Equifax Inc. — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015; the filing was signed February 24, 2016. Equifax provides consumer and business information, analytics, employment and income verification, human resources services, and consumer credit monitoring across four segments.
Financial performance
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Operating revenue | $2,663.6 million | $2,436.4 million | +9% |
| Operating income | $693.9 million | $638.2 million | +9% |
| Operating margin | 26.1% | 26.2% | Down 0.1 percentage point |
| Net income attributable to Equifax | $429.1 million | $367.4 million | +17% |
| Diluted EPS | $3.55 | $2.97 | +20% |
| Cash from operating activities | $742.1 million | $616.2 million | +$125.9 million |
| Capital expenditures | $146.2 million | $86.4 million | +$59.8 million |
Fourth-quarter 2015 revenue was $666.3 million versus $624.6 million in Q4 2014. Operating income was $176.9 million versus $165.2 million; net income attributable to Equifax was $111.9 million versus $98.0 million; diluted EPS was $0.93 versus $0.80.
Cash less capital expenditures was $595.9 million in 2015, compared with $529.8 million in 2014. Cash and cash equivalents were $93.3 million at year-end, down from $128.3 million. Total debt, net, was $1,195.2 million, down from $1,526.1 million; the reported leverage ratio was 1.26, and Equifax said it complied with its debt covenants. Current assets were $561.6 million and current liabilities were $603.8 million.
Segments and changes versus prior year
- U.S. Information Solutions: Revenue rose 8% to $1,171.3 million; operating margin improved to 41.9% from 39.0%. Growth included mortgage, auto, financial services, identity and fraud solutions.
- International: Reported revenue declined 1% to $568.5 million, while local-currency revenue increased 12%; foreign exchange reduced revenue by $70.5 million. Operating margin fell to 20.0% from 21.1% amid mix, regionalization and U.K. investment.
- Workforce Solutions: Revenue rose 18% to $577.7 million; operating margin expanded to 37.9% from 32.8%. Verification Services revenue increased 25%, supported by mortgage, auto, screening and government demand.
- Personal Solutions: Revenue rose 18% to $346.1 million, principally from direct-to-consumer reseller growth; margin declined to 27.5% from 31.8% because of higher technology and marketing expenses.
Management attributed consolidated revenue growth to organic gains across mortgage, direct-to-consumer reseller, healthcare, government and auto markets. Foreign exchange reduced consolidated revenue by $75.7 million, or 3%. SG&A increased 18%, including a $20.7 million restructuring charge; general corporate expense rose to $224.8 million from $157.9 million. Equifax recorded a $14.8 million impairment of its Brazilian BVS investment. The effective tax rate declined to 31.7% from 34.9%.
Liquidity, outlook and material items
Management said operating cash generation and credit facilities should fund anticipated working capital and other cash needs. At year-end, $852.3 million was available under the $900 million revolving facility; commercial paper outstanding was $47.2 million. Approximately 96% of debt was fixed-rate. Equifax paid $137.8 million in shareholder dividends and repurchased 2.1 million shares for $196.3 million during 2015.
Equifax had agreed to acquire Australia’s Veda Group for approximately $1.7 billion in cash plus about $188.4 million of assumed debt, with closing expected in Q1 2016; Australian and New Zealand shareholder and regulatory approvals were reported complete. The filing notes subsequent borrowings of $800 million under the term loan and $275 million under the 364-day revolver in February 2016. Equifax had also purchased Australian-dollar options to hedge part of the purchase-price exposure; it reported a $15.4 million net loss on the options in Q1 2016.
For 2016, management expected modest U.S. economic and consumer-credit growth and relatively flat to slightly lower mortgage originations. It expected challenging international conditions and foreign exchange headwinds. Long-term targets were average organic revenue growth of 6%–8%, plus 1%–2% from strategic acquisitions, with EPS expected to grow somewhat faster than revenue.
Key risks include economic and credit-market weakness; loss or increased cost of third-party data; competition and pricing pressure; system outages and cyber or data-security incidents; privacy, consumer-protection and other regulatory requirements; litigation and investigations; foreign exchange exposure; and acquisition execution and integration. The filing disclosed CFPB and Mississippi Attorney General investigations and ongoing litigation, including appeals in California bankruptcy-reporting class actions; outcomes were uncertain. Management stated that possible adverse outcomes were not expected to materially affect the financial statements, while noting that assessments could change. The independent auditor issued an unqualified opinion, and management and the auditor concluded internal control over financial reporting was effective.
Important facts for investors to verify
- Whether Veda closed on the expected timetable and how acquisition financing, integration costs, synergies and added debt affected subsequent results.
- Whether revenue and margins sustain growth, particularly in Workforce Solutions and USIS, and whether Personal Solutions’ margin pressure persists.
- How much international growth is attributable to underlying local-currency performance versus exchange-rate movements.
- Developments and potential financial consequences of CFPB, state attorney general and litigation matters, including any required accruals or changes in business practices.
- Whether cash generation, capital spending and debt levels remain consistent with management’s liquidity outlook and shareholder-return plans.