Equifax Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012. Unaudited consolidated financial statements; comparisons are with Q1 2011 unless noted. Equifax provides consumer and commercial information solutions, workforce services, and consumer products across U.S. and international markets.
Financial performance
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Revenue | $522.7 million | $472.6 million | +11% |
| Operating income | $129.0 million | $109.1 million | +18% |
| Operating margin | 24.7% | 23.1% | +1.6 percentage points |
| Net income attributable to Equifax | $71.5 million | $57.3 million | +25% |
| Diluted EPS | $0.58 | $0.46 | +27% |
| Cash from operations | $48.3 million | $23.1 million | +$25.2 million |
| Capital expenditures | $20.2 million | $26.2 million | Down $6.0 million |
Cost of services rose 5% to $201.2 million; selling, general and administrative expense increased 17% to $151.1 million, including higher compensation, incentive and corporate infrastructure costs. Depreciation and amortization declined 3% to $41.4 million. Interest expense was unchanged at $13.8 million. The effective tax rate fell to 36.8% from 37.9%, primarily due to expected foreign tax benefits.
Segments and material changes
- U.S. Consumer Information Solutions: Revenue rose 20% to $217.7 million; operating income increased 29% to $79.4 million and margin expanded to 36.5%. Growth reflected higher credit decision transactions and mortgage refinancing activity.
- International: Revenue fell 5% to $121.0 million, primarily because Brazil was deconsolidated in 2011, reducing year-over-year revenue by $19.3 million. Excluding Brazil, revenue increased 12% as reported; operating margin rose to 31.8%.
- TALX Workforce Solutions: Revenue grew 14% to $113.7 million and operating income rose 20% to $26.2 million, led by verification services and refinancing-related demand.
- North America Personal Solutions: Revenue increased 11% to $49.5 million; operating income increased 10% to $14.0 million. Margin eased to 28.3%, partly due to advertising expense.
- North America Commercial Solutions: Revenue was nearly flat at $20.8 million, while operating income declined 32% to $3.5 million. Project-oriented marketing revenue weakened and operating expenses increased as the business continued strategic investment.
Brazil’s 2011 merger and deconsolidation also affected comparisons: reported consolidated revenue growth was 11%, while revenue excluding Brazil increased 15%. Foreign exchange outside Brazil reduced Q1 2012 revenue by approximately $3.0 million. General corporate expense increased 49% to $32.6 million, attributed to the timing of management equity grants, incentive compensation and corporate investment.
Cash, debt and liquidity
- Cash and cash equivalents were $132.7 million at March 31, 2012, versus $127.7 million at year-end 2011; $112.3 million was held in foreign subsidiaries.
- Current assets were $475.1 million and current liabilities were $272.9 million. Cash from operations was $48.3 million; investing activities used $20.2 million and financing activities used $30.7 million.
- Total debt was $969.0 million, including $17.0 million of short-term debt and current maturities; reported long-term debt, net, was $965.3 million. No commercial paper or revolving-facility borrowings were outstanding at quarter-end.
- The $500 million revolving credit facility had $498.6 million available and expires in February 2015. The leverage ratio was 1.51 against a maximum of 3.5; Equifax reported compliance with debt covenants.
- Quarterly dividends increased to $0.18 per share from $0.16. Approximately $112.1 million remained authorized for future share repurchases.
Outlook, risks and unusual items
Management expected modest-to-moderate economic growth in served markets during 2012. It cited ongoing uncertainty in lending and home values, and expected mortgage refinancing activity to decline over the year, with no near-term indicators of recovery in home-sale mortgage originations. Management’s longer-term targets were 6%–8% average annual organic revenue growth, plus 1%–2% from strategic acquisitions, with EPS growth somewhat faster than revenue; these are outlook statements, not quarterly guidance.
Management said operating cash generation and available credit were expected to fund anticipated needs for the foreseeable future. Risks include economic and lending conditions, mortgage market cyclicality, foreign exchange, regulatory developments, litigation, and the ability to maintain access to funding. The filing reported no material change in risk factors or market-risk exposure. Legal matters include pending appeals in the California bankruptcy litigation; management did not expect other pending litigation, individually or in aggregate, to have a material financial impact, while noting outcomes remain uncertain. The filing also describes a potential CSC purchase option, estimated internally at $650–$750 million as of December 31, 2011, and a commitment to make up to $55 million available to BVS; no BVS borrowings were outstanding at quarter-end.
Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether strong Q1 consumer and mortgage-related demand, especially refinancing, persists as management expects refinancing to moderate.
- How much future reported growth is affected by Brazil’s deconsolidation, currency movements and performance in other international markets.
- Whether rising compensation, corporate costs and investment spending affect margins, particularly in North America Commercial Solutions.
- Debt maturities, borrowing availability, covenant compliance and cash held in foreign subsidiaries.
- Developments in the CSC option, BVS funding commitment and pending litigation, including the California bankruptcy case appeals.