Equifax Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; comparisons are with the corresponding 2021 periods. Equifax is a global data, analytics and technology company, reporting through Workforce Solutions, U.S. Information Solutions (USIS) and International.
Financial performance and liquidity
| Metric | Q2 2022 | Six months 2022 |
|---|---|---|
| Revenue | $1,316.7 million, up 7% | $2,680.0 million, up 9% |
| Operating income / margin | $304.6 million / 23.1%; margin down 1.7 points | $637.1 million / 23.8%; margin down 1.2 points |
| Net income attributable to Equifax | $200.6 million, down 7% | $422.4 million, up 1% |
| Diluted EPS | $1.63, down 6% | $3.42, up 1% |
| Cash from operating activities | $275.3 million | $76.8 million, versus $551.1 million |
Q2 revenue growth was led by Workforce Solutions, partly offset by USIS declines; foreign exchange reduced reported revenue by $23.0 million. Six-month foreign exchange impact was a $35.6 million revenue reduction. Operating expenses grew faster than revenue, driven by service costs and higher depreciation and amortization, including costs from acquisitions and technology investment. Q2 interest expense increased to $41.6 million from $34.9 million, while the effective tax rate rose to 23.9% from 22.1%.
At June 30, cash was $223.6 million. Total debt was $5.712 billion, including $1.612 billion classified as short-term debt and current maturities; long-term debt, net, was $4.074 billion. Revolver availability was $788.6 million, with no revolver borrowings. The company reported covenant compliance. Six-month operating cash flow was reduced by a $345 million consumer settlement payment and higher working capital. Cash capital expenditures were $315.4 million, up from $235.5 million a year earlier.
Material changes and segment results
- Workforce Solutions: Revenue increased 21% in Q2 and 27% year to date; operating income rose 6% and 11%, respectively. Verification Services grew strongly, while mortgage-related activity weakened. Segment margins fell 6.8 points in both comparison periods, partly due to higher amortization, royalties, people and production costs.
- USIS: Revenue declined 8% in Q2 and 7% year to date; operating income fell 18% and 20%. Mortgage Solutions revenue dropped 25% in Q2 as mortgage credit inquiries fell 33%. Higher interest rates and lower mortgage activity also pressured online information revenue and margins.
- International: Reported revenue rose 3% in Q2 and 4% year to date; local-currency growth was 11% in both periods. Foreign exchange was a significant offset. Q2 operating income declined 3%, while six-month operating income increased 10%.
- Gross debt increased from $5.325 billion at year-end 2021, while interest expense rose year over year. The company used commercial paper and operating cash to fund obligations and acquisitions.
Outlook, commentary and risks
The filing provides planning assumptions rather than specific consolidated revenue or earnings guidance. Management’s 2022 assumptions include continued economic growth, but at a slower pace than 2021, modest growth in consumer credit excluding mortgages, and a U.S. mortgage market decline of more than 46% on average for the second half of 2022 versus the prior-year period. Management says demand is sensitive to economic activity, consumer credit and hiring trends, and notes uncertainty around COVID-19, inflation and rising interest rates.
Unusual items include a $19.5 million first-quarter impairment of the Russia joint-venture investment, which Equifax intends to exit; a $34.2 million Q2 unrealized loss on its Brazil equity investment; and a $27.5 million gain from selling two equity investments in Q2. The 2017 cybersecurity incident remains a material contingency: the U.S. consumer settlement became effective in January 2022, and Equifax may contribute up to an additional $125 million to the restitution fund if specified costs exhaust it. Canadian class actions, a U.K. FCA investigation, and a CFPB investigation into consumer disputes remain unresolved. The company says additional losses beyond accrued amounts are reasonably possible but cannot currently be estimated; adverse outcomes could be material.
Equifax stated that its disclosure controls were effective and that there had been no material change in internal control over financial reporting during the quarter. It reported no material change in the risk factors in its 2021 Form 10-K.
Important facts for investors to verify
- Whether mortgage-market weakness, especially the stated second-half decline assumption, further affects USIS and Workforce Solutions growth and margins.
- How working-capital movements, cybersecurity-related payments and elevated capital spending affect cash generation in the second half.
- Debt refinancing and liquidity needs, including the $500 million notes due December 2022 and the company’s reliance on commercial paper.
- Developments in the Canadian class actions, FCA and CFPB investigations, and any further cybersecurity-related payments or accruals.
- Further changes in the Brazil investment value, foreign-exchange effects, and the final purchase-price allocations for 2022 acquisitions.