Equifax Inc. — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. The filing also reports fourth-quarter results. Amounts are in U.S. dollars unless noted.
Business context and reporting period
Equifax provides consumer and commercial information, analytics and decisioning services, employment and income verification, human-resources outsourcing, and consumer credit and identity-protection products. It reports four segments: U.S. Information Solutions (USIS), International, Workforce Solutions, and North America Personal Solutions. The largest client accounted for 2% of revenue; 74% of 2014 revenue was generated in the U.S.
In 2014, Equifax acquired U.K.-based TDX Group, which specializes in debt collections and recovery management, and Forseva, a credit-management software provider, for a combined purchase price of $338.8 million. The company also reorganized its commercial-solutions reporting structure; prior-period segment figures were recast.
Financial results and key metrics
| Metric | FY 2014 | FY 2013 |
|---|---|---|
| Operating revenue | $2,436.4 million | $2,303.9 million |
| Operating income | $638.2 million | $611.2 million |
| Operating margin | 26.2% | 26.5% |
| Net income attributable to Equifax | $367.4 million | $351.8 million |
| Diluted EPS | $2.97 | $2.84 |
| Cash from operating activities | $616.2 million | $569.0 million |
| Capital expenditures | $86.4 million | $83.3 million |
| Total debt, net | $1,526.1 million | $1,442.0 million |
Fourth-quarter 2014 revenue was $624.6 million, operating income $165.2 million, net income attributable to Equifax $98.0 million, and diluted EPS $0.80. In fourth-quarter 2013, the comparable figures were $578.5 million, $154.1 million, $76.7 million, and $0.62, respectively; 2013 quarterly net income included discontinued operations.
At year-end, cash and cash equivalents were $128.3 million and current liabilities were $823.1 million. Equifax had $368.8 million available under its $750 million revolving credit facility, no revolver borrowings, and $379.7 million of commercial paper outstanding. Its leverage ratio was 1.74 against a maximum covenant of 3.5; the company reported compliance with debt covenants. Approximately 75% of debt was fixed-rate.
Material changes versus the prior comparable period
- Annual revenue rose 6%, while operating income rose 4%; the operating margin declined 0.3 percentage points.
- Growth reflected TDX and other acquisitions and strategic initiatives, partly offset by lower mortgage activity. Foreign exchange reduced 2014 revenue by $34.9 million.
- International revenue increased 16% as reported, substantially reflecting TDX, but segment operating income fell 11% and margin declined to 22.4% from 29.2%. Acquisition-related amortization and inflation pressures in Argentina weighed on profitability.
- USIS revenue grew 2%; online information revenue rose 4%, while mortgage solutions revenue declined 8%. Workforce Solutions revenue increased 3% and operating margin rose to 32.8% from 30.1%.
- Operating cash flow increased $47.2 million. Investing cash outflow rose to $429.3 million, primarily reflecting acquisitions. Equifax repurchased 3.9 million shares for $301.6 million and paid $121.2 million in shareholder dividends.
Outlook, commentary, risks and unusual items
- Management expected modest U.S. economic and consumer-credit growth in 2015, with modest mortgage-origination growth concentrated largely in the first half. It cited challenging international conditions and expected foreign-exchange weakness to reduce reported revenue and profit.
- Long-term targets were 6%–8% average organic revenue growth, plus 1%–2% from strategic acquisitions, with EPS expected to grow somewhat faster than revenue. Management expected a 2015 effective tax rate of 35%–36%.
- Major risks include privacy, consumer-protection and data-security obligations; cyber incidents or loss of access to external data; regulatory changes; competition and pricing pressure; economic and mortgage-market weakness; foreign-exchange exposure; acquisition integration; and refinancing or credit-rating risk.
- Equifax was cooperating with investigations by a multistate group of attorneys general and the CFPB concerning consumer-reporting business practices. The filing states that outcomes could not be predicted. Other litigation included ongoing class-action proceedings relating to bankruptcy reporting. The company said possible adverse outcomes were not expected to materially affect consolidated financial statements, but that assessment could change.
- A $7.9 million third-quarter settlement of a software-license dispute and TDX-related amortization and costs pressured margins. The filing also describes a $17.0 million impairment of the Brazilian Boa Vista investment in 2013, with no further impairment recorded in 2014.
- Year-end pension and postretirement liabilities increased, with the pension funded-status deficit reported at $169.0 million. The 2014 internal-control audit excluded TDX, acquired during the year; management and the auditor nevertheless concluded that Equifax’s included controls were effective.
Important facts for investors to verify
- Whether TDX delivers the expected growth and whether its acquisition-related costs and amortization moderate over time.
- Developments, potential remedies, costs or penalties arising from CFPB, state attorneys general and litigation matters.
- Mortgage-market trends, International segment margins, and the effect of currency movements, particularly in Latin America.
- Commercial-paper refinancing needs, debt maturities, covenant headroom and the effect of continued share repurchases and dividends on leverage.
- Whether management’s 2015 assumptions and long-term organic-growth and acquisition targets are achieved; these are forward-looking expectations, not guarantees.