Equifax Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Comparisons are with the corresponding 2020 periods, which were affected by the COVID-19 downturn. Equifax provides data, analytics, verification, credit information and related services through Workforce Solutions, U.S. Information Solutions (USIS), International and Global Consumer Solutions (GCS).
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $1,234.8m | $982.8m | $2,447.8m | $1,940.8m |
| Operating income | $306.0m | $166.8m | $612.6m | $302.7m |
| Operating margin | 24.8% | 17.0% | 25.0% | 15.6% |
| Net income attributable to Equifax | $215.1m | $100.2m | $416.7m | $217.1m |
| Diluted EPS | $1.74 | $0.82 | $3.38 | $1.77 |
| Cash from operating activities | Not separately stated in the cash flow statement | Not separately stated | $551.1m | $282.0m |
Revenue rose 26% in both comparison periods. Operating income and diluted EPS increased substantially; management attributed profit growth chiefly to higher revenue and lower incremental technology and data-security costs, partly offset by higher production, royalty, people and depreciation costs. Q2 revenue growth was led by Workforce Solutions and International; GCS revenue declined.
- Segment revenue, Q2: Workforce Solutions $495.7m (+40%); USIS $405.8m (+11%); International $250.9m (+39%); GCS $82.4m (-2%). International operating income recovered to $29.3m from a $6.2m loss. Workforce Solutions operating margin was 53.5%; USIS 31.1%; International 11.7%; GCS 14.5%.
- Cash flow and investment: Six-month investing cash outflow was $1,095.6m, including $861.6m for acquisitions and $235.5m of capital expenditures. Financing cash outflow was $680.3m. Cash fell to $458.1m from $1,684.6m at year-end 2020.
- Debt and liquidity: Debt carrying value was $3,901.3m, including $600.7m short-term debt/current maturities and $3,280.9m long-term debt net. The company had $1.1bn available under its revolver, no revolver borrowings or commercial paper outstanding, and reported compliance with debt covenants. Cash plus revolver capacity supported liquidity; management noted that operating cash might not cover all 2021 needs, including potential settlement payments.
- Shareholder returns: Dividends were $0.39 per share in Q2 ($0.78 for the first half). The company repurchased $69.9m of shares in the first half; $520.2m remained authorized at June 30.
Material changes and notable items
- Workforce Solutions growth was driven by verification demand, particularly mortgage and non-mortgage activity. Mortgage inquiry volumes began declining during Q2. USIS mortgage revenue fell 4% in Q2, although it increased 10% for the first half.
- International revenue grew across regions as economies recovered; reported results also benefited from foreign exchange. GCS was weaker because of lower partner revenue, partly offset by direct-to-consumer subscription growth.
- Equifax acquired Kount for $640m in February 2021, along with HIREtech, i2Verify and smaller interests/businesses. Acquisition cash outflows and acquired intangible assets and goodwill increased materially. Purchase-price allocations were not final.
- Other income for the first half was lower year over year, partly because 2020 included a $32.9m gain related to the India joint venture; 2021 included unrealized losses on the Brazil equity investment.
Outlook, risks and contingencies
The filing provides no specific quantitative earnings or revenue guidance. Management said the recovery from COVID-19 remained uncertain, although 2021 growth reflected a strong U.S. mortgage market, recovering economies, company initiatives and, to a lesser extent, acquisitions. The company expected continued COVID-19 effects and planned further cloud, technology, data and security transformation spending in the remainder of 2021, at reduced levels versus 2020.
- 2017 cybersecurity incident: The company had recorded $800.9m of legal settlement expense, net of insurance recoveries, and reported $345.0m accrued for the U.S. Consumer MDL settlement at June 30. It had paid $443.6m toward incident-related settlements. The Eleventh Circuit affirmed most of the consumer settlement but reversed class-representative incentive awards; rehearing petitions remained pending. Equifax said payment timing could extend beyond 2021 and that additional losses above accrued amounts could be material, but could not estimate them. The settlement also allows up to $125m in additional consumer-fund contributions if specified costs exhaust the initial fund.
- Other cybersecurity-related cases and investigations remained, including Canadian class actions and a U.K. Financial Conduct Authority investigation. Adverse outcomes could result in material fines, obligations or other effects.
- Management cited ongoing execution and cost demands from technology transformation, foreign-exchange movements, acquisition integration, economic conditions and mortgage-market changes. No material change to disclosed risk factors or market-risk exposure was reported. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Progress and cash-payment timing for the cybersecurity settlement, pending appeals, and exposure from unresolved claims or investigations.
- Whether strong verification, mortgage and international activity persists, particularly given the Q2 decline in mortgage inquiries and continued GCS weakness.
- Acquisition integration, final purchase-price allocations, and the returns expected from Kount and other acquisitions.
- Cash generation, capital spending, settlement payments and acquisition needs relative to cash balances, debt maturities and available revolver capacity.
- Future technology-transformation spending and its effects on operating margins, depreciation and cash flow.