Equifax Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are to Q1 2022 unless otherwise noted. Equifax provides data, analytics, information solutions and workforce services across the U.S. and international markets.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $1,302.0 million | $1,363.2 million | Down 4% |
| Operating income / margin | $205.4 million / 15.8% | $332.4 million / 24.4% | Income down 38%; margin down 8.6 points |
| Net income attributable to Equifax | $112.4 million | $221.8 million | Down 49% |
| Diluted EPS | $0.91 | $1.80 | Down 49% |
| Cash from operating activities | $150.9 million | $(198.5) million | Improved $349.4 million |
| Capital expenditures, cash basis | $158.3 million | $156.5 million | Up $1.8 million |
Operating expenses rose 6% to $1,096.6 million, including higher service costs, personnel costs, depreciation and amortization. Interest expense increased to $57.6 million from $39.7 million; the effective tax rate fell to 25.4% from 26.7%. The operating cash-flow improvement primarily reflects the absence of the $345 million consumer class-action settlement payment made in January 2022.
Segments and material changes
- Workforce Solutions: Revenue fell 8% to $596.3 million and operating income fell 19% to $248.7 million. Verification Services declined 11%, chiefly from weaker mortgage-related activity; Employer Services grew 4%.
- U.S. Information Solutions: Revenue declined 3% to $421.7 million; operating income decreased 35% to $78.6 million. Mortgage Solutions revenue fell 23%, while Online Information Solutions was down 1% and Financial Marketing Services grew 4%.
- International: Revenue increased 1% to $284.0 million, but operating income declined 12% to $32.7 million. Local-currency revenue grew 9%; foreign exchange reduced reported revenue by $23.4 million. Europe revenue declined 12%, while Latin America grew 17%.
Consolidated revenue was also reduced by foreign exchange, which had a reported negative impact of $23.4 million. Higher people, cloud, software, royalty and technology-transformation costs contributed to margin pressure.
Financial position and liquidity
- At March 31, 2023, cash was $232.5 million; total debt was $5.831 billion, including $815.1 million classified as short-term or current maturities. Long-term debt was $4.988 billion.
- Revolver availability was $918.4 million. Outstanding borrowings included $406.2 million of commercial paper, $175.0 million under the Revolver and $700.0 million under the term loan. The company reported compliance with debt covenants.
- Current assets were $1.384 billion and current liabilities were $1.792 billion. Management said cash, operating cash flow, credit facilities and access to debt markets should be sufficient to meet requirements for the next 12 months and beyond.
- Cash dividends were $0.39 per share, or $47.9 million. No open-market share repurchases were made; $520.2 million remained authorized.
Outlook, risks and contingencies
Equifax expected slower U.S. economic growth in 2023 and forecast U.S. mortgage originations to decline about 32% versus 2022. Management also anticipated slower GDP growth in certain international markets. The filing provides no specific company-wide revenue or earnings guidance. Mortgage activity, interest rates, inflation, consumer credit activity, hiring, foreign exchange, and execution and costs of the technology transformation are important business sensitivities.
Legal and regulatory matters include Canadian class actions related to the 2017 cybersecurity incident, a U.K. Financial Conduct Authority investigation, and CFPB investigations into consumer dispute handling and a legacy-server coding issue that affected some credit-score calculations for a three-week period in 2022. Equifax said the outcomes are not predictable. The company also disclosed routine legal matters and outsourcing agreements that may carry significant termination fees in certain circumstances. The filing reported no material change to the risk factors in its 2022 Form 10-K.
Important facts for investors to verify
- Whether mortgage-market weakness and the projected 2023 decline in originations continue to pressure Verification Services, USIS revenue and margins.
- Whether cost growth, technology investment and higher borrowing costs continue to weigh on operating profitability and earnings.
- Progress and potential financial exposure from the CFPB matters, Canadian class actions and FCA investigation; outcomes and any related accruals are uncertain.
- Debt levels, refinancing needs, revolver availability and compliance with the amended leverage covenants.
- How much reported international growth is sustained in local currencies after foreign-exchange effects.