Equifax Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; compared with Q1 2021. Equifax is a global data, analytics and technology company with Workforce Solutions, U.S. Information Solutions (USIS) and International segments.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $1,363.2 million | $1,213.0 million | +12% |
| Operating income / margin | $332.4 million / 24.4% | $306.6 million / 25.3% | Income +8%; margin -0.9 percentage points |
| Net income attributable to Equifax | $221.8 million | $201.6 million | +10% |
| Diluted EPS | $1.80 | $1.64 | +10% |
| Cash from operating activities | $(198.5) million | $143.4 million | Decrease of $341.9 million |
Revenue growth outpaced operating income growth as operating expenses rose 14%, including higher service, sales and marketing, depreciation and amortization costs. The effective tax rate increased to 26.7% from 24.4%. Q1 operating cash flow was negative, primarily reflecting the $345 million consumer settlement payment made in January 2022. Cash capital expenditures were $156.5 million, versus $113.0 million a year earlier.
At March 31, cash was $200.9 million; current assets were $1,264.2 million and current liabilities $2,343.4 million. Total debt was $5,842.3 million, including $1,342.1 million classified as short-term/current maturities; long-term debt was $4,471.9 million. Commercial paper outstanding was $836.0 million, and $663.3 million was available under the revolving facility. Management said existing cash, operating cash flow, borrowing facilities and debt-market access should meet cash requirements over the next 12 months and beyond. The company was in compliance with debt covenants.
Material changes and segment performance
- Workforce Solutions: Revenue rose 33% to $649.0 million, led by verification growth, non-mortgage demand and acquisitions. Operating income increased 16% to $308.4 million, while margin fell to 47.5% from 54.5% amid higher costs and acquired-intangible amortization.
- USIS: Revenue declined 6% to $432.9 million; operating income fell 22% to $121.5 million and margin contracted to 28.1% from 33.7%. Mortgage Solutions revenue fell 20%, with transaction volumes down 24.5%; Online Information Solutions declined 2% and Financial Marketing Services declined 14%.
- International: Revenue increased 6% to $281.3 million (10% on a local-currency basis); operating income rose 24% to $37.0 million and margin improved to 13.2% from 11.2%. Foreign exchange reduced consolidated revenue by $12.6 million.
- Q1 acquisitions included Efficient Hire and Data Crédito. Acquisition purchase-price allocations were not final. Capital investment continued for technology transformation and infrastructure.
Outlook, commentary and risks
The filing provides planning assumptions, not specific full-year revenue or EPS guidance. Equifax assumed continued economic growth in 2022, but slower U.S. growth than in 2021, and modest growth in U.S. consumer credit excluding mortgage. It expected U.S. mortgage credit inquiries to decline by more than 35% on average over the remaining nine months of 2022 versus the comparable 2021 period. Management cautioned that mortgage demand is sensitive to interest and mortgage rates; the impact of COVID-19 and broader economic conditions remained uncertain.
Other notable items include a $27.8 million unrealized gain on the Brazil equity investment and a $19.5 million impairment that fully wrote off the Russia joint-venture investment; both were reflected in other income, net. These investments and other items contributed to reported other income of $11.1 million.
Cybersecurity-related matters remain a significant contingency. The 2017 incident’s U.S. Consumer Settlement became effective January 11, 2022, and the company paid $345 million in January. Equifax had previously accrued $800.9 million, net of insurance recoveries, for related matters. Canadian class actions and a U.K. Financial Conduct Authority investigation remained ongoing; the company said potential additional losses beyond accrued amounts could be material but could not be estimated. The Consumer Settlement also provides for up to $125 million in additional contributions if specified consumer costs exhaust the initial fund. A separate CFPB investigation into Equifax’s consumer-dispute process was ongoing, with outcome unknown.
Other risks highlighted include inflation, rising interest rates, foreign-exchange movements, mortgage-market contraction, cybersecurity and data protection, litigation and regulatory outcomes, and execution of the technology transformation. The filing reported no material change in disclosed risk factors, market-risk exposure or internal controls; management concluded disclosure controls were effective.
Important facts for investors to verify
- Whether mortgage-volume declines and higher rates materially affect USIS and related Workforce Solutions revenue and margins.
- Whether operating cash flow recovers after the settlement payment and the level of continuing technology-transformation capital spending.
- Debt refinancing and liquidity plans for the $500 million notes due December 2022, including commercial-paper usage and revolver availability.
- Developments in Canadian class actions, the U.K. FCA investigation and the CFPB inquiry, including any change in contingent-loss estimates or settlement exposure.
- Final purchase-price allocations and integration performance for Efficient Hire and Data Crédito, as well as the impact of Brazil valuation changes and the Russia impairment.