Equifax Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023; comparisons are with the same 2022 periods. Equifax is a global data, analytics and technology company with Workforce Solutions, U.S. Information Solutions (USIS), and International segments.
Financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $1,319.1m | $1,244.3m | $3,938.7m | $3,924.3m |
| Operating income | $246.4m | $242.9m | $688.5m | $880.0m |
| Operating margin | 18.7% | 19.5% | 17.5% | 22.4% |
| Net income attributable to Equifax | $162.2m | $165.7m | $412.9m | $588.0m |
| Diluted EPS | $1.31 | $1.34 | $3.34 | $4.77 |
| Cash provided by operating activities | $381.7m | $354.9m | $794.7m | $431.7m |
Q3 revenue grew 6%; nine-month revenue was essentially flat. Q3 operating income rose 1%, while nine-month operating income fell 22%. Cost of services, SG&A, and depreciation and amortization increased in both comparison periods. Higher interest expense and lower operating income drove the nine-month decline in net income; lower effective taxes partly offset the pressure. Effective tax rates were 13.9% in Q3 and 22.0% for nine months, versus 24.0% and 25.0%, respectively.
Margins and segment trends: Q3 operating margins were 41.8% for Workforce Solutions, 21.1% for USIS, and 12.7% for International. Nine-month margins were 41.8%, 21.0%, and 12.0%, respectively. Nine-month segment revenue changed by -3% for Workforce Solutions, +3% for USIS, and +4% for International. Mortgage-related revenue remained a notable weakness; USIS Mortgage Solutions revenue declined 19% for nine months.
Cash, debt and liquidity
- Cash and cash equivalents were $412.6m at September 30, 2023, versus $285.2m at year-end 2022.
- Nine-month operating cash flow was $794.7m; investing activities used $724.7m, including $455.6m of capital expenditures and $276.0m for acquisitions, net of cash acquired. Financing activities provided $63.5m.
- Total debt was $6.03bn, including $483.5m of commercial paper and a $700m term loan. Long-term debt, net, was $5.50bn. Interest expense rose 41% to $181.1m for nine months; the reported average cost of debt was 4.1%, versus 3.0%.
- Revolver availability was $1.016bn, with no revolver borrowings outstanding. Management said available cash, operating cash flow, credit facilities and access to debt markets should meet requirements over the next 12 months and beyond. Equifax was in compliance with debt covenants at quarter-end.
- Equifax paid $143.7m in shareholder dividends during the first nine months and maintained a quarterly dividend of $0.39 per share. No public-market share repurchases were made; $520.2m remained authorized.
Material changes, outlook and risks
- Boa Vista acquisition: On August 7, Equifax acquired the remaining interest in Brazilian credit bureau Boa Vista Serviços for consideration valued at approximately $869.6m, including $509.7m cash. The preliminary purchase-price allocation includes $407.2m of goodwill; it remains subject to adjustment. The cash portion was funded primarily with commercial paper borrowings.
- Business outlook: The filing forecasts slower U.S. GDP growth in 2023 than in 2022 and assumes U.S. mortgage credit inquiries will decline about 34% year over year. It also expects slower economic growth in certain international markets. The filing does not provide a clear consolidated revenue or EPS guidance range.
- Costs and unusual items: Q3 and nine-month results include an accrual for a $13.8m penalty paid to resolve the U.K. FCA investigation related to the 2017 cybersecurity incident. The company recorded $17.5m of restructuring charges in Q2 and a $2.3m adjustment in Q3; remaining payments were expected to be completed in Q4 2023.
- Legal and regulatory: CFPB investigations concern Equifax’s consumer disputes process, a legacy-server coding issue that affected some credit scores during a three-week period in 2022, and Workforce Solutions data accuracy and dispute handling. The company said outcomes could not be predicted. Canadian class actions related to the 2017 breach remain, though a plaintiff’s appeal to Canada’s Supreme Court was dismissed in July 2023.
- Goodwill sensitivity: No goodwill impairment was recorded. The Asia Pacific reporting unit’s estimated fair value exceeded carrying value by more than 10%, but the filing describes it as more exposed to a potential future impairment if assumptions or economic conditions weaken. Its valuation used a 10.0%–11.5% discount rate.
- Other operating risks: Management cites sensitivity to interest rates, inflation, foreign exchange, consumer credit and mortgage activity, hiring, and technology-transformation costs. Foreign exchange reduced revenue by $45.1m for the first nine months.
Important facts for investors to verify
- Whether mortgage volumes and Workforce Solutions trends improve, and whether online non-mortgage growth can offset mortgage weakness.
- Boa Vista’s finalized purchase-price allocation, integration results, financing costs, and contribution to International growth and margins.
- Developments in CFPB investigations and the remaining litigation, including any additional financial exposure.
- Asia Pacific reporting-unit performance and the assumptions supporting its goodwill valuation.
- Debt levels, refinancing needs, interest costs, and continued compliance with leverage covenants.
- Actual technology and restructuring spending and their effect on margins and cash conversion.