Equifax Inc. — 2020 Form 10-K
Business context and reporting period. Equifax is a global data, analytics and technology company, with businesses in U.S. information solutions, workforce verification and HR services, international markets, and consumer credit and identity products. This annual report covers the fiscal year ended December 31, 2020; fourth-quarter figures are also noted below. Unless stated otherwise, financial amounts are in U.S. dollars.
Financial performance
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Revenue | $4,127.5 million | $3,507.6 million |
| Operating income (loss) / margin | $676.6 million / 16.4% | ($335.4) million / (9.6)% |
| Net income (loss) attributable to Equifax | $520.1 million | ($384.1) million |
| Diluted EPS | $4.24 | ($3.15) |
| Cash from operating activities | $946.2 million | $313.8 million |
| Capital expenditures | $421.3 million cash outflow | $399.6 million cash outflow |
| Cash and cash equivalents at year-end | $1,684.6 million | $401.3 million |
| Net debt at year-end | $4,378.4 million | $3,382.6 million |
Revenue rose 18%. Operating results and earnings recovered from the prior-year loss, which included an $800.9 million net charge for 2017 cybersecurity-incident legal proceedings and government investigations that did not recur in 2020. 2020 results also included $149.5 million of gains from fair-value adjustments to equity investments, principally the Brazil investment. Interest expense increased to $141.6 million from $111.7 million, reflecting higher debt. The effective tax rate was 23.2%, versus 8.6% in 2019.
Fourth quarter: Revenue was $1,118.5 million, operating income $169.5 million, net income attributable to Equifax $74.5 million, and diluted EPS $0.61. The company’s voluntary, retrospective pension-accounting change reduced reported fourth-quarter net income by $20.0 million, or $0.16 per diluted share.
Segment results
| Segment | 2020 revenue | Change vs. 2019 | 2020 operating margin |
|---|---|---|---|
| U.S. Information Solutions | $1,482.5 million | +16% | 31.3% |
| Workforce Solutions | $1,437.9 million | +51% | 48.7% |
| International | $862.1 million | (6)% | 7.7% |
| Global Consumer Solutions | $345.0 million | (4)% | 10.7% |
U.S. mortgage activity was a major growth driver: Mortgage Solutions revenue increased 46%, and Workforce Solutions Verification Services revenue increased 58%. Workforce Solutions Employer Services also benefited from higher unemployment-claims management revenue. COVID-19-related weakness and foreign exchange weighed on international results; consumer and commercial activity also declined in several markets.
Liquidity, debt and capital allocation
- Year-end cash was $1.7 billion; $1.1 billion was available under the $1.1 billion revolving facility, with no revolver or commercial-paper borrowings outstanding.
- Total debt, net, was $4.4 billion, including $1.1 billion classified as short-term/current maturities. Approximately 93% of debt was fixed-rate; the weighted-average cost of debt was 3.5%.
- The company issued $1.0 billion of senior notes in April 2020 and used proceeds primarily to repay receivables-facility and revolver borrowings. It terminated its receivables funding facility in November.
- Operating cash flow increased to $946.2 million. Investing cash outflow was $492.7 million, including $421.3 million of capital expenditures; financing cash inflow was $810.8 million.
- Dividends were $1.56 per share. No public-market share repurchases were made in 2020; $590.1 million remained authorized. Management anticipated continuing quarterly dividends, subject to board approval and business conditions.
Outlook, risks and unusual items
- Management said the pandemic’s future effect remained uncertain. U.S. mortgage-related revenue and unemployment-claims services supported growth, while most international markets and many non-mortgage U.S. verticals faced declines. Management expected pandemic effects to continue while health and economic conditions remained unsettled.
- Equifax expected additional security and technology-transformation expenses and capital expenditures in 2021, but at reduced levels compared with 2020. The filing provides no specific quantified revenue or earnings guidance.
- The company continued a major cloud and technology transformation. Execution, customer migration, system resilience, third-party cloud reliance, security, and the expected costs and benefits are material risks.
- The 2017 data breach remains a significant legal, regulatory, financial and reputational risk. The consumer settlement provides for a $380.5 million fund and up to a further $125.0 million for eligible unreimbursed consumer costs. Appeals of the U.S. consumer settlement remained pending. Equifax reported $439.3 million of settlement payments made through 2020 and expected a further $346.7 million contribution after final resolution of the appeals, while noting timing was uncertain. Other incident-related proceedings also remained open.
- At year-end, $355.2 million was accrued for unpaid losses associated with certain breach-related proceedings and investigations. The company said it could not estimate potential losses above amounts accrued. Its $125 million cybersecurity insurance limit had been fully reimbursed and was inadequate to cover total losses incurred to date.
- Goodwill totaled $4.5 billion. No impairment was recorded, but Asia Pacific’s estimated fair value exceeded carrying value by less than 5%; management identified it as potentially at risk of future impairment.
- After year-end, Equifax completed its approximately $640 million cash acquisition of Kount on February 10, 2021. The filing said purchase accounting was incomplete.
The company adopted a retrospective change in pension accounting in the fourth quarter of 2020, recognizing plan remeasurement gains and losses in earnings. Auditors issued unqualified opinions on the financial statements and internal control over financial reporting; management and the auditor concluded internal control was effective as of December 31, 2020.
Important facts for investors to verify
- Track whether mortgage-driven growth and strong Workforce Solutions results persist as lending, employment and unemployment-claims activity normalize.
- Monitor international recovery, currency effects, and the Asia Pacific goodwill cushion and impairment assumptions.
- Verify resolution of consumer-settlement appeals, timing and amount of remaining payments, and outcomes of other breach-related litigation and investigations.
- Assess delivery, spending, security and service reliability in the cloud transformation, along with customer migration and realized benefits.
- Review 2021 debt maturities, leverage and covenant headroom, liquidity after settlement payments, and the funding of Kount and other investment priorities.
- When comparing periods, account for the 2019 breach-related charge, 2020 equity-investment gains, restructuring costs, and retrospective pension-accounting revisions.