Equifax Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Equifax is a global data, analytics and technology company, with four reporting segments: Workforce Solutions, U.S. Information Solutions (USIS), International, and Global Consumer Solutions (GCS).
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $1,222.9 million | $1,068.3 million | $3,670.7 million | $3,009.1 million |
| Operating income | $273.2 million | $204.4 million | $885.8 million | $507.2 million |
| Operating margin | 22.3% | 19.1% | 24.1% | 16.9% |
| Net income attributable to Equifax | $205.4 million | $228.5 million | $622.1 million | $445.7 million |
| Diluted EPS | $1.66 | $1.86 | $5.04 | $3.63 |
| Operating cash flow | $398.4 million | $367.0 million | $949.5 million | $649.0 million |
Q3 revenue grew 14% year over year and nine-month revenue grew 22%. Q3 operating income rose 34%, while Equifax-attributable net income declined 10%, mainly because the prior-year quarter included a $129.9 million gain from the fair-value adjustment of the Brazil investment. For the first nine months, operating income increased 75% and Equifax-attributable net income increased 40%.
For the first nine months, cash used in investing was $1,440.3 million, including $1,108.9 million for acquisitions and $332.9 million in capital expenditures. Cash provided by financing was $842.4 million. Capital expenditures including accruals were reported as $345.9 million in the KPI table.
Segments and material changes
- Workforce Solutions: Revenue increased 35% in Q3 and 44% year to date, led by Verification Services growth. Q3 operating margin declined to 49.8% from 51.3%; nine-month margin improved to 52.7% from 48.6%.
- USIS: Revenue was approximately flat in Q3 and up 10% year to date. Q3 Mortgage Solutions revenue fell 17% amid lower mortgage inquiry volumes; Q3 segment operating margin decreased to 30.1% from 33.3%.
- International: Revenue increased 13% in Q3 and 20% year to date, including positive foreign-exchange effects. Nine-month operating margin increased to 11.5% from 5.6%.
- GCS: Revenue decreased 6% in Q3 and 8% year to date, mainly due to lower partner revenue. Direct-to-consumer subscription performance grew.
Management attributed growth to Workforce Solutions, recovering international economies, company initiatives, acquisitions and, in part, U.S. mortgage activity. Mortgage inquiry volumes had begun declining in Q2 and continued to decline in Q3. Cost of services and depreciation and amortization increased, including from production and people costs, cloud usage, technology transformation spending, and acquired intangible amortization. Lower incremental technology and data-security costs partly offset expense growth.
Liquidity, debt and capital allocation
- At September 30, 2021, cash and cash equivalents were $2,025.5 million. Total debt was $5,501.1 million, including $500.0 million of commercial paper, a $700.0 million term loan, and long-term notes. The balance sheet reported $4,969.4 million of long-term debt, net of current maturities and issuance costs.
- Equifax had $1.0 billion available under its $1.5 billion revolving credit facility, with no revolver borrowings outstanding; the company also had $500.0 million of commercial paper outstanding. It reported compliance with debt covenants.
- In August, Equifax issued $1.0 billion of 2.35% senior notes due 2031 and refinanced its credit facilities, entering a new $1.5 billion revolver and $700.0 million term loan, both maturing in 2026. At quarter-end, 78% of debt was fixed-rate and 22% effectively variable-rate.
- Equifax paid $142.6 million in shareholder dividends during the first nine months and repurchased $69.9 million of stock. The quarterly dividend was $0.39 per share; $520.2 million remained available under the repurchase authorization.
Outlook, risks and unusual items
- The filing gives no numerical earnings or revenue guidance. Management said COVID-19’s future effects on markets and results remained uncertain, while expecting the pandemic to continue affecting the business. It highlighted continued investment in cloud technology, data and security transformation, with further 2021 expenses and capital expenditures expected at reduced levels compared with 2020.
- On October 1, 2021, after quarter-end, Equifax acquired Appriss Insights for approximately $1.825 billion in cash. The company expected to fund the acquisition using available cash and borrowing capacity; purchase accounting was incomplete at filing.
- Cybersecurity incident claims and investigations related to the 2017 breach remain a material contingency. Equifax had accrued $800.9 million in settlement expenses, net of insurance recoveries, and reported $345.0 million outstanding for the U.S. Consumer MDL settlement. A Supreme Court petition concerning settlement approval remained pending; additional losses beyond accrued amounts were reasonably possible but not estimable. Management said settlement payments could occur later in 2021 or early 2022, subject to appeals.
- Five Canadian class actions and other breach-related matters remained unresolved; the U.K. Financial Conduct Authority investigation was ongoing. The filing states that adverse outcomes could materially affect results, financial condition or cash flows.
- The annual goodwill impairment test found no impairment, but management identified Asia Pacific as more exposed to possible future impairment because of its comparatively smaller fair-value cushion and sensitivity to economic recovery and execution assumptions.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. No material changes to the risk factors in the 2020 Form 10-K were reported.
Important facts for investors to verify
- Whether the U.S. Consumer MDL settlement receives final resolution and whether any additional breach-related liabilities arise beyond the $345.0 million accrued balance.
- How the $1.825 billion Appriss Insights acquisition is financed, its purchase-price allocation, and its contribution to earnings and leverage.
- Whether Workforce Solutions growth and International recovery continue, and whether mortgage-related declines and GCS revenue pressure persist.
- Whether technology transformation, cloud and security spending, acquisition-related amortization, and debt costs affect margins and cash generation.
- Whether COVID-19 conditions or changes in Asia Pacific performance affect forecasts, liquidity, or goodwill impairment assumptions.