Equifax Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. Equifax provides credit and other information services, workforce verification and HR services, and consumer products. Unless noted, amounts are in U.S. dollars.
Financial performance
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Revenue | $832.2 million | $728.3 million | +14% |
| Operating income | $216.8 million | $176.2 million | +23% |
| Operating margin | 26.1% | 24.2% | +1.9 percentage points |
| Net income attributable to Equifax | $153.3 million | $102.1 million | +50% |
| Diluted EPS | $1.26 | $0.85 | +$0.41 |
| Cash from operating activities | $103.7 million | $108.1 million | −$4.4 million |
- Revenue growth reflected broad-based gains and the Veda acquisition, completed in February 2016. International revenue rose 37% to $216.2 million, including Veda; excluding Veda, local-currency International revenue grew 14%.
- All four segments grew revenue: U.S. Information Solutions (USIS) +5%, International +37%, Workforce Solutions +11%, and Global Consumer Solutions +11%.
- Operating expenses rose 11%, slower than revenue growth. Depreciation and amortization increased 28%, primarily due to Veda-related amortization. Management attributed higher operating margin to improved margins across businesses, partly offset by Veda intangible amortization.
- The effective tax rate fell to 20.6% from 33.5%. Q1 2017 results included $14.9 million, or $0.12 per diluted share, of tax benefits from newly adopted stock-compensation accounting; management also cited adjustments related to settlement of a tax audit.
Cash, debt and liquidity
- Cash and cash equivalents were $123.2 million at March 31, 2017, versus $129.3 million at December 31, 2016. Current assets were $705.2 million and current liabilities $1,201.3 million.
- Cash from operations was $103.7 million. Cash used in investing was $49.0 million, including $50.3 million of capital expenditures, partly offset by $8.6 million from an asset sale. Cash used in financing was $63.3 million. The company paid $46.9 million in shareholder dividends.
- Total debt was $2,681.8 million, including $631.8 million classified as short-term/current maturities; long-term debt, net, was $2,037.4 million. Debt net of cash was $2,558.6 million based on the balance-sheet amounts.
- Commercial paper outstanding was $356.9 million. The company reported $542.6 million available under its revolving credit facility and compliance with debt covenants. At quarter-end, 72% of debt was fixed-rate and 28% effectively variable-rate.
- Management said operating cash generation and credit facilities should be sufficient for anticipated requirements for the foreseeable future. The company held $108.9 million of cash in foreign subsidiaries; foreign transfer restrictions were not considered material to its ability to meet obligations or pay dividends.
Outlook, risks and other notable items
- For 2017, management expected modest U.S. economic and consumer-credit growth, while mortgage market volumes were expected to decline by a double-digit percentage for the full year. It expected strengthening conditions in five of its six largest international operations, with Spain growing more slowly than in 2016. Weaker foreign exchange rates were expected to weigh on reported U.S.-dollar revenue and profit.
- Longer-term targets were 6%–8% average organic revenue growth, with a further 1%–2% from strategic acquisitions; management expected EPS to grow somewhat faster than revenue over time. The filing does not provide a specific full-year 2017 revenue or EPS forecast.
- Risks include sensitivity to economic and consumer-credit activity, foreign exchange movements, litigation and regulatory matters, and debt-market conditions. Management reported no material change in risk factors from the 2016 Form 10-K.
- Equifax disclosed ongoing legal and regulatory matters. Accrued contingencies were not material, individually or in aggregate, according to the filing. A renewed settlement agreement in long-running California bankruptcy litigation was filed April 14, 2017; a preliminary-approval hearing was scheduled for May 30, 2017.
- The company did not make share repurchases under its program during the quarter; the filing reported $667.2 million remaining authorization. It increased the quarterly dividend to $0.39 per share.
- Cash from operations was affected by working-capital movements. Results also benefited from the 2017 stock-compensation tax accounting change and from nonrecurrence of 2016 Veda-related economic-hedge losses. Reported 2016 results included the Veda acquisition, making year-over-year comparisons acquisition-sensitive.
Investor verification priorities
- Assess how much International growth and future earnings depend on Veda, and distinguish acquisition effects from organic and constant-currency growth.
- Review the durability of the lower effective tax rate and separate the $14.9 million stock-compensation tax benefit and audit-related tax adjustments from recurring earnings.
- Track working-capital cash use, capital investment, and the refinancing or repayment of short-term debt and the July 2017 notes.
- Monitor mortgage-market weakness, foreign exchange exposure, and the outcomes and potential costs of the disclosed legal and regulatory matters.