Equifax Inc. — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. Equifax provides information solutions, credit and identity services, workforce verification and related services through four segments: U.S. Information Solutions (USIS), International, Workforce Solutions and Global Consumer Solutions. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $856.7 million | $811.3 million | $1,689.0 million | $1,539.6 million |
| Operating income | $264.1 million | $225.7 million | $480.9 million | $401.9 million |
| Operating margin | 30.8% | 27.8% | 28.5% | 26.1% |
| Net income attributable to Equifax | $165.4 million | $130.9 million | $318.7 million | $233.0 million |
| Diluted EPS | $1.36 | $1.08 | $2.61 | $1.93 |
| Cash provided by operating activities | $225.4 million | $190.4 million | $329.1 million | $298.5 million |
Q2 revenue rose 6% and six-month revenue rose 10% year over year; operating income increased 17% and 20%, respectively. Broad-based revenue growth and higher margins across the businesses supported results. Six-month revenue growth also reflected the 2016 Veda acquisition. Foreign exchange reduced reported revenue by $9.7 million in Q2 and $17.2 million in the first half.
For Q2, International revenue increased 6%, USIS 8% and Workforce Solutions 10%; Global Consumer Solutions revenue fell 8%, partly because a project delivered in Q2 2016 was delivered in Q1 2017. For the first half, International grew 19% (including Veda), USIS 7%, Workforce Solutions 10% and Global Consumer Solutions 1%.
Cash, liquidity and debt
- Cash and cash equivalents were $403.9 million at June 30, 2017, versus $129.3 million at December 31, 2016.
- Six-month operating cash flow was $329.1 million; capital expenditures were $99.9 million. Cash used in investing activities was $100.9 million, compared with $1,821.4 million in the prior-year period, which included the Veda acquisition.
- Total debt outstanding was $2,844.2 million, including $516.2 million of commercial paper and $272.5 million of notes due July 2017. Equifax said it repaid the July notes on July 3 using commercial paper proceeds issued before quarter-end. The filing reports $383.3 million available under its revolving credit facility.
- Equifax was in compliance with debt covenants. Its maximum leverage covenant is 3.5-to-1.0. The company reported 68% fixed-rate and 32% effectively floating-rate debt.
- Cash dividends paid to Equifax shareholders were $93.9 million in the first half; the quarterly dividend had increased to $0.39 per share. No shares were repurchased under the repurchase program in the first half; $667.2 million remained authorized.
Changes, outlook and notable items
- Management expected modest U.S. economic and consumer-credit growth for the rest of 2017, with full-year mortgage market volumes expected to decline. It also expected modest growth in several international markets and favorable foreign-exchange comparisons in the second half.
- Long-term targets were organic revenue growth of 6%–8%, plus 1%–2% from strategic acquisitions, and EPS growth somewhat faster than revenue over time. These are long-term expectations, not specific full-year 2017 guidance.
- The lower effective tax rate—30.9% in Q2 and 26.3% for the first half, versus 34.0% and 33.8%—primarily reflected new stock-compensation tax accounting; first-half results also included tax adjustments following settlement of an audit. These benefits contributed to earnings growth.
- International operating margin improved to 19.9% in Q2 from 15.4%, reflecting lower Veda integration costs and other expense changes. The filing also cited an $8.6 million asset-sale receipt in first-half investing cash flow.
- In the California bankruptcy litigation, the court preliminarily approved a proposed monetary settlement on June 16, 2017; a final fairness hearing was scheduled for December 2017. Equifax stated that accrued legal matters were not material individually or in aggregate, while noting other litigation and regulatory matters could result in adverse judgments or penalties.
- Management said disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter. The company said there were no material changes to the risk factors in its 2016 Form 10-K.
Important facts for investors to verify
- How much of reported growth reflects organic performance versus Veda, foreign exchange and the timing of Global Consumer Solutions projects.
- Whether margin and earnings growth persist as acquisition-related amortization, integration costs and tax benefits change.
- Commercial-paper dependence, debt maturities and liquidity after repayment of the July 2017 notes.
- Final terms and financial impact of the California bankruptcy litigation settlement, and developments in other legal or regulatory matters.
- Progress against the stated long-term growth expectations and the outlook for mortgage volumes and foreign-exchange effects.