,Latin America revenue increased$9.7 million , or 9.4%, compared with 2021. The increase was due primarily to higher local currency revenue from growth across our markets reflecting good local macroeconomic conditions and consumer fundamentals and ongoing new business wins and expansion of our new solutions, partially offset by a decrease of 4.5% from the impact of foreign currencies. 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 foreign currencies.United Kingdom : For 2022,United Kingdom revenue decreased$13.5 million , or 6.3%, compared with 2021. The decrease is primarily driven by a 10.3% impact from foreign currencies. Excluding the impact of foreign currency, local currency revenue increased due to an expansion of key product offerings despite the impact of a one-time contract in the prior year. 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 foreign currencies.Africa : For 2022,Africa revenue increased$2.2 million , or 3.8%. The increase was due primarily to higher local currency revenue from meaningful new business wins and contract renewals as well as growth in emerging countries, partially offset by a decrease of 10.1% from the impact of foreign currencies. 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 foreign currencies.India : For 2022,India revenue increased$41.1 million , or 30.9%, due primarily to higher local currency revenue from growth in consumer lending and card issuance fueled by consumers who continue to spend despite rising inflation, partially offset by a decrease of 8.4% from the impact of foreign currencies. 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 foreign currencies.Asia Pacific : For 2022,Asia Pacific revenue increased$13.2 million , or 21.1%, due primarily to higher local currency revenue from increased volumes resulting from improved macroeconomic conditions, and new business wins, particularly inthe Philippines andHong Kong , partially offset by a decrease of 3.1% from the impact of foreign currencies. 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 foreign currencies.
Adjusted EBITDA Margin
For 2022, Adjusted EBITDA margins for the International segment increased due primarily to increase in local currency revenue and improving market conditions in most of our regions, partially offset by an increase in labor costs. For 2021, 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.
Consumer Interactive Segment
Revenue
For 2022, Consumer Interactive revenue increased$39.5 million , or 7.2%, compared with 2021, due primarily to an increase of 15.8% from our recent acquisition ofSontiq , partially offset by a decrease in revenue in both of our channels. In our indirect channel, revenue decreased due primarily to a large breach services contract which was recognized in the second half of 2021. In our Direct channel, slowing macroeconomic conditions have significantly reduced consumer demand for our paid credit products.
For 2021, Consumer Interactive revenue increased
compared with 2020, due primarily to an increase in revenue from both our direct
and indirect channels including revenue from our acquisition of
55 --------------------------------------------------------------------------------
our indirect channel, revenue increased due primarily to a large breach services
contract which was recognized in the second half of 2021.
Adjusted EBITDA Margin
For 2022 and 2021, Adjusted EBITDA margins for the Consumer Interactive were
relatively consistent compared to 2021 and 2020, respectively.
56 --------------------------------------------------------------------------------
Non-GAAP measures-Twelve Months Ended
In addition to the GAAP measures discussed above, Management, including our
CODM, evaluates the financial performance of our businesses based on the
non-GAAP measures Consolidated Adjusted EBITDA, Consolidated Adjusted EBITDA
Margin, Adjusted Net Income, Adjusted Diluted Earnings per Share, Adjusted
Effective Tax Rate and Leverage Ratio.
Non-GAAP Financial Measures
We present Consolidated Adjusted EBITDA, Consolidated Adjusted EBITDA Margin, Adjusted Net Income, Adjusted Diluted Earnings per Share, Adjusted Provision for Income Taxes, Adjusted Effective Tax Rate and Leverage Ratio for all periods presented. These are important financial measures for the Company but are not financial measures as defined by GAAP. These financial measures should be reviewed in conjunction with the relevant GAAP financial measures and are not presented as alternative measures of GAAP. Other companies in our industry may define or calculate these measures differently than we do, limiting their usefulness as comparative measures. Because of these limitations, these non-GAAP financial measures should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP, including operating income, operating margin, effective tax rate, net income (loss) attributable to the Company, diluted earnings per share or cash provided by operating activities. Reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures are presented in the tables below. We present Consolidated Adjusted EBITDA, Consolidated Adjusted EBITDA Margin, Adjusted Net Income, Adjusted Diluted Earnings per Share, Adjusted Provision for Income Taxes and Adjusted Effective Tax Rate as supplemental measures of our operating performance because these measures eliminate the impact of certain items that we do not consider indicative of our cash operations and ongoing operating performance. These are measures frequently used by securities analysts, investors and other interested parties in their evaluation of the operating performance of companies similar to ours. Our board of directors and executive management team use Adjusted EBITDA as an incentive compensation measure for most eligible employees and Adjusted Diluted Earnings per Share as an incentive compensation measure for certain of our senior executives. Under the credit agreement governing our Senior Secured Credit Facility, our ability to engage in activities such as incurring additional indebtedness, making investments and paying dividends is tied to our Leverage Ratio which is partially based on Adjusted EBITDA. Investors also use our Leverage Ratio to assess our ability to service our debt and make other capital allocation decisions. We define Consolidated Adjusted EBITDA as net income (loss) attributable toTransUnion , less 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, includingNeustar integration-related expenses, plus certain accelerated technology investment expenses to migrate to the cloud, plus (less) certain other expenses (income). We define Consolidated Adjusted EBITDA Margin as Consolidated Adjusted EBITDA divided by total revenue as reported. We define Adjusted Net Income as net income (loss) attributable toTransUnion , less discontinued operations, net of tax, plus stock-based compensation, plus mergers, acquisitions, divestitures and business optimization-related expenses, includingNeustar integration-related expenses, plus certain accelerated technology investment expenses, plus (less) certain other expenses (income), plus amortization of certain intangible assets, plus or minus the total adjustment for income taxes included in our Adjusted Provision for Income Taxes. We define Adjusted Diluted Earnings per Share as Adjusted Net Income divided by the weighted-average diluted shares outstanding. We define Adjusted Provision for Income Taxes as our provision for income taxes, plus or minus the tax impact on the adjustment included in Adjusted Net Income, plus or minus the impact of excess tax benefits for share compensation, plus or minus other items that relate to prior periods such as valuation allowance changes, deferred tax rate and return to provision adjustments, and other unusual items that are included in our provision for income taxes. We define Adjusted Effective Tax Rate as Adjusted Provision for Income Taxes divided by Adjusted Net Income. We define Leverage Ratio as net debt divided by Consolidated Adjusted EBITDA for the most recent twelve-month period including twelve months of Adjusted EBITDA from significant acquisitions. Net debt is defined as total debt less cash and cash equivalents as reported on the balance sheet as of the end of the period.
For the twelve months ended
measures were as follows:
57 --------------------------------------------------------------------------------
Adjusted EBITDA and Adjusted EBITDA Margin:
Twelve Months Ended Change
December 31, 2022 vs. 2021 2021 vs. 2020
(dollars in millions) 2022 2021 2020 $ % $ %
Reconciliation of net income
attributable to TransUnion to
consolidated Adjusted EBITDA:
Net income attributable to TransUnion $ 269.5 $ 1,387.1 $ 343.2 $ (1,117.7) nm $ 1,043.9 nm
Discontinued operations (17.4) (1,031.7) (49.8) 1,014.3 nm (981.8) nm
Net income from continuing operations
attributable to TransUnion $ 252.1 $ 355.5 $ 293.4 $ (103.3) (29.1) % $ 62.1 21.2 %
Net interest expense 226.2 109.2 120.6 117.1 nm (11.5) (9.5) %
Provision (benefit) for income taxes 119.9 130.9 83.7 (11.0) (8.4) % 47.1 56.3 %
Depreciation and amortization 519.0 377.0 346.8 142.0 37.7 % 30.3 8.7 %
EBITDA $ 1,117.3 $ 972.5 $ 844.5 $ 144.7 14.9 % $ 128.0 15.2 %
Adjustments to EBITDA:
Stock-based compensation1 81.1 70.1 45.9 11.0 15.6 % 24.3 52.8 % Mergers and acquisitions, divestitures and business optimization2 50.7 52.6 8.5 (1.8) (3.4) % 44.1 nm Accelerated technology investment 3 51.4 42.3 19.3 9.1 21.5 % 23.0 nm Net other4 46.1 19.4 35.5 26.7 nm (16.1) (45.4) % Total adjustments to EBITDA$ 229.3 $ 184.4 $ 109.1 $ 44.9 24.4 %$ 75.2 68.9 % Consolidated Adjusted EBITDA$ 1,346.5 $ 1,156.9 $ 953.6 $ 189.7 16.4 %$ 203.2 21.3 % Net income attributable toTransUnion margin 7.3 % 46.9 % 13.6 % (39.6) % 33.3 % Consolidated Adjusted EBITDA margin5 36.3 % 39.1 % 37.7 % (2.8) % 1.4 % nm: not meaningful
As a result of displaying amounts in millions, rounding differences may exist in
the table above.
1.Consisted of stock-based compensation and cash-settled stock-based
compensation.
2.For the twelve months endedDecember 31, 2022 , consisted of the following adjustments:$33.1 million ofNeustar integration costs;$23.7 million of acquisition expenses;$4.6 million loss on the impairment of a Cost Method investment;$(6.8) million of reimbursements for transition services related to divested businesses, net of separation expenses; a$(3.4) million gain related to a government tax reimbursement from a recent business acquisition; and a$(0.6) million adjustment to the fair value of a put option liability related to a minority investment. For the twelve months endedDecember 31, 2021 , consisted of the following adjustments:$48.1 million of acquisition expenses;$9.1 million ofNeustar 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 endedDecember 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 58 -------------------------------------------------------------------------------- of assets of a small business in ourUnited Kingdom region; and a($0.1) million reimbursement for transition services provided to the buyers of certain of our discontinued operations.
3.Represents expenses associated with our accelerated technology investment to
migrate to the cloud.
4.For the twelve months ended
adjustments:
million
debt; a
operations;
For the twelve months endedDecember 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 net recovery from a fraud incident that occurred inJuly 2019 in ourAsia Pacific region; and a$3.7 million net loss from currency remeasurement of our foreign operations, loan fees and other. For the twelve months endedDecember 31, 2020 , consisted of the following adjustments:$34.7 million for certain legal and regulatory expenses;$0.9 million of deferred loan fees written off as a result of the prepayments on our debt; a$(1.5) million net recovery from a fraud incident that occurred inJuly 2019 in ourAsia Pacific region; and$1.4 million net loss from currency remeasurement of our foreign operations, loan fees and other.
5.Consolidated Adjusted EBITDA margin is calculated by dividing Consolidated
Adjusted EBITDA by total revenue.
Consolidated Adjusted EBITDA
For 2022, consolidated Adjusted EBITDA increased
to:
•an increase in Adjusted EBITDA from our recent acquisitions in our
and Consumer Interactive segments;
• organic Adjusted EBITDA growth;
• a decrease in incentive compensation due to lower financial performance; and
• a decrease in advertising expense, primarily in our Consumer Interactive
segment,
partially offset by:
• an increase in labor costs as we continue to invest in key strategic growth
initiatives;
•an increase for certain legal and regulatory expenses; and
•an increase in travel and entertainment expenses due to increased travel
following the easing of COVID-19 travel restrictions, primarily in our
Markets and International segments.
Adjusted EBITDA margin decreased in 2022 due primarily to lower margins from our
recent acquisitions.
For 2021, consolidated Adjusted EBITDA increased
to:
•an increase in Adjusted EBITDA 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; and
•operating and integration-related costs from our recent acquisitions in our
Adjusted EBITDA margin increased in 2021 due primarily to increase in revenue
and improving market conditions.
59
--------------------------------------------------------------------------------
Adjusted Net Income, Adjusted EPS
Twelve Months Ended Change
December 31, 2022 vs. 2021 2021 vs. 2020
(dollars in millions) 2022 2021 2020 $ % $ %
Reconciliation of net income
attributable to TransUnion to
Adjusted Net Income:
Net income attributable to
TransUnion $ 269.5 $ 1,387.1 $ 343.2 $ (1,117.6) nm $ 1,043.9 nm
Discontinued operations, net of
tax (17.4) (1,031.7) (49.8) 1,014.3 nm (981.9) nm
Income from continuing operations
attributable to TransUnion $ 252.1 $ 355.5 $ 293.4 $ (103.4) (29.1) % $ 62.1 21.2 %
Adjustments before income tax
items:
Stock-based compensation1 81.1 70.1 45.9 11.0 15.7 % 24.2 52.7 %
Mergers and acquisitions,
divestitures and business
optimization2 50.7 52.6 8.5 (1.9) (3.6) % 44.10 nm
Accelerated technology investment3 51.4 42.3 19.3 9.1 21.5 % 23.0 nm
Net other4 44.3 17.7 34.1 26.6 nm (16.4) (48.1) %
Amortization of certain intangible
assets5 306.7 189.3 181.2 117.4 62.0 % 8.1 4.5 %
Total adjustments before income
tax items $ 534.2 $ 372.0 $ 288.9 $ 162.2 43.6 % $ 83.1
28.8 %
Change in provision for income taxes$ (86.2) $ (62.9) $ (68.2) $ (23.3) 37.0 %$ 5.3 (7.8) % Adjusted Net Income$ 700.1 $ 664.5 $ 514.1 $ 35.6 5.4 %$ 150.4 29.3 % Weighted-average shares outstanding: Basic 192.5 191.4 189.9 nm nm nm nm Diluted 193.1 193.0 192.2 nm nm nm nm Adjusted Earnings per Share: Basic$ 3.64 $ 3.47 $ 2.71 $ 0.17 4.9 %$ 0.76 28.0 % Diluted$ 3.62 $ 3.44 $ 2.67 $ 0.18 5.2 %$ 0.77 28.8 % 60
--------------------------------------------------------------------------------
Twelve Months Ended
2022 2021 2020
Reconciliation of diluted earnings per share from net income
attributable to TransUnion to Adjusted Diluted Earnings per
Share:
Diluted earnings per common share from:
Net income attributable to TransUnion $ 1.40 $ 7.19 $ 1.79
Discontinued operations, net of tax (0.09) (5.35) (0.26)
Income from continuing operations attributable to TransUnion $ 1.31 $ 1.84 $ 1.53
Adjustments before income tax items:
Stock-based compensation1 0.42 0.36 0.24
Mergers and acquisitions, divestitures and business optimization2
0.26 0.27 0.04 Accelerated technology investment3 0.27 0.22 0.10 Net other4 0.23 0.09 0.18 Amortization of certain intangible assets5 1.59 0.98 0.94 Total adjustments before income tax items$ 2.77 $ 1.93 $ 1.50 Change in provision for income taxes$ (0.45) $ (0.33) $ (0.35) Adjusted Diluted Earnings per Share $
3.62
As a result of displaying amounts in millions, rounding differences may exist in
the table above and footnotes below.
1.Consisted of stock-based compensation, including amounts which are cash
settled.
2.Mergers and acquisitions, divestitures and business optimization consisted of
the following adjustments:
For the twelve months endedDecember 31, 2022 ,$33.1 million ofNeustar integration costs;$23.7 million of acquisition expenses;$4.6 million loss on the impairment of a Cost Method investment;$(6.8) million of reimbursements for transition services related to divested businesses, net of separation expenses; a$(3.4) million gain related to a government tax reimbursement from a recent business acquisition; and a$(0.6) million adjustment to the fair value of a put option liability related to a minority investment. For the twelve months endedDecember 31, 2021 ,$48.1 million of acquisition expenses;$9.1 million ofNeustar 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 endedDecember 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 ourUnited Kingdom region; and a($0.1) million reimbursement for transition services provided to the buyers of certain of our discontinued operations.
3.Represents expenses associated with our accelerated technology investment to
migrate to the cloud.
4.Net other consisted of the following adjustments:
For the twelve months endedDecember 31, 2022 , a$28.4 million net increase in certain legal and regulatory expenses;$9.3 million of deferred loan fees written off as a result of the prepayments on our debt; and a$6.6 million net loss from currency remeasurement of our foreign operations and other. For the twelve months endedDecember 31, 2021 ,$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 net recovery from a fraud incident that occurred inJuly 2019 in ourAsia Pacific region; and$2.0 million of net other consisting of net losses from currency remeasurement of our foreign operations and other. 61
-------------------------------------------------------------------------------- For the twelve months endedDecember 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 net recovery from a fraud incident that occurred inJuly 2019 in ourAsia Pacific region; and$1.4 million net loss from currency remeasurement of our foreign operations, loan fees and other.
5.Consisted of amortization of intangible assets from our 2012 change in control
transaction and amortization of intangible assets established in business
acquisitions after our 2012 change in control transaction.
Adjusted Net Income
For 2022, the increase in Adjusted Net Income was due primarily to earnings from our recent acquisitions and organic growth, partially offset by an increase in interest expense.
For 2021, the increase in Adjusted Net Income was due to organic growth as
result of improving macroeconomic conditions.
Adjusted Provision for Income Taxes and Effective Tax Rate
Twelve Months Ended
2022 2021 2020
Income from continuing operations before income taxes $ 387.2 $ 501.4 $ 389.5
Total adjustments before income tax items from Adjusted Net
Income table above
534.2 372.0 288.9
Noncontrolling interest portion of Adjusted Net Income
adjustments
- (2.0) (0.7)
Adjusted income from continuing operations before income
taxes
$ 921.4 $ 871.4 $ 677.7
Reconciliation of provision for income taxes to Adjusted
Provision for Income Taxes
Provision for income taxes
$ (119.9) $ (130.9) $ (83.7) Adjustments for income taxes: Tax effect of above adjustments 1 (116.8) (69.4) (67.1)
Eliminate impact of excess tax benefits for stock-based
compensation
(5.0) (10.8) (25.3) Other 2 35.6 17.3 24.2 Total adjustments for income taxes$ (86.2) $ (62.9) $ (68.2) Adjusted Provision for Income Taxes$ (206.1) $ (193.8) $ (151.9) Effective tax rate 31.0 % 26.1 % 21.5 % Adjusted Effective Tax Rate 22.4 % 22.2 % 22.4 %
As a result of displaying amounts in millions, rounding differences may exist in
the table above.
1.Tax rates used to calculate the tax expense impact are based on the nature of
each item.
2.For the twelve months ended
allowances related to prior periods;
adjustments;
to prior periods;
For the twelve months endedDecember 31, 2021 ,$29.3 million of deferred tax rate adjustments;$(5.4) million of return to provision and audit adjustments related to prior periods;$(4.5) million of valuation allowances; and$(2.1) million of other adjustments.
For the twelve months ended
allowances related to prior periods;
related to prior periods,
adjustments related to prior periods;
adjustments; and
Adjusted Provision for Income Taxes
We reported an adjusted tax rate of 22.4%, 22.2%, and 22.4%, for 2022, 2021, and 2020, respectively, each of which is higher than the 21.0%U.S. federal corporate statutory rate due primarily to increases for state taxes and foreign withholding taxes, partially offset by benefits from the research and development credit and foreign taxes in jurisdictions which have tax rates lower than theU.S. federal corporate statutory rate. 62 --------------------------------------------------------------------------------
Leverage Ratio
Twelve Months Ended
2022 2021 2020
Reconciliation of net income (loss) attributable to
Net income (loss) attributable to
$ 269.5 $ 1,387.1 $ 343.2 Discontinued operations, net of tax (17.4) (1,031.7) (49.8)
Income (loss) from continuing operations attributable to
$ 252.1 $ 355.5 $ 293.4 Net interest expense 226.2 109.2 120.6 Provision (benefit) for income taxes 119.9 130.9 83.7 Depreciation and amortization 519.0 377.0 346.8 EBITDA$ 1,117.3 $ 972.5 $ 844.5 Adjustments to EBITDA: Stock-based compensation1$ 81.1 $ 70.1 $ 45.9
Mergers and acquisitions, divestitures and business
optimization2
50.7 52.6 8.5 Accelerated technology investment3 51.4 42.3 19.3 Net other4 46.1 19.4 35.5 Total adjustments to EBITDA$ 229.3 $ 184.4 $ 109.1 Consolidated Adjusted EBITDA 1,346.5 1,156.9 953.6 Adjusted EBITDA for Pre-Acquisition Period5 6.4 145.4 - Leverage Ratio Adjusted EBITDA$ 1,352.9 $ 1,302.3 $ 953.6 Total debt$ 5,670.1 $ 6,365.9 $ 3,454.2 Less: Cash and cash equivalents 585.3 1,842.4 492.7 Net Debt$ 5,084.8 $ 4,523.5 $ 2,961.5 Ratio of Net Debt to Net income (loss) attributable to 18.9 3.3 8.6TransUnion Leverage Ratio6 3.8 3.5 3.1
As a result of displaying amounts in millions, rounding differences may exist in
the table above.
1.Consisted of stock-based compensation and cash-settled stock-based
compensation.
2.For the twelve months endedDecember 31, 2022 , consisted of the following adjustments:$33.1 million ofNeustar integration costs;$23.7 million of acquisition expenses;$4.6 million loss on the impairment of a Cost Method investment;$(6.8) million of reimbursements for transition services related to divested businesses, net of separation expenses; a$(3.4) million gain related to a government tax reimbursement from a recent business acquisition; and a$(0.6) million adjustment to the fair value of a put option liability related to a minority investment. For the twelve months endedDecember 31, 2021 , consisted of the following adjustments:$48.1 million of acquisition expenses;$9.1 million ofNeustar 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 endedDecember 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 63 -------------------------------------------------------------------------------- of assets of a small business in ourUnited Kingdom region; and a($0.1) million reimbursement for transition services provided to the buyers of certain of our discontinued operations.
3.Represents expenses associated with our accelerated technology investment to
migrate to the cloud.
4.For the twelve months ended
adjustments:
million
debt; a
operations;
For the twelve months endedDecember 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 net recovery from a fraud incident that occurred inJuly 2019 in ourAsia Pacific region; and a$3.7 million net loss from currency remeasurement of our foreign operations, loan fees and other. For the twelve months endedDecember 31, 2020 , consisted of the following adjustments:$34.7 million for certain legal and regulatory expenses;$0.9 million of deferred loan fees written off as a result of the prepayments on our debt; a$(1.5) million net recovery from a fraud incident that occurred inJuly 2019 in ourAsia Pacific region; and$1.4 million net loss from currency remeasurement of our foreign operations, loan fees and other. 5.For years in which we made significant acquisitions, we have included a twelve-month period of adjusted EBITDA including Adjusted EBITDA for the period prior to our acquisition. The twelve months endedDecember 31, 2021 includes the eleven months of Adjusted EBITDA related toNeustar andSontiq prior to our acquisitions inDecember 2021 . The twelve months endedDecember 31, 2022 includes the three months of Adjusted EBITDA related to Argus prior to our acquisition inApril 2022 .
6.We define Leverage Ratio as net debt divided by Leverage Ratio Adjusted EBITDA
as shown in the table above.
Our Leverage Ratio increased in 2022 compared with 2021 due primarily to the decrease in cash as a result of our acquisition of VF and the payment of taxes due on the gain on the divestiture of our Healthcare business, partially offset by proceeds received from the sale of the non-core VF businesses. Our Leverage Ratio increased in 2021 compared with 2020 due primarily to an increase in our net debt resulting from our acquisitions ofNeustar andSontiq . 64 --------------------------------------------------------------------------------
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, dividends, 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, dividends, and operating needs for the foreseeable future. Our ability to maintain adequate liquidity for our operations in the future is dependent upon a number of factors, including our revenue, macroeconomic conditions, our ability to contain costs, including capital expenditures, and to collect accounts receivable, and various other factors, many of which are beyond our control. We will continue to monitor our liquidity position and may elect to raise funds through debt or equity financing in the future to fund significant investments or acquisitions that are consistent with our growth strategy. Cash and cash equivalents totaled$585.3 million and$1,842.4 million atDecember 31, 2022 and 2021, respectively, of which$303.4 million and$205.0 million was held outsidethe United States in each respective period. As ofDecember 31, 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 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 ofTrans 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. OnApril 8, 2022 , we completed our acquisition of VF and paid$505.7 million , net of adjustments, which was funded with cash-on-hand. OnDecember 30, 2022 , we completed the previously announced sale of the non-core businesses of VF. Upon the sale, we received total proceeds of$173.9 million , consisting of$103.6 million in cash, and a note receivable with a face value of$72.0 million and a fair value of$70.3 million . For additional information on this transaction, see Part II, Item 8, "Notes to Consolidated Financial Statements," Note 2, "Business Acquisitions" and Note 3, "Discontinued Operations."
In
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 agreement. There were no excess cash flows for 2022 and therefore no additional payment will be required in 2023. See Part II, Item 8, "Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements," Note 12, "Debt," for additional information about our debt.
In the year ended
Senior Secured Term Loans, funded from our cash on hand.
The dividend rate was$0.105 per share in the third and fourth quarters of 2022,$0.095 per share per quarter from the second quarter 2021 to the second quarter 2022 and$0.075 per share per quarter in the first quarter 2021. During 2022, we paid total dividends of$77.8 million . Dividends declared accrue to outstanding restricted stock units and are paid to employees as dividend equivalents when the restricted stock units vest. While we currently expect to continue to pay quarterly dividends, any determination to pay dividends in the future will be at the discretion of our board of directors and will depend on a number of factors, including our liquidity, results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors that our board of directors deems appropriate. We currently have capacity and intend to continue to pay a quarterly dividend, subject to approval by our board. OnFebruary 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 onFebruary 8, 2018 . To date, we have repurchased$133.5 million of our common stock and have the ability to repurchase the remaining$166.5 million . 65 -------------------------------------------------------------------------------- We have no obligation to repurchase additional shares, and the timing, actual number and value of the shares that are repurchased, if any, will be at the discretion of management and will depend on a number of factors, including market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity, and other factors deemed appropriate. Repurchases may be suspended, terminated or modified at any time for any reason. Any repurchased shares will have the status of treasury shares and may be used, if and when needed, for general corporate purposes. Sources and Uses of Cash Twelve months ended December 31, Change (dollars in millions) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Cash provided by operating activities$ 297.2
Cash used in investing activities
(723.9) (2,212.9) (267.2) 1,489.0
(1,945.7)
Cash provided by (used in) financing activities (820.5) 2,762.3 (296.9) (3,582.8)
3,059.2
Effect of exchange rate changes on cash and cash equivalents (9.9) (8.0) (4.4) (1.9)
(3.6)
Net change in cash and cash equivalents$ (1,257.1) $ 1,349.7 $ 219.1 $ (2,606.8) $ 1,130.6 Operating Activities For 2022, the decrease in cash provided by continuing operations was due primarily to payments for taxes due on the gain on the divestiture of our Healthcare business made in 2022, an increase in interest expense and an increase in cash paid for accrued incentive and other compensation. For 2021, the increase in cash provided by operating activities was due primarily to an increase in operating performance and a decrease in interest expense, partially offset by an increase in working capital.
Investing Activities
For 2022, the decrease in cash used in investing activities was due primarily to 508.1 million of cash used for acquisitions in 2022 compared with$3,596.1 million in 2021, partially offset by$103.6 million of proceeds from the sale of discontinued operations in 2022 compared with$1,706.8 million in 2022 and an increase in capital expenditures. For 2021, the increase in cash used in investing activities was due primarily to the acquisitions ofNeustar andSontiq , various investments in nonconsolidated affiliates, and an increase in capital expenditures, partially offset by the proceeds from the sale of our Healthcare business.
Financing Activities
For 2022, the decrease in cash of financing activities was due primarily to net debt proceeds in 2021 to fund our acquisitions partially offset by an increase in debt prepayments in 2022. For 2021, the increase in cash provided by financing activities was due primarily to debt proceeds used to fund theNeustar andSontiq acquisitions, partially offset by the repayment of the debt from a portion of the proceeds received from the sale of our Healthcare business and increased debt financing fees.
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. For 2022, cash paid for capital expenditures increased$74.0 million to$298.2 million . For 2021, cash paid for capital expenditures increased$18.6 million to$224.2 million . Debt Hedges OnNovember 16, 2022 , 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 onDecember 30, 2022 , and expire onDecember 31, 2024 , with a current aggregate notional amount of$1,320.0 million that amortizes each quarter. The swaps require us to pay fixed rates varying between 4.4105% and 4.4465% 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. OnDecember 23, 2021 , we entered into 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 swaps commenced onDecember 31, 2021 , and expire onDecember 31, 2026 , with a current aggregate notional amount of$1,584.0 million that 66 -------------------------------------------------------------------------------- amortizes each quarter. The swaps require us 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. OnMarch 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 onJune 30, 2020 , and expired onJune 30, 2022 . The second swap commences onJune 30, 2022 , and expires onJune 30, 2025 , with a current aggregate notional amount of$1,100.0 million that amortizes each quarter after it commences. The second swap requires us 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. OnDecember 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, which is currently fixed at 2.702% and 2.706%. These agreements expired onDecember 30, 2022 , and were previously designated as cash flow hedges.
Effect of certain debt covenants
A breach of any of the covenants under the agreements governing our debt could limit our ability to borrow funds under the senior secured revolving line of credit and could result in a default under the Senior Secured Credit Facility. Upon the occurrence of an event of default under the senior secured credit facility, the lenders could elect to declare all amounts then outstanding to be immediately due and payable, and the lenders could terminate all commitments to extend further credit. If we were unable to repay the amounts declared due, the lenders could proceed against any collateral granted to them to secure that indebtedness. With certain exceptions, the Senior Secured Credit Facility obligations are secured by a first-priority security interest in substantially all of the assets ofTrans 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 ofDecember 31, 2022 , we were in compliance with all debt covenants.
Our ability to meet our liquidity needs or to pay dividends on our common stock
depends on our subsidiaries’ earnings, the terms of their indebtedness, and
other contractual restrictions.
For additional information about our debt and hedge, see Part II, Item 8,
“Financial Statements and Supplementary Data – Notes to Consolidated Financial
Statements,” Note 12, “Debt.”
Contractual Obligations Refer to Part II, Item 8, "Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements," Note 12, "Debt," Note 13, "Leases" and Note 21, "Commitments," for information about our long-term debt obligations, noncancelable lease obligations, and noncancelable purchase obligations as ofDecember 31, 2022 .
Application of Critical Accounting Estimates
We prepare our consolidated financial statements in conformity with generally
accepted accounting principles ("GAAP"). See Part II, Item 8, "Financial
Statements and Supplementary Data - Notes to Consolidated Financial Statements"
Note 1, "Significant Accounting and Reporting Policies," for additional
information about our significant accounting and reporting policies that require
us to make certain judgments and estimates in reporting our operating results
and our assets and liabilities. The following paragraphs describe the accounting
policies that require significant judgment and estimates due to inherent
uncertainty or complexity.
As ofDecember 31, 2022 , our consolidated balance sheet included goodwill of$5,551.4 million and we did not have any other indefinite-lived intangible assets. We conduct an impairment test in the fourth quarter of each year, or more frequently if events or circumstances indicate that the carrying value of goodwill may be impaired. We have the option to first perform a qualitative analysis to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the qualitative analysis indicates that an impairment is more likely than not for any reporting unit, we perform a quantitative impairment test for that reporting unit. We have the option to bypass the qualitative analysis for any reporting unit and proceed directly to performing a quantitative impairment test. 67 -------------------------------------------------------------------------------- Our quantitative impairment test consists of a fair value calculation for each reporting unit that combines an income approach, using the discounted cash flow method, and a market approach, using the guideline public company method. The quantitative impairment test requires the application of a number of significant assumptions, including estimates of future revenue growth rates, EBITDA margins, discount rates, and market multiples. The projected future revenue growth rates and EBITDA margins, and the resulting projected cash flows of each reporting unit are based on historical experience and internal operating plans reviewed by management, extrapolated over the forecast period. Discount rates are determined using a weighted average cost of capital adjusted for risk factors specific to each reporting unit. Market multiples are based on theGuideline Public Company Method using comparable publicly traded company multiples of EBITDA for a group of benchmark companies. We believe the assumptions that we use in our qualitative and quantitative analysis are reasonable and consistent with assumptions that would be used by other marketplace participants. However, such assumptions are inherently uncertain, and a change in assumptions could change the estimated fair values of our reporting units and, therefore, future impairment charges could be required, which could be material to the consolidated financial statements. In order to ensure the assumptions used in the analysis are reasonable, we reconcile the sum of the fair value of the reporting units to our market capitalization adjusted for an estimated control premium. In 2022, we elected to bypass the qualitative goodwill impairment analysis, and instead performed a quantitative goodwill impairment test for all reporting units. For each of our reporting units, the fair value exceeded the carrying value and no impairment was recorded. We engaged a third-party valuation specialist to assist in our analysis of the fair value of our reporting units. All judgments, significant assumptions and estimates, and forecasts were either provided by or reviewed by us. While we chose to utilize a third-party valuation specialist for assistance, the fair value analysis reflects the conclusions of management and not those of any third party. We believe the judgments and assumptions we have used are reasonable and consistent with assumptions that would be used by other marketplace participants. For ourUnited Kingdom reporting unit, we had$681.2 million of goodwill as ofDecember 31, 2022 . The calculated excess fair value over carrying value was less than 10% of its carrying value as ofOctober 31, 2022 , our annual assessment date. Therefore, we concluded no impairment existed for this reporting unit. The decrease in excess fair value in the current period compared with the prior period is a result of market conditions in theU.K. , including public policy uncertainty, inflation, and currency pressure, which have decreased short-term demand for our products and services, increased risk-free rates, and decreased market multiples. Significant assumptions for theUnited Kingdom reporting unit include estimates of future revenue growth rates, EBITDA margins, discount rates, and market multiples. The revenue growth rate assumptions used in our model reflect management's best estimate of growth rates that incorporate identified growth initiatives consistent with historical growth strategies implemented in other international regions. EBITDA margin assumptions reflect expansion commensurate with forecasted revenue growth rates and are consistent with historical EBITDA margins realized in other reporting units operating in developed markets. Our estimates of future revenue growth rates and EBITDA margins for ourUnited Kingdom reporting unit incorporate our current expectations of unfavorableU.K. -specific macroeconomic conditions, including the levels of interest rates, inflation, employment levels, consumer confidence and housing demand. If these unfavorable macroeconomic conditions persist longer than we currently expect, or are worse than we currently expect, our estimates of revenue growth rates and EBITDA margins would decline, which could lead to an impairment of goodwill in theUnited Kingdom reporting unit. We performed a sensitivity assessment for the significant assumptions used with the goodwill impairment analysis for theUnited Kingdom reporting unit, holding all other assumptions constant: A hypothetical 70 basis point increase to the discount rate, holding all other assumptions constant, would result in the fair value determined by the income approach being less than the carrying value, triggering an impairment. As ofDecember 31, 2022 , given the decrease in risk-free interest rates, we estimate that the discount rate for theUnited Kingdom reporting unit has declined approximately 50 basis points compared withOctober 31, 2022 , which would increase the fair value of the reporting unit. A hypothetical decrease in the average annual revenue growth rates from 7.6% to 6.2% over the entire forecast period, holding all other assumptions constant, would result in the fair value determined by the income approach being less than the carrying value, triggering an impairment. A hypothetical decrease in EBITDA margins of 340 basis points in each year over the entire forecast period, holding all other assumptions constant, would result in the fair value determined by the income approach being less than the carrying value, triggering an impairment. We will continue to monitor the assumptions used in our fair value analysis to determine if a triggering event has occurred that indicates an impairment is more likely than not for this reporting unit. 68
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Business Acquisitions
OnApril 8, 2022 , we completed our acquisition of VF for$505.7 million in cash. OnDecember 1, 2021 , we completed the acquisitions ofNeustar andSontiq for$3,100.1 million and$642.6 million , respectively, in cash. The 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 prices over the fair values of the acquired net assets has been recorded as goodwill.
As of
assumed is substantially complete, and we expect to complete this analysis
within one year from the acquisition date. The purchase price for the VF
acquisition has been finalized.
The purchase price and valuations of the assets acquired and liabilities assumed for theNeustar andSontiq acquisitions have been finalized as ofDecember 31, 2022 . 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 determination of fair values 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 Relationships
We valued customer relationships 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. We engaged a third-party valuation specialist to assist in our analysis of the fair value of the acquired intangibles. All judgments, significant assumptions and estimates, and forecasts were either provided by or reviewed by us. While we chose to utilize a third-party valuation specialist for assistance, the fair value analysis and related valuations reflect the conclusions of management and not those of any third party. We believe the judgments and assumptions we have used are reasonable and consistent with assumptions that would be used by other marketplace participants, however such assumptions are inherently uncertain. For the VF acquisition, a change in assumptions could change the estimated fair values of the intangible assets, which could have a material impact on our consolidated financial statements.
Legal Contingencies
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.
69
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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 legal and regulatory matters 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 legal
and regulatory matters 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 except for the lawsuit filed by the CFPB referenced below,
that would not have some level of coverage by insurance after the relevant
deductible, if any, is met.
As of December 31, 2022 and 2021, we accrued $125.0 million and $85.6 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.
See Part II, Item 8 “Financial Statements and Supplementary Data – Notes to
Consolidated Financial Statements,” Note 22, “Contingencies,” for further
information.
Income Taxes
As of
deferred tax liabilities of
including net operating loss and foreign tax credit carryforwards, may be
deducted from future taxable income in computing our federal income tax
liability. Our deferred tax liability includes deferred tax assets and
liabilities resulting from net operating loss and tax credit carryforwards,
temporary differences, and unrecognized tax benefits for uncertain tax
positions.
We have made certain judgments and estimates to determine various tax amounts recorded, including future tax rates, future taxable income, whether it is more likely than not a tax position will be sustained, and the amount of the unrecognized tax benefit to record. We have deferred tax assets related to loss and credit carryforwards of$179.2 million , net of valuation allowances of$98.9 million . Our estimate of the amount of the deferred tax asset we can realize requires significant assumptions about projected revenues and income that are impacted by future market and economic conditions. We believe the judgments and estimates used are reasonable, but events may arise that were not anticipated and the outcome of tax audits may differ significantly from what is expected.
Recent Accounting Pronouncements
For information about recent accounting pronouncements and the potential impact
on our consolidated financial statements, see Part II, Item 8, "Financial
Statements and Supplementary Data - Notes to Consolidated Financial Statements,"
Note 1, "Significant Accounting and Reporting Policies."
70
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