Equifax Inc. Q1 2009 Financial Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2009. Equifax Inc. is a global provider of information solutions, employment verification, and human resources business process outsourcing. The company operates in the U.S., Canada, Europe, and Latin America, serving financial services, retail, and government sectors. As of March 31, 2009, there were 126.2 million shares of common stock outstanding.
Key Financial Metrics
| Metric | Q1 2009 | Q1 2008 |
|---|---|---|
| Operating Revenue | $452.9 million | $503.1 million |
| Operating Income | $102.7 million | $126.2 million |
| Operating Margin | 22.7% | 25.1% |
| Net Income (Attributable to Equifax) | $54.4 million | $65.7 million |
| Diluted EPS | $0.43 | $0.50 |
| Cash from Operating Activities | $44.5 million | $76.5 million |
| Total Debt (Net) | $1,230.0 million | $1,387.1 million |
| Cash and Cash Equivalents | $60.0 million | $85.0 million |
| Available Credit Facilities | $440.8 million | N/A |
Material Changes vs. Prior Period
- Revenue Decline: Operating revenue decreased 10% ($50.2 million) year-over-year. Approximately 6% of the decline was due to unfavorable foreign currency translation, while the remainder was driven by economic weakness in the U.S., U.K., and Canada.
- Segment Performance:
- USCIS: Revenue down 10% due to lower consumer lending activity, partially offset by a 45% increase in Mortgage Solutions revenue.
- International: Revenue down 22%, heavily impacted by currency fluctuations and economic weakness in the U.K. and Canada.
- TALX: Revenue increased 10% and operating income rose 48%, driven by higher unemployment claims activity and mortgage refinancing.
- Restructuring: The company recorded an $8.4 million restructuring charge (net of tax: $5.4 million) related to approximately 300 headcount reductions to manage expenses in a weak economy.
- Debt Reduction: Total consolidated debt decreased by $157.1 million (11%) due to lower borrowing levels and a gain on the repurchase of $7.5 million in senior notes.
Outlook, Risks, and Management Commentary
- Management Strategy: Management is focusing on expense reduction, maintaining operating margins, and realigning resources for strategic objectives despite slowing global economic growth.
- Liquidity: The company maintains a strong financial position with $440.8 million available under committed credit facilities, including an $850 million Senior Credit Facility expiring in July 2011. The leverage ratio was 2.01, well below the 3.5 covenant limit.
- Capital Allocation: The company repurchased 0.4 million shares for $9.1 million and paid dividends of $0.04 per share. Approximately $149.1 million remains authorized for future share repurchases.
- Risks and Contingencies:
- Legal Proceedings: Ongoing litigation includes the California Bankruptcy Litigation (settlement pending court approval), Harris Litigation (class certification for five states), and Gillespie Litigation (class certification for NJ/NC).
- Tax Matters: The Canada Revenue Agency has asserted additional tax liabilities for 1995–2000 ranging from $6.9 million to $15.3 million plus interest; Equifax intends to contest these claims.
- Headquarters Lease: Equifax committed to purchasing its Atlanta headquarters for $29.0 million in February 2010, creating a new capital lease obligation.
Key Facts for Investor Verification
- Verify the impact of foreign currency translation on the International segment, which accounted for a significant portion of the revenue decline.
- Monitor the status of the California Bankruptcy Litigation settlement and potential damage claims.
- Assess the sustainability of the TALX segment's growth given its reliance on unemployment claims and government services.
- Review the company's ability to maintain liquidity and access capital markets given the economic environment and credit rating stability (BBB+/Baa1).
- Confirm the execution of the $29.0 million headquarters building purchase scheduled for February 2010.