Equifax Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. Equifax is a global data, analytics and technology company providing information solutions, workforce services and consumer products.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Operating revenue | $1,213.0 million | $957.9 million | +27% |
| Operating income / margin | $306.6 million / 25.3% | $135.9 million / 14.2% | +126% / +11.1 pts |
| Consolidated net income | $202.9 million | $118.8 million | +71% |
| Net income attributable to Equifax | $201.6 million | $116.9 million | +72% |
| Diluted EPS | $1.64 | $0.95 | +72% |
| Cash provided by operating activities | $143.4 million | $30.8 million | +$112.6 million |
| Cash used in investing activities | $973.5 million | $136.1 million | Use increased $837.4 million |
| Cash and cash equivalents at period end | $765.9 million | $1,684.6 million at Dec. 31, 2020 | Down $918.7 million |
Revenue growth reflected strong U.S. mortgage demand, recovering markets, company-led initiatives and, to a lesser extent, acquisitions. Foreign exchange added $19.3 million, or 2%, to consolidated revenue. Operating margin expansion reflected higher revenue and lower incremental technology and security costs, partly offset by increased royalty, production and depreciation costs. Interest expense rose to $37.2 million from $30.7 million, primarily following the $1.0 billion senior-note issuance in April 2020. Other expense/income shifted from $51.1 million of income to $0.9 million of expense, including a $32.9 million prior-year India investment gain and a $11.9 million current-quarter unrealized loss on the Brazil investment.
Revenue by segment
- Workforce Solutions: $480.9 million, up 59%; operating margin 55.1% versus 44.3%. Verification Services rose 75%, driven principally by mortgage-related demand.
- U.S. Information Solutions: $409.4 million, up 19%; margin 34.1% versus 31.4%, supported by mortgage volumes and improving non-mortgage activity.
- International: $241.3 million, up 12% reported and 3% in local currency; margin 11.5% versus 7.1%. Europe and Latin America remained comparatively weak.
- Global Consumer Solutions: $81.4 million, down 16%; margin improved to 17.2% from 13.5%. Partner revenue declined, partly offset by direct-to-consumer subscription growth.
Cash, debt and liquidity
- Cash from operations was $143.4 million. Cash capital expenditures were $113.0 million; acquisitions, net of cash acquired, used $862.0 million, principally associated with Kount and other acquisitions.
- Total debt carrying value was $4,401.4 million, including $1,100.6 million of short-term debt and current maturities and $3,279.1 million of long-term debt, net. Cash was $765.9 million. The filing reports $4.4 billion of total debt, net, at quarter-end.
- Equifax had $1.1 billion available under its revolving credit facility, with no revolver principal or commercial paper outstanding. It reported compliance with debt covenants. Debt was 93% fixed-rate.
- Current assets were $1,665.0 million and current liabilities were $2,341.7 million at March 31, 2021.
- Quarterly dividends were $0.39 per share; $34.1 million was spent on share repurchases, with $556.0 million remaining under the authorization.
Material changes, outlook and risks
- Equifax acquired Kount for $640 million in February, plus HIREtech, i2Verify and other smaller interests. Acquisition accounting allocations remained preliminary. Goodwill increased by $579.7 million during the quarter.
- Management said COVID-19 continued to affect markets and results, with future effects uncertain. Q1 results benefited from stronger U.S. mortgage activity and signs of recovery; the company did not provide quantified forward guidance in the supplied filing text.
- The company expects further technology, data and security transformation expenses and capital expenditures during the remainder of 2021, at reduced levels compared with 2020. It continued cloud migration and cost-control measures.
- For the 2017 cybersecurity incident, $345.0 million remained accrued in other current liabilities for the U.S. consumer settlement. Payment depended on final resolution of appeals; the company said payment was expected later in 2021 but could not be assured. It had paid $443.3 million through March 31. Additional losses beyond accruals were reasonably possible but could not be estimated; the ultimate impact could be material.
- Other incident-related matters remained pending, including Canadian class actions and a U.K. Financial Conduct Authority investigation. Appeals of approval of the U.S. consumer settlement could affect its resolution. The filing also identifies COVID-19 uncertainty, foreign-exchange exposure, acquisition integration and execution of technology transformation as relevant business uncertainties.
- Cash fell substantially during the quarter, primarily alongside acquisition spending. Management said operating cash flow might not cover all 2021 requirements, including potential legal payments, acquisitions and repurchases; it planned to use cash and borrowing capacity as needed.
Important facts for investors to verify
- Progress and final payment timing for the consumer settlement, pending appeals, and any additional cybersecurity-related liabilities.
- Whether acquisition results, especially Kount, sustain growth and margins, and how final purchase-price allocations affect goodwill and amortization.
- Trends in mortgage demand, non-mortgage credit activity, International recovery and Global Consumer Solutions partner revenue.
- Cash generation after acquisition spending, the scheduled 2021 debt maturities, and ongoing transformation investment needs.
- Execution and cost of the cloud, data and security transformation, alongside COVID-19 and economic conditions.