TransUnion (TRU), which made its IPO debut in mid-2015, is trading lower today despite reporting Q4 upside results this morning. In terms of quick background, you probably know TransUnion as a credit score provider, but they do more than that. TransUnion provides consumer reports, risk scores, analytical services and decisioning capabilities to businesses.
Businesses embed TRU's platform into their process workflows to assess a consumer's ability to pay for services, identify cross-selling opportunities, measure and manage debt portfolio risk, collect debt, verify consumer identities and investigate potential fraud. Consumers use its services to view their credit profiles and access analytical tools that help them understand and manage their personal information and take precautions against identity theft.
TRU is differentiated by its comprehensive and unique datasets, its technology and its analytics and decisioning capabilities. TRU believes it's the largest provider of risk and information services in the US to possess both nationwide consumer credit data and comprehensive, diverse public records data, which allows TRU to better predict behaviors, assess risk and address a broader set of business issues. TRU has deep domain expertise across a number of attractive verticals, including financial services, specialized risk, insurance and healthcare.
Businesses are increasingly using data and analytics to make decisions and manage risk more effectively, resulting in a large and rapidly growing market for TRU. Larger and more diversified datasets are now assembled faster while the breadth of analytical applications has expanded. Companies are increasingly relying on business analytics and big data technologies to help process this data. Demand for targeted data and sophisticated analytical services will continue to grow meaningfully as businesses seek real-time access to more granular views of consumer populations and more holistic views on individual consumers.
Turning to the Q4 report, non-GAAP EPS grew 14% YoY to $0.50, which was above prior guidance of $0.47-0.48. Revenue rose 16.1% year/year to $506.1 mln, which also was a good bit above prior guidance of $482-487 mln. Adjusted EBITDA came in at $196 mln, an increase of 16% YoY. That translates into a robust adjusted EBITDA margin of 38.8%, which was flat with last year. In terms of guidance for Q1, TRU expects non-GAAP EPS of $0.51-0.52, which includes a $0.05 benefit from tax reform. Revenue in Q1 is expected to be $503-508 mln. Both guidance metrics are above market expectations.
TransUnion reported a solid Q4 to cap a strong year in 2017. In fact, this marks the third consecutive year in which TRU has delivered double-digit revenue, adjusted EBITDA and adjusted EPS growth. Over those three years, adjusted EBITDA margin has expanded by about 400 basis points.
In addition to earnings, TRU also announced it will initiate a dividend which is pretty big news as well. Going forward, TRU plans to pay quarterly cash dividends at a targeted annual payout of 10% to 15% of Adjusted EPS. This equates to approximately $0.30 per share which computes as an annual yield of 0.5%. It's definitely a small dividend to start out but perhaps it will grow over time.
In sum, TRU is trading lower today despite the upside results for its Q4 report and the initiation of a dividend. The weakness could be attributable to the fact that the size of the upside is slightly less than it has been in recent quarters. Also, EBITDA margins were flat YoY which perhaps is being seen as a negative. Finally, while it's nice to see a dividend, it's a pretty small one. Investors perhaps were hoping the company would be more generous in terms of its payout.
Despite the stock trading down today, TRU looks attractive over the long term. It's in a stable and growing business, it has good growth and robust EBITDA margins. The stock has been steadily climbing since its IPO and still looks favorable despite today's pullback.