Equifax Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; compared with the corresponding 2022 periods. Equifax is a global data, analytics and technology company, with Workforce Solutions, U.S. Information Solutions (USIS) and International segments.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $1,317.6 million | $1,316.7 million | $2,619.6 million | $2,680.0 million |
| Operating income / margin | $236.9 million / 18.0% | $304.6 million / 23.1% | $442.2 million / 16.9% | $637.1 million / 23.8% |
| Net income attributable to Equifax | $138.3 million | $200.6 million | $250.6 million | $422.4 million |
| Diluted EPS | $1.12 | $1.63 | $2.03 | $3.42 |
| Operating cash flow | $262.1 million | $275.3 million | $413.0 million | $76.8 million |
- Q2 revenue was effectively flat year over year; six-month revenue fell 2%. Foreign exchange reduced reported revenue by $15.5 million in Q2 and $38.9 million in the first half.
- Q2 operating expenses rose 7% to $1,080.7 million. Higher service costs, SG&A and depreciation and amortization contributed to lower operating income and margins. Interest expense rose 46% in Q2 to $60.7 million; average debt cost was 4.2%, versus 2.9%.
- Six-month capital expenditures were $321.3 million in cash outflows. Operating cash flow increased year over year largely because the $345.0 million U.S. consumer class-action settlement payment made in January 2022 did not recur.
- At June 30, cash was $164.1 million; current assets were $1,315.4 million and current liabilities were $1,092.2 million. Total debt was $5,706.0 million gross ($5,672.1 million net of discounts and issuance costs); long-term debt carrying value was $5,503.0 million. Revolver availability was $1,343.6 million. The company reported compliance with debt covenants.
- Equifax issued $700 million of 5.1% notes due 2028, repaid $400 million of 3.95% notes at maturity and used other proceeds for corporate purposes, including reducing commercial paper. Debt was 85% fixed-rate and 15% variable-rate at quarter-end.
Material changes and segment trends
- Workforce Solutions: Q2 revenue declined 4% to $582.8 million and operating income fell 13% to $244.6 million. Verification Services revenue declined 6%, reflecting weakness in mortgage and consumer finance and, in Q2, talent solutions; Employer Services grew 4%.
- USIS: Q2 revenue rose 6% to $445.0 million, led by 9% growth in Online Information Solutions. Mortgage Solutions fell 18%; segment operating income declined 8% to $102.8 million and margin fell to 23.1% from 26.6%.
- International: Q2 revenue rose 1% as reported and 7% in local currency. Segment operating income increased 6% to $34.4 million; margin was 11.9%, up from 11.3%.
- Six-month general corporate expense increased 17% to $299.6 million, driven by higher people costs, restructuring charges and incentive plans. Companywide operating margin declined 6.9 percentage points for the first half.
Outlook, risks and unusual items
- Management expected U.S. GDP to grow in 2023, but more slowly than in 2022, and forecast U.S. mortgage originations to decline about 37% versus 2022. International economic growth was also expected to slow. The filing gives no clear numerical full-year revenue or earnings guidance.
- Management cited demand sensitivity to economic and consumer-credit activity, mortgage rates, hiring, marketing and foreign exchange. Ongoing spending on technology transformation and cloud infrastructure is increasing capital investment and related depreciation, amortization and production costs.
- Q2 included $17.5 million of restructuring charges ($12.4 million after tax), primarily related to headcount reductions. Other income included a $4.3 million unrealized gain on the Brazil investment and a $6.2 million gain on sale of an equity investment.
- Legal and regulatory matters include Canadian class actions and a U.K. FCA investigation related to the 2017 cybersecurity incident, plus CFPB investigations concerning consumer disputes, a legacy-system credit-score coding issue, and Workforce Solutions data accuracy and dispute handling. Outcomes were not predictable. The Supreme Court of Canada dismissed an appeal in July 2023; other purported Canadian class actions remained preliminary or stayed.
- Management said it had sufficient liquidity for the next 12 months and beyond. It also cautioned that forward-looking statements are subject to risks, including economic conditions, customer acceptance, technology and security transformation, and execution of growth strategies.
Important facts for investors to verify
- Whether margin and earnings pressure persists as operating costs, interest expense and technology-related amortization remain elevated.
- Actual mortgage-market conditions and their impact on Mortgage Solutions, Verification Services and related transaction volumes.
- Progress and cost of the technology transformation, cloud migration and associated capital expenditures.
- Developments, potential penalties or settlements in the FCA and CFPB matters and remaining litigation tied to the 2017 incident.
- Debt levels, borrowing costs, covenant compliance and liquidity following the 2028 notes issuance and planned corporate uses of proceeds.